---
title: "After 'Swallowing' Sun Art Retail, Where Is Alibaba's Next Target?"
description: "The battle in the same-city retail sector is intensifying. On October 19, Alibaba announced plans to invest HK$28 billion to directly and indirectly hold 72% of Sun Art Retail, accelerating the digitalization of China's largest hypermarket operator. This move reflects Alibaba's ambition and anxiety in the same-city retail space, as it seeks to strengthen its ecosystem and compete with rivals like Meituan and Pinduoduo."
author: "港股研究社"
publisher: "New Distribution"
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published: "2020-10-28"
language: "en"
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# After 'Swallowing' Sun Art Retail, Where Is Alibaba's Next Target?

> The battle in the same-city retail sector is intensifying. On October 19, Alibaba announced plans to invest HK$28 billion to directly and indirectly hold 72% of Sun Art Retail, accelerating the digitalization of China's largest hypermarket operator. This move reflects Alibaba's ambition and anxiety in the same-city retail space, as it seeks to strengthen its ecosystem and compete with rivals like Meituan and Pinduoduo.

The battle in the same-city retail sector is intensifying.
Alibaba, which owns an e-commerce empire, has thrown another bombshell into the market just before Double 11.
On October 19, Alibaba announced plans to invest HK$28 billion to directly and indirectly hold 72% of Sun Art Retail, meaning the digitalization of China's largest hypermarket operator will accelerate. Stimulated by this news, Sun Art Retail closed with a nearly 20% gain that day, and the stock performance fully reflected investors' approval.
During the three years since Alibaba invested in Sun Art Retail, the market has witnessed its digital improvements. According to data, all 484 stores of RT-Mart and Auchan under Sun Art Retail have been digitalized, and they have connected to Alibaba's Ele.me, Taoxianda, and Tmall Supermarket for shared inventory.
From Alibaba's perspective, its previous voice in Sun Art Retail was clearly not enough to satisfy its ambitions in the larger market. However, behind this move also lies anxiety and higher expectations for the same-city retail sector.
**-01- Was the acquisition by Alibaba already foreshadowed?**
As early as 2016, Jack Ma officially announced the New Retail strategy. After four years of development, Sun Art Retail has become an important lever in Alibaba's New Retail strategy. With Alibaba's continuous empowerment, Sun Art Retail's market performance has become increasingly strong.
According to Sun Art Retail's interim report this year, during the period, **its same-store sales grew by 5.7%, net profit increased by 16.8%, net profit attributable to shareholders reached 2.062 billion yuan, and Sun Art Retail's revenue of 53.17 billion yuan in the first half of the year ranked first among listed hypermarket operators.**
As of August 12 this year, Sun Art Retail's B2C business had nearly 50 million users, with active users close to 13 million. Its B2B business achieved mid-single-digit growth compared to the same period in 2019, with existing users exceeding 250,000 and full category coverage.
It is worth mentioning that at the end of 2019, Sun Art Retail had become the fourth place on the China Chain Store Top 100 list. The total number of stores also increased further. As of 2019, Sun Art Retail operated 486 comprehensive hypermarkets, with 80% located in third-, fourth-, and fifth-tier cities.
It can be said that without Alibaba's empowerment, Sun Art Retail would have found it difficult to break through quickly in the digital era. This factor is easy to understand given the surge in Sun Art Retail's stock price after Alibaba's announcement.
**In fact, the cooperation between Alibaba and Sun Art Retail mainly focuses on three aspects: shared inventory, community group buying, and retail distribution services.**
In 2019, they began cooperation with Cainiao Station, but the cooperation is currently limited to 16 cities. Although the business scale is relatively small, RT-Mart has become a key part of Alibaba's community group buying landscape. Especially after the baptism of the epidemic in the first half of the year, Sun Art Retail's imagination in the fresh food market has naturally become richer.
By the end of the second quarter this year, fresh food products accounted for about one-third of Sun Art Retail's B2B business performance. Alibaba CEO Daniel Zhang stated as early as 2019 that RT-Mart's fresh food retail had already achieved profitability. Given Sun Art Retail's current market strength, it has become natural for Alibaba to achieve full control of Sun Art Retail. The successful case of Ant Group's controlling stake in Tianhong Asset Management has also provided Alibaba with sufficient persuasion.
