KKR, Rakuten, is taking up most of Walmart's stake in Japanese grocery store chain Seiyu

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Walmart announced today that it will sell the majority of its stake in Seiyu, the Japanese supermarket chain that it acquired 12 years ago, to KKR and Rakuten. The deal values ​​Seiyu at around $ 1.6 billion and means that Walmart will almost completely cease operations in Japan.

Under the agreement, investment firm KKR will acquire a 65% stake in Seiyu, while Rakuten, Japan's largest e-commerce company will acquire a 20% stake through a newly established subsidiary called Rakuten DX. Walmart will retain a 15% stake in Seiyu.

After struggling with fierce competition in Japan and low margins, Walmart reportedly considered resuming Seiyu or its holding company, Walmart Japan Holdings, last year.

Rakuten is already familiar with Seiyu's business as it entered into a strategic alliance with Walmart in 2018 that included launching an online grocery delivery service in Japan. The online delivery service is called Rakuten Seiyu Netsuper and, in addition to the inventory picked up in the supermarkets of Seiyu, includes a special fulfillment center.

After the deal, Seiyu will be part of Rakuten DX, which aims to bring more brick and mortar stores online through Rakuten's e-commerce and cashless payment channels.

Japan's online grocery delivery market has lagged behind other countries, partly due to shoppers' reluctance to buy fresh groceries online. However, the COVID-19 pandemic resulted in a rapid change in consumer habits. Internet sales accounted for around 5% of total grocery sales, compared to 2.5% before the pandemic, according to a July 4 report in the Japan Times.

Rakuten's rivals include grocery delivery services from Aeon (in partnership with Ocado), Amazon, and Ito-Yokado.