Here are 5 reasons why Lazada is acquiring Redmart

Disclosure: Lazada is a listed partner of aCommerce.

It is now confirmed that Lazada is set to acquire, Singaporean grocery startup, Redmart for US$30-40 million. Lazada, fresh off its US$1 billion injections from Alibaba, is not known for adopting an asset-heavy model and has been actively transitioning towards a full marketplace. So why would the company want to purchase an online grocery retailer? Here are some possible reasons.

1. Joining a thriving new playing field

Lazada offers it all, electronics, beauty, apparel, and home and living, except perishable goods.

The offline groceries sector in Singapore was worth an estimated US$3.90 billion in 2014, while online grocery retailing was worth US$86 million, 1 to 2 percent of the entire grocery market in the country. This means more busy professionals and families are willing to pay for the convenience of their groceries delivered to their doorstep.

By acquiring Redmart, Lazada would be joining an already fierce online grocery feud.

And out of all the SEA countries, Singapore has the highest internet penetration and greatest spending power, making it the most mature market for this business model.

“The strategy of coming in, looking for a local player who has shown traction, and buying them in order to get a foothold is a very good one, and we will see more of that,” said Vinnie Lauria, founding partner of Golden Gate Ventures, which has invested in Carousell and Redmart.

By acquiring Redmart, Lazada would be joining an already fierce online grocery feud. But with their already established reputation and Alibaba in their corner, they have the capabilities of becoming a strong newcomer.

2. Lelong, lelong!

It’s not surprising that five-year-old Redmart quietly put themselves on the market after reports of US$21 million operating losses in 2015 and US$126 million liabilities this year.

Lazada is making the acquisition confidently with the knowledge that it can optimize costs by leveraging its own fleet for deliveries through LEX. In comparison to its competitors, Honestbee and HappyFresh, Redmart’s business model fares quite well.

3. Further distribution of Alipay

Redmart’s current payment options include PayPal and credit cards. It won’t be long before Lazada implements Alipay on their sites.

Because everyone needs groceries and average price points are low, it is the perfect gateway drug to get users hooked to online shopping. Just like how Alibaba leveraged Didi in China, Lazada will use Redmart’s groceries to get people in SEA hooked to Alipay.

Ant Financial, the company behind the payment giant, is already making moves for global expansion and ensuring that the payment method will be widespread throughout the region. The company already has partnerships with Concardis, Ingenico, Wirecard, and Zapper in Europe, First Data and Verifone in North America, and Paysbuy and Counter Services in SEA.

4. Tapping into ecommerce talent

The talent challenge is not new to companies in SEA. By acquiring Redmart, Lazada instantly gains 200 in-house employees who are already trained in ecommerce-specific fields.

Acquiring knowledgeable and skilled talent will allow the company to quickly expand the perishable groceries ecommerce category beyond Singapore to other thriving SEA markets.

5. Amazon is coming