Alibaba-backed Lazada in talks to buy Southeast Asia grocery delivery startup Redmart

Alibaba acquired a controlling stake in Lazada, the Rocket Internet-backed e-commerce company in Southeast Asia, for $1 billion earlier this year, and now it is taking steps to turn the business into the ’emerging market Amazon’ that it was originally intended to be.

Lazada, under Alibaba’s stewardship, is in advanced talks with Redmart, a Singapore-based grocery delivery service, to buy the company, three sources with knowledge of discussions told TechCrunch. Redmart is said to prefer an investment, but one source told us that an acquisition priced between $30-40 million could be agreed and announced as soon as next week.

Redmart, Lazada and Alibaba did not respond to requests for comment.

Lazada sells a range of products, including electronics, fashion and baby items. Adding Redmart to its business would give it groceries and fresh product capabilities, too. Lazada operates in six countries in Southeast Asia, Redmart is present in Singapore only, but has long harbored regional aspirations.

The writing has been on the wall for Redmart, which has raised over $55 million in capital from investors including Facebook co-founder Eduardo Saverin, who is now a prominent VC in Southeast Asia, and games giant Garena. Redmart was the first to pioneer the e-grocery model in Southeast Asia when it was founded five years ago, but it has battled financing issues. Earlier this year, we reported that it was trying to raise $100 million to expand beyond Singapore and shore up its finances, but that deal failed to materialize. An exit is clearly on the cards now: Bloomberg reported in September that Redmart is working with an investment bank to sound out potential buyers — we hear it has been busy.

One source with knowledge of discussions told TechCrunch that Redmart has held unsuccessful talks with Singapore-based supermarket retailer NTUC and the country’s sovereign wealth fund GIC. It isn’t clear just how advanced those discussions where, however. Another source told us Redmart rejected a ‘low ball’ offer from Amazon earlier this year. Redmart contacted Amazon again recently, the source said, in the hope that Lazada’s interest would spark another bid, but that did not materialize. (Amazon’s plan for Southeast Asia is unclear at this point.)

In Alibaba and Lazada, Redmart seems to found a better match than its other suitors. Alibaba made its investment in Lazada just as the company was reaching the end of its financial runway, and, though we don’t know the exact state of its balance sheet, Redmart continues to post losses, as Tech In Asia recently reported.

President Jack Ma and others in Alibaba’s senior management team have called India, where it owns a stake in e-commerce firm Paytm, and Southeast Asia its highest-priority growth markets. Alibaba showed with Lazada and its impending investment in financial services firm Ascend Money that it is ready to do deals in Southeast Asia to gain an early foothold in the region, where Amazon — already its key rival in India — does not yet have a presence. Though online is thought to account for less than five percent of all commerce in Southeast Asia, the region houses more than 600 million consumers. An increasingly affluent middle-class and rising access to the internet are among the factors tipped to swell the region’s digital economy to $200 billion per year by 2025, according to a recent report co-authored by Google. E-commerce is seen as one of the major benefactors.

Despite that potential, the currently reality is tough. While the final exit price may disappoint investors, Redmart would do well to align itself with a parent with deep pockets to outmaneuver its competition and remain afloat as a business.

HappyFresh, an 18-month-old rival that has raised more than $20 million from investors, recently withdrew its services from two markets in Southeast Asia in order to “focus on sustainability and profitability.”

HonestBee, a younger competitor, raised $15 million last year to execute on an ambitious plan to get into over half a dozen countries in Southeast Asia and the surrounding region. One year on, however, and the service is present in just four cities, illustrating the challenge of scaling a capital-intensive business on a limited budget.