Alibaba spends US$2.88 billion on hypermarkets in China

Bent on transforming physical shopping through its "new retail" vision, Alibaba today announced it is putting US$2.88 billion into the grocery market in China by buying shares in Hong Kong-listed Sun Art Retail Group, which runs the RT-Mart and Auchan brands.

As of June 30, 2017, Sun Art operated approximately 12 million square meters of retail space in China, with 446 hypermarkets in 29 provinces, autonomous regions and municipalities. In addition to RT-Mart (大润发) and Auchan (欧尚), it also operates superstores and unstaffed stores under the Auchan Minute brand.

According to the companies, Alibaba's US$2.88 billion will buy a 36.16% stake in Sun Art Retail Group from Ruentex. Auchan Retail is also increasing its stake and will end up with 36.18% of the company's holdings. Ruentex will keep 4.67%. Auchan Retail will continue to consolidate Sun Art in its financials following the transaction.

“Alibaba is excited to join with our new partners to redefine traditional retail through digital transformation,” Daniel Zhang, CEO of Alibaba Group, said in a release. “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. By fully integrating online and physical channels together with our partners, we look forward to delivering an original and delightful shopping experience to Chinese consumers.”

The alliance will digitize and introduce new retail solutions at Sun Art stores, including online and offline integration together with modern fulfillment and personalized customer experience, the companies said.

Steven Kwok, associate partner at OC&C Strategy Consultants, said in a statement that the move is not a surprise given that grocery retailing, unlike other categories, has "encountered greater barriers to the shift online".

"This is apparent both within China and globally, but perhaps even more pronounced in China given that beyond the needs of immediacy and convenience, customers also have the habit of being able to ‘touch and feel’ and ultimately pick the actual produce they are purchasing,” Kwok said.

Sun Art’s distribution network will serve as a testing ground to implement new digital initiatives and help Alibaba build "understanding of different customer segments’ receptiveness/digital readiness across different regions and city tiers".

'New retail,' he noted, is built upon closer ownership and integration of back-end data, enabling retailers to optimize everything from logistics to predicting customer purchase behaviour and individual store inventory allocations.