Alibaba, Auchan, Sun Art partnership in China food foray

A new Alibaba, Auchan, Sun Art partnership will further strengthen Alibaba’s efforts to integrate online and offline, say analysts.

China’s Alibaba Group Holding, France’s Auchan Retail and Taiwan’s Ruentex Group have formed a strategic alliance to bring together their online and offline expertise to explore opportunities in China’s food-retail sector.

As part of the deal, Alibaba is investing HK$22.4 billion (US$2.8 billion) to obtain an aggregate direct and indirect stake of 36.16 per cent in Chinese food retailer Sun Art Retail Group by acquiring shares from Ruentex.

Auchan Retail is also increasing its stake in Sun Art, with the transaction giving it, Alibaba and Ruentex about 36.18, 36.16 and 4.67 per cent economic interest respectively in the multi-format offline food retailer.

Sun Art had a total gross floor area of about 12 million sqm in China at June 30. It has 446 hypermarkets as large as 17,000sqm across China under the Auchan and RT-Mart banners. It also has superstores and unmanned stores under the Auchan Minute brand.

Alibaba says the alliance reflects its “new retail” concept, while Auchan Retail says it aligns with its “Auchan changes lives” vision.

Alibaba Group CEO Daniel Zhang says the move aims to redefine traditional retail through digital transformation. “Physical stores serve an indispensable role in the consumer journey, and should be enhanced through data-driven technology and personalised services in the digital economy.”

‘Positive impact’

“Bringing together the leaders of instore retail and of online retail will allow us to offer hundreds of millions of Chinese consumers a fully integrated, world-class shopping experience,” says CEO Wilhelm Hubner of Auchan Retail, which has a presence in 17 countries with 3715 points of sale.

“Consumer demands have changed tremendously with the rapid growth of the mobile internet, and Sun Art is also trying to move from offline to online,” says Ruentex Group vice-chairman Peter Huang.

“I think this deal will have a positive impact for all involved,” says OC&C Strategy Consultants associate partner Veronica Wang.

“It will further strengthen Alibaba’s efforts to integrate online and offline,” says Wang. “Alibaba has been quite aggressive in investing offline in the past two to three years with its continuous investments in the likes of retailer Suning and mall company Intime, as well as its own launch of Hema supermarkets.”

She says the alliance could help Sun Art build digital capabilities, with the company trying to tap into e-commerce and build an O2O business since 2014, but with limited success. “Feiniu.com was the first attempt, which is still losing money after three years, and Sun Art launched cashier-free self-service convenience stores this year which are still in the stage of trial and error.”  

OC&C associate partner Steven Kwok says the move is no surprise “especially when retailers in general are finding that grocery retailing, unlike other categories thus far, has encountered greater barriers to the shift online”.

He says Sun Art’s reach across China not only gives Alibaba an enhanced distribution network, but also serves as a testing ground for digital initiatives.

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