Alibaba Makes A Move On Offline Grocery With A $2.87B Investment

Alibaba is making a big offline commerce play with the announcement that it will invest HK$22.4 billion (USD$2.87 billion) for a major stake in China’s top supermarket operator, Sun Art Retail Group.

The move comes as part of a new pair-up with French retailer Groupe Auchan and Taiwanese conglomerate Ruentex. Alibaba will purchase its stake from Ruentex. At the same time, Auchan will boost its stake. The deal gives Auchan, Alibaba Group and Ruentex 36.18 percent, 36.16 percent and 4.67 percent stakes in Sun Art, respectively.

Alibaba will replace Ruentex as the second-largest shareholder.

The three-way alliance is specifically seeking to go after the $500 billion food retail vertical in China. Alibaba will be adding its unique big data analysis to the offline retail location (offline is how 85 percent of Chinese groceries are still bought).

“Physical stores serve an indispensable role during the consumer journey and should be enhanced through data-driven technology and personalized services in the digital economy,” Alibaba Chief Executive Officer Daniel Zhang said in the statement.

Sun Art’s shares were suspended last week but now resume trading — though they are down 5.3 percent.

Alibaba has invested about $9.3 billion in brick-and-mortar stores since 2015 and has launched many unstaffed shops this year.

“They’re getting into a territory that’s not their core strength … for example securing a property, the licenses to sell certain products, paying tax, more labor and so on,” said Bain & Company Analyst Weiwen Han. “On one hand, they really need to do it, but on the other hand they are facing a lot of challenges that they have never experienced before.”

Sun Art is China’s grocery store leader with about 8.2 percent of the market, according to data from Kantar Worldpanel.

Sun Art Retail Group has been lagging when it comes to getting online, and its platform has been notably lagging behind bigger players like China Resources and Walmart.

In a separate statement, Sun Art said Alibaba’s Taobao China Holding would make a general offer for the company at HK$6.50 apiece.