Alibaba Group Holding Ltd. is planning to raise funds for its high-tech grocery chain at a proposed valuation of $10 billion. The company, Freshippo, known as Hema in Chinese, is working with an adviser on an exclusive list of potential strategic and financial investors that will be invited to join the funding round, which is likely to kick off next month, the people said, asking not to be named to discuss a private matter.
Separate fundraising raises the prospect that Alibaba may consider spinning off the chain as a separate business, unlocking some of the value in a brand that once formed the centrepiece of its burgeoning physical retail operation. Alibaba has yet to decide on the size of Freshippo’s planned fundraising, though China’s e-commerce leader will retain a major stake in its new retail arm after the funding round.Discussions are ongoing and there’s no certainty that they will lead to any transaction. The $10 billion value is preliminary and could change as talks progress. Alibaba declined to comment. The round is one of the first equity raised by Alibaba’s units since regulators slapped the giant with a record $2.8 billion antitrust fine and ordered it in April to revamp the way it conducts its business.
The internet behemoth has been stepping up investments to develop growth drivers, after heightened government scrutiny and intensifying competition from the likes of Pinduoduo Inc. and JD.com Inc. prompted it to slash its 2022 revenue forecasts.
Freshippo started off as an independent project born within Alibaba back in 2019 that combined a grocery store, restaurant, and delivery app, using robotics and facial recognition to speed up logistics and payment. At the time, the company set a target of opening a Hema branch in every Chinese city with more than 1 million residents, according to Caixin. With nearly 300 stores in China, the fresh produce chain is planning to roll out construction on a network of country-wide distribution centres, with its first hub in Wuhan, central China.
Online grocery delivery is one of the fastest-growing segments in China’s e-commerce industry, drawing participation from the likes of Pinduoduo, food delivery leader Meituan, and ride-hailing firm Didi Global Inc., as well as a plethora of smaller upstarts.
To expand its share of the market, Alibaba has been experimenting with different formats, including Freshippo’s digitally supported outlets, Taoxianda’s online supermarkets, and community e-commerce, where shoppers pool their orders to take advantage of discounts. In 2020, the company also invested $3.6 billion to double its stake in Sun Art Retail Group Ltd., China’s largest hypermart chain.
