Alibaba offers $1.5 billion for the grocery chain Pupu, effectively doubling the bid from Sun Art.

      According to Bloomberg, Alibaba Group is proposing $1.5 billion to acquire Pupu, one of the last independent online grocery platforms in China. This offer significantly surpasses a $600 million bid from Sun Art Retail, which was previously affiliated with Alibaba and is now supported by private equity firm DCP Capital.

      This offer comes just months after Meituan agreed to pay $717 million for the Chinese branch of competitor Dingdong Fresh, a transaction still pending antitrust approval. Pupu stands out as one of the last significant independent grocery delivery services in the nation.

      The significance of Pupu

      Pupu runs a 30-minute delivery service that spans about 10 cities in the provinces of Fujian, Guangdong, Sichuan, and Hubei. Its annual revenue reportedly exceeds 30 billion yuan (around $4.2 billion), making it one of the most valuable remaining targets in China’s instant retail sector. The platform offers fresh produce, everyday necessities, and fast-moving consumer goods from its local warehouses. For Alibaba, acquiring Pupu would provide a quicker route to enhancing warehouse capacity, supplier connections, and cold-chain logistics that would otherwise take years to develop.

      The 150 billion yuan delivery competition

      Alibaba, Meituan, and JD.com have been heavily investing to capture local commerce and fresh produce, a consumer segment in China that is still relatively underdeveloped online. As reported by 36Kr, the three firms are believed to have spent over 150 billion yuan in the past year on food delivery and instant retail subsidies.

      Daily order volumes, which used to hover between 80 and 90 million, surged past 200 million during the peak of the competition. At its worst, Meituan was reportedly losing about 2 yuan per order, while competitors faced losses of up to 6 yuan per order.

      Regulatory scrutiny from Beijing

      This bidding war comes at a challenging time. On June 11, Beijing’s market regulator censured Alibaba, JD.com, Pinduoduo, Douyin, and Xiaohongshu for misleading advertising practices during the annual 618 shopping festival, resulting in a 6% drop in Alibaba’s Hong Kong shares.

      China’s grocery platforms have been engaged in years of subsidy-based price wars, which Beijing describes as “involution,” a form of destructive competition the government has attempted to rein in since imposing a historic 18.2 billion yuan fine on Alibaba in 2021. While consolidation may help reduce fragmentation, it could also risk centralizing market power among a few major platforms.

      Strategic implications

      As part of a broader divestiture strategy focused on its e-commerce and AI core, Alibaba sold its 73.7% stake in Sun Art to DCP Capital for approximately $1.6 billion. This transaction crystallized an estimated $1.8 billion loss on an investment made just two years prior.

      The bid for Pupu indicates that Alibaba remains committed to local commerce, transitioning from managing physical hypermarkets to overseeing instant delivery infrastructure. “This indicates that Alibaba is serious about local commerce again, but it also suggests that the competitive landscape for profitability within China’s e-commerce may persist longer,” noted Charu Chanana, chief investment strategist at Saxo Markets.

      Market response

      Meituan’s shares fell by as much as 3.1% in Hong Kong on Friday, while Alibaba saw gains of up to 3.5%. This disparity reflects investors' perception that Alibaba is making strides in a segment where Meituan has historically held dominance.

      The rising valuations also point to the increasing scarcity of independent delivery assets. Alibaba’s $1.5 billion bid values Pupu at approximately 0.36 times revenue, a significant premium compared to the $600 million offer, yet still reasonable given the platform’s day-to-day consumer reach in a competitive market among China’s three largest tech firms vying for the same clientele.

      Caveats

      The sale process remains confidential, with discussions ongoing. There is no guarantee of a deal, and terms could change. Meituan's planned acquisition of Dingdong is also awaiting antitrust approval, and any sale of Pupu to a leading industry player may face similar regulatory scrutiny from Beijing. The increasing bids could indicate a shift back to market-share competition rather than profitability, raising questions about whether consolidation will truly resolve the subsidy-driven delivery wars or simply shift them among fewer, larger competitors.