Alibaba takes $2.9 billion stake in food retailer

A unit of Alibaba will pay $2.9bn (£2.2bn) for both direct and indirect holdings in Sun Art, which operates more than 400 stores across China.

Under the deal, Alibaba Group, will form a strategic alliance with Auchan Retail and Ruentex Group, the e-commerce giant said in a separate statement.

Alibaba, with 36.16% stake, becomes the second-largest shareholder in SunArt. "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".

Sun Art is a leading multi-format offline food retailer in China.

In 2014, Alibaba bought 35 percent stake in Chinese department store operator InTime, and in the following year took 20 percent in electronics and electrical appliance retailer Suning.

"Physical stores serve an indispensable role during the consumer journey, and should be enhanced through data-driven technology and personalised services in the digital economy,"AlibabaChief Executive Officer Daniel Zhang said in the statement".

Alibaba plans to expand its 'new retail' approach, which merges online and offline shopping, further into the food and grocery sector after purchasing a stake in food retailer Sun Art.

The deal for Whole Foods marked a big point for entry by Amazon into the physical brick and mortar retail, but the move by Alibaba into offline started several years ago and this in the biggest part of the strategy.

"They're getting into a territory that's not their core strength. for example securing a property, the licenses to sell certain products, paying tax, more labor and so on", said Weiwen Han, managing partner for Greater China at Bain & Company.

Sun Art is a grocery store leader in China, with its brands taking about 15 percent share in the hypermarket business in the country, followed by Walmart stores with 10 percent, Bloomberg reports, citing Euromonitor data. He added that Alibaba was "facing a lot of challenges" that they had never experienced before.

In pre-market trading today, Alibaba shares were up over 1%.

In addition, Taobao will also buy 19.9-per cent stake in A-RT, which owns a 51-per cent stake in Sun Art, for HK$6.3 billion, or HK$6.50 a share, which will bring its total stake in Sun Art to 36.2 per cent. Sun Art also operates superstores and innovative unmanned stores under the "Auchan Minute" brand.

But the grocer has been slow to go online, with its platform Feiniu lagging bigger players like China Resources and Wal-Mart Stores.

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