Alibaba Takes on Walmart in China With $3.6 Billion Investment in Hypermarket Chain
By Stella Yifan Xie and Ben Otto
HONG KONG -- Chinese e-commerce giant Alibaba Group Holding Ltd.
said it would pay $3.6 billion to take control of China's largest
big-box retailer and a major rival to Walmart Inc. in the world's
most populous nation.
Hangzhou-based Alibaba, currently China's most valuable company
with a market capitalization in excess of $800 billion, said Monday
it plans to double its stake in Sun Art Retail Group Ltd., which
operates more than 480 large supermarket-department stores in
The coronavirus pandemic, which kept many people confined to
their homes for long periods, has accelerated a shift by consumers
to online shopping. Like in the U.S., supermarket sales in China
have been one of the retail industry's bright spots, thanks to
consumers stocking up on food and other household essentials during
government-mandated closures of many restaurants and eateries. The
country's supermarkets have seen rapid growth in online orders this
year and are trying to capitalize on the change in consumer
Alibaba first bought a 36% stake in Sun Art for about $2.9
billion back in 2017. The Hong Kong-listed company started off as a
French-Taiwanese venture that operates stores in China under the
RT-Mart and Auchan brands.
Following the latest deal, Alibaba will own about 72% of the
business, which had revenue of 95.4 billion yuan, equivalent to
$14.2 billion, in 2019. In the first half of this year, Sun Art's
revenue grew 5% to 53.2 billion yuan ($7.9 billion) from the same
period in 2019.
Sun Art isn't a household name in China, but the big-box stores
it operates sell everything from groceries to clothing and toys,
and had a 14.1% share of the country's hypermarket sales last year,
according to Euromonitor International.
Walmart, in comparison, had a 10.3% market share of the
category, which according to Euromonitor counts retail outlets with
selling space in excess of 2,500 square meters, equivalent to
26,910 square feet. The American retailer back in 2016 sold its
Chinese e-commerce website to JD.com Inc., Alibaba's main
e-commerce rival. Walmart's chief financial officer said in the
company's earnings call in August that recent sales in China were
Alibaba, which has a booming and fast-growing online retail
business, has been building its presence in physical grocery stores
in China, and using them to extend its e-commerce capabilities.
The company currently owns Freshippo, a growing supermarket
chain with more than 220 stores across the country selling fresh
produce and other groceries. Shoppers can visit the stores in
person or make online orders that are delivered within hours. The
Freshippo chain was the brainchild of Alibaba's Chairman and Chief
Executive Daniel Zhang, who said sales at its stores that have been
open at least a year grew in double-digit terms during the three
months to June, thanks in large part to increased online orders
during the pandemic.
Taking control of Sun Art would help Alibaba further expand its
"New Retail" strategy which integrates online and offline
resources, the company said Monday. There could also be other
synergies across Alibaba's other businesses, Mr. Zhang said in a
The deal would allow Alibaba to "fast-track sales growth" in
so-called fast moving consumer goods, analysts from Citigroup said
in a research note Monday. They said Sun Art recently reported a
jump in online sales, and the retailer's past collaborations with
Alibaba -- which include using Alibaba's delivery services -- have
already helped it gain new customers.
Having a bigger network of physical supermarkets will boost
Alibaba's inventory space for groceries and its delivery
capabilities, said Jason Yu, managing director of Greater China at
Alibaba is boosting its stake in Sun Art by purchasing the
majority of a holding company from France's Auchan Retail
International SA Shares of Sun Art jumped 19% on Monday, giving the
retailer a market capitalization of about $11.6 billion. The
company is likely to remain listed in Hong Kong.
Foreign operators of hypermarkets in China have battled intense
competition in recent years. Last year, Carrefour SA, one of
Europe's largest grocery retailers, sold the bulk of its operations
in China to a domestic retailer after struggling to compete with
more nimble delivery providers.
Write to Stella Yifan Xie at firstname.lastname@example.org and Ben Otto at
(END) Dow Jones Newswires
October 19, 2020 07:56 ET (11:56 GMT)
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