Alibaba to acquire controlling stake in grocery retailer Sun Art for $3.6bn

Ecommerce giant Alibaba has agreed to acquire a controlling stake in Chinese grocery retailer Sun Art Retail Group from French retailer Auchan, for approximately $3.6 billion.

Alibaba previously acquired a 36% stake in Sun Art in 2017, but has now agreed to increase its stake to 72%. According to reports from the Financial Times and Bloomberg, Alibaba will also make a further offer worth approximately $2.2 billion to remaining Sun Art shareholders, in order to take full control of the retailer.

Sun Art is one of China’s largest grocery retailers, operating over 400 hypermarkets and supermarkets throughout the country.

This acquisition comes as Alibaba seeks to strengthen its online grocery delivery capabilities in the wake of Covid-19, as well as its offline retail offering, in an effort to stave off competition in the high-growth market from ecommerce rivals such as JD.com, Meituan and Pinduoduo.

Grocery and fresh produce deliveries have proved a lucrative revenue driver for ecommerce firms in China throughout the coronavirus pandemic, as consumers have increasingly avoided shopping in person, leading to an upsurge in demand for online grocery deliveries.

Alibaba chairman and CEO Daniel Zhang said: “As the Covid-19 pandemic is accelerating the digitalisation of consumer lifestyles and enterprise operations, this commitment to Sun Art serves to strengthen our New Retail vision and serve more consumers with a fully integrated experience”.

As part of this strategy, Alibaba has expanded the number of outlets utilised by its Freshippo supermarket chain, which also provides an online delivery service. Alibaba currently operates 214 Freshippo outlets in China, as of its most recent earnings report.

2019 research from IGD Asia suggested that the country would become the world’s largest grocery market in value terms by 2023, with JD.com and Alibaba predicted to see significant growth from both online and offline channels, eventually becoming the second- and third-largest grocery retailers in China respectively.

Commenting on the purchase, Mark Lynch, partner at corporate finance advisory firm Oghma Partners, added: “This is an interesting move by Alibaba, as it will no doubt improve the firm’s ability to source and distribute food direct to the consumer, which in turn challenges brand owners to maintain visibility and more importantly ‘pull’ from off the shelf or in this case ‘e-shelf’. In this respect, it could further shift the dynamic between supplier and distributor and not necessarily in a good way for the suppliers.”