The latest item on the menu for Chinese tech tycoons Jack Ma and Pony Ma is a dominant role in the country's fast-growing food-delivery market. And neither man likes to be told that his dish of choice is off the menu.
Tencent's Pony Ma has already served up an aperitif in this culinary battle. Tencent is the major backer of Meituan, an online-to-offline unicorn offering everything from food on demand to international travel. Meituan is now seeking to raise as much as $4 billion in a Hong Kong float, valuing the firm at $60 billion, people familiar with the deal said.
But while Meituan holds a bigger share of the market at the moment, Jack Ma's Alibaba believes its subsidiary Ele.me – literally 'Hungry Yet?' in Chinese – will be the main course. Alibaba and Ant Financial own 43% of voting shares in the company after first investing $1.25 billion in 2016. It was lead investor in a further $1 billion funding round last year, Crunchbase data shows, and Ele.me has since bought the food delivery arm of internet search giant Baidu for $800 million.
The rewards are tasty according to Meituan's listing documents, China's on-demand food delivery business will double in size to Rmb662 billion (98 billion) in 2019, up from Rmb305 billion in 2017.
For Ele.me, the Alibaba endorsement has given it an instant access to a huge database of consumer spending patterns, given its annual transaction volume of more than $768 billion. It's not the first Alibaba unit to look to e-commerce data as the basis for success; Ant Financial, Alibaba's financial unit, has utilised the huge pool of data generated from the e-commerce giant, providing everything from mobile payment to money-market funds to Chinese consumers.
The data strategy marks a change of tack for Ele.me after years of splashing millions of dollars on advertising and user acquisition. Ele.me, which once hired NBA superstar Kobe Bryant as its pitchman, will leverage Alibaba’s user base across its various online platforms in a move to challenge Meituan, which saw its market share jump from 32% in 2015 to 59% in March this year.
In an interview with FinanceAsia, Lei Wang, newly appointed CEO of Ele.me, talks about his strategy to boost its online traffic and user base and why it matters to build a platform offering on-demand delivery within 30 minutes.
Wang is an Alibaba veteran, spending more than 15 years in different managerial roles within the e-commerce giant. He was most recently the chief executive officer of Ali Health, a Hong Kong-listed health subsidiary.
Q What’s the investment philosophy behind the acquisition of Ele.me?
A Let me share a few statistics with you first. In 2017, there were 40 billion packages delivered in China, out of which food deliveries accounted for 10 billion. What the numbers tell us is that there is a huge demand for the so-called on-demand delivery services, and the acquisition of Ele.me fits into Alibaba’s existing operations such as our delivery system and online payment platform. The tendency of using the food-delivery services is high, which can drive online traffic and transaction volume for our platforms.
Q What are your top priorities after becoming the chief executive officer of Ele.me in April?
A Our medium-term goal is to get a market share of 50% in China’s on-demand delivery business. Currently, we are slightly behind Meituan in terms of market share, but we are confident to play catch-up under the ecosystem of Alibaba.
For Alibaba, Ele.me is an important channel for locally accessing the ordinary people. Ele.me also provides an offline channel for Alibaba’s online consumer-facing platforms from video-streaming site Youku to Weibo, China’s answer to Twitter.
Let me give you an example. During the [soccer] World Cup we started to promote our food delivery services on Youku, providing coupons to people watching the live football games.
In a further push, we will spend Rmb3 billion this summer in the three months to September, offering red packets to our customers and new promotions to attract local restaurants.
Q What is the key problem at Ele.me you are trying to solve?
A By nature, the food delivery business is quite cyclical, because demand for food delivery concentrates only on certain time slots each day. After lunch and dinner each day, the delivery men have few delivery orders. After becoming part of Alibaba, Ele.me can take orders from our various platforms, delivering everything from flowers to fresh fruit. In the month of June, the delivery orders for non-food delivery jumped 110% from a year earlier.
In the end, we want to improve the efficiency of the local delivery network in China, with sufficient delivery orders filling the entire day.
Q What’s your assessment of the ongoing listing of Meituan?
A The food delivery business is still in the early stages. The value of the food delivery business was about Rmb300 billion last year, representing a small fraction of the Rmb4 trillion food and catering business. Therefore, we think there is plenty of room to grow.
We think the growth rate of the entire industry should be at 60 to 70% per year for the next three years, which is higher than Meituan’s historical growth.
Q Does Alibaba share with you AI, other technology that helps you analyze data?
A Ele.me has an advantage in collecting data locally. For example, Ele.me has the technology to make forecasts on making the delivery route locally based on the weather and daily traffic. What Alibaba has is the consumer data from its existing platforms. We want to leverage the technological advantage of both sides.
Q With a similar market share in the food delivery industry, Ele.me was last valued at $9.5 billion, while Meituan is seeking a $60 billion valuation. Why is there a big difference in valuation?
A Meituan is like a one-stop shop of everything from ride-hailing to hotel booking. Food delivery is a part of their business. Of course, the market has priced in different multiples for Meituan and Ele.me.
[Meituan, China’s largest provider of on-demand online services, bought bike-sharing firm Mobike for $2.7 billion in April. The Beijing-based company has recently entered the ride-hailing market, in a move to boost the time users spend on their platforms and generate more data.]
Q Ele.me is said to be in talks with potential investors for a $2 billion fundraising round. What’s the latest status?
A We can’t comment on market speculation.