E-Commerce giant Alibaba Group Holdings will reportedly pour in at least $1 billion as a leading investor in Ele.me, one of the largest players in the crowded Chinese food delivery market. Financing from Alibaba and its financial services affiliate Ant Financial will value Ele.me at $5.5 to $6 billion, according to sources quoted by Bloomberg.
The influx of cash would help Ele.me compete with Meituan-Dianping, a rival food delivery service backed by Tencent Holdings Ltd., according to sources familiar with the situation. Once completed, the deal would be China’s second-largest startup fundraising effort in 2017, surpassed only by the $5.5 billion raised by ride-sharing company Didi Chuxing.
While meal delivery services have struggled to achieve profitability around the world, the concentration of large populations in China’s cities could lower marginal costs as these businesses expand. Additionally, Alibaba and Tencent — the country’s two largest Internet companies — see these types of on-demand services as points of entry to promote their lucrative online payment services. Growth in domestic food and restaurant transactions also outstrips that of many other retail segments in the world’s second-largest economy.
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No official comment was provided by Alibaba, Ant Financial or Ele.me.
