In many of China’s fiercely competed tech spheres, duopoly seems to be a rule that fits in. Over the past years, we’ve seen the cut-throat competition between Mobike and Ofo in bike sharing, Maoyan and Taopiaopiao in online movie ticketing, Wechat Pay and Alipay in mobile payment, as well as Meituan Waimai and Ele.me in food delivery, and the list can go on and on.
However, as each one of the embattled startups finds its backer in either Alibaba (Ofo, Taopiaopiao, Alipay, Ele.me) or Tencent (Mobike, Maoyan, WeChat Pay, Meituan Waimai), the warfare, and subsequent triumph, eventually belongs to either the A or the T, the ultimate duo play between Hangzhou-based ecommerce-centered conglomerate Alibaba and Tencent the social networking and gaming giant that headquartered in Shenzhen.
And Alibaba’s most recent rumored move to fully acquire Ele.me, is just another testament to the duopoly creed as seen everywhere. There is indeed nothing new under the sun.
Words have been circulating on the street suggesting Alibaba co-founder and chairman Jack MA is adding the latest piece to the new retail narrative the Chinese billionaire first told the world in the year of 2016 as sources claimed that Alibaba would be pumping in US$ 9.5 billion to acquire all the rest of stakes in online food delivery startup Ele.me it doesn’t already own.
Alibaba and its financial affiliate Ant Financial currently own 40 percent of Ele.me.
Both Alibaba and Eleme declined to comment on the matter officially, but an internal source at Alibaba told Chinese biztech media 36Kr, our parent, that “a deal is slated to happen though prices and details have yet to be determined.”
Meituan’s Concern
Founded in 2008 in Shanghai by ZHANG Xuhao and his graduate classmates at the prestigious Shanghai Jiaotong University, Ele.me has managed to expand outside of Shanghai and rise to become one of the major food delivery players in China’s food tech scene.
It’s one of the world’s most valuable tech unicorns according to venture capital market intelligencer CB Insights, and the largest of its kind in China by market share since it acquired Chinese search engine Baidu’s food delivery operations in August 2017 as Baidu was seeking to exit the distracting food delivery business to sharpen its focus on AI technologies.
The buyout of Baidu Waimai was partially funded by Alibaba and Ant Financial’s 1 billion USD investment into Ele.me in last May, resulting a temporary break from years of rebates-driven competition among the trio: Alibaba’s Ele.me, Tencent-backed Meituan Waimai, and Baidu’s very own Baidu Waimai.
Using hefty incentives to lure away customers from competitors is a common practice amongst usually well-funded startups. For instance, It’s been tactically leveraged by Didi several years ago to outcompete Kuaidi and Uber China unit.
But at the end of day, such competition is a zero-sum game that one party is destined to lose – though consumers might be the only ones who are benefiting from such practice – which explains Meituan’s concern articulated a while back over a possible consolidation between Alibaba and Ele.me – it means that Meituan, which was backed by Tencent, would have to confront with Alibaba directly.
Meituan’s concern is not unfounded, taking into account Baidu Waimai’s market share, Ele.me holds a combined 55% market share as of August 2017, giving the company a leg up over Meituan.
Last-mile delivery
Industry insiders believed that Alibaba is purchasing Ele.me, which employs/contracts/crowdsources a large army of over 3 million scooter-riding couriers delivering takeouts from 1.3 million restaurants to the doorstep of 260 million mobile users spreading across 2000+ Chinese cities, to complete its heavily-invested new retail strategy.
The view echoed that of what an Alibaba internal source’s revelation: after the buyout Ele.me would be folded into the Hangzhou-based ecommerce behemoth’s new retail initiatives as one of the infrastructure mainstays, under the leadership of Daniel Zhang. Mr. Zhang is spearheading an unprecedented effort to combine the strength of internet technology and big-box stores.
Alibaba, through its years of vast amount investments into a slew of local merchants ranging from department stores, supermarket chain operators, electronics and furniture retailers to others, have built up a big network of physical channels that could at anytime tap into its technological innovations for benefits such as improved operations efficiency, increased foot traffic via mobile apps, etc.
However, unlike its rival JD.com, which has constructed a reputational self-operated logistics business through years of onerous work, Alibaba to date is very – maybe too – reliant on 3rd party courier services to fulfill the massive amount of orders made on its online premises.
In that sense, a self-owned delivery service sounds like a missing piece from Jack Ma’s new retail ambition.
To many, they are looking at Alibaba to first incorporate Ele.me’s courier strength into HeMa XianSheng, the post child of its new retail concept.
HeMa (盒马鲜生), the cashless and cashierless brainchild of its founder HOU Yi, adopted an innovative model to let China’s affluent and mobile-addicted middle-class customers place an order from their cellphones and get all sorts of fresh foods delivered to their homes. HeMa boasts of a “30 strategy” – less than 30 minutes delivery to customers who live within a 3 km distance from its stores.
Spoiled by local internet companies that are promising anything from same-day/half-day delivery for big parcels to 1-hour/30 minutes delivery for takeouts, Chinese consumers are becoming less and less patient in having their needs being satisfied.
What they want, they want it now.
Having access to Ele.me’s delivery fleet, Alibaba is well poised to shorten the time HeMa currently needs for delivery, which could result in higher turnover at the fresh food-focused supermarket.
The synergy between Ele.me and Alibaba’s new retail effort seems to be very sound if the acquisition works well to complete Alibaba’s missing piece of its last-mile delivery network in the future.