Chinese e-commerce giant Alibaba (NYSE: BABA) will spend approximately USD 3.6 billion for a controlling stake of brick-and-mortar retailer Sun Art Retail Group (HKEX: 6808), the company said on Monday.

Alibaba already held a 36.16% stake in the retailer, which owns a total of 481 hypermarkets and three supermarkets in China, with a total gross floor area of approximately 12.97 million square meters as of June, according to Sun Art’s latest financial report. The internet giant will increase its share to 72%, after buying French retailer Auchan’s equity interest in A-RT Retail Holdings, which partly controls Sun Art.

Auchan confirmed that the company will withdraw from China and use the funds from the deal to deleverage, and seek opportunities in its existing markets, as well as in new countries. Earlier than Auchan, Carrefour exited China by selling 80% of its China business to Suning.com at USD 700 million in June 2019.

Alibaba’s initial alliance with Sun Art dates back to 2017, after which Alibaba integrated its online grocery ordering platform Taoxianda with Sun Art’s stores, offering home-delivery services.

In 2019, the online grocery market involving physical stores was worth RMB 46.7 billion (USD 7 billion) in China. JD Daojia, which is backed by Alibaba’s rival JD.com (NASDAQ: JD), took a 21.3% share, followed by Meituan Shangou, the grocery retail arm of China’s largest food delivery platform Meituan (HKSE: 3690), with 15.9%. Alibaba’s Taoxianda platform and food-delivery platform Ele.me reached 13.4 % and 9.4% respectively, according to a report of market research firm iResearch.

“As the COVID-19 pandemic is accelerating the digitalization of consumer lifestyles and enterprise operations, this commitment to Sun Art serves to strengthen our ‘new retail’ vision and serve more consumers with a fully integrated experience,” said Daniel Zhang, chairman and CEO of Alibaba.

New retail

Alibaba’s founder Jack Ma first brought up the idea of ‘new retail’ as early as 2016, referring to the convergence of online and offline commerce.

JD Daojia, which is owned by Dada Nexus (NASDAQ: DADA), and Meituan are also increasing bets in the on-demand grocery sector. JD Daojia, which already connects about 100,000 physical stores from chain operators such as Walmart to less-known local mom-and-pop stores, has been expanding to small cities in China, according to a post on its official WeChat account a week ago.

Meituan launched another grocery retail business unit, called Meituan Youxuan in July in Jinan, in East China’s Shandong province, which it planned to roll out to 1,000 cities in 20 provinces across China in the first three months and later to smaller cities and counties.

The report was updated on October 20.