Alibaba's Sun Art deal announced this week is a major step in the development of a new retail landscape in China, write Wai-chan Chan and Jacques Penhirin of retail consultancy Oliver Wyman for Inside Retail Asia.
This is not a “real estate play” with Alibaba buying 446 grocery stores, but shows how serious Alibaba are in developing the “new retail” model combining the strengths of online and offline retail, they say.
“The first winners from this alliance are likely to be consumers. Alibaba will use its investment in Sun Art to improve its price, service levels and the range of products available. In addition, expect to see Alibaba add the ability to deliver a wide range of goods from these stores to consumers’ homes in super quick times. Today delivery time is the new battlefield but performance is still highly dependent on physical networks,” Chan and Penhirin write.
“In the context of retail this alliance is more important than Amazon’s acquisition of Whole Foods in the US. Sun Art is the largest, and one of the most respected grocery players in China, while Alibaba already has a large grocery business, making it an alliance between two leading players in retail.
“It is becoming clearer that the endgame of two eco-systems being established by Alibaba and JD.com is inevitable in the retail landscape of China, which poses pressure on those ‘unallied’ retailers such as China Resources, Carrefour, WuMart, etc,” the authors continue. “For retailers, capturing traffic through their own e-commerce platform will become even more challenging. Traditional retailers must understand that they are competing with giants with unlimited abilities to invest and the ambition of integrating online and offline retail.”
On 19 November, Alibaba Group Holding Limited, Auchan Retail SA and Ruentex Group announced a strategic alliance to bring together their online and offline expertise and explore new retail opportunities in China's food retail sector.
As part of the alliance, Alibaba will invest US$2.88bn to obtain a 36.16 per cent stake in the Sun Art Retail Group by acquiring shares from Ruentex.