Today (19 Dec 2023), some rumour came out that ByteDance, the parent of Douyin and TikTok, is in advanced talks with Alibaba to acquire food delivery platform ele.me from the latter.
As a result, the share price of China’s largest food delivery platform Meituan tumbled more than 5%:
Later this afternoon, ByteDance denied having acquisition talks for ele.me, saying that the operational collaboration had been progressing as normal.
We think such an acquisition is quite unlikely.
We all know that Douyin has made local services (dine-in vouchers in particular) a key focus this year to monetise its massive user traffic in China, and we know that a major challenge for Douyin to grow that business was the lack of fulfilment network (redemption rate for dine in vouchers issued on Douyin has not been very high).
However, buying and operating a large food delivery platform might not be the best solution for Douyin. A few pointers:
- Food delivery is a very heavily operations-focused business that requires a lot of operational efficiency and (crucially) leadership attention. The level of complexity and requirements for efficiency even surpass ecommerce. It is hard to imagine that ByteDance leadership would want to manage that;
- The fact that ele.me falls much behind Meituan in market share is probably telling – when you are not the core of the group, your managers do not have the same level of commitment as compared to Meituan, for which success of food delivery is life and death;
- Alibaba, together with Ant Group, acquired ele.me in 2018 for US$9.5 billion. Since then ele.me has been deeply integrated into Alibaba’s ecosystem. While food delivery might no longer be a core focus of Alibaba since this year’s restructuring, it is hard to see how ele.me can be cleanly separated from the rest of the Group;
- ByteDance is known to be very rational about its business portfolio – expanding segments with good ROI and retiring those with poor returns. Recently the group has almost completely exited the gaming business – it is hard to see how running food delivery can give it the returns that is worth the while;
However, Zhang Lidong, ByteDance’s Chairman for China, might have a different calculation. Zhang recently negotiated the deal with GoTo in Indonesia, which included unexpected terms many saw as a masterstroke for Bytedance.
So it is not entirely inconceivable that Zhang might want some firmer control over local on demand fulfilment, in China and/or in Indonesia.
We will cover more of the food delivery dynamics impacting Meituan, Grab and Gojek in the upcoming Food delivery platforms in Southeast Asia 2024 – to be launched in Jan 2024. In the meantime, you can also refer to Food delivery platforms in Southeast Asia 2023: