Alibaba Group Holding Ltd. invests around 3.6 billion. Dollars to double its stake in Sun Art Retail Group Ltd., which takes control of one of China’s largest hypermarts to try to ward off rivals such as JD.com Inc. in the hottest growth arena of e-commerce.
Alibaba raises its direct and indirect shareholding in the grocery chain to around 72% by acquiring capital from Auchan Retail International SA, then makes a general offer to shareholders to buy the rest Sun Art. The latter Hong Kong-listed stock jumped as much as 30% on Monday, the largest intraday gain since 2011.
The deal signals that Asia’s most valuable company will seek to dominate one of Chinese e-commerce’s largest untapped borders. Alibaba CEO Daniel Zhang has made the expansion into the physical retail and grocery business a cornerstone of his growth strategy in particular, an effort that paid off during the coronavirus pandemic. Sun Art already operates hundreds of hypermarkets across China under the Auchan and RT-Mart brands, a massive distribution and warehousing network that can complement Alibaba’s own efforts in fresh produce.
The Chinese e-commerce giant is now struggling with intensifying competition from people like JD, the food supply giant Meituan and startups such as Tencent Holdings Ltd.-backed Missfresh, all pursuing a grocery and fresh produce market that HSBC expects to grow 2.5 times to 690 billion yuan ($ 103 billion) by 2022 from 2019. Alibaba was among the pioneers in that arena and announced in 2017 it would use about $ 2.9 billion. for 36% of Sun Art.
The deal “suggests that the technology giant is trying to expand its grocery delivery services to a grocery store like Taoxianda, by leveraging the merchant’s extensive offline hypermarts across China,” said Bloomberg Intelligence analyst Kevin Kim. “This could catch consumers flocking to online platforms further induced by Covid-19 early this year, but could still hurt foot traffic to the grocery store’s physical stores.”
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Zhang has been directly involved in expanding what the company calls its “new retail” strategy, combining e-commerce with physical stores. He helped start a start-up called Freshippo within Alibaba, which aimed to combine a grocery store, a restaurant and a delivery app, a company that supports a unified new retail department that has grown into a $ 12 billion companies contributing one-fifth of total revenue in the June quarter.
As Alibaba increases its stake to a majority, Sun Art’s accounts are consolidated into the larger company. Peter Huang, Sun Art’s CEO, adds the title as chairman of the company.
What does Bloomberg Intelligence say?
Alibaba’s investment of DKK 3.6 billion $ To raise its stake in Sun Art to 72% from the 36% acquired in 2017 signals the company’s intention to strategically strengthen its supermarket services. The acquisition will increase its Taoxianda and Tmall Supermarket and help compete with JD.com, Meituan and Pinduoduo, which are also aggressively trying to push into fresh e-commerce products.
– Vey-Sern Ling and Tiffany Tam, analysts
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Online grocery segment has jumped to the forefront during Covid-19, as shoppers avoided restaurants and physical stores, though the industry – which requires more complex logistical structures such as so-called cold chain storage – has proven difficult to crack in previous years.
Alibaba’s initial moves to physical retail were closely followed by WeChat operator Tencent, which itself has invested in brick and mortar chains such as Yonghui Superstores Co. JD now also runs its own thriving grocery store, while Meituan and up-and-comer Pinduoduo Inc. began in recent years to invest aggressively in the arena.
(Updates with stocks and analyst comments from the second section)