Alibaba set to merge food delivery units as it looks to ramp up China competition with Meituan-Dianping
Merging both units will help Alibaba better position itself in its battle for market share with Meituan-Dianping in China
Alibaba Group Holding will merge its food delivery units and raise funds for the combined group, as it looks to ramp up its fight against rival Meituan-Dianping for the lion’s share of China's multibillion-dollar on-demand services industry, according to a report by Reuters.
Alibaba's food delivery platform Ele.me, which it acquired for US$9.5 billion in April, will merge with its food and lifestyle services arm Koubei, Reuters reported on Tuesday, citing anonymous sources. Hangzhou-based Alibaba is looking to raise between US$3 billion and US$5 billion for the combined entity, which could be valued at as much as US$25 billion.
Japanese conglomerate SoftBank Group Corp’s US$92 billion Vision Fund will lead the investment in the merged Ele.me and Koubei operation, according to a Bloomberg report that also cited sources.
An Alibaba spokeswoman declined to comment on market speculation.
Merging both units will help Alibaba better position itself in its battle with Meituan-Dianping. The companies are running neck-and-neck in the on-demand market in China, providing everything from food delivery to restaurant reviews and even massage services. Meituan-Dianping is currently China's most-funded e-commerce start-up, drawing over US$8 billion in funding, according to the China Internet Report co-authored by the Post, Abacus News and 500 Startups.
Ele.me recently announced that it would spend 3 billion yuan (US$439 million) over the summer months to boost subsidies and incentives for its users, a common “cash-burning” tactic employed to increase market share. It aims to obtain over 50 per cent of the market.
Both companies are currently locked in a subsidy war that places profitability in the back seat. Ele.me chief executive Wang Lei said last month in an interview with the Post that the company is in an investment phase to build up more infrastructure and gain market share, and is not focused on breaking even at the moment.
Tencent Holdings-backed Meituan-Dianping, which started out with services similar to those offered by Groupon and restaurant review site Yelp, filed for a public listing in Hong Kong in June. The company reported a loss of almost 3 billion yuan last year, and plans to raise about US$6 billion from its public listing at a valuation of US$60 billion.
Alibaba is the parent company of the South China Morning Post.