HONG KONG -- Internet conglomerate Alibaba Group Holding is counting on a French-based food retailer to help expand its underdeveloped grocery business after becoming a major shareholder of China's biggest offline hypermarket chain.
The Hangzhou-based e-commerce company announced on Monday it would buy a 36.16% stake in Sun Art Retail Group from Taiwanese shareholder Ruentex Group for about 22.4 billion Hong Kong dollars ($2.88 billion). The transaction will effectively put Alibaba's control over the hypermarket chain on par with its French owner, Auchan Retail, who now owns a 36.18% stake.
However, their partnership could go beyond China, as Daniel Zhang Yong, CEO at Alibaba hoped Auchan's experience in European and Asian countries could facilitate its offline push globally.
"The growing integration between online and offline is not only happening in China. It is happening in other markets as well," Zhang said. "We are happy to explore business opportunities with Auchan in markets other than China."
Auchan currently operates more than 3,000 hypermarkets and supermarkets in 17 countries, mostly in Europe. China contributes about 30% to its turnover.
Zhang said one of the key incentives behind its acquisition was Auchan's ability to reach international customers. He also said he hoped the French partner could help Alibaba improve its quality of service in European markets.
Wilhelm Hubner, Auchan's CEO said at their joint press conference that he "shared the same vision" of future business model with the Chinese internet giant. But the company did not immediately express any interest in partnering with Alibaba in the global market. "We will see further what it could eventually [be] done together with Alibaba," a spokesperson at Auchan said in an email.
While most analysts consider the deal to be conducive to Alibaba's recent push to integrate online and offline operations, they said there were many challenges for the alliance to realize its full potential.
"Despite the prospects for this alliance, operationally, there is huge complexity in integrating the two businesses and overcome barriers of management and culture," said Chan Wai-chan, senior partner and global leader of Consumer Goods Practice at Oliver Wyman.
"After all, it is more difficult to manage shoppers than to manage mobile devices."
But Chan said the partnership could give Alibaba a competitive edge on its fresh food sector, which had been most difficult to convert to e-commerce. With Sun Art's more than 400 stores in 29 provinces in China, the delivery time could be significantly reduced.
"Sun Art has strong expertise in operating fresh categories, which will greatly unlock Alibaba's capabilities," he said.
Another challenge facing the alliance is to avoid internal competition from the two companies' existing businesses
"The two companies need to work on a mutually agreed business plan to avoid internal competition of their existing businesses," analysts at Fung Business Intelligence said in a report after the announcement.
For instance, it said the alliance should ensure Alibaba's grocery branch Hema Xiansheng would not compete head-to-head with Auchan and RT-Mart in the supermarket segment. Alibaba's B2B platform 1688.com and Feiniu.com's B2B online business should also not fight against each other.