Ele.me, a Chinese food delivery service, is set to get a $1 billion or more investment led by Alibaba (BABA), China’s largest ecommerce company and Ant Financial, its financial services arm.
Bloomberg reported that with the funding, Ele.me, which operates in a crowded marketplace, will be valued at between $5.5 billion and $6 billion. The funding is going to help it compete against a service that is backed by Alibaba-competitor Tencent Holdings, also of China, called Meituan Dianping. The market for services provided via a mobile phone, whether to place food delivery orders or book beauty treatments, is booming in China. Bloomberg notes sales of this type of services are forecasted to hit $1.1 trillion in 2017. (See more: Alibaba: Raymond James Likes What It Sees)
Chinese Giants Look for Diversification
The food delivery market in China is attractive to both Alibaba and Tencent because it is one of the retail segments seeing growth. Alibaba is currently the largest shareholder in Ele.me and Tencent, which holds a minor stake, is looking to ramp up investment, according to Bloomberg. Alibaba also has its Koubei service that enables users to book spa treatments and restaurants reservations from their mobile phones.
Earlier this month, it was announced that Alipay is branching out into new markets. The mobile payment service, which boasts 450 million global active users, is teaming up with Atlanta-based credit card processing service First Data (FDC), in a deal designed to enable Chinese tourists to use Alipay’s mobile wallets across about four million U.S. stores. Tencent had beaten it to the punch, announcing similar plans in which its WeChat payment platform inked a partnership with Silicon Valley-based integrated mobile payment company CitCon. Like Alipay, its objective is to support Chinese tourists in the U.S. (See more: Alibaba's Alipay Takes on Apple and PayPal With U.S. Expansion)
WeChat has been closing in on Alipay with market research firm Analysys finding that as of the end of 2016, Alibaba’s market share in digital payments had declined by close to half at the same time that Tencent’s share of the market increased by more than a third. The company is also setting its sights in a bigger way on the restaurant segment of retail. In May, during an earnings conference call, president Martin Lau said it's “putting up quite a big initiative around the restaurant vertical,” reported Bloomberg, noting the company has lost restaurant market share in recent months. To get back its competitive footing it's “putting aside a pretty good budget.” With the ecommerce market getting saturated in China both Chinese companies have been on a hunt for diversification, branching into new markets including digital payments, mobile services and cloud computing, among others.