Alibaba (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report may be the king of e-commerce in China, but it's also expanding its brick-and-mortar presence in the country with the purchase of an 18% stake in the Lianhua Supermarket chain held by Shanghai-based Bailian Group.
The acquisition cost an estimated $81 million and makes Alibaba the second largest shareholder in the supermarket, chinadaily.com reported. The stake was purchased from China-based fresh produce delivery company Yiguo, which Alibaba invested in during the company's series A and C funding rounds in 2013 and 2016.
Alibaba announced a strategic partnership with Bailian Group in February to help the retailer increase sales with the use of big data, according to Reuters. The e-commerce giant sees an opportunity to improve the retail experience for customers with technology in a strategy the company's founder Jack Ma is calling "New Retail." In a letter to shareholders in October, Ma said that the e-commerce sector will soon face challenges. "This is why we are adapting, and it's why we strive to play a major role in the advancement of this new economic environment," he wrote.
In the letter, Ma also wrote that "we anticipate the birth of a re-imagined retail industry driven by the integration of online, offline, logistics and data across a single value chain." Alibaba chief executive Daniel Zhang touched on this strategy again at a Davos panel in January saying, "Today we cannot just separate online and offline."
Lianhua Supermarket owner Bailian owns 4,700 outlets, including supermarkets, convenience stores and pharmacies in 200 cities. Other brick-and-mortar investments from Alibaba include a stake in grocery chain Sanjiang Shopping Club Co, a $4.6 billion minority stake in appliances retailer Suning Commerce Group and a $2.6 billion bid on domestic department store Intime Retail Group.
Alibaba has an opportunity to use big data to help Lianhua Supermarket with its sales, which have been on a downward trend since 2011. For the 2016 full year, the company reported a year-over-year 1.23% decrease in same store sales. During the year, the group opened 212 new stores and closed 477 stores, of which 395 were franchised stores, as it follows a quality-oriented development strategy, according to the earnings report.
Tigress Financial Partners CIO Ivan Feinseth said the Alibaba and Amazon are both trying to make sure they are there for customers in all aspects. Even if online remains the top revenue stream for both companies, they still want to reach customers through other methods so that they are meeting all of their customers' needs. This creates dependency and loyalty. "They want to surround the customers as best as they can," he explained.
By using big data Alibaba will be able to improve the already enjoyable mall experience by using the data to understand what customers are buying and how to stock their physical stores, Feinseth noted. "The analysis of buying habits and trends is key," he said.
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