Alibaba Group Holding Ltd (阿里巴巴) is to invest about US$3.6 billion to double its stake in Sun Art Retail Group Ltd (高鑫零售), taking control of China’s largest chain of hypermarts to try and fend off rivals like JD.com Inc (京東) in e-commerce’s hottest growth arena.
Alibaba is to raise its direct and indirect stake in the grocery chain to about 72 percent by acquiring equity from Auchan Retail International SA, then make a general offer to shareholders to buy out the rest of Sun Art.
Auchan’s Hong Kong-listed stock leapt as much as 30 percent yesterday, its biggest intraday gain since 2011. Alibaba gained as much as 1.8 percent to touch an intraday record.
Photo: Bloomberg
The Chinese e-commerce giant is now grappling with intensifying competition from the likes of JD, food delivery giant Meituan Dianping (美團點評) and start-ups such as Tencent Holdings Ltd (騰訊) backed Missfresh (每日優鮮), all chasing a market for groceries and fresh produce that HSBC Holdings PLC expects to grow 2.5 times to 690 billion yuan (US$103 billion) by 2022 from last year.
Sun Art already operates hundreds of hypermarkets across China under the Auchan (歐尚) and RT-Mart (大潤發) brands, a massive distribution and storage network that can supplement Alibaba’s own efforts in fresh produce.
The deal “suggests that the tech giant seeks to further expand its one-hour home grocery delivery services, such as Taoxianda (淘鮮達), leveraging the grocer’s extensive offline hypermarts across China,” Bloomberg Intelligence analyst Kevin Kim said. “This could capture consumers flocking to online platforms, further induced by COVID-19 early this year, yet may hurt foot-traffic to the grocer’s physical stores.”
Alibaba chief executive officer Daniel Zhang (張勇) has been directly involved in the expansion into what the company calls its “new retail” strategy, combining e-commerce with physical stores.
He helped launch a start-up called Freshippo (盒馬鮮生) within Alibaba that aimed to combine a grocery store, a restaurant and a delivery app, a business that has underpinned an overall new retail division that has grown into a US$12 billion operation, contributing a fifth of total revenue in the June quarter.
As Alibaba increases its stake to a majority, Sun Art’s financial statements would be consolidated into the larger company’s. Sun Art CEO Peter Huang (黃明端) is to add the title of chairman for the business.
Sun Art is the industry leader in China’s hypermarkets, operating giant Costco and Walmart-style stores that sell everything from seafood to wine and furniture under one roof.
It held 14 percent of the market share last year, according to global intelligence firm Euromonitor International.
Meanwhile, France’s Auchan has become the latest in a slew of foreign retailers to step back from China after struggling in the market.
Last year, Carrefour SA sold an 80 percent stake in its China unit at a discount while German wholesaler Metro AG sold a majority stake in its operations there.
Big box offerings are faring better. Costco Wholesale Corp opened its first outlet in China last year to frenzied crowds and is planning its third store.
Walmart Inc plans to quadruple the number of its members-only warehouse chain Sam’s Club in China to 100 stores over the next eight years, as growth outpaces the company’s separate network of more than 400 Walmart stores selling basic groceries.
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