A Kroger-Alibaba deal could thwart Amazon's Whole Foods ambitions

AP

Kroger is in talks with Alibaba over a potential partnership.

• Kroger is in talks with Alibaba over a potential partnership, a source with knowledge of the situation told Business Insider.
• Alibaba could be lobbying to get Kroger to accept Alipay, its online payment system.
• Kroger could also be consulting with Alibaba for ways it can market and sell its products to Chinese consumers.
• An outright acquisition would give Alibaba a physical store footprint in the US that is six times the size of Amazon's.

Alibaba could overtake Amazon's push into retail stores in one move. The Chinese e-commerce giant is in talks with supermarket chain Kroger over a potential partnership, a person with knowledge of the situation confirmed to Business Insider.

This could take many forms:

• Alibaba could be lobbying to get Kroger to accept Alipay, its online payment system. That would give Chinese tourists shopping in the US an easy way to check out at the nation's largest grocer.
• Kroger could also be consulting with Alibaba for ways it can market and sell its products to Chinese consumers, like the warehouse chain Costco did in 2014.
• Another possibility is an outright acquisition of Kroger, which would give Alibaba access to the grocer's nearly 2,800 stores in the US.

Kroger consultant Brittain Ladd has previously written about the possibility of a Kroger-Alibaba partnership, saying it could be "Kryptonite to Amazon Whole Foods and Walmart/Jet.Com."

According to a press release issued last week by the Chinese government, and first noticed by The New York Post, Kroger and Alibaba are already working together. Kroger and Alibaba declined to comment.

"Alibaba has teamed up with Kroger, Yintai and RT-Mart to speed up the integration of online and off-line sales," the release, from China's Ministry of Commerce, says. The Post was also the first to report on the companies' discussions to form some kind of alliance.

Amazon shook up the grocery industry last year when it purchased Whole Foods for $13.7 billion. The deal represented Amazon's biggest commitment yet to physical retail since the purchase included Whole Foods' nearly 500 stores. A deal with Kroger would give Alibaba access to the biggest traditional grocery store network in the US with nearly 2,800 stores. That would create a physical store footprint that is six times the size of Amazon's.

Kryptonite to Amazon Whole Foods and Walmart/Jet.Com

Kroger

Kroger is adding digital shelf technology to nearly 200 stores this year.

Ladd, the Kroger consultant, wrote about the possibility of a Kroger-Alibaba partnership in a LinkedIn post published in June.

"I believe Alibaba should acquire Kroger as a way to enter the USA, as well as extend and complement their global retail ecosystem," he wrote. "A combined Kroger and Alibaba would prove to be Kryptonite to Amazon Whole Foods and Walmart/Jet.Com, while adding substantial value to Kroger customers."

In the LinkedIn post, Ladd suggested that Kroger could license Alipay or launch Alibaba's Hema supermarkets in the US. Hema markets are similar to Amazon's cashier-less Amazon Go stores.

Kroger has been working on adding more digital features to its stores. The grocery chain is currently rolling out a new service called "Scan, Bag, Go" to 400 stores that will enable shoppers to scan their groceries with mobile phones or other hand-held devices while they shop.

Eventually, the technology will also allow customers to pay for the items with their phones - which is where Alipay could come in.

Kroger is also adding digital shelf technology to nearly 200 stores this year. The technology, called Kroger Edge, will be installed on store shelves where paper price tags currently hang. It digitally displays pricing and nutritional information, as well as video ads and coupons for various products.

Get the latest Alibaba stock price here.