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Analysis

After Acquiring Ele.me for USD 9.5 Billion, Is Alibaba Satisfied?

Apr 5, 2018 by Yun Nie
After Acquiring Ele.me for USD 9.5 Billion, Is Alibaba Satisfied?

Alibaba has acquired Ele.me - the Chinese platform that offers online food delivery service - for USD 9.5 billion on April 2, 2018, making Ele.me a wholly owned subsidiary. The longstanding sufferings of the Chinese food delivery service that relied on cash transactions might be officially history now after Alibaba’s acquisition.

The acquisition of Ele.me, Alibaba said, would help power its business strategies focused on new retailers in the digital business ecosystem.

The CEO of Alibaba, Yong Zhan, announced that Xuhao Zhang, the founder and CEO of Ele.me, would be designated Chairman of the Board of Ele.me and concurrently assist with his new “retail-focused” strategies, decision-making and strategic planning. Alibaba’s Vice President, Lei Wang, would be the CEO of Ele.me.

An inevitable acquisition

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(Image from [Google](http://huxiu.com)

The rumours that Alibaba intended a full buyout of Ele.me originally started in February 2018.

On February 27, a shareholder of Ele.me, Beijing Hualian Department Store Co., Ltd. (000882.SZ), announced to the shareholders of the parent company of Ele.me, Rajax, Alibaba’s intention to acquire Ele.me.

Alibaba’s acquisition-leanings, according to huxiu.com, could be traced back to as early as August 2016, when Alibaba and Alipay invested USD 900 million and USD 350 million respectively in Ele.me. The next year, the total investment was raised by USD 400 million.

Since then, Alibaba, the largest stockholder of Ele.me has influenced the company in all its verticals, branching out into an increasing amount of businesses.

Internally, the organizational management in Ele.me suggested a “Class-Committee” model - the management method employed by major Alibaba’s subsidiaries like Taobao and Alipay.

The “Class-Committee” model (or “trade-and-logistics committee”) established in 2018, aiming at reinforcing the cooperation between the trade and logistics departments, was initially introduced by XuHao Zhang on March 22, during the “Ele.me 2018 Conference of Trading Platform and Food Delivery”.

“Class-Committee” is a metaphor for the organizational hierarchy – the co-founder and COO of Ele.me, Jia Kang, was the “class monitor”, administrating the “Class Committee”, while “members” consisted of the managers in the trade, logistics, and technology departments.

Beyond the “Class-Committee” model, the staff-less store project “Now”, targeted by the new retail-focused department of Ele.me, has been under the management of the CEO, Qi Chen, the previous and first administrator of 1688.com, which is the prominent retail division of Alibaba.

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(Image from [Google](http://huxiu.com)

Externally, the market rivalry among the food delivery businesses had become progressively fierce, which encouraged Ele.me to merge with Alibaba.

huxiu.com reported that Didi, a major Chinese ride-sharing, AI and autonomous technology conglomerate, incorporated the food delivery service on April 1st, hitting out against its competitors, Ele.me and Meituan.

Didi’s food delivery service signalled a warning to Ele.me and Meituan, raising their concern about Alibaba’s influence on restricting food delivery platforms and posing a threat to themselves.

Several restaurants that teamed up with Didi responded that they had been warned by Ele.me and Meituan. Meituan, at the same time, withdrew from cooperating with restaurants that allied themselves with Ele.me.

According to ThePaper.cn, the intensive competition combined with the struggle to overcome the financial crisis it found itself in were the leading causes that forced Ele.me to accept Alibaba’s acquisition.

Both Alibaba and Ele.me expect a “win-win” outcome

Yong Zhang wrote in his letter to employees, “welcome Ele.me to the Alibaba family”. In keeping with Zhang’s terms, Ele.me has been allowed to operate separately as a distinguishing brand after the acquisition.

Following precedence set in Alibaba’s previous acquisition cases, Xuhao Zhang will be departing from his CEO position, indirectly verifying the rumour that “Xuhao Zhang was removed from the list.” However, he has been re-assigned as Chairman of the Board of Ele.me.

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(Image from Sina)

In a separate letter to employees, Mr. Zhang said that he supported the company’s evolution under Alibaba.

“Although the market penetration rate still remained low regardless of the food delivery services in traditional restaurants or new retailers, merging with Alibaba and utilizing its business ecosystem resources would be a great path to success,” he said.

Despite his re-assignment, Xuhao Zhang said, “appointing a new CEO to Ele.me is of primary significance to Alibaba that is validated by my former teammates and I. As the new Chairman of the Board, I will focus on decision-making and strategic planning and also assist Yong Zhang to obtain more resources.”

In terms of business budget, Xuhao Zhang responded, “the budget would increase. Although Alibaba is more resourceful than Ele.me, a balanced business budget would be created.”

Under Alibaba’s protection, Ele.me is ready to compete with its rivals. And the tech conglomerate, Alibaba may be satisfied for a while now.

Yun Nie

Yun Nie is a New York-based tech reporter. She focuses on India-China financial market, global IT giants and technology-centric market trends. She can be reached at Yunnie@thepassage.cc.

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