Chinese e-commerce giant, Alibaba, acquired 36% stakes in China’s largest hypermarket operator in expanding its foothold in China’s brick and mortar retails industry.
The investment means that Alibaba will now have both direct and indirect holdings in the company, Sun Art. The company in question runs over 400 stores across the People’s Republic of China. Alibaba made the acquisition by paying nearly $2.9 billion.
In a similar move, Alibaba’s U.S. based rival, Amazon forked over close to $14billion to acquire the grocery chain, Whole Foods, in the early months of 2017. Alibaba has been looking to make a similar purchase for quite some time.
The Chinese company sought to integrate its virtual and physical shopping presence, but was hesitant to invest in building its own stores.
According to reports published by Reuters, Alibaba has already invested over $9.2 billion in brick and mortar stores since 2015.
Commenting on the move, Alibaba’s CEO, Daniel Zhang stated that “physical stores” served an “indispensable role” in the marketing experience. He added that these stores needed to be “enhanced” with the help of technology and “personalized services” to make them competitive in the new digital era.
With this new deal, Alibaba seeks to conquer China’s $500 billion food retail sector. As of now, this sector lacks the kind of online presence that others have already established. Alibaba is looking to change the scenario.
Analysts studying the move have stated that the deal is likely to have a “positive impact” on both Alibaba and the Sun Art Group.
The relationship is bound to be a bit of a give and take, with Alibaba benefitting from Sun Art’s established physical presence, and Sun Art benefiting from Alibaba’s e-commerce expertise.
As the industry remains unconvinced, Sun Art’s shares plummeted by almost 14% after it announced the deal. However, the company did manage to recover slightly, and finally closed at 4.1% lower than the anticipated number.