Competition intensifying in fast-growing segment of O2O economy: analysts
Domestic online-to-offline (O2O) food delivery company ele.me announced Wednesday that it has received $1.25 billion in a recent financing round from e-commerce giant Alibaba Group Holding and its financial arm Ant Financial Services Group, fueling competition in one of the fastest-growing sectors of China's Internet economy.
Experts said the investment should be able to help ele.me improve its business, even as some of the vendors on the firm's platforms have just been criticized by State broadcaster China Central Television (CCTV) over hygiene and license issues.
Some of the Beijing restaurants that ele.me works with are operating without licenses or proper kitchens, and the company allowed some restaurants to upload fake photos or addresses of their restaurants, according to a program broadcast by CCTV on March 15 - World Consumer Rights Day.
"The issues exposed by CCTV are pervasive throughout the industry, but the involvement of Alibaba should be able to improve the management of stores positioned on the ele.me platform," Liu Dingding, a senior analyst at Beijing-based Internet consultancy Sootoo, told the Global Times on Wednesday.
According to a statement ele.me sent to the Global Times Wednesday, the company will cooperate with the Alipay app, an established online payment channel in China.
That kind of cooperation will be mutually beneficial, Liu said.
China's O2O food delivery business is growing fast, according to a report by Analysys International in March.
The market stood at 45.78 billion yuan ($7.07 billion) in 2015, up 201.1 percent from 2014, the report said.
With improved logistics, technology advances and expansion into more cities, the market is expected to maintain high-speed growth in the next five years, reaching an estimated 245.5 billion yuan in 2018, Analysys International noted.
In terms of market share, waimai.meituan.com held a leading 32.3 percent in 2015, read a report released by Sootoo in January.
Ele.me had a 27.1 percent share and waimai.baidu.com, the food delivery service of Baidu Inc had a 12.6 percent share.
Tian Ying, a Beijing-based independent researcher, said competition among the three companies will intensify and they are likely to resort to differentiation strategies to gain an advantage.
For example, waimai.baidu.com tied up with China Quanjude (Group) Co on Tuesday to deliver the latter's renowned Beijing roast duck, Chinese media reported.
More Chinese are using Internet-based food delivery services. In January 2015, the monthly active users of such services stood at 15.22 million. By December 2015, the figure had grown to 22.75 million, according to the Analysys report.
"The Internet takeout industry faces challenges, as more money is needed with the expansion of providers' business scale and government restrictions on delivery vehicles," Tian told the Global Times on Wednesday.
Also, as the number of online stores on these platforms increases, the quality of delivery services declines.
For example, for customers who live far from downtown or central business districts, it may take an hour to get their meals delivered, by which time the food is cold, Tian said.
The success of Alibaba's investment will depend on ele.me's revenue growth, which in turn will rely on the number of orders and the number of high-quality stores it attracts, according to Tian.