Alibaba merges food delivery units and Koubei amid price war with Meituan in China’s on-demand market

PUBLISHED : Friday, 12 October, 2018, 1:56pm
UPDATED : Monday, 15 October, 2018, 8:59pm

Chinese e-commerce giant Alibaba Group Holding will merge its food delivery service with food and lifestyle unit Koubei amid intensifying competition with rival Meituan Dianping.

Alibaba will establish a “local service company” comprising and Koubei, the Hangzhou-based firm announced on Friday. The two business units currently operate in a total of 676 cities with 3.5 million merchants signed up.

“The goal of the local service company is not only for the food market, but to take on the bigger mission to redefine urban life and to make it better and more convenient,” Daniel Zhang Yong, Alibaba’s chief executive, said in the statement. chief executive Wang Lei will head the combined unit, and Koubei head Fan Chi will report to Wang and continue to lead the Koubei business.

The new company, which does not yet have an official English name, will leverage Alibaba’s capabilities in new retail, membership systems, marketing, logistics, finance and other areas that centre on urban living, according to the statement.

The new venture was backed by more than US$3 billion in investment commitments, including funds from Alibaba and Japan’s SoftBank Group Corp, Alibaba announced in August. 

Alibaba and Meituan Dianping are engaged in a price subsidy war in China’s on-demand market, providing everything from food delivery to restaurant reviews and even massage services, with profitability relegated to the back seat in the short term.

Starbucks, Alibaba's serve coffee delivery tie-up in China, which Alibaba fully acquired in April in a US$9.5 billion deal that saw it buy out Baidu and other stakeholders, in July announced a 3 billion yuan (US$435 million) investment to provide subsidies and other incentives to users.

Wang said in an interview with the South China Morning Post in July that the company was in an investment phase to build up infrastructure and gain market share and was not focused on breaking even at the moment.

The Shanghai-based said it aims to secure at least a 50 per cent share of China’s on-demand food delivery market in the near term and plans to expand its business beyond transporting meals to consumers to other on-demand services, potentially delivering items such as flowers and over-the-counter medication.

Meituan Dianping, which raised US$4.2 billion in its Hong Kong initial public offering last month, had a 59.1 per cent share of on-demand delivery market transaction volume in the first quarter of 2018, according to data from iResearch, cited in Meituan’s prospectus.

Meituan Dianping reported losses of 28.8 billion yuan (US$4.2 billion) in the first half of 2018, while revenue surged 91 per cent year-on-year, according to its first interim report released last month.

New York-listed Alibaba is the parent company of the Post.