BENGALURU: Fresh from its recent $2.87bn investment in Sun Art Retail Group of Hong Kong, Chinese e-commerce giant Alibaba is taking another major step into the grocery sector by purchasing a $300m stake in Indian online retailer BigBasket.

According to three sources who informed the Economic Times of the development, the deal will involve a first round of funding of about $220m while another $80m will be used to acquire shares from existing shareholders.

Paytm Mall, another Alibaba-backed online retailer, is also likely to invest as part of the $300m spending round, the sources revealed, although that depends on the final structure of the deal.

If all goes to plan, Alibaba and Paytm Mall are likely to acquire a stake of about 35% to 40% in the Bengaluru-based company, giving it an expected valuation of around $850m.

According to the Economic Times, the transaction will add to a portfolio of strategic investments that Alibaba has been building in India as it seeks to challenge Amazon.

The American retailer, which itself is expanding rapidly into the grocery sector, has been gearing up to sell fresh produce in India after securing official approval to invest $500m in the sector.

The online grocery or e-FMCG market is expected to generate more than $1bn in gross sales by end of 2017 compared with $600m during the previous year, according to estimates by RedSeer Consulting.

Redseer also recently published a survey of 7,500 Indian consumers across 30 cities, which found Amazon and Flipkart, the Indian e-retailer, leading their competitors on at least three important measures.

On a scale of 50, Amazon (49) and Flipkart (47) were considered to offer a better shopping experience than Snapdeal (41), Paytm (34), Shopclues (23) or eBay (16).

And at 25 points each on a scale of 25, both Amazon and Flipkart were judged to offer the best value for money, although Flipkart edged ahead on trust with a score of 20 out of 25 compared with 18 for Amazon.

Redseer concluded that Indian consumers trusted Flipkart over Amazon despite them having a better buying experience on the latter’s website, Quartz reported.

But this drew a strongly worded response from Amazon, which said: “We have noticed poorly informed speculative reports with irrelevant sample sizes whose numbers do not add up to what we are seeing in the industry. We continue to be the fastest-growing e-commerce marketplace in India.”

Sourced from Economic Times, Quartz; additional content by WARC staff