Alibaba is set to merge its Ele.me and Koubei food services, in an attempt to fend off competition from rival Tencent’s Meituan Dianping food delivery service.
According to wealth management consultancy RWM Holdings, Ele.me has received $3 billion in funding from SoftBank Vision to aid the transition, as Ele.me had been spending enormous sums in an attempt to establish dominance in the Chinese food delivery market.
The Ele.me service allows consumers to order food from restaurants through an app while Koubei provides comprehensive information on restaurants, and the consolidation of the two services aims to stifle the growth of Meituan, which is valued as the third most valuable tech startup in the world, according to CB Insights.
Meituan posted a net loss of $2.8 billion last year as it ramped up spending to establish a dominant position in the segment, while Ele.me reportedly spent $400 million this quarter alone, as both companies offered significant discounts in order to attract consumers to their respective platforms.
Ele.me is currently valued at $9.5 billion and Reuters reported that a merged entity could be worth approximately $25 billion. Meituan was valued at $30 billion last year, and the company is expected to raise further funding in the coming months as shares in the company will be publicly floated in Hong Kong.
Figures published by Chinese research firm iiMedia Research in June suggested that Ele.me held approximately 55% of the market in the first quarter of the year, while Meituan held 41%.
Demand for food deliveries is on the rise in China, as more consumers are using smartphones to access on-demand services.
According to Chinese research firm Analysys, the value of online to offline (O2O) transactions in China jumped 72% last year to $146 billion.
Mo Jia, a Shanghai-based research analyst at technology consultancy Canalys told CNBC: “Alibaba and Meituan are the two main companies that can offer comprehensive O2O services.
“Alibaba’s three units are complementary to each other and it has strategic logic to merge them into one platform to compete with Meituan.”
© FoodBev Media Ltd 2018