Alibaba buys RedMart for Southeast Asian expansion
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Credit: RedMart

Photo Credit: RedMart

Groceries are a growth industry in the region with its expanding middle-class

Alibaba has acquired Singaporean online grocer RedMart, which has been searching for a buyer since September.

The sale price has not been disclosed, but could be in the range of $30-40 million according to China Go Abroad. RedMart will operate under its own brand, but will be managed and eventually integrated with Alibaba’s Lazada Group holdings, which Alibaba acquired for $1 billion this past spring.

This puts paid to the possibility RedMart, founded in 2011 by Facebook’s Eduardo Saverin, will conduct another funding round on its own, or sell to a local supermarket chain, NTUC FairPrice, which has its own online operation. The company considered a Series C $100 million round earlier this year, but did not pursue it further.

Prior to this, the company had raised over $55.1 million, somewhat more than the possible reported Alibaba offer.

Though its revenues have steadily risen, the company has almost inevitably operated at a loss since opening and not expanded abroad as fast as its rival honestbee, which has stores in Singapore, Hong Kong, and Taipei, with plans to expand to Japan, Thailand, Malaysia, and Indonesia. Another competitor, HappyFresh, has operations in several countries as well, but is scaling back to just Southeast Asia, rather than expand into the wider Asia-Pacific region.

Alibaba’s investment will help the company better weather further losses in the capital-intensive industry, especially since RedMart is determined to build its own store experience to not rely on third party vendors and shippers so much. This is an expensive approach, but means the company can charge customers lower prices without its profits taking a hit. Most supermarket chains there, in fact, have online delivery, and RedMart is effectively competing against them with its business model.

(It may also soon be competing against Amazon Fresh, according to a report from Channel News Asia.)

Lazada has online operations in Singapore already, as well as Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. This reach is what made the company so attractive to Alibaba, since it would mean not having to roll out new operations in these markets. After India, Southeast Asia is Alibaba’s main overseas focus. It is unclear where this deal leaves RedMart’s own planned expansion abroad. Prior to the acquisition, RedMart had entered the Hong Kong market on its own.

Southeast Asian markets still growing

Groceries are a $16 billion business in the city-state, and but opening a mortar and brick store is prohibitively expensive. But, unlike dry goods or consumer electronics, perishables are often more difficult to ship that other consumer goods. For one, they can spoil and are needed for immediate use, so delivery has to be quick. Additionally, the average order includes dozens of items that have to be brought around in one shipment.

RedMart has successfully confronted these challenges, as have its competitors, though in their own ways. Since 2014, the company has invested heavily in what TNW and Forbes describe as route-optimizing software, demographic mapping, and a new digital logistics platforms from Oracle. Though originally shipping dry goods, it now offers a wide variety of fresh foods, pet care goods, retail items, and alcoholic beverages. To minimize costs and need for physical storage space, RedMart also practices cross-docking, “unloading goods from an inbound vehicle and loading them directly into outbound vehicles with little or no storage time in between.”

The way these deliveries work is that customers order from retail partners, or the store itself, closest to them, for same day service. Customer habits will have to change for online groceries to score bigger customer bases, since surveys have found that many people still prefer shopping in stores.

Such changes are in the pipeline. According to Nielsen, the Asia-Pacific region, “consistently exceeds the global average for adoption of all online retailing options,” including groceries, which are expected to grow at a faster rate as a share of e-commerce than in North America. In Singapore, HappyFresh found that most of its delivery customers are young and middle-aged women, usually parents, who shop online after work or in the early morning hour, increasingly doing so on their mobile devices for convenience’s sake.

As is the case with other online retailers, though, companies will have to provide more engaging interactive experiences as well as deals to ensure customer loyalty.

 

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  • Easy Rider

    Dear Author

    I think you may find, after a cursory internet search, that Redmart was not actually founded by Eduardo Saverin. Do keep up.