Why Investing in Food Delivery Makes Sense for Alibaba
China’s on-demand service industry
China promises to be a lucrative market for local on-demand services such as online meal delivery and online taxi ordering. The growth of the Chinese on-demand service market is supported by people’s increasingly busy lifestyles and rising incomes, along with deepening Smartphone and Internet penetration.
Alibaba (BABA) wants to lead this on-demand service economy, and its investment in digital payments and food delivery startups tells the story.
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According to a recent Bloomberg report, Alibaba is on the verge of making a $1.0 billion investment in Ele.me, a food delivery startup in which it already owns a majority stake.
The planned new investment will not only cement Alibaba’s hold on Ele.me, it will also dilute the minority stake that rival Tencent, owner of the WeChat app, owns in the startup.
Plotting for a land grab in China’s digital payment market
Tencent has a large stake in Ele.me’s rival, Meituan-Dianping. By taking firm control of Ele.me, Alibaba hopes to keep Tencent and Meituan-Dianping in check.
While dominating China’s local service market is part of the game in these food delivery investments, Alibaba and Tencent are vying for control of China’s more than $5.5 trillion mobile payment industry. China’s mobile payment industry is 50 times larger than that of the United States.
By forging closer ties with food delivery startups, Alibaba and Tencent are hoping to expand the market for their digital payment services. For example, Alibaba would want customers ordering meals via Ele.me to use its Alipay platform.
Keeping foreign rivals at bay
Taking early control of promising service startups such as Ele.me and Meituan-Dianping could help Alibaba and Tencent to guard against foreign competition from PayPal (PYPL), Square (SQ), Apple (AAPL), and Alphabet’s (GOOGL) Google in China’s domestic digital payment market.