China’s food delivery app, Ele.me, backed by e-commerce giant Alibaba announced on August 24 that it will acquire its rival, Baidu Waimai, the food delivery branch of China’s leading search engine, Baidu, in a package deal valued at USD 800 million.
According to the Chinese business magazine, Caijing, Alibaba plays a significant role in the merger between Ele.me and Baidu Waimai. It financed the acquisition with USD 200 million as part of an investment amounting to USD 1 billion to Ele.me. Prior to this, Alibaba and its financial affiliate, Ant Financial, poured USD 1.65 billion into Ele.me. It became the largest shareholder of Ele.me in April 2016 and now owns 37% of its shares after the fresh investment.

Ele.me has led the food delivery market in China. According to BigData-research, a Chinese market research firm, in the first quarter of 2017 it had a share of 36.5%. Meituan-Dianping followed close behind, occupying 33% of the market. Baidu Waimai comes third with a 17.3% slice of the market. But Meituan-Dianping claims to be the major player with a market presence of 60%.
Based on market shares, there is no doubt that after Ele.me acquires Baidu Waimai, the Shanghai-based startup will dominate China’s food delivery market together with Tencent-backed Meituan-Dianping.
What are Alibaba and Miantuan-Dianping competing for?
It’s not so much a confrontation between Ele.me and Meituan-Dianping as it is between Alibaba and the latter, because Alibaba is the biggest shareholder of Ele.me and is taking on Meituan-Dianping on a range of battlefronts.
Meituan-Dianping’s businesses range from food delivery to group buying, and from hotel booking to movie tickets. They are also expanding to ride-hailing, lodging-renting, financial services, and offline stores, among others. Nearly all its businesses are clashing with those of Alibaba except for e-commerce.
Alibaba expects to leverage Ele.me to face off against Meituan-Dianping as part of its plan to practice the so-called New Retail strategy. The concept was coined by Alibaba founder and executive chairman, Jack Ma, last year, and aims to boost the conglomerate’s growth by leveraging data and technology to integrate online and offline commerce.
Ele.me, together with Alibaba’s own local life service app, Koubei, will be used to compete with Meituan-Dianping in the food delivery and local life service sector. Alibaba’s travel platform, Fliggy, will take on Meituan-Dianping’s hotel and travel businesses. The e-commerce giant recently partnered with Marriott, a high-end hotel chain, to add to its high-end hotel numbers where Meituan-Dianping has an advantage. Alibaba’s movie tickets app, Taopiaopiao, is also catching up to its rival, Maoyan, the number one player in the sector and owned by Meituan-Dianping.

Moreover, Alibaba’s offline Hema Store, its flagship initiative in its New Retail strategy, is also facing competition from Meituan-Dianping. After Alibaba opened a few Hema Stores, Meituan-Dianping quickly opened its Zhangyu Store. Both feature fresh food, online ordering, payment, and delivery services.
What’s left for Baidu?
Baidu has tried to sell Waimai for a year as part of its strategic adjustment. It had merger negotiations with S.F. Express, China’s leading express company, but it turned out to be a failure due to price divergence. Baidu has been rebranding itself as an artificial intelligence (AI) company since late last year. Getting rid of its food deliver branch would help it focus on its core businesses.
It is reported that the deal consists of two parts: Baidu Waimai is priced at USD 500 million; Baidu will also sell other data entry services worth USD 300 million to Ele.me, including Mobile Baidu, Baidu Map, Baidu Nuomi, and Baidu Search. Ele.me is entitled to use these services for up to five years and use Baidu Waimai’s brand for 18 months before it fully incorporates the takeaway delivery service with its own.
(Top photo from BGR)