According to Fortune, the deal is part of Alibaba’s efforts to expand into China’s local-delivery market, which has grown at a rapid pace as more people turn to their smartphones to order food, schedule appointments and hire help. The deal is also a way for Alibaba to promote its payment service.
Alibaba paid all cash in the deal and acquired all the shares formerly held by Baidu, according to a source. As part of the deal, Ele.me Founder Zhang Xuhao will become chairman of the company and Vice President of Alibaba Group, Wang Lei, will become chief executive officer of Ele.me.
Ele.me (which means “hungry yet?”) has people delivering food on motorbikes across China. Its main competition is Meituan Dianping, a startup backed by Alibaba rival Tencent Holdings.
Daniel Zhang, chief executive officer of Alibaba Group, said in an internal email to staff, “As one of the most frequently-used applications, food delivery is the single most important entry point in the local-services sector. We can already see that a vast, multi-dimensional, local instant-delivery network formed through a food-delivery service will be an essential piece of the commerce infrastructure.”
To deal with increasing competition throughout Asia, Alibaba said it would invest another $2 billion in Lazada Group to strengthen its presence in Southeast Asia, where Amazon has launched in Singapore and Sea Ltd.’s Shopee is expanding to win consumers.
The company is also making additional moves in the delivery sector. Alibaba is taking over longtime delivery affiliate Cainiao and putting money into warehouses. In addition, it has made investments in traditional retailers, such as department store chain Intime Retail Group and China’s largest operator of hypermarkets.
Kirk Boodry, analyst for New Street Research, said, “If the Ele.me distribution network is integrated with Cainiao, it can become a more efficient asset and bring it to break-even quicker.”