Alibaba spends $3 billion to take over online groceries in China

Alibaba has stepped up its online retailing game by taking a major stake in China’s top supermarket chain, competing against JD.com in the fast-growing online grocery industry.

Alibaba will secure a majority stake in Sun Art Retail Group by spending 28 billion Hong Kong dollars ($3.6 billion). The online retailer will increase its stake to 72% from 36%, according to the company in a Monday statement. The rest of the retail company will be put up on a general offer for shareholders to buy.

Following the news, shares of Sun Art went up nearly 20% in Hong Kong, while Alibaba’s shares in Hong Kong also rose about 1%.

A controlling stake in Sun Art will put Alibaba in a good position to compete against JD.com. During its annual sales blitz in June, JD said its online grocery sales doubled over last year’s.

Both online retailers are in a fierce battle to dominate China’s e-commerce space as they use both brick-and-mortar supermarkets and online shopping platforms to win shoppers. Alibaba is quite popular for its online shopping platform. While JD has a chain of brick-and-mortar stores across China, which also double as warehouses and fulfillment centers. Also, JD has tie-ups with Walmart in China, and a local grocery chain, Yonghui. Alibaba also has quite a number of brick-and-mortar stores including its Freshippo grocery store chain and Sun Art stores used to store and deliver online groceries. Sun Art has about 500 hypermarkets and supermarkets across the country.

Jefferies analyst Thomas Chong said in a Monday note that Alibaba is on the path to “accelerated digitization” by stepping up its stake in Sun Art. He said the China e-commerce giant “has been highlighting digitization as the greatest opportunity to change how people live and work,” as well as, new “opportunities in traditional retail” which is solving the problems of scalability and sustainability.

Despite the lifted coronavirus lockdown restrictions in China earlier this year, 56 percent of shoppers bought food and grocery online more frequently than in past times, according to an Alibaba report in June. GlobalData found that nearly 30 percent pf shoppers in the United States bought food and grocery online more often than before.