Eleme merger to strengthen offline services amid competition

Alibaba’s on-demand delivery service, Eleme, will merge with Koubei, its lifestyle services affiliate, to strengthen offline services amid strong competition from Tencent-backed Meituan Dianping.

Alibaba said it is setting up a holding company to combine the two companies as it seeks to strengthen offline services. The Internet giant seeks to connect with offline merchants and local service providers.

Alibaba vice president Wang Lei will act as chief executive officer of the merged company and will also serve as acting CEO of Eleme.

The new holding company, Alibaba Local Lifestyle Services Company, has received funding from institutional investors, including Softbank Corp.

Meituan Dianping, which made its debut on the Hong Kong stock exchange last month, is also betting on the local Internet service segment as both companies focus on the online-to-offline realm.

Meituan Dianping raised US$4.9 billion in its Hong Kong listing and in 2017 the platform generated over 5.8 billion transactions, with total transaction volume of 357 billion yuan.

Internet companies such as car-hailing platforms have been burning cash to keep ahead of their rivals by offering subsidies to shoppers and adding new services.

They have been expanding service from food delivery to include ordering groceries, booking hotels, paying bills and renting bikes.

They're also considering providing supply chain management and technology solutions to merchants on top of linking with individual consumers. 

Koubei and Eleme will also be expanding their services into lower tier cities to seek further growth as penetration in online-to-offline services reaches a relatively high level in mature markets like Beijing and Shanghai.

According to mobile Internet research firm Trustdata, the overall market size of on-demand food delivery in China is expected to reach 360 billion yuan (US$51 billion) by the end of this year.