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Alibaba’s Grocery Chain Freshippo Considers Funding at $10 Billion Value

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(Bloomberg) -- Alibaba Group Holding Ltd. is considering raising funds for its high-tech grocery chain at a proposed valuation of $10 billion, according to people familiar with the matter.

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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, asked not to be named discussing a private matter.

The separate fundraising suggests 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 centerpiece 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, the people said.

Deliberations are ongoing and there’s no certainty they will lead to any transaction, they added. The $10 billion value is preliminary and could change as talks progress. Alibaba declined to comment.

The round is one of the first equity raises 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 2022 revenue forecasts.

What Bloomberg Intelligence Says:

Alibaba’s reported funding pursuit for its Freshippo grocery stores could deliver a more efficient fresh-food supply chain as it invests in new technology and automation. Greater efficiency can lower grocery unit costs within its fresh food operations, raising the competitive stakes for Meituan, Pinduoduo, JD.com, Didi and other rivals.

-- Catherine Lim, senior industry analyst

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Shares of Alibaba closed 2.2% lower in Hong Kong Friday, paring declines of as much as 4.2%.

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 itself a target of opening a Hema branch in every Chinese city with more than 1 million residents, according to Caixin. Now with nearly 300 stores in China, the fresh produce chain is planning to roll out construction on a network of country-wide distribution centers, with its first hub in Wuhan, central China.

Online groceries 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 ridehailing 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 as well as 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.

The businesses are part of what Alibaba Chief Executive Officer Daniel Zhang calls his New Retail strategy, where online and offline retail experiences are seamlessly integrated, to diversify beyond the company’s flagship platforms Taobao and Tmall. In the six months to September, Alibaba’s “other” commerce division, which includes Freshippo as well as Tmall Supermarket and Sun Art, almost doubled revenue, by far its fastest-growing online commerce segment.

(Updates with BI comment)

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