Alibaba has made a $1.5 billion bid for the grocery chain Pupu, which doubles Sun Art's offer.

      Alibaba Group is proposing $1.5 billion to acquire Pupu, one of the last standalone online grocery platforms in China, as reported by Bloomberg. This offer is more than twice the $600 million bid from Sun Art Retail, which is a former affiliate of Alibaba now supported by private equity firm DCP Capital.

      This action follows Meituan's agreement to spend $717 million on the China division of competitor Dingdong Fresh, a transaction that is still pending antitrust approval. Pupu stands out among the remaining substantial independent grocery delivery services in the nation.

      Importance of Pupu

      Pupu has a 30-minute delivery service that spans around 10 cities in Fujian, Guangdong, Sichuan, and Hubei provinces. The company's yearly revenue is said to surpass 30 billion yuan (about $4.2 billion), making it one of the most valuable remaining prospects in China’s instant retail sector. The platform features fresh produce, everyday items, and fast-moving consumer goods stored in local warehouses. For Alibaba, acquiring Pupu would expedite access to warehouse density, supplier connections, and cold-chain logistics that would typically take years to establish independently.

      The 150 billion yuan delivery conflict

      Alibaba, Meituan, and JD.com have been investing heavily to establish dominance in local commerce and fresh produce, one of the few consumer markets in China that remains underrepresented online. As reported by 36Kr, these three firms are estimated to have spent at least 150 billion yuan in the last year on food delivery and instant retail incentives.

      Daily order counts, which used to range from 80 to 90 million, surged past 200 million during peak competition. At its lowest point, Meituan was said to incur losses of about 2 yuan per order, while its competitors were losing up to 6 yuan.

      Regulatory scrutiny from Beijing

      The ongoing bidding conflict arises at a delicate time. On June 11, Beijing’s market watchdog reprimanded Alibaba, JD.com, Pinduoduo, Douyin, and Xiaohongshu for deceptive promotional practices during the annual 618 shopping event, leading to a 6% drop in Alibaba’s Hong Kong shares.

      Chinese grocery platforms have been locked in subsidy-fueled price wars for years, exacerbating what Beijing terms “involution,” a harmful competition the government has attempted to mitigate since it imposed a record fine of 18.2 billion yuan on Alibaba in 2021. While consolidation could reduce industry fragmentation, it also risks centralizing market power among a few major platforms.

      Strategic implications

      Alibaba divested its 73.7% stake in Sun Art to DCP Capital for around $1.6 billion as a part of a wider divestment strategy aimed at refocusing on its core e-commerce and AI sectors. This sale solidified a loss of roughly $1.8 billion on an investment Alibaba made only two years earlier.

      The bid for Pupu indicates that Alibaba has not given up on local commerce; rather, it is transitioning from maintaining physical hypermarkets to managing instant delivery systems. “This indicates that Alibaba is serious about local commerce again, but it also suggests that the competition in the China e-commerce profit landscape may remain fierce for an extended period,” noted Charu Chanana, chief investment strategist at Saxo Markets.

      Market response

      Meituan’s shares dropped by as much as 3.1% in Hong Kong on Friday, while Alibaba saw an increase of up to 3.5%. This divergence illustrates investors' perception that Alibaba is gaining momentum in a sector that Meituan has traditionally dominated.

      The rising valuations further underscore the scarcity of independent delivery assets. Alibaba's $1.5 billion offer values Pupu at approximately 0.36 times its revenue, representing a significant premium over the $600 million proposal but still reasonable for a platform with consumer access in a market where the three largest Chinese tech companies are vying for the same audience.

      Considerations

      The sale process is confidential, and discussions are ongoing. There is no guarantee of a deal, and terms may change. Meituan’s intended acquisition of Dingdong is waiting for antitrust approval, and any sale of Pupu to a major industry player could encounter a similar regulatory review from Beijing. The increasing bids might indicate a potential shift away from profitability towards competition for market share, raising concerns about whether consolidation will truly put an end to subsidy-driven delivery battles or merely concentrate them among a smaller number of larger firms.