What Alibaba-Kroger Alliance Might Mean for Amazon

On Wednesday, the New York Post indicated that a potential partnership between Chinese internet giant Alibaba Group (BABA) and America's largest grocery store chain, Kroger Co. (KR), could be in the works. Officials of Alibaba, which operates grocery stores with technology similar to Amazon.com Inc.'s (AMZN) cashier-free Amazon Go store prototype, reportedly met with Kroger representatives in China in late 2016.

The outlined deal, which spans both online and offline sales, could create an entity with a global reach and might to match the world's largest retailer, Wal-Mart Stories Inc. (WMT), and help the companies in their battle against the growing dominance of e-commerce and cloud computing behemoth Amazon.

The Struggle Against Amazon

Analysts at Morgan Stanley indicated that a partnership would be a "natural extension" for BABA as a third-party marketplace and boost its new retail strategy aimed at a full integration of online, offline and logistics. Seattle-based Amazon has been making massive strides in this direction. After closing its $13.7 billion acquisition of Whole Foods Market in August, the company has introduced its branded products at hundreds of brick-and-mortar locations as it leverages the natural grocer to build out its online platform and Prime membership base. A Kroger partnership would also help Alibaba compete against Bezos' Amazon globally as it works to expand its relatively small presence in America.

As for Kroger, which has seen it stock dip some 10% in the most recent 12 months, despite a gradual recovery beginning in late September, the move reflects its larger initiative to meet the demands of a rapidly evolving consumer goods market. Earlier this month, reports indicated that the Cincinnati-based grocery chain was in talks with online retailer Boxed.com, a favorite among the key Millennial cohort. Alibaba could provide Kroger, which has much less capital and technology than the Chinese conglomerate, with its Alipay digital payments platform and its massive e-commerce site. The American food giant, which was struggled to launch its own home delivery service, could potentially team with BABA-backed retailer Hema Xiansheng, which serves as a warehouse and distribution center for online sales, according to Goldman Sachs.

In the case that a deal between Jack Ma's Alibaba and Kroger does materialize, it would have major implications not only for Amazon and Wal-Mart but for traditional retailers such as membership-only warehouse chain Costco Wholesale Corp. (COST) and Target Inc. (TGT). (See also: Amazon’s Most Bullish Call Yet: $1,800 a Share.)