Ele.me, Baidu Deliveries Merge to Consolidate China’s O2O Market

Chinese online food-delivery company Ele.me said Thursday it’s merging with Baidu Deliveries to consolidate the country’s intensely competitive online-to-offline (O2O) market.

The deal combines Shanghai-based Ele.me, which last year received a $1.25 billion investment from Alibaba Group and affiliate company Ant Financial, and its 1.3 million merchants in 2,000 cities, with the 1 million merchants in 300 cities selling through Baidu Deliveries, a division of internet-search company, Baidu Inc.

In a statement, Ele.me said Baidu Deliveries would continue to operate as an independent brand and retain its existing management team. The transaction’s value was not disclosed.

Alibaba and Baidu plan to support Ele.me and Baidu Deliveries with technology, customer acquisition and food safety, while Alibaba will commit additional capital to support Ele.me’s plans for further growth.

“Through the powerful backing of both Alibaba and Baidu, the combined operation is poised to lead the online-to-offline service industry in China,” Ele.me Chief Executive Officer Xuhao Zhang said in a statement.

Also part of the deal, Ele.me is expected to contribute data and resources to improve the experience of Baidu Deliveries users.

“We believe that the integration of resources and technical capabilities will allow Baidu to utilize its cutting-edge technology to provide a better experience for consumers and merchants,” Baidu Group President and Chief Operating Officer Qi Lu said in the statement.

Food deliveries in China soared by 44 percent annually between 2013 and 2016, according to Kantar Worldpanel and Bain & Company, while food purchases for in-home meal preparation and dining saw annual growth of 3 percent and 10 percent, respectively. In their report on shopping trends in the world’s second-largest economy, Kantar and Bain attributed the trend to O2O food delivery specifically, saying the sector saw 40 to 50 percent annual growth between 2013 and 2016, reaching $30 billion from $9.8 billion. The race to capture that growth has prompted intense competition among the sector’s leading players.

To expand its service offerings to consumers, Alibaba invested in Ele.me in April 2016. The Hangzhou-based technology giant also shifted the food-delivery business operations under its O2O provider Koubei to Ele.me, while Alibaba Group Executive Vice Chairman Joseph Tsai was named to Ele.me’s board of directors.

In its most recent earnings announcement on Aug. 17, Alibaba said it had jointly injected more capital into Ele.me with Ant Financial, “to fuel its rapid expansion.” The companies didn’t disclose the value of their investment.

The partnership is “a valuable component of Alibaba’s vision for the future of commerce and our ecosystem,” Alibaba’s Tsai said in Ele.me’s statement. “Alibaba will provide continued support for Ele.me as it strengthens its leading edge in the industry.”