Wednesday, 2024 April 24

Ele.me CEO Yu Yongfu addresses rumors of potential acquisition by ByteDance’s Douyin

According to a report by Caijing, ByteDance-owned Douyin, the Chinese equivalent of short video platform TikTok, had been in negotiations with Alibaba concerning a potential acquisition of Ele.me. However, on January 24, Yu Yongfu, chairman of Alibaba Local Services, the local lifestyle services division of Alibaba Group, and CEO of Ele.me, issued a message to all employees in an attempt to dispel the claims of the report and the resultant rumors.

Citing an unnamed source close to Ele.me, the Chinese media outlet claimed in its report that negotiations had taken place and there was a deadlock over the acquisition price, with ByteDance’s offer of USD 7 billion falling short of Alibaba’s expectations, which were closer to USD 7.5–8 billion. However, in Yu’s message to Ele.me’s workforce, he unequivocally stated that this claim and all related rumors are false.

In addition, Yu and his core management team responded to questions in an internal post, emphasizing Ele.me’s healthy development pace in improving operational efficiency, though their responses did not delve into specific strategies.

According to LatePost, opinions among Ele.me employees are divided regarding the acquisition rumors. While some believe Alibaba will persist in the instant retail vertical, others harbor doubts and anxiety about a potential acquisition.

In recent years, Ele.me has undergone significant transformations under Yu’s leadership, emphasizing a work culture that prioritizes efficiency improvement and steady growth. Eddie Wu (also known as Wu Yongming), CEO of Alibaba, has also emphasized the group’s commitment to investing in location-based technology services, including Ele.me’s on-demand home delivery capabilities as one of the main focuses.

As of November 2023, Ele.me has reported positive business results for six consecutive quarters. In Q3 last year, the revenue growth of the local lifestyle services division (including Ele.me) was 16%, behind only the international digital business and Cainiao within Alibaba.

Ele.me has also consistently reduced its losses. As of September 30, 2023, the entire local lifestyle services division has reduced losses by nearly RMB 5 billion (USD 704.1 million) in a year, with the majority coming from Ele.me’s contributions.

When Alibaba acquired Ele.me for USD 9.5 billion in 2018, it aimed to achieve a market share split with Meituan. However, the market did not develop as expected, and after years of ongoing competition with Meituan, Ele.me’s market share dropped to historical lows before stabilizing at around 30%.

After realizing the unlikeliness of a quick victory, Alibaba shifted its focus to internal development. Against this backdrop, Yu took over Ele.me, working on reducing losses and enhancing foundational capabilities. Under Yu’s leadership, Ele.me stopped distributing extensive subsidies nationwide aimed at increasing market share in the short term. Instead, it narrowed its distribution of subsidies to target consumers in first- and second-tier cities, where it prioritized efficiency improvements as well.

To address issues such as high delivery costs for riders, Ele.me sought to optimize its delivery network as well. Internally, efforts were made to build a new product advertising system and optimize its organizational structure for cost reduction and efficiency improvement.

Subsequently, Ele.me achieved positive unit economic efficiency for the first time in the second quarter of 2022.

The focus of operations also became clearer over the past few years. In 2023, Ele.me concentrated on about 40 first- and second-tier cities, prioritizing increasing the average order value and user growth. It aimed to retain the most financially capable users, seeking to make every business deal more efficient.

Accordingly, Yu has reportedly been restructuring Ele.me’s organizational structure. In December 2023, Chen Weiye, COO of Ele.me, returned to Taotian Group. Hu Qiugen, formerly from Tmall and Hema, took over Ele.me’s intra-city retail business center, having previously managed the user operations center.

Additionally, the company is forming a management team with a focus on key business cores such as user operations, merchant ecology, Feiniu logistics, instant retail, and middle platform strategy.

Nevertheless, Douyin, owned by ByteDance, has long been viewed as a promising partner for Ele.me. The two entities first collaborated in August 2022, when Douyin added an Ele.me mini-program to its app-based platform, providing the latter’s merchants with exposure to the platform’s 600 million daily active users. This mini-program enables Douyin users to stream videos from Ele.me merchants, browse their offerings, and place orders. Concurrently, Ele.me’s significant daily delivery capacity through its Feiniu delivery service offered value for Douyin’s foray into the local lifestyle sector.

Discussions between Douyin and Ele.me have been consistently ongoing regarding deeper cooperation, including the possibility of Douyin investing in Ele.me, according to LatePost.

Alibaba is known for embracing change, and the internal management has been consistent in emphasizing the importance of fixing problems. For Ele.me, the focus now is on using the right strategy, stabilizing morale, and maintaining the planned pace of progress.

Now seemingly on the right track, the last thing the company would want is to be destabilized by unfounded rumors.

36Kr Global Writers
36Kr Global Writers
The tech ecosystem is roaring. Unicorns valued at billions of dollars have emerged worldwide, while venture capital and strategic investors are constantly on the lookout for the next big thing. 36Kr Global is committed to establishing ties between global stakeholders and providing the most vital information about China’s tech scene and capital markets.
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