JD.com Inc, China’s second largest e-commerce company in terms of sales, will buy a 10-percent stake in Chinese supermarket chain Yonghui Superstores Co. Ltd. for 4.3 billion yuan ($700 million), the company revealed in a second quarterly financial report on Friday.
Under the terms of the deal, JD.com will have the right to nominate two directors, including one independent director, on Yonghui's board, according to a report from the Wall Street Journal.
The two companies will also cooperate in supply chain management through joint procurement and explore opportunities in the online-to-offline (O2O) sector, wherein consumers use their smartphones to order offline services from food deliveries to leisure and entertainment deals.
Cooperating with Yonghui is part of JD's offline-to-online plan, which is of key strategic significance compared with other O2O projects, JD's CFO Huang Xuande told the media in a post-earnings conference call.
Fuzhou-based Yonghui, which had 36.7 billion yuan ($5.9 billion) in sales in 2014, entered the Forbes Asia's list of Fabulous 50 Companies for the first time this year. The company is run by billionaire Zhang Xuansong, a high-school dropout who started his business selling beer but later shifted to fresh meat and seafood, a strategy that has proven to be successful in southern China.
Yonghui is one of China's top providers of fresh products, but apparently its 350 stores cannot cover the national market, said Huang, adding that as a result, there is ample potential for the two sides to cooperate, as Yonghui has suppliers and inventories while JD.com has a wide logistics network.
JD has already hired thousands of part-time delivery staff to operate a wider delivery network, which lower the logistics cost and make deliveries more efficient, Liu Xuwei, an analyst with market research firm Analysys International, told the Global Times on Sunday.
As of Friday, there are over 50,000 part-time delivery staff registered on JD's logistics platform, with increasing orders, Liu Qiangdong, JD.com's founder and CEO, said during the conference call.
Liu said that these part-time staff mainly carry orders from nearby stores to customers as part of the collaborative project called "JD to Your Front Door" between JD.com and supermarkets.
Although fresh food usually does not provide high profit margins, customers buy it often, he added, noting that gaining customers through fresh food purchases will lead to a large amount of visits to JD.com's platform.
JD.com, a distant rival to the Chinese e-commerce giant Alibaba Group, is investing heavily in offline operations to bolster its Internet platform.
Over the weekend, the company reported a 61-percent year-on-year rise in quarterly revenue, topping expectations by a jump in the number of shoppers and goods purchased through its platforms, according to its financial report.
Second-quarter revenue of 45.9 billion yuan ($7.4 billion) also surpassed the average estimate of 44.45 billion yuan from Reuters.
But the company's growth rate is expected to slow down in the third quarter. JD said that it foresees its third-quarter revenue to reach 43.2 billion to 44.7 billion yuan, a 49-percent to 54-percent rise from the previous year.
The company also posted a net loss of 510.4 million yuan, a slight decrease from 583 million yuan in the past year despite the leap in revenue.