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Alibaba Spending $440 Million to Market Ele.me

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Ele.me eyeing over 50% of the market

Alibaba (BABA), gearing up to report its fiscal Q1 2019 (ended in June) results on August 23, has committed to spend ~$440 million to promote its food delivery subsidiary, Ele.me, this summer. Its goal is to help Ele.me capture more than 50% of China’s online food delivery market, and the funds are to be spent on subsidies and marketing campaigns.

Alibaba spent $1.2 billion on marketing activities overall in fiscal Q4 2018. Alibaba took full ownership of Ele.me recently after buying out other investors in the delivery company. Earlier, Ele.me acquired Baidu’s (BIDU) delivery business, reducing China’s online food delivery market to just two players. Meituan, which is preparing to go public in Hong Kong later this year, is Ele.me’s main rival. Ele.me is backed by Tencent (TCEHY), the Chinese Internet company that also owns a stake in Alibaba’s e-commerce rival, JD.com (JD), and Snapchat parent Snap (SNAP).

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Ele.me to deliver Starbucks coffee

Alibaba is setting out to aggressively promote Ele.me as the service has begun winning over prominent customers. Starbucks (SBUX), which recently signed Ele.me to deliver coffee to its customers in China, is the country’s main premium coffee retailer, holding an ~80% share of the market at the end of last year according to Euromonitor. Its rival, McDonald’s (MCD), held less than 10% of the market.

Growing at a 70% pace

Delivering coffee for Starbucks could accelerate Ele.me’s growth, and the profile boost stemming from its Starbucks partnership could win over more prominent customers. Ele.me is aiming to grow its revenue by 60%–70% through 2020.

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