Introduction: Ye Guofu is about to face the toughest test he has never encountered before. Let's wait and see where this bizarre acquisition will lead in the future.

Written by Lu Yan | Produced by Lishi Business Review

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Recently, a hot event in China has attracted considerable attention: MINISO has acquired a 29.4% stake in Yonghui Supermarket for 6.27 billion yuan, becoming its largest shareholder. The stake acquired by MINISO mainly consists of two parts: one from Dairy Farm International's 21.1% holding and the other from JD.com's 8.3% holding in Yonghui Supermarket.

The acquisition has garnered significant attention from the outside world, primarily because the acquirer, MINISO, is much smaller than the target, Yonghui Supermarket, making it a "snake swallowing an elephant" acquisition. While such acquisitions might have garnered investor applause several years ago, the current economic downturn has led to sluggish consumption, especially in offline retail, and investors have responded with skepticism.

On the day after the acquisition announcement, MINISO's share price plummeted, closing down 24%, erasing nearly 10 billion yuan in market value. This prompted MINISO's founder, Ye Guofu, to post a response on WeChat Moments, saying, "It's normal that you don't understand. If you do, I'm wrong.""So, are investors who are bearish on MINISO's prospects wrong, or is Ye Guofu wrong?

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I believe there are four main reasons why investors are skeptical about MINISO's acquisition of Yonghui Supermarket.

First, MINISO's core business is a variety store specializing in small sundry items, which is fundamentally different from Yonghui Supermarket's traditional retail operations. MINISO's core competencies offer little substantial help to Yonghui Supermarket.

Second, MINISO operates a typical asset-light franchise model, where most of its stores are owned by its dealers. In contrast, Yonghui Supermarket operates an asset-heavy self-operated model, with all its supermarkets self-invested and operated.

Third, offline traditional retail supermarkets are a declining industry, severely impacted by the rise of e-commerce. When an industry is in decline, most companies within it struggle to avoid suffering the consequences.

Fourth, MINISO's own business health is far from ideal, especially considering the significant financial pressure the acquisition places on the company. MINISO's aggressive global expansion has led to issues such as declining product quality and excessive dealer inventory.

Given these factors, Yonghui Supermarket is unlikely to create incremental value for MINISO, and the acquisition may even jeopardize MINISO's financial stability. This has led many investors to sell MINISO shares.

However, Ye Guofu holds a different view. An avid admirer of Donglei Supermarket, Ye believes that "after traveling the world for over a decade and observing various retail formats, I discovered that the superior retail model to Costco, Sam's Club, and Trader Joe's is actually in China—the Donglei model. The Donglei model is the only way forward for Chinese supermarkets.""Ye's confidence in Yonghui Supermarket stems from the remarkable results achieved after Donglei Supermarket assisted in its restructuring this year. Ye spent hours observing the first revamped Yonghui Supermarket store, marveling at the crowds even after 2 pm. Impressed, he later visited a second revamped store, further solidifying his belief that Yonghui Supermarket could restart growth with the Donglei model and proceeding to acquire a stake in the company.

However, those familiar with the Donglei model and Yu Donglai's management style will keenly observe that Ye Guofu is merely a pseudo-fan of the Donglei model and could never replicate Yu Donglai's success.

Firstly, Yu Donglai has always opposed growth as the goal of a business, believing that growth is a natural outcome of treating employees and customers with care, not the end goal. Yu Donglai advocates a life centered around "freedom and love," rather than emphasizing the size and market value of the business as markers of success. In contrast, Ye Guofu is a growth-obsessed entrepreneur who measures his success by the size, profitability, and market value of his business.

Secondly, while MINISO has achieved notable success, this is primarily due to Ye Guofu's strategic choice of focusing on sundry items, which are less impacted by e-commerce. MINISO has achieved a certain level of cost-effectiveness through model and supply chain innovations, but it has not reached the level of excellence demonstrated by Donglei Supermarket in its treatment of employees and customers. Many current and former MINISO employees have criticized the company, casting doubt on Ye Guofu's understanding and ability to implement the Donglei model in his acquired business.

Perhaps Ye Guofu realizes that his growth obsession prevents him from emulating Yu Donglai's "soul freedom," and that Yonghui Supermarket cannot become a leaner, more focused version of Donglei Supermarket. Instead, he has shifted his focus to Sam's Club, which has gained popularity in China in recent years, expressing his hope to turn Yonghui Supermarket into a Chinese version of Sam's Club modeled after Donglei Supermarket.""However, those familiar with Sam's Club will know that it is a membership-based warehouse club under Walmart Inc., which differs significantly from Yonghui Supermarket's traditional supermarket format. A more comparable entity would be Walmart's traditional supermarket business, but Walmart has closed many of its stores in China due to the retail landscape's evolution. Thus, Ye Guofu's aspiration to turn Yonghui Supermarket into a Chinese version of Sam's Club modeled after Donglei Supermarket seems misguided.

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Global business history is replete with dreamers who, buoyed by past successes, become overly confident in their instincts and abilities. They impulsively devise grandiose business plans, often to their detriment.

History has shown that most of these dreamers fail to realize their aspirations, hindered by unrealistic dreams. Examples include Evergrande Group founder Xu Jiayin's automotive dreams, Wanda Group founder Wang Jianlin's Chinese Disneyland dreams, and Suning Holdings founder Zhang Jindong's omnichannel retail dreams fueled by his acquisition of Carrefour China.""Currently, Ye Guofu's aspiration to turn Yonghui Supermarket into a Chinese version of Sam's Club through acquisition echoes those of Xu Jiayin, Wang Jianlin, and Zhang Jindong. However, while their dreams have already shattered, Ye Guofu still has a chance to prove himself.""Confident in his choice, Ye Guofu declares, "Please trust my judgment. I may make mistakes elsewhere, but never in retail." His assertion is somewhat arrogant, reminiscent of those who have failed before him. If the Yonghui Supermarket acquisition fails, Ye Guofu will join the ranks of arrogant dreamers who were ambitious but incompetent. If it succeeds, he will prove himself a retail genius. Nevertheless, Ye Guofu faces unprecedented challenges ahead, and we eagerly await the outcome of this bizarre acquisition.