Alibaba wants to dominate food delivery in China

  • There’s speculation that Alibaba is looking to buy out the remaining stake of Ele.me, its food delivery unit.
  • Ele.me already accounts for 50% of the online food delivery market in China, while its other competitor Meituan maintains roughly the other half in market share.
  • Watch Alibaba’s stock price move in real time here.

With one deal, Alibaba could dominate the online food delivery market in China.

There are rumours the e-commerce giant is planning to acquire the remaining 68% stake of Ele.me, its food delivery unit, which will likely cost around $US9.5 billion, according to a Jefferies note citing multiple media sources.

Alibaba’s planned takeover could make it one side of a powerful duopoly in China. Ele.me makes up 50% of China’s online food delivery market while rival Meituan controls 43.5%, according to Analysys International. The move puts Alibaba closer to cornering the Chinese online food delivery market.

China is the world’s largest online grocery market, and it is projected to more than double its growth by 2020, according to IGD, an international grocery research organisation. The industry delivered 80% year-over-year growth in 2017, wrote Jefferies’ Karen Chan in a note.

China has seen online grocery growth soar because it has a higher population density, lower labour cost, a fragmented food and beverage market due to the higher number of small mum-and-pop shops with no logistics capacity, and a “well-formed consumer habit” thanks to subsidies, Chan said.

The acquisition of Ele.me could create synergies for Alibaba to move beyond food delivery, Chan added. It could help expand Alibaba’s cross-channel traffic acquisition, Alipay’s scale from loyal or high-frequency users, and “strengthen” its last-mile delivery under its “New Retail” initiatives, which the company hopes will further imbue brick-and-mortar stores with technology and e-commerce.

Last November, Alibaba acquired a 36% stake in the China’s largest grocery operator, Sun Art Retail Group. Sun Art operates around 450 hypermarkets across China. It also acquired department chain store Intime last year, and has continued to roll out its Hema Supermarkets as part of its “new retail” vision.

Alibaba’s stock was trading at $US188.56 per share, and was up 2.8% for the year.

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