Habitat by Honestbee's robotic collection point.
Hong Kong CNN Business —  

Online grocery startup Honestbee is betting a brick-and-mortar store will help it compete against tech giant Alibaba (BABA).

Singapore-based Honestbee, best known for its grocery app, has opened a massive cashless store called Habitat that offers a mix of online and offline shopping.

Habitat users scan an app on their phones to enter the store. To check out, they push their carts through a gate into a secure area behind a panel. Shoppers can then grab a coffee or snack at one of Habitat’s restaurants while their goods are scanned and packed.

When the groceries are ready, they get a notification on their app and then head to a pickup area where a small robot retrieves a locker containing their bags. Shoppers can also order groceries at the store online and have them delivered to their homes.

“We use phones to track, we use tech to make shopping easier, we use as much data as possible to make [our] inventory smarter,” Honestbee co-founder Joel Sng said. “To be honest, any store should be doing that.”

Honestbee is the latest tech company to try to upend the traditional retail experience, especially in food and groceries.

It’s facing increasing competition from Amazon (AMZN) in Singapore, and Alibaba-owned e-commerce platform Lazada across Southeast Asia. They’re all competing for Asia’s growing online grocery sales, which are set to hit $176 billion by 2022, up a whopping 194% since 2017, according to market research firm IGD.

Habitat could help grow Honestbee’s brand and attract new users, according to Shirley Zhu, a Singapore-based analyst with IGD.

Zhu said Habitat has drawn comparisons to Alibaba’s Hema stores in China, known as Fresh Hippo in English. Hema is also cashless and shoppers can scan and pay for goods with their phones, or they can order groceries online and have them delivered.

“If you look at Hema’s success, it has relied on consumers understanding [the retail concept], and the ability to acquire new customers at low cost,” she said.

Habitat's cashless, automated checkout.

More than 400,000 people visited the Habitat store in Singapore in its first three months, according to Sng. About 85% of them bought something and “a good portion continue to make transactions today,” he said. “It also reactivated old customers that might have forgotten about us,” he added.

Honestbee plans to open a second Habitat store outside of Singapore by the end of the year, though Sng declined to say where.

Alibaba’s Lazada has also reportedly been experimenting with physical stores. The company has a strong grocery distribution network throughout Southeast Asia, and it has support from Alibaba’s network of businesses and affiliates.

“For Honestbee and Habitat, the direct competition will be Alibaba’s Lazada,” Zhu said.

“Habitat is a newcomer in the space, and if they compete with online players and supermarkets, it’s going to be a really tough battle for them,” she added.

Honestbee operates in eight countries across Asia. Its online shopping app usually relies on partnerships with local grocery chains and 20,000 part-time employees to fulfill orders.

The startup secured $15 million in 2015 from a handful of investors, among them Silicon Valley venture capitalist Formation 8, and some former Facebook (FB) and YouTube executives.

The company declined to comment on how much money it has raised since then, and wouldn’t disclose its current valuation.