July 24, 2018 / 2:05 AM / 2 years ago

Alibaba's Ele.me goes on 3 billion yuan summer spending spree to fight competition

Drivers of food delivery service Ele.me (in blue) and Meituan (in yellow) are seen in Beijing, China April 11, 2018. Picture taken April 11, 2018. REUTERS/Stringer

BEIJING (Reuters) - China’s Ele.me, the online food delivery company acquired by Alibaba Group Holding Ltd, will spend one billion yuan ($147.31 million) each month this summer on subsidies and marketing as competition in the sector reaches fever pitch.

Ele.me will spend a total of 3 billion yuan over three months from July to September in an effort to lift its market share to more than 50 percent, Chief Executive Lei Wang told Reuters on Monday.

Alibaba bought the remaining stake of Ele.me it did not already own in April in a deal that valued the startup at $9.5 billion yuan.

“We expect Alibaba to continue to invest billions of yuan in Ele.me’s development,” said Wang. “Funds are not our core issue right now.”

Alibaba is beefing up Ele.me’s war chest at a time when the cost of expanding in China’s food delivery market is rising sharply and top competitor, Meituan Dianping, is preparing for a $4 billion Hong Kong listing.

Last year Ele.me purchased Baidu Inc’s food delivery service, shrinking the market to just two top players.

Meituan Dianping, which is backed by Alibaba rival Tencent Holdings Ltd and valued at around $30 billion, recently disclosed a 19 billion yuan loss ($2.80 billion) for 2017, more than the previous two years, reflecting the steep cost of winning customers in China’s food delivery market.

Ele.me’s Wang said that despite the competition the company expects to maintain revenue growth in line with industry rates of between 60-70 percent throughout 2020, and is in the process of integrating with other Alibaba businesses including Alibaba Health, Tmall and offline grocery and dining chain Hema Fresh.

He also added that the company is not looking for funding outside of the Alibaba group.

Reporting by Cate Cadell, editing by Louise Heavens

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