Alibaba Group Holding Ltd (BABA) took a page from the Amazon Inc. (AMZN) playbook Monday, grabbing a major stake in China's biggest food hypermarket chain and setting up what could be a fascinating clash with both the world's biggest online group and the world's biggest brick-and-mortar retailer, Wal-Mart Stores (WMT) .
Alibaba will pay just under $2 billion for a 36% stake in Sun Art Retail Group, which runs China's biggest chain of supermarkets, alongside a similar stake owned by France's Groupe Auchan Retail SA and a much smaller holding for Taiwan's Ruentex. The move, however, looks incredibly similar to Amazon's $13.7 billion acquisition of Whole Foods Markets (WFM) earlier this year and positions Alibaba at the forefront of a $500 billion food market in the world's second-largest economy and a global market worth more than $4 trillion.
"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," said Alibaba CEO Daniel Zhang.
Interestingly, while Amazon paid a mid-sized premium for its Whole Foods move, Alibaba was able to combine with Auchan and negotiate a 24% discount to recent valuations for its Sun Art stake, allowing it not only to secure a piece of Sun Art's 15% China hypermarket share but also neturalize the chain's recent move into web grocery store Fields HK.
Wal-Mart's third quarter sales grew 4.2% from the same period last year to around $123.1 billion, the company said last week, with net sales in China rising 4%. The Bentonville, Ark.-based group now has a grocery delivery offering at 140 of its stores in China as it looks to expand both its traditional and online presence.
"During the quarter, we continued to focus on driving efficiency, reducing expenses and strengthening our portfolio through 'We Operate for Less' and 'We Buy for Less' initiatives," Wal-Mart said in its quarterly earnings report.
Alibaba reported its gross merchandise volume (GMV) for transactions settled via the Alipay payments platform grew 39% annually to $25.3 billion during its Nov 11 'Single's Day' shopping event. That's above the 32% growth registered during last year's Singles Day, as well as the 22% GMV growth Alibaba's Taobao and Tmall marketplaces saw in fiscal 2017 (it ended in March). Its second quarter profits topped Wall Street forecasts, coming in at $2.6 billion, while sales rose an astonishing 61% over the same period last year to $8.3 billion.
The numbers around both of those reports are telling: Alipay has around 520 million users, far more than PayPal or ApplePay, and China's e-commerce market topped $366 billion last year and is expected to grow by around 25% by to around $460 billion by 2020, according to market research group Euromonitor International.
Alibaba also accounts for about 11.2% of the entire market for China retail sales and has more monthly active buyers, at 443 million, than Amazon's 310 million, and still has much further to grow, given that its penetration rate is only around 50%, much lower than Amazon's 80%. The group, which was founded by billionaire Jack Ma in 1999, has GMV sales grow more than 200% over the past five years to around $547 billion, far ahead of the 122% pace of its U.S. rival.
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