JD steps up to take majority stake in Dada Group
JD announced on Monday night it will invest US$800 million in on-demand delivery and retail platform Dada Group to raise its existing stake and strengthen its foothold in the online grocery sector.
JD will hold approximately 51 percent of Dada's shares.
Shares of both NASDAQ-listed companies ended higher on Monday with Dada surging nearly 19 percent in pre-market trading.
JD is spinning off its logistics business and hopes to gain competitive advantages over larger rivals including Alibaba Group and Pinduoduo.
Liu Kuang, an independent retail analyst, said Dada's fulfillment costs and promotional fees require large capital input, and JD's investment could provide support for further market expansion, especially in lower-tier cities.
Teaming up with more merchants and expanding shopping options for buyers is an essential move for Dada, he added.
"The additional investment will help us diversify our retail services, enabling our partners, especially real economy enterprises, to continue to optimize costs, operate more efficiently and accelerate their intelligent digital transformations," said Xu Lei, chief executive officer of JD Retail.
Last quarter, JD's fulfillment expenses jumped 34.2 percent from a year earlier to 14.8 billion yuan (US$2.3 billion) as it increased its presence in lower-tier cities.
“Leveraging JD's devoted strategic support, we will better fulfill demands for local on-demand retail and delivery on JD, covering various scenarios and categories and expanding our omni-channel cooperation with JD," said Philip Kuai, chairman and chief executive officer of Dada Group.
Shanghai-based Dada, which is also backed by Walmart, reported a 70 percent increase in net revenue in the fourth quarter, while operations and supporting expenses increased to 1.6 billion yuan due to additional delivery staff.
Net losses decreased to about 2 billion yuan from 2.4 billion yuan the year before, and spending on marketing and promotional campaigns for its grocery delivery platform more than quadrupled, overshadowing strong income growth.
According to the state-backed China Internet Network Information Center, China's online retail sales reached 11.76 trillion yuan (US$1.8 trillion) in 2020, up almost 11 percent from 2019. The on-demand delivery market size was estimated to be around 250 billion yuan in 2020.