Alibaba to take control of Ele.me

Move will help e-commerce giant to enhance its capabilities in 'last-mile' service

Alibaba Group Holding Ltd announced on Monday it will take full control of food delivery platform Ele.me, as the e-commerce conglomerate seeks to enhance "last-mile" delivery capabilities crucial to its New Retail commitment.

The internet giant, together with its affiliate Ant Financial Services Group, is spending $9.5 billion to take all outstanding shares it does not own from existing investors.

Prior to the deal, the pair already owned around 43 percent of the Shanghai-based startup.

Zhang Xuhao, Ele.me's founder, will become chairman of the company, while Wang Lei, vice-president of Alibaba, will serve as chief executive officer, Alibaba said.

"As one of the most frequently used apps in China, food delivery is an important entry point in the local service sector," Alibaba CEO Daniel Zhang said in a letter to staff on Monday.

"We already see a vast, multidimensional local instant delivery network becoming an essential element of the commercial infrastructure."

The takeover would pit Alibaba squarely against longtime rival Tencent Holdings Ltd, which backs Meituan Dianping, the other leading online-to-offline catering platform in China.

According to consultancy iiMedia, Ele.me and subsidiary Baidu Waimai together account for 55.3 percent of the country's food delivery market, whereas Meituan had a share of 41.3 percent by the end of 2017.

But Alibaba is looking beyond dominance of the online delivery market. The buyout can give the tech giant a leg up in logistics and delivery capabilities, in which it currently relies on third-party vendors, said Chen Liteng, an analyst at China E-commerce Research Center.

Alibaba can fully leverage Feng Niao Delivery, the courier network of Ele.me which operates fleets of motorbikes and employs 3 million personnel to meet its 30-minute delivery commitment across China, as it deepens its New Retail push, Chen noted.

New Retail is a term coined by Alibaba founder Jack Ma to merge the online and offline shopping experience by employing big data and cloud computing to optimize commercial resources.

Steven Zhu, an analyst with market research firm Pacific Epoch, said that while the deal could put a drag on margins, there are a lot of synergies Alibaba can leverage, especially with its indigenous dining review service Koubei.

"The integration of Koubei and Ele.me, plus Alibaba's host of New Retail infrastructure marks an upgrading of local services," said Fu Weigang, executive dean at the Shanghai Institute of Finance and Law.