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China’s online food delivery sector is in the midst of a shakeout. And, in a pattern that’s becoming very familiar, the two services left standing will be surrogates of Alibaba and Tencent, two of the country’s largest tech firms.
This week China-based financial magazine Caijing reported that Alibaba-backed food delivery platform Ele.me was on the brink of purchasing rival service Baidu Waimai for $500 million in cash and stock. That would leave online-to-offline (O2O) firm—and Tencent investee—Meituan-Dianping’s service Meituan Waimai as the largest food delivery platform still in competition with Ele.me.
According to local media reports, the terms of the deal will allow Baidu Waimai to operate as an independent unit for a year, and Ele.me will retain the ability to continue using the brand for six months after that.
Data from Cheetah Lab found that Ele.me was the top-ranked food delivery app among Android users in China as measured by reach in the fall of 2016. Meituan Waimai was in second, followed by Baidu Waimai.
The food delivery sector is a burgeoning business in China. Research from the China Internet Network Information Center (CNNIC) found that 39.3% of internet users in China, or about 295.3 million people, had used an online food ordering or delivery service in the first half of 2017.
Baidu has reportedly been hunting for a taker for its food delivery business for some time. The company is now focusing its energies on emerging technologies like artificial intelligence (AI) and virtual reality (VR) in the face of declining search advertising revenues, once considered its core business.
Meanwhile, Ele.me is riding high off Alibaba’s April decision to plow $900 million into the business, with Alibaba affiliate Ant Financial adding another $350 million in investment. Alibaba is using its expanding stake in Ele.me to move further away from an ecommerce pure-play model and into locally provided services and brick-and-mortar retail as part of its “New Retail” strategy. According to an analysis by Bloomberg, Ele.me had 28 million monthly active users (MAUs) as of May.
“By adding Ele.me to its growing roster of O2O partners and affiliates, Alibaba will be able to more quickly achieve scale in local services by leveraging Ele.me’s customer base of 50 million users in 300 Chinese cities,” Alibaba stated in a blog post from April announcing its investment.
Ele.me will also likely be aided by the fact that it and Baidu have largely targeted the same market segment—customers in first- and second-tier cities in China. Meituan Waimai, by contrast, has found a more willing user base in lower-tier cities.
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