Alibaba swallows food deliverer
• Group buys controlling share of start-up in bid to expand into market as Chinese increasingly use phones to order food and services
Alibaba Group Holding is buying control of startup Ele.me as it steps up expansion in China’s fastgrowing market for delivery of food and other services.
Alibaba Group Holding is buying control of start-up Ele.me as it steps up expansion in China’s fast-growing market for delivery of food and other services.
The deal implies an enterprise valuation of $9.5bn for Ele.me, Alibaba said on Monday, without saying how much it was paying. Alibaba and affiliate Ant Small and Micro Financial Services Group owned about 43% of the start-up’s voting shares. Alibaba paid all cash in the deal and has acquired all the shares formerly held by Baidu, said a person familiar with the matter.
Ele.me — which means “hungry yet?” — operates an army of delivery people on motorbikes across the country and is vying for supremacy in the local services industry with Meituan Dianping, a start-up backed by Alibaba rival Tencent Holdings.
The market is surging as people increasingly turn to their smartphones to order food, schedule beauty treatments and hire domestic helpers. It is also strategically important for Alibaba and Tencent as a means to promote their respective payment services.
“As one of the most frequently used applications, food delivery is the single most important entry point in the local services sector,” Alibaba CEO Daniel Zhang said in an internal e-mail to staff on Monday.
“We can already see that a vast, multidimensional local instant delivery network formed through a food delivery service will be an essential piece of the commerce infrastructure.”
Bloomberg News reported in February on Alibaba’s plans to buy out other investors in Ele.me. In a sign of the heated market, Meituan has become one of the most valuable startups in the world. The company is seeking to go public as soon as later in 2018 at a valuation of at least $60bn, people familiar with the matter said.
The Ele.me deal is part of a broader foray by China’s largest e-commerce firm into logistics and brick-and-mortar assets. Alibaba is taking over long-time delivery affiliate Cainiao and putting money into warehouses.
The company has also made investments in traditional retailers, including department store chain Intime Retail Group and China’s largest operator of Walmart-style hypermarkets.
“If the Ele.me distribution network is integrated with Cainiao it can become a more efficient asset and bring it to break-even quicker,” said Kirk Boodry, an analyst with New Street Research.
Alibaba and Ant Financial were lagging behind Tencent and Meituan in terms of offline penetration, especially local services, said Counterpoint Research analyst Flora Tang.
“Ownership of Ele.me is the fastest and most effective way for Alibaba to regain leadership position in this area to compete with Tencent,” she said.
Baidu had ceded control of its own food-delivery unit to Ele.me in 2017 as the start-up and Meituan became the two biggest competitors in China’s online food-delivery market.
Zhang Xuhao, Ele.me’s founder, will become chairman of the company, and Wang Lei, vice-president of Alibaba, will become CEO of Ele.me, the company said.
Alibaba continues an expansion in e-commerce as it faces greater competition across Asia. In March the company said it would invest another $2bn in Lazada Group to bolster its presence in Southeast Asia, where Amazon.com has launched in Singapore and Sea’s Shopee is expanding to win consumers.
The Ele.me deal may cut profit margins in the short term, but Alibaba is willing to make such acquisitions for gains in future. It acquired the video service Youku Tudou and mapping provider AutoNavi, for example.
FOOD DELIVERY IS THE SINGLE MOST IMPORTANT ENTRY POINT IN THE LOCAL SERVICES SECTOR