At this point, it is not difficult to see that Alibaba's control over Sun Art Retail was always an inevitable result. Behind this is Alibaba's layout of its ecosystem and its planning for the same-city retail sector and even the omni-channel offline system.
**-02- Same-city retail becomes a battleground for giants; acquiring Sun Art Retail may be just a prelude to the 'final battle'**
It cannot be denied that Alibaba still firmly holds the top position in the e-commerce field, but the rapid rise of Pinduoduo in recent years has stirred anxiety within Alibaba. In addition, Meituan's 'borderless' approach has formed a direct confrontation with Alibaba in the local life services sector, which is an important interface for Alibaba to close the loop between online and offline traffic.
**In fact, Alibaba's efforts to build an omni-channel offline system and continuously expand its territory have been obvious to all.**
In its 2021 fiscal year report, Alibaba also clearly stated that it will not make investments or acquisitions for purely financial reasons, but will focus on strengthening Alibaba's ecosystem, creating strategic synergies, and improving the company's overall value. This statement is not just empty talk.
**Whether it is entering the internet real estate sector, investing in Dufry AG, the world's largest duty-free retailer, to stir up the domestic duty-free market, or strategically investing in the express delivery system of Shentong, Yunda, Zhongtong, and YTO, or increasing investment in the 3C digital and home appliance industries, Alibaba's offline tentacles have been continuously extending.**
Behind this, Alibaba's desire to control the synergy between e-commerce and local life services cannot be hidden.
So, when an investment project is extremely important to the Alibaba Group, Alibaba's consistent approach is to gradually shift from investment to control, or even full acquisition. Take Ele.me as an example:
In August 2016, Alibaba and Ant Financial invested $1.25 billion in Ele.me;
In April 2017, Alibaba and Ant Financial further increased their stake in Ele.me with a total investment of $400 million.
Since then, Alibaba's shareholding in Ele.me reached 32.94%, making it the largest shareholder;
In April 2018, Alibaba and Ant Financial completed a full acquisition of Ele.me for $9.5 billion;
In October 2018, Ele.me and Koubei merged, and Alibaba officially established a local life services company.
Ele.me has gradually become Alibaba's weapon against Meituan in the local life services field, which well illustrates the above market logic. Then, after Alibaba achieves control of Sun Art Retail, it is not impossible for the next step to become a full acquisition.
After all, same-city retail, as an active and important part of the local life services sector, has long become a battleground for major giants.
In July this year, Meituan established an optimization business unit, recruiting talent nationwide and promoting the 'Thousand Cities Plan';
Pinduoduo launched Duoduo Maicai, relying on its long-term supply chain advantages and low-tier market advantages to attack the market;
Didi, in search of new growth points, launched 'Orange Heart Preferred' and joined the melee without hesitation.
For Alibaba, same-city retail is a market it is determined to win. Now achieving control of Sun Art Retail also means Alibaba's attention to same-city retail has further increased. At the beginning of this year, Sun Art Retail CEO Huang Mingduan also stated that Sun Art Retail will focus on developing Tmall Supermarket, community group buying, and front-warehouse formats.
However, one undeniable fact is that although Alibaba has several chips in same-city retail, such as Ele.me, Hema, and Retail Distribution, and has sufficient voice in the logistics system, it seems heavily armed but has not formed a good linkage effect, and the state is still fragmented. For example, in community group buying, compared to other giants, Alibaba entered relatively early, but has not yet delivered impressive results.
So, whether due to the fierce external market war or Alibaba's own grasp of its ecosystem, we have reason to believe that Alibaba's other cards in same-city retail, such as Ele.me, Hema, Retail Distribution, or the entire logistics system, may face greater strategic moves in the future, and the smoke of war in the same-city retail battlefield is getting thicker.
Source: Hong Kong Stock Research Society (WeChat: ganggushe) Author: Gao Hui


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