'Imminent Sale' Homeplus Express... Rumors of Acquisition by Chinese Ali Emerge [Why&Next]

MBK 추진 분할매각 of Homeplus Express
Homeplus denies "Ali acquisition groundless"
MBK investment recovery - Ali logistics hub secured 'win-win'

Homeplus is reportedly considering the split sale of its corporate supermarket (SSM) chain, Homeplus Express, with speculation mounting that the Chinese e-commerce giant Alibaba Group might be the potential buyer. Although Homeplus has repeatedly denied these rumors as "baseless," the concentration of Homeplus Express stores in the profitable Seoul metropolitan area and the establishment of its own logistics network appear to have fueled acquisition talks involving the e-commerce company. Notably, if Alibaba acquires Homeplus Express, it could leverage offline market entry in South Korea to create synergies with its online delivery services.

According to the distribution industry on the 18th, MBK Partners, a private equity fund that owns 100% of Homeplus shares, recently appointed Morgan Stanley as the lead advisor and has begun the sale process for Homeplus Express. The preliminary bidding is expected to take place next month.

In this context, there were reports that Alibaba headquarters officials visited the Homeplus Gangseo main store on the 13th and held meetings with Kim Kwang-il, Vice Chairman of MBK Partners, the major shareholder of Homeplus, as well as Homeplus executives and staff.

Homeplus Denies Alibaba Meeting Rumors as "Baseless"

In response, Homeplus stated that the rumors are "baseless." Alibaba Express also denied any visits or acquisition discussions had taken place.

However, the distribution industry still places weight on the possibility of Alibaba acquiring Homeplus Express. If Alibaba purchases Homeplus Express, it could secure a domestic logistics and distribution network, while MBK Partners could recover its investment, making it a potential win-win strategy.

MBK Partners acquired Homeplus from Tesco in 2015 for 7.2 trillion KRW, borrowing 4.3 trillion KRW from financial institutions. As the investment approaches its 10th anniversary next year, it is time to recover the investment. However, over the past decade, the domestic large-scale supermarket market has declined, making it difficult to sell large supermarkets and SSMs together, leading to the analysis that they are pursuing the separate sale of the profitable Homeplus Express stores.

In fact, the SSM market, which had slowed during the COVID-19 pandemic, is gradually recovering. According to the Ministry of Trade, Industry and Energy, the SSM market recorded negative growth rates of -3.6% in 2020, -9.1% in 2021, and -2.5% in 2022 compared to the previous year. However, it returned to growth with a 3.7% increase last year and showed an 8% growth rate in the first quarter of this year.

The number of stores is also steadily increasing. The number of stores among the 'Big 4' was 1,326 in 2021, 1,333 in 2022, and 1,356 last year. Compared to the annual decrease in large supermarkets, this shows growth potential among offline stores.

The SSM industry is building a 'Big 4' market with Homeplus Express, GS The Fresh, Emart Everyday, and Lotte Super each holding about 20% market share. As of the end of last year, the number of SSM stores was 434 for GS The Fresh, 358 for Lotte Super, about 310 for Homeplus Express, and 254 for Emart Everyday. In terms of sales, GS The Fresh ranked first last year with 1.4476 trillion KRW, followed by Emart Everyday with 1.4074 trillion KRW, and Lotte Super with 1.3063 trillion KRW. Homeplus has not disclosed segment-specific performance, but the industry estimates that Homeplus Express recorded approximately 1.2 trillion KRW in sales and nearly 100 billion KRW in EBITDA last year. The EBITDA margin is 8%, higher than the SSM industry average of 5%.

Homeplus Express Stores Utilized as Logistics Hubs in the Seoul Metropolitan Area

Homeplus Express is rapidly growing in the quick commerce market, leveraging its high offline accessibility. Homeplus provides about 80% of its 'online instant delivery' volume through Homeplus Express stores. In the 2023 fiscal year (March 2023 to February 2024), Homeplus's online instant delivery business revenue grew by more than 50% compared to the previous fiscal year (2022), showing rapid growth.

Currently, out of 315 Homeplus Express stores, 235 are concentrated in the Seoul metropolitan area. Additionally, Homeplus operates two refrigerated logistics centers in Gyeonggi Province (Yongin and Osan), making it an attractive asset for companies seeking to expand logistics in the metropolitan area.

Therefore, if Alibaba acquires Homeplus Express, significant synergies are expected. Alibaba's overseas direct purchase app, AliExpress, has been intensifying its efforts to increase market share in the domestic e-commerce market over recent years. However, a major weakness is the insufficient number of logistics centers in South Korea. Alibaba announced plans to invest 200 million USD (approximately 272.7 billion KRW) this year to build an integrated logistics center. Nevertheless, to deliver fresh food and other products quickly, logistics hubs in major urban centers like Seoul and Gyeonggi are essential. This is why analysts believe Homeplus Express stores could fill Alibaba's logistics gap.

Exemption from Large Supermarket Regulations Such as Mandatory Holiday Closures and Nighttime Operation Bans?

Currently, SSMs including Homeplus Express are subject to regulations under the Distribution Industry Development Act, such as mandatory holiday closures twice a month and bans on nighttime operations (midnight to 10 a.m.). These regulations apply to quasi-large stores (SSMs) operated by large-scale stores (large supermarkets) with a floor area of 3,000 square meters or more, and SSMs operated by large corporations. Homeplus Express is regulated because it is operated by Homeplus, a large supermarket.

If Alibaba acquires Homeplus Express, it is highly likely that the recently established Alibaba Korea corporation will take over. Alibaba Korea does not operate large-scale stores and is not classified as a large corporation. Therefore, if Alibaba acquires only Homeplus Express, it could avoid these operational regulations, making it a strong candidate for acquisition. An SSM industry insider said, "If Alibaba acquires the large supermarket Homeplus as well, it would be subject to distribution law regulations, but if it acquires only Homeplus Express, there will be more room for discussion regarding regulations. Above all, it could densify the domestic distribution network and increase consumer favorability, making it an attractive asset from the perspective of C-commerce."

Another distribution industry insider said, "If Alibaba acquires Homeplus Express and is regulated, franchise owners might resist, so the government will have to be cautious about imposing regulations." Currently, Homeplus Express operates 243 directly managed stores and 72 franchise stores.