Chinese tech behemoth Alibaba plans to merge food delivery platform Ele.me with KouBei, its own similar arm, the portal 36kr reports.
Alibaba had acquired Ele.me four months ago. The portal also reports that Japanese multinational holdings conglomerate Softbank had recently pumped in USD 3 billion in Ele.me. The merger will provide the teach giant with more teeth to compete against MeiTuan.
Despite having significant reputation in the Chinese food delivery market, Ele.me has been struggling to hold its own in its competition against MeiTuan. Statistics suggests that Ele.me merely covers 30% of the food delivery market, far less than MeiTuan’s 65%.
It is certainly not the best outcome for Ele.me and its founder Zhang Xuhao. But with the heated competition, such strategic mergers enhance Alibaba’s competitiveness in the market.
Starting from 2016, Chinese food delivery market entered a price bidding war: all platforms are paying high subsidies for users to consume on their platforms. Baidu’s Delivery opted out of the race earlier in 2017, leaving the field to Zhang Xuhao’s Eleme and Wang Xing’s MeiTuan.
Ele.me and MeiTuan both grouped themselves with larger investors eventually making it a proxy war between Chinese tech hegemons: Alibaba and Tencent. It is reported that Alibaba put out close to USD 450 million for Eleme to continue its price war against MeiTuan.
Finding the Bertrand model of duopoly very hard, Alibaba attempted to create some unique selling points for Ele.me. Earlier this year, coffee brand Starbucks announced that the renowned coffee shop will exclusively deliver on Ele.me. The effect of one coffee brand is certainly far from shaking the food delivery market, yet Starbucks' choice of selling on one platform only may have larger implications: businesses later on, perhaps they will be asked to pick a side in this competition.