Will Alibaba dominate Chinese food delivery market after buying Baidu?

Alibaba Group Holding Ltd. plans to buy out Baidu Inc. and other investors in Chinese startup Ele.me to shore up its delivery network, a person familiar with the matter said, placing its biggest bet yet in online food and local services.

An acquisition would hand Alibaba the biggest chunk of Chinese online food delivery and pit it directly against Meituan Dianping, backed by Tencent Holdings Ltd. Ele.me -- which means “hungry yet?” -- runs an army of delivery people on motorbikes across the country that could enhance Alibaba’s last-mile ability to get parcels to customers’ doorsteps and complement its Koubei neighborhood services business.

The e-commerce giant, which owned 23 percent of Ele.me as of May, plans to buy the stock from existing investors including Baidu, the person said, requesting not to be named because the matter is private. It’s unclear how much Alibaba agreed to pay, but Ele.me was said to have been valued at between $5.5 billion to $6 billion in a May fundraising last year. The startup then bought Baidu’s delivery business at a $500 million valuation in August 2017, a person familiar said at the time. The current talks are ongoing and it’s possible terms may change or the deal may not be completed.

Alibaba, Ele.me and Baidu declined to comment.

Alibaba shares rose 0.47 percent to $194.19 Monday in New York, the highest in four weeks. Baidu rose 2.2 percent to $256.25, the highest in more than a month.

If the deal goes through, Alibaba and Meituan will dominate a Chinese food delivery market that Analysys estimates reached 67.7 billion yuan ($10.7 billion) in 2017’s final quarter, up 16.2 percent from the previous three months. For Baidu, it’s another exit from a business considered peripheral to its core operations in search and artificial intelligence.

“With its online traffic and Koubei business, Alibaba could create a lot of synergy with this acquisition,” said Steven Zhu, a Shanghai-based analyst with Pacific Epoch. “This would be a drag on the margin, because Alibaba now owns more delivery men and inventory, but it has no choice because long-term wise most consumption still takes place offline.”  

Alibaba has taken steps to shore up its logistics in recent months, taking over longtime delivery affiliate Cainiao and drawing up plans to invest in warehouses. Unlike e-commerce rival JD.com Inc. however, which builds and runs its own fleet of delivery people, Alibaba’s last-mile capabilities have been confined mainly to third-party partners. Its investments in so-called “new retail,” such as brick-and-mortar stores and grocery chain Hema, also help shore up the network, by providing delivery points and warehousing for parcels.