Written by 
Cici Cao
MDL Wholesale, a food and fast moving consumer goods supply chain provider controlled by China’s retailing conglomerate Wumart Group, has applied for an initial public offering in Hong Kong, underscoring the IPO ambitions of Wumart founder Zhang Wenzhong.
Zhang planned to merge Wumart Supermarket and MDL China into Wumart Tech to raise up to US$1 billion (HK$7.8 billion) in a Hong Kong IPO in 2021 but the plans were shelved.
Now, he’s trying again with plans to list MDL Wholesale, the subsidiary that specializes in wholesale services for retailers.
Wumart launched operations in 1994 and in 2008 expanded into food services and distribution.
In 2019, Zhang bought an 80 percent stake in German wholesaler Metro’s Chinese operations for about EUR1.9 billion (HK$16.3 billion) and started retail operations under the Wumart and MDL China brands.
The IPO move comes after Wumart spun off its retail business this year.
MDL Wholesale has two central and 16 regional distribution centers, as well as 100 regional fulfillment centers across China.
Wumart Group is its largest customer, with MDL Wholesale serving 100 MDL and 366 Wumart stores, as well as 304 Wumart convenience stores as of end-2023.
Among China’s top 500 companies, 178 of them and their affiliates are MDL customers.
MDL also provides services for third-party chains outside of Hubei and Hunan provinces.
It is the largest supermarket supply chain provider and the second largest retail supply chain provider in China based on the 2023 revenue, according to a report by Frost & Sullivan.
However, MDL’s revenues have fallen sharply from 27.8 billion yuan (HK$30.4 billion) in 2021 to 24.9 billion yuan in 2023.
Earnings have also wobbled: net income was 332 million yuan and 253 million yuan in 2021 and 2023, while a loss of 471 million yuan was recorded in 2022.
It is also highly dependent on its parent with revenues from Wumart accounting for over 60 percent of its revenues in the past three years.
Soaring debt is also a worry. Net liabilities have grown from 679 million yuan in 2021 to 1.9 billion yuan in 2022 and 4.4 billion yuan in 2023.
MDL’s gross profit margin has steadily increased amid fluctuating profitability figures, with growth from 9.05 percent in 2021 to 10.68 percent in 2023.
Also, MDL’s business from the Wumart family of stores isn’t very profitable, with gross margins varying between 3.4 and 3.7 percent over the last three years.
In 2023, food services and distribution solutions, its second largest revenue source accounting for 14.2 percent of revenue, had a much higher gross margin of 20.6 percent.
And welfare and gifting solutions which contributed 14. 1 percent of revenue, also had a far higher gross margin of 17.7 percent.
However, competition among China’s food and consumer goods suppliers is intense.
The market rose by nearly 2.9 trillion yuan from 2018 to 2023 at a compound average growth rate of 7.1 percent and is expected to exceed 14.1 trillion by 2028, Frost & Sullivan data shows. However, the market share of the top five supply chain providers was only 0.8 percent in 2023.
To boost growth, MDL Wholesale has deepened its partnership with the parent’s digital platform, Dmall, which helped it achieve 30 percent of online sales in 2023.
Dmall submitted its third application for listing in the city this year.
The proceeds from the MDL IPO will be used to strengthen the supply chain, develop innovative and different merchandise, and expand the customer community.
MDL is backed by IDG Capital, Tencent (0700) and PC giant Lenovo (0092).