Alibaba plans to merge its food delivery units to dominate China's buoyant online-to-offline market against Meituan Dianping which is backed-up by Tencent Holdings.
The units to be combined are the food delivery service Ele.me, food and lifestyle search engine Koubei, and the cashless supermarket chain, the Hema Fresh according to people familiar with the matter
The online-to-offline or O2O market, where users can place their orders from bricks-and-mortar businesses via smartphone apps for delivery at their doorstep, is currently a $146-billion market in China, Reuters reported citing Chinese research firm Analysys.
The unnamed sources also revealed that Alibaba has plans to raise between $3 billion and $5 billion for the combined entity of the food delivery units estimated to be as much as $25 billion. The said fundraising is reportedly going to happen later this year.
Mo Jia, a research analyst with technology consultancy Canalys, said the competition for the O2O is strictly between Alibaba and Meituan since they are the only company with dependable services in the booming industry.
"Alibaba's three units are complementary to each other and it has strategic logic to merge them into one platform to compete with Meituan," Mo told Reuters.
In July, Forbes reported that Alibaba is ready to splurge on China's food delivery market to reclaim the lead from Meituan Dianping. The latter had 46.1 percent of China's O2O market last year while Ele.me only had 39.5 percent of the market.
"The Hangzhou-based company will splash a whopping [$450 million] in the next three months to help Ele.me, the food delivery platform it acquired for $9.5 billion in April, capture a greater share of the market from Meituan," Wang Lei, CEO for Ele.me, told Forbes. Wang described Alibaba's move as "summer war" against Meituan.
Alibaba is said to be also planning to give viewers of its Youku Tudou video platform Ele.me coupons while members of the food delivery service will be given access to some of Youku Tudou paid channels for free.
On its own, Ele.me is said to be raising $2 billion from private investors.
"This (O2O) is a huge market that is only at early stage development. We have a really clear strategy, and that is capture a more than 50% market share in the short to medium term," Wang added.
The Business Times reported previously that Starbucks is in talks with Alibaba regarding the launch of a mobile or internet base coffee on-demand service where "Ele.me" is in charge of delivery.
Alibaba's Hema Fresh supermarket chain, meanwhile, will all have the Robot.He restaurants where robots have replaced waiters.
Meanwhile, Meituan has unveiled its first crewless delivery vehicle in July. The vehicle can perform both indoor and outdoor meal delivery. It will be put into trial operation sometime this year. If everything works, the vehicle will carry out large-scale distributions by 2019.
Meituan has also filed for an initial public offering in Hong Kong in June, seeking a valuation of $60 billion to raise more funds for more future expansions, Asia Times reported.
