In Tech

‘Summer War’ in the food delivery market on its way

ELE.ME

Chinese e-commerce giant Alibaba is preparing to spend big on the country’s food-delivery market, setting aside hundreds of millions of dollars this summer to regain the lead from Tencent-backed rival Meituan Dianping.

SEE ALSO : Alibaba Group-owned Ele.me to further expand into the food delivery business

The Hangzhou-based company will splash a whopping 3 billion yuan ($450 million) in the next three months to help Ele.me, the food-delivery platform it acquired for $9.5 billion in April, capture a greater share of the market from Meituan, Ele.me CEO Wang Lei says in an interview with Forbes. Ele.me, whose name means “Are you hungry?” in Chinese, will hand out more meal subsidies, boost payments to its logistics personnel and expand into more segments like express delivery to become No.1 in China’s 205 billion yuan ($30 billion) online food-delivery market, Wang says.

“This is a huge market that is only at early stage development,” he says. “We have a really clear strategy, and that is capture a more than 50% market share in the short to medium term.”

To that end, Wang says Alibaba is launching what he calls a “summer war” on Meituan, which had 46.1% of China’s online food takeout market last year, ahead of Ele.me’s 39.5%, according to consultancy Trustdata. In June, Beijing-based Meituan filed for an initial public offering in Hong Kong, seeking a valuation of $60 billion as part of its plan to raise more capital for further expansion. In an e-mailed statement, a Meituan spokesman said the company “has a track record of competing effectively against its competitors.” The company also said “the competitive landscape of on-demand delivery in China is led by Meituan Dianping, which saw its market share increase from 31.7% in 2015 to 59.1% in the three months ended March 31, 2018.”

ut analysts say Alibaba’s investment seems likely to be effective—in the near term at least. In this potentially lucrative but hugely competitive market, customer loyalty is hard to come by, with the majority of customers often opting for the platform that offers the cheapest meals. For years, Ele.me and Meituan have doled out discounts to attract users, and the aggressive spending has led to heavy losses on both sides. Now, by offering fresh discounts, Ele.me can win back some short-term market share, says Zhang Yi, head of consultancy iiMedia Research.

“In China’s food delivery market, as long as you are willing to spend, there will be results,” he says. “Customers will always go to the platform that has the best discounts.”

Meanwhile, Ele.me is reportedly tapping private investors to raise another $2 billion in its fight against Meituan, according to a Bloomberg report. Wang won’t comment on the report, but says the company has an open attitude towards outside funding.

What’s more, to forestall Meituan’s progress, Alibaba also plans to connect users of its shopping sites and entertainment units with Ele.me. That means viewers of its Youku Tudou video platform will be offered Ele.me coupons and Ele.me’s members can access some of Youku’s paid channels for free.

“Food delivery is a market we must take,” Wang says. “We will keep investing, and there is no limit to our budget.”

And he considers the rising spending worthwhile. Aside from opportunities in the rapidly expanding food-delivery market, which iiMedia estimates will reach $36 billion by year end, Ele.me can also help to promote Alibaba’s payment services. The delivery platform currently uses Alipay, the e-wallet developed by Alibaba affiliate Ant Financial, as the default payment method. Meituan, by comparison, lists its own e-wallet Meituan Zhifu as the first payment option on its site.

More importantly, Ele.me will become a cornerstone of Alibaba’s new-retail strategy, Wang says. To find new avenues of growth, the company is seeking to revamp China’s entire retail sector by analyzing customer data more efficiently and integrating online and offline shopping. Founder Jack Ma envisions delivering orders placed in both physical stores and online shops to consumers’ doorsteps within 30 minutes, freeing customers from the need to carry their shopping bags elsewhere. With its three million-strong delivery personnel that are already delivering meal orders within half an hour, Ele.me can support Alibaba’s logistics operation, he says.

SEE ALSO : Amazon is hungry: food delivery to your door

“In the future, we will open up Ele.me’s delivery capacity to more merchants on our shopping sites,” Wang says. “When you order something online, it may well be delivered within the same day, or even the same hour.”

(Source: Forbes)

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