According to Bloomberg, Alibaba Group Holding Ltd. (NYSE: BABA) may buy out Baidu Inc. (NASDAQ: BIDU) and other investors in Ele.me, a Chinese startup to beef up its delivery network. This is the largest investment in online food and local services.
This acquisition would put Alibaba up to competing ground against Meituan Dianping, which is supported by Tencent Holdings Ltd. (OTC: TCEHY). The deliveries are mostly delivery by employees on motorbikes across the country, which would upgrade Alibaba’s last-mile service to reach customer doorsteps with ease.
Alibaba previously owned 23 percent of Ele.me as of May. Although an official price has not been disclosed, Ele.me has an estimated value of $5.5 - $6 billion as of May 2017. The company has since bought Baidu’s delivery business at a $500 million valuation in August 2017.
According to Analysys, the Chinese food delivery market is estimated to reach $10.7 billion in 2017’s last quarter, which is up 16.2% from the previous quarter. “With its online traffic and Koubei business, Alibaba could create a lot of synergy with this acquisition,” said Steven Zhu, a Shanghai-based analyst with Pacific Epoch. “This would be a drag on the margin, because Alibaba now owns more delivery men and inventory, but it has no choice because long-term wise most consumption still takes place offline.”
Alibaba’s previous takeover of delivery affiliate Cainioa and moves to invest in warehouses demonstrate the company’s focus on logistics. The company’s last-mile service has been delivery mainly by third-party partners.