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How Ele.me Is Strategically Important to Alibaba

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Using Ele.me to drive Alipay uptake

With its purchase of food delivery service Ele.me, Alibaba (BABA) is pursuing China’s online food delivery market, which expanded 23% year-over-year to $31.9 billion last year. However, Ele.me is strategically important to Alibaba in many other ways, one being that it could enlarge the market for Alibaba’s mobile payment service, Alipay. Although the service dominates China’s mobile payment scene, it has encountered intense competition in recent years.

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Walmart drops Alipay in some Chinese stores

In March, Walmart (WMT) decided to drop Alipay as its preferred mobile payment service in its stores in western China, turning to Tencent’s (TCEHY) WeChat Pay. Walmart and Tencent have stakes in Alibaba e-commerce rival JD.com (JD), which received a $550 million boost from Alphabet’s (GOOGL) Google and struck a partnership deal in June. Despite growing competition, Alipay is still the top mobile payment service in China, according to Analysys International.

Using Ele.me to speed up deliveries

Ele.me could also be an important building block of Alibaba’s logistics. Alibaba’s goal is to be able to deliver orders across China in 24 hours and ship international orders in 72 hours. As part of its plan to achieve this goal, the company has pledged to invest $15 billion over the next five years to build a global logistics network. Ele.me, with its army of delivery workers on motorbikes, is strategically placed to supplement Alibaba’s logistics efforts, particularly in local delivery.

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