Reports indicate that Chinese online retailer, Alibaba, intends to buy Baidu’s stake in Ele.me, a Chinese startup, with a view to bolstering its delivery network. Besides the stake held by Baidu sources indicate that Alibaba also plans to purchase interest held by other investors. If Alibaba succeeds this will be the biggest bet it will have made in local services and online food.
By purchasing Ele.me, Alibaba would not only end up with the majority control of the online food delivery firm but would also pit the e-commerce giant against Meituan Dianping which has the backing of Tencent Holdings. The delivery network of Ele.me consists of delivery people who ride motorcycles across China. By acquiring Ele.me, the last-mile ability of Alibaba would be enhanced as it would be able to deliver parcels right to the doorstep of its customers. It would also complement Alibaba’s Koubei delivery service.
Worth over $5 billion
As of May last year Alibaba’s stake in Ele.me was 23%. It is not clear how much Alibaba is likely to pay in order to buy out the other investors in the delivery startup. In a fundraising that took place last year in May the value of Ele.me was placed at more than $5 billion. A few months later Ele.me acquired the delivery business of Baidu at a price of $500 million.
If Alibaba goes on to buy out the other investors, the food delivery market in China will end up being dominated by Meituan and Alibaba. According to analysts, China’s food delivery market was worth $10.7 billion in the fourth quarter of 2017, a 16.2% quarter-over-quarter increase. By selling its stake in the delivery startup Baidu would be exiting yet another business in which the Chinese online search giant considers non-core since its focus is on artificial intelligence besides search.
“With its online traffic and Koubei business, Alibaba could create a lot of synergy with this acquisition. This would be a drag on the margin, because Alibaba now owns more delivery men and inventory, but it has no choice,” Steven Zhu, an analyst based in Shanghai, China, said.
In recent months Alibaba has made moves aimed at shoring up its logistics services. This includes a takeover of Cainiao, a longtime delivery affiliates. The Chinese e-commerce giant has also drawn up plans aimed at investing in warehouses. Alibaba’s strategy has been different from its competitor JD.com in that it has mainly relied on third-party delivery partners while the latter has its own delivery fleet.