Alibaba buys control of Chinese grocery chain Sun Art for $3.6bn
Group buys stake from France’s Auchan to help offset subdued growth in core ecommerce business
Alibaba is spending $3.6bn to buy a controlling stake in one of China’s top supermarket operators as it doubles down on grocery delivery, a key growth engine for the ecommerce group during the pandemic.
The investment in Sun Art Retail Group will raise Alibaba’s 36.2 per cent stake to 72 per cent. Alibaba also will make a general cash offer of as much as HK$17bn ($2.2bn) to the grocery chain’s other shareholders.
Shares in Hong Kong-listed Sun Art surged as much as 30 per cent on Monday while Alibaba’s Hong Kong stock was up 1 per cent in midday trading.
Alibaba is purchasing the shares from France’s Auchan Retail International.
Sun Art is a leading operator of hypermarkets in China, with 481 stores across the country. The two companies have already partnered on grocery delivery, with Alibaba’s blue-clad couriers ferrying everything from toilet paper to frozen dumplings from Sun Art’s outlets to shoppers in as little as one hour.
Sun Art’s substantial bricks and mortar footprint has made the company a key partner for Taoxianda, Alibaba’s fledgling grocery delivery platform.
Last year, Sun Art was the first traditional grocer in China to make its online delivery business profitable, according to Bernstein Research. This year the pandemic has bolstered results, with its net profit rising 15.4 per cent in the first half of the year from the same period in 2019.
Grocery and fresh produce delivery has become a key revenue driver for China’s ecommerce giants including Meituan, Pinduoduo and JD.com as shoppers avoid physical stores due to the coronavirus outbreak. Dozens of start-ups have also piled into the segment.
Daniel Zhang, Alibaba chief executive, said that as the Covid-19 pandemic accelerates the “digitalisation of consumer lifestyles”, the Sun Art deal would enable Alibaba to provide consumers a fully integrated experience.
The ecommerce company has been building out its own line of delivery-optimised supermarkets known as Freshippo, which pairs physical outlets with an app. The increased stake in Sun Art will more than double Alibaba’s grocery store footprint.
“Alibaba’s core ecommerce business is under pressure; its profit hasn’t grown much this year, [and] this will help,” said Li Chengdong of ecommerce think-tank Haitun.
In the second quarter of this year, sales for Alibaba’s business line that includes Tmall Supermarket and Freshippo grew 80 per cent year on year, contributing 20 per cent of the group’s total revenue and helping offset subdued growth in its core ecommerce business.
Once the deal closes, Alibaba will consolidate Sun Art’s financials into its own.