- Alibaba will double its effective stake in Hong Kong-listed Sun Art Retail Group with a deal with Mulliez family’s Auchan Holding
- Deal gives Alibaba Group 72 per cent stake in hypermarket chain with 484 outlets as efforts to combine offline and online stores accelerate
Alibaba Group is taking control of China’s largest hypermarket operator
Sun Art Retail Grpup from the French billionaire Mulliez family, boosting its stranglehold on e-commerce as the Covid-19 pandemic intensified efforts to integrate online and offline shopping. Both stocks rallied.
Alibaba, which runs Taobao, the world’s largest online marketplace, will pay HK$28 billion (US$3.6 billion) to double its effective stake in the Hong Kong-listed group to 72 per cent, according to a company statement. It will effect the transaction by buying 70.9 per cent stake in A-RT Retail Holdings, which owns 51 per cent of Sun Art.
A-RT Retail is controlled by Auchan Holding, a unit of the Mulliez family investment, according to the company’s latest annual report.
Following the completion of the stake purchase, Alibaba is also interested in buying the remaining of Sun Art’s shares for HK$17 billion or at HK$8.10 per share, it said in an exchange filing on Monday. The price represents a 21 per cent premium over its Friday closing price. Alibaba intends to maintain Sun Art’s listing on the Hong Kong stock exchange, it said.
Alibaba, which owns the South China Morning Post,
rose 0.7 per cent to HK$296 in Hong Kong
as of 11.45am local time, after earlier hitting an intra-day record of HK$299.40. Sun Art surged as much as 28 per cent to HK$10.14, set for the biggest jump since July 2011.
Operator of hypermarket brands Auchan and RT-Mart, Sun Art had a total of 484 outlets across China by the end of June. It formed a strategic alliance with Alibaba in 2017 to digitise its shops, after the tech giant invested HK$22.4 billion for a 36 per cent stake in the company.
“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,” said Daniel Zhang, chairman and chief executive of Alibaba, in the statement.
All of Sun Art’s physical stores have been integrated into Alibaba’s platforms, providing one-hour and half-day on-demand delivery through collaboration other Alibaba businesses such as online food delivery service platform Ele.me and Cainiao, a logistics subsidiary, according to the statement.
As the online trend has accelerated in recent years, foreign grocers have struggled to find success in the Chinese market and exited. British supermarket chain Tesco left China earlier this year, following German retailer Metro which sold its China business to local retailer Wumart last year. French grocer Carrefour offloaded its stores to Chinese retailer Suning.com in 2019.
Sun Art shares have been on a roller coaster this year, climbing by 40 per cent to a June high of HK$13.24 before plunging by 40 per cent to HK$7.93 on Friday.
The group in August reported a 17 per cent jump in first-half profit to 2.1 billion yuan (US$314 million) from the same period last year, thanks in part to strong growth in its online grocery shopping business. Revenue increased 5 per cent to 53.2 billion yuan.
Amid heightened competition, Sun Art plans to focus on opening smaller and community-based shops as tech-savvy consumers demand greater convenience in shopping. It expects to open 30 mini stores this year, on top of 10 hypermarkets and two to three supermarkets.
China’s offline supermarket and hypermarket industry reached 4.7 trillion yuan in retail sales in 2019, accounting for about half of overall grocery sales, according to Euromonitor data.
Online grocery sales expanded rapidly this year in China as a result of lockdowns and social distancing measures. Online food sales surged 35 per cent in the first eight months of 2020, while overall online retail sales grew 10 per cent to 7 trillion yuan, government statistics show.
The latest deal represents another step forward in Alibaba’s “new retail” strategy, analysts at Jefferies led by Thomas Chong said in a note published on Monday.
The e-commerce group has sought to combine the best of shopping experience on both platforms under that strategy. Apart from transforming traditional hypermarkets, Alibaba has also established its own grocery retail chain called Freshippo, which now has over 200 stores in China.
Alibaba has collaborated with Sun Art over the past three years and its half-day delivery service helped Sun Art capture new online consumers living within a 20-kilometer radius of its stores. It helped to generate about 15 per cent of Sun Art’s total revenue, the Hangzhou based e-commerce giant said in its latest financial report.