Earlier this month, digital disruption made yet another gain in offline markets, as China’s leading online retailer Alibaba announced its acquisition of a 36% stake in hypermarket Sun Art. Operating 446 outlets throughout China, Sun Art will receive $2.9bn from Alibaba for both direct and indirect stake holdings in the company.
Joining fellow stakeholders Auchan, a France-based multi-national retail group, and Ruentex, a Taiwan-based retail group, Alibaba announced that the partnership is “a strategic alliance that brings together online and offline expertise to explore new opportunities in the food retail sector.”
Although coming three months after Amazon’s $14bn buy out of food retailer Wholefoods, Alibaba have reportedly been investing in bricks-and-mortar outlets since 2015. According to Reuters, the online giants have spent over $9.3bn on offline pursuits.
Digital disruption
Alibaba and Amazon’s recent investments in physical storefronts reveal a continuing trend of the online world merging with offline markets. While retail as a whole has long been within the digital domain, food retail has struggled to break away from offline establishments.
“Alibaba is excited to join with our new partners to redefine traditional retail through digital transformation,” says Daniel Zhang, chief executive officer of Alibaba Group. For Zhang, the merging of physical and digital establishments is a key development to improve consumer experience.
“Physical stores serve an indispensible role during the consumer journey, and should be enhanced through data-driven technology and personalised services in the digital economy,” he continues.
Steve Kwok, associate partner at OC&C Strategy Consultants, notes the difficulties with integrating the grocery sector into the online sphere, “Grocery retailing, unlike other categories thus far, has encountered greater barriers to the shift online, with online sales still in the low singly digits of the online retail market share.”
“This is apparent both within China and globally, but perhaps even more pronounced in China,” says Kwok. He goes onto explain that China’s hesitancy to break into online grocery retailing is accounted for by not just needs for immediacy and convenience, but because “customers also have the habit of being able to ‘touch and feel’ and ultimately pick the actual produce they are purchasing.”
Food scares: a thing of the past?
Although Alibaba, Auchan and Reuntex may be correct in anticipating the grocery sector as the latest retail area to experience tech disruption, China poses unique challenges to the endeavour.
Worth an estimated value of $1.5 trillion, China’s grocery market is the logical next step for e-commerce leaders. However, anxiety in recent years over the safety and quality of ingredients could be restrictive to the growth of grocery’s online presence.
In 2008, a food scandal involving melamine-contaminated baby formula involved the death of six infants. This was then followed by several other food safety lapses, such as Walmart stocking donkey meat that contained fox meat in 2014. These past events, combined with the logistical challenge of delivering fresh food to a country of China’s size, present real obstacles to the Alibaba Group.
However, Alibaba recognises this pressure to gain consumer confidence, describing Sun Art as a company, “striving for excellence and to become the most preferred and trusted world-class retailer”.
Confident in the mutual benefits each company can derive from each other, Alibaba believes that “combining the resources of the three companies, the new alliance will enable Sun Art’s activities to benefit from Alibaba’s digital ecosystem”.
Emily Lewis
