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ALIBABA GROUP HOLDING LIMITED

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Alibaba Takes on Walmart in China With $3.6 Billion Investment in Hypermarket Chain

10/19/2020 | 07:57am EST

By Stella Yifan Xie and Ben Otto

HONG KONG -- Chinese e-commerce giant Alibaba Group Holding Ltd. said it would pay $3.6 billion to take control of China's largest big-box retailer and a major rival to Walmart Inc. in the world's most populous nation.

Hangzhou-based Alibaba, currently China's most valuable company with a market capitalization in excess of $800 billion, said Monday it plans to double its stake in Sun Art Retail Group Ltd., which operates more than 480 large supermarket-department stores in China.

The coronavirus pandemic, which kept many people confined to their homes for long periods, has accelerated a shift by consumers to online shopping. Like in the U.S., supermarket sales in China have been one of the retail industry's bright spots, thanks to consumers stocking up on food and other household essentials during government-mandated closures of many restaurants and eateries. The country's supermarkets have seen rapid growth in online orders this year and are trying to capitalize on the change in consumer behavior.

Alibaba first bought a 36% stake in Sun Art for about $2.9 billion back in 2017. The Hong Kong-listed company started off as a French-Taiwanese venture that operates stores in China under the RT-Mart and Auchan brands.

Following the latest deal, Alibaba will own about 72% of the business, which had revenue of 95.4 billion yuan, equivalent to $14.2 billion, in 2019. In the first half of this year, Sun Art's revenue grew 5% to 53.2 billion yuan ($7.9 billion) from the same period in 2019.

Sun Art isn't a household name in China, but the big-box stores it operates sell everything from groceries to clothing and toys, and had a 14.1% share of the country's hypermarket sales last year, according to Euromonitor International.

Walmart, in comparison, had a 10.3% market share of the category, which according to Euromonitor counts retail outlets with selling space in excess of 2,500 square meters, equivalent to 26,910 square feet. The American retailer back in 2016 sold its Chinese e-commerce website to JD.com Inc., Alibaba's main e-commerce rival. Walmart's chief financial officer said in the company's earnings call in August that recent sales in China were exceptionally strong.

Alibaba, which has a booming and fast-growing online retail business, has been building its presence in physical grocery stores in China, and using them to extend its e-commerce capabilities.

The company currently owns Freshippo, a growing supermarket chain with more than 220 stores across the country selling fresh produce and other groceries. Shoppers can visit the stores in person or make online orders that are delivered within hours. The Freshippo chain was the brainchild of Alibaba's Chairman and Chief Executive Daniel Zhang, who said sales at its stores that have been open at least a year grew in double-digit terms during the three months to June, thanks in large part to increased online orders during the pandemic.

Taking control of Sun Art would help Alibaba further expand its "New Retail" strategy which integrates online and offline resources, the company said Monday. There could also be other synergies across Alibaba's other businesses, Mr. Zhang said in a statement.

The deal would allow Alibaba to "fast-track sales growth" in so-called fast moving consumer goods, analysts from Citigroup said in a research note Monday. They said Sun Art recently reported a jump in online sales, and the retailer's past collaborations with Alibaba -- which include using Alibaba's delivery services -- have already helped it gain new customers.

Having a bigger network of physical supermarkets will boost Alibaba's inventory space for groceries and its delivery capabilities, said Jason Yu, managing director of Greater China at Kantar Worldpanel.

Alibaba is boosting its stake in Sun Art by purchasing the majority of a holding company from France's Auchan Retail International SA Shares of Sun Art jumped 19% on Monday, giving the retailer a market capitalization of about $11.6 billion. The company is likely to remain listed in Hong Kong.

Foreign operators of hypermarkets in China have battled intense competition in recent years. Last year, Carrefour SA, one of Europe's largest grocery retailers, sold the bulk of its operations in China to a domestic retailer after struggling to compete with more nimble delivery providers.

Write to Stella Yifan Xie at stella.xie@wsj.com and Ben Otto at ben.otto@wsj.com

(END) Dow Jones Newswires

10-19-20 0756ET

Stocks mentioned in the article
ChangeLast1st jan.
ALIBABA GROUP HOLDING LIMITED -4.95% 262.7 Delayed Quote.30.35%
CARREFOUR -0.15% 13.73 Real-time Quote.-8.03%
CITIGROUP INC. -2.68% 55.125 Delayed Quote.-29.07%
SUN ART RETAIL GROUP LIMITED 0.00% 8.25 End-of-day quote.-12.70%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) 0.17% 6.5799 Delayed Quote.-5.55%
WALMART INC. 0.76% 152.5 Delayed Quote.27.57%
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Sales 2021 699 B 106 B 106 B
Net income 2021 150 B 22 761 M 22 761 M
Net cash 2021 434 B 66 011 M 66 011 M
P/E ratio 2021 34,0x
Yield 2021 -
Capitalization 4 918 B 748 B 748 B
EV / Sales 2021 6,41x
EV / Sales 2022 4,79x
Nbr of Employees 122 399
Free-Float 99,7%
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Number of Analysts 51
Average target price 2 270,61 CNY
Last Close Price 1 817,52 CNY
Spread / Highest target 43,4%
Spread / Average Target 24,9%
Spread / Lowest Target -1,87%
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NameTitle
Yong Zhang Executive Chairman & Chief Executive Officer
John Michael Evans President & Director
Wei Wu CFO, Director & Head-Strategic Investments
Li Cheng Chief Technology Officer
Chung Hsin Tsai Executive Vice Chairman
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