This Nov 15, 2019, photo shows the logo of the Chinese multinational e-commerce, retail, internet, and technology conglomerate, Alibaba group app for smartphone in Paris. (LIONEL BONAVENTURE / AFP)

Alibaba Group Holding Ltd will invest about US$3.6 billion to double its stake in Sun Art Retail Group Ltd, taking control of one of China’s largest hypermarts to try and fend off rivals like JD.com Inc in e-commerce’s hottest growth arena.

Alibaba will raise its direct and indirect stake in the grocery chain to about 72 percent by acquiring equity from Auchan Retail International SA

Alibaba will raise its direct and indirect stake in the grocery chain to about 72 percent by acquiring equity from Auchan Retail International SA, then make a general offer to shareholders to buy out the rest of Sun Art. The latter’s Hong Kong-listed stock leapt as much as 30 percent Monday, its biggest intraday gain since 2011.

The deal signals the intention of Asia’s most valuable corporation to try and dominate one of Chinese e-commerce’s largest untapped frontiers. Alibaba Chief Executive Officer Daniel Zhang has made expansion into physical retail and the grocery business in particular a cornerstone of his growth strategy, an effort that paid off during the coronavirus pandemic. Sun Art already operates hundreds of hypermarkets across China under the Auchan and RT-Mart brands, a massive distribution and storage network that can supplement Alibaba’s own efforts in fresh produce.

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The Chinese e-commerce giant is now grappling with intensifying competition from the likes of JD, food delivery giant Meituan and startups such as Tencent Holdings Ltd-backed Missfresh, all chasing a market for groceries and fresh produce that HSBC expects to grow 2.5 times to 690 billion yuan (US$103 billion) by 2022 from 2019. Alibaba was among the pioneers in that arena, announcing in 2017 it would spend about US$2.9 billion for 36 percent stake of Sun Art.

This undated photo shows Alibaba Chief Executive Officer Daniel Zhang. (PHOTO / BLOOMBERG)

The deal “suggests that the tech giant seeks to further expand its one-hour home grocery delivery services such as Taoxianda, leveraging the grocer’s extensive offline hypermarts across China,” Bloomberg Intelligence analyst Kevin Kim said. “This could capture consumers flocking to online platforms, further induced by COVID-19 early this year, yet may hurt foot-traffic to the grocer’s physical stores.”

Zhang has been directly involved in the expansion into what the company calls its “new retail” strategy, combining e-commerce with physical stores. He helped launch a startup called Freshippo within Alibaba that aimed to combine a grocery store, a restaurant and a delivery app, a business that’s underpinned an overall new retail division that’s grown into a US$12 billion business, contributing a fifth of total revenue in the June quarter.

As Alibaba increases its stake to a majority, Sun Art’s financial statements will be consolidated into the larger company’s. Peter Huang, Sun Art’s CEO, will add the title of chairman for the business.

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The online groceries segment has leapt to the forefront during COVID-19 when shoppers shunned restaurants and physical stores, though the industry -- which requires more complex logistical structures such as so-called cold chain storage -- has proven difficult to crack in years past.

Alibaba’s initial moves into physical retail were closely followed by WeChat-operator Tencent, which has itself invested in brick-and-mortar chains such as Yonghui Superstores Co. JD now also operates its own thriving groceries business, while Meituan and up-and-comer Pinduoduo Inc in recent years began investing aggressively in the arena.