Alibaba will raise its direct and indirect stake in the grocery chain to about 72% by acquiring equity from Auchan Retail International SA, then make a general offer to shareholders to buy out the rest of Sun Art.
Alibaba Chief Executive Officer Daniel Zhang has made the expansion into physical retail and the grocery business a cornerstone of his growth strategy, an effort that paid off during the coronavirus pandemic. Sun Art operates hundreds of hypermarkets across China under the Auchan and RT-Mart brands, a massive distribution and storage network that can supplement Alibaba’s own efforts in grocery delivery.
The Chinese e-commerce giant is grappling with intensifying competition from the likes of JD, food delivery giant Meituan and startups such as Tencent Holdings (OTC:TCEHY) Ltd.-backed Missfresh, all chasing a market for groceries and fresh produce 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, announcing in 2017 it would spend about $2.9 billion for a 36% stake in Sun Art.
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As Alibaba increases its stake to a majority, Sun Art’s financial statements will be consolidated into the larger company’s. Peter Huang, Sun Art’s CEO, will add the title of chairman for the business.
Zhang 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 startup called Freshippo within Alibaba that aimed to combine a grocery store, a restaurant and a delivery app, a business that’s underpinned an overall new retail division that’s grown into a $12 billion business, contributing a fifth of total revenue in the June quarter.
The online groceries segment has leapt to the forefront during Covid-19 when shoppers shunned 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 years past.
(Updates with details of the offer from the second paragraph)
©2020 Bloomberg L.P.