China Consumer

Stand and deliver

Alibaba’s Ele.me ups the ante in battle with Tencent-backed Meituan

Eleme-w

Starbucks’ new delivery ally: Ele.me

The Peloponnesian War, fought between two of Greece’s leading city-states – Athens and Sparta – in 431–404 BC, was believed by Thucydides to be the most significant conflict in antiquity. For one thing, it drew the rest of the Hellenic world into the combat and forced individual cities to take sides. For another, it sapped the strength of both coalitions and led to the demise of Athens’ golden age.

Fast forward to contemporary China, where another ferocious war is being waged: this time between the country’s dominant tech duo Alibaba and Tencent. And as they shift their battlefields from mobile payments to bike-sharing, and lately, to online-to-offline (O2O) lifestyle services, more and more of their affiliates are embroiled in a cash-burning conflict.

Soon after the Tencent-backed food delivery platform Meituan Dianping filed its plan tfor a $4 billion initial public offering in Hong Kong, reports also emerged earlier this month that its main competitor Ele.me – fully owned by Alibaba since April – was seeking up to $5 billion of new investment from investors including Softbank (an Alibaba ally and key shareholder).

The potential fundraising looks necessary after Ele.me revealed an audacious plan to capture at least half of China’s meal delivery market over the summer by offering subsidies and discounts worth Rmb3 billion ($439 million). As of the first quarter it had a 36% market share of the sector (by gross transaction volume) versus Meituan’s 59%, according to the latter’s IPO prospectus.

Reuters and Bloomberg have both speculated that Ele.me looks set to be merged with Koubei, a user review platform and lifestyle app established by Alibaba in 2015. The combined entity may be valued at up to $25 billion, Reuters reckoned. When Alibaba took it over in April, Ele.me was valued at $9.5 billion.

Although Ele.me dismissed the speculation, its CEO Wang Lai has commented in the past that Ele.me and Koubei are complementary platforms. One of Ele.me’s key strengths is its army of three million registered motorbike delivery riders. Koubei helps restaurants with digital menus, online order placements, automatic table reservations and targeted promotions. Above all, it helps to direct traffic within Alibaba’s ecosystem (Koubei was originally embedded in the group’s flagship payment system Alipay). Ele.me has already seen benefits from its affiliation with Koubei: delivery orders received from non-dining sources such as supermarkets, convenience stores and florists surged 110% on-the-year in June.

Whether or not the merger happens, one giant that has bought into Alibaba’s O2O delivery vision is Starbucks. The Seattle-based coffee chain has been fighting a battle of its own against aggressive local rival Luckin Coffee (see WiC406). By selling coffee at roughly a 25% discount to Starbucks’ prices and guaranteeing prompt delivery (typically within 30 minutes or the coffee is free-of-charge), app-based Luckin has already sold more than 18 million cups of coffee since launching last November. The tech-savvy start-up has grown its customer base to more than 3.5 million people across 13 major cities in China.

Starbucks, by comparison, saw its China same-store sales slip 2% for the April-June period, versus 7% growth a year ago. To combat Luckin’s challenge, Starbucks announced this month a new partnership with Alibaba’s Ele.me, designed to improve the US chain’s ability to deliver online coffee and food orders across China. Another new initiative will see Starbucks set up outlets at Hema Fresh – the Alibaba-owned supermarket chain.

Meanwhile news of Ele.me’s summer offensive has hurt Meituan’s impending IPO. That and a more lukewarm stock market have reportedly seen the firm’s valuation cut by 40% to $35 billion on fears that Meituan will have to burn more cash as its subsidy battle with Ele.me intensifies.

Meituan’s prospectus revealed that its own push to increase its market share in 2017 was an expensive exercise: its net loss last year was Rmb19 billion on revenues of Rmb34 billion.


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