Ele.me, a Chinese food delivery startup already backed by Tencent and JD.com, has raised a further $1.25 billion from Alibaba and Ant Financial, as competition for control of the country’s fast-growing online-to-offline business sector intensifies.
As a result of the deal announced by Ele.me on Wednesday, Alibaba and Ant Financial will have a combined stake of 27.7%, valuing the seven year-old startup at about $4.5 billion and making them its biggest shareholders, two people with knowledge of the matter told FinanceAsia.
Alibaba and its financial affiliate have invested $900 million and $350 million in the online food delivery platform, respectively, Ele.me said, resulting in a few ruffled feathers.
“After Alibaba joins, other investors’ shares have been diluted a lot. Our strategy has been disrupted by Alibaba. Because it’s the one that has a deeper pocket and speaks louder than others,” said one investor, who declined to be named but whose company invested in Ele.me in 2014.
Shanghai-based Ele.me, of which the Chinese name means “Hungry Now?”, is a major player in the country’s hotly contested O2O industry, where domestic groups are battling it out for market share by aggressively providing subsidies and discounts to merchants and clients.
The sector’s cash-burning business model has made the food delivery service firm spend about Rmb500 million ($77.25 million) on subsidies each month, according to a second investor in Ele.me.
The startup did not respond by press time to FinanceAsia’s request for comment.
In view of the intense competition and strong pricing pressures, it is not hard to see why Ele.me, set up in 2009 by entrepreneur Zhang Xuhao, might be eager to replenish its coffers.
The company in its sixth financing round in August 2015, when it was valued at $3 billion, raised $630 million from the likes of CITIC Private Equity Funds Management, China Media Capital, and Sequoia Capital as well as from Alibaba's rivals Tencent and JD.com.
Most intriguingly of all, now-merged rival Dianping has also invested in Ele.me, albeit in two previous rounds.
Dianping joined forces with Meituan in October to form China’s largest O2O platform Meituan-Dianping. Ahead of the merger, Meituan’s food delivery business racked up losses of up to Rmb150 million ($23 million) each month as it fought hard to take down Ele.me, according to a report in Chinese financial publication Caijing.
But three months after the merger the new group armed itself with $3.3 billion of fresh firepower after drawing the world’s largest-ever single private investment in a venture capital-backed firm. Reportedly valuing Meituan-Dianping at more than $18 billion, that round of financing drew a few big-name investors including China Development Bank Capital and Temasek, in addition to Tencent.
In response Alibaba, which had a minority investment in Meituan and is not thought to have been keen on the merger, appears to be manoeuvring into a position where it can better fight it out with China's current O2O market leader.
Meituan-Dianping provides a range of services from cinema ticket sales to restaurant bookings. Koubei is the rival service launched by Alibaba and Ant Financial last June, when they pledged to invest Rmb3 billion each in the O2O sector. The plan, once the latest round of financing is completed, is for Ele.me to run the food delivery service on Koubei and for Alibaba vice chairman Joseph Cai to sit on the board of Ele.me.
According to a person with knowledge of the matter, Alibaba is also in talks to sell its remaining stake in Meituan-Dianping,
In recent years, Ele.me has been competing fiercely with Meituan-Dianping and Nuomi, the Groupon-like lifestyle platform of China’s dominant internet search company Baidu. Baidu’s chief executive officer Robin Li said last year that the company would invest Rmb20 billion in Nuomi over the next three years.
According to Beijing-based consultancy Analysys International, the market volume of Chinese food delivery business reached Rmb46 billion last year, with Ele.me taking up a 33.7% market share. Meituan-Dianping and Nuomi followed with 33.1% and 19%, respectively.