Ele.me steps up investments as on-demand delivery battle with rival Meituan-Dianping intensifies

Ele.me plans to ramp up investments in its operations, following its acquisition by e-commerce giant Alibaba Group Holding in April, amid increased competition from rival Meituan-Dianping for leadership in China’s multibillion-dollar on-demand delivery services market.

Shanghai-based Ele.me’s investment strategy would expand its business beyond transporting meals to consumers into other on-demand services, potentially delivering flowers and over-the-counter medication from 30 minutes to an hour of receiving an order.

“Alibaba’s business has traditionally revolved around consumers and internet services, and we’ve since moved into digital entertainment with platforms like Youku-Tudou,” Ele.me chief executive Wang Lei said in an interview in Hong Kong on Monday. “Now we are also moving in the direction of offering local services to customers.”

Ele.me’s “investment phase” was geared to help it win market share and build up a logistics infrastructure that would enable the company to dispatch orders within 30 minutes all across the country, according to Wang. He took over as chief executive from co-founder Zhang Xuhao in April, when Alibaba completed its takeover of Ele.me.

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There are currently two million active merchants on Ele.me’s platform. The company has a delivery crew of about three million as well as operations in 670 cities and more than 1,000 counties.

“Ele.me is determined to capture at least 50 per cent of China’s on-demand food delivery market in the near term,” Wang said in a statement released on Tuesday. “Alibaba’s robust financial support and our integration with its ecosystem uniquely positions Ele.me in this high growth sector.”

He said Alibaba will “continue to invest billions of yuan in Ele.me’s development” because the local services market represented “a must-win” for the company as part its New Retail strategy.

Ele.me announced earlier this month that it would invest 3 billion yuan (US$443 million) to provide subsidies to users this summer. Ele.me aimed to raise at least US$2 billion in funding to make further investments into its operations, according to a Bloomberg report, which cited anonymous sources.

Ele.me declined to comment on those reported figures.

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The investment initiative of Ele.me is poised to further intensify competition in China’s on-demand delivery market. This has become a hotly-contested field among China’s internet giants because it serves as an entry point to other services, such as online payments, and also provides further insight into consumer spending patterns.

Didi Chuxing, the biggest ride-hailing operator in China, announced its foray into the country’s on-demand delivery services market in March.

For Alibaba, Ele.me adds greater momentum to the New Retail strategy pioneered by Jack Ma Yun, the e-commerce giant’s founder and executive chairman.

New Retail refers to the integration of online and offline experiences for consumers, be it shopping, food delivery or buying groceries. Since last year, Alibaba has splashed out billions, investing in both offline and online retail companies such as Suning, Intime Retail, Sanjiang Shopping Club, and Lianhua Supermarket.

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New York-listed Alibaba, the parent company of the South China Morning Post, completed the acquisition of all the Ele.me shares it did not own in April. That transaction valued Ele.me at US$9.5 billion, according to Alibaba. The Hangzhou-based company had led a US$1 billion fundraising in Ele.me last year after taking part in a US$1.25 billion investment round in 2016.

Fengniao Delivery, Ele.me’s logistics network that has about 3,000 distribution stations across the country, already dispatches grocery orders from Alibaba’s chain of Hema supermarkets, as well as for orders from shopping platform Tmall’s offline stores.

The 30-minute delivery service provided by Ele.me could be extended to merchants on Alibaba’s Tmall and Taobao Marketplace, according to Wang. That would give the customers of those two platforms the choice of receiving their purchases within the hour, instead of waiting a day or two via regular courier services.

Alibaba rival JD.com already offers same-day delivery options with its in-house delivery network JD Logistics.

In food delivery, both Ele.me and Meituan-Dianping are currently locked in a bitter subsidy war to attract consumers and merchants alike. That represents a “cash burning” tactic that places profitability in the back seat, as both firms seek to win as much market share as possible.

Tencent Holdings-backed Meituan-Dianping started out with services similar to what Groupon and restaurant review site Yelp offered, but later expanded into food delivery, travel booking and other on-demand local services.

Speculation on further expansion by Meituan-Dianping grew louder last month after it filed for a public listing in the Hong Kong stock market. The company, which reported a loss of almost 3 billion yuan last year, planned to raise about US$6 billion from its public listing at a valuation of US$60 billion.

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Still, Ele.me’s Wang saw plenty of room to grow in food delivery even as the company targeted a wider range of on-demand delivery services.

“Food is an integral part for consumers. No matter who you are, you’re still going to have to eat three meals a day,” Wang said. “Food delivery also frees merchants from depending on table turnover rate for revenue, as long as the kitchen can churn out meals.”

“The food and beverage industry size in China is estimated to be worth about 4 trillion yuan,” he said. “But last year, the size of the food delivery market barely reached 300 billion yuan. So the penetration rate is still very low in China and there is much potential to grow.”