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Alibaba's US$2b food sale hints at indigestion

Hong Kong

ALIBABA'S US$2 billion food sale may be a sign of indigestion. Just three months after taking control of Ele.me, its meal delivery unit, China's US$490 billion e-commerce titan is tapping outside investors for new funds, according to Bloomberg on July 16, citing unnamed sources. Rival Meituan's mooted US$4 billion Hong Kong flotation might be giving Jack Ma stomach jitters.

Back in April, Alibaba touted its buyout of Ele.me, valued at US$9.5 billion, as part of the group's "New Retail" strategy of marrying online services with bricks-and-mortar commerce.

Restaurant delivery fits nicely with Mr Ma's other bets on mobile payments, logistics, bike-sharing, supermarket chains and local services.

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Yet the billionaire may have bitten off more than he can chew. The fact that Ele.me is already back in the market shows how costly a cash-burning battle for market share against Meituan Dianping is proving to be. The latter, backed by the Alibaba's arch-enemy Tencent, is gearing up for a blockbuster initial public offering (IPO) in Hong Kong at a US$60 billion valuation, Reuters reported last month.

Beating Meituan, which claimed a 60 per cent market share in China's food delivery sector in its IPO prospectus, will be expensive. Ele.me does not disclose financial details, but both sides have been spending heavily on promotions, as well as trying to accelerate delivery times to lure new users. Labour costs are also adding up. Last year, driver fees alone more than tripled to a whopping 18 billion yuan (S$3.7 billion) for the loss-making Meituan.

Meituan also dabbles in online travel, ride-hailing and other businesses. But Alibaba has other battles to fight too: fending off rivals such as JD.com and upstart Pinduoduo in e-commerce; battling Tencent in areas such as video-streaming; and investing huge sums in cloud services. Its resources are finite, so enlisting outsiders to help Ele.me will ease the financial burden. But this is also a reminder that Mr Ma's eyes can get bigger than his stomach.

Chinese food delivery service Ele.me is seeking to raise at least US$2 billion from outside investors, Bloomberg reported on July 16, citing people familiar with the matter. The sources said that the company is a candidate for a future IPO.

In April, e-commerce giant Alibaba said that it would buy all the shares in the company that it did not already own. The deal valued Ele.me at US$9.5 billion.

Rival Meituan Dianping on June 25 filed to list in Hong Kong. The company, backed by Tencent, is aiming to raise more than US$4 billion at a valuation of about US$60 billion, according to Reuters, citing unnamed sources. REUTERS