Special period, Ali: Hungry, I'm not selling!

Original debut | Golden Horn Finance

Author | Corgi's Ke

On the evening of February 7, Alibaba Group released its financial results for the third quarter of fiscal year 2024 ended December 31, 2023. According to the financial report data, Alibaba's revenue in the third quarter was 260.35 billion yuan, lower than market expectations of 261.247 billion yuan, and 247.756 billion yuan in the same period last year, a year-on-year increase of 5%, the lowest growth rate in three quarters.

In the subsequent earnings call, Tsai Chongxin, chairman of the board of directors of Alibaba Group, clearly responded to the recent frequent sales of non-core assets, saying that the traditional physical retail business is not Alibaba's core business, and it is reasonable to withdraw from this type of business, but this will take time and be realized slowly according to market conditions.

Regarding the future ownership of Ele.me, Ali directly denied the rumors that it was going to be acquired.

After entering 2024, many non-core assets, including Ele.me and Yintai, have been reported to be sold by Alibaba, especially Ele.me, which has been rumored to be under Douyin's command twice within a month.

Due to the fact that the local life track in which Ele.me is located has been bet on the layout of various Internet giants, the final ownership of this middle-waist Internet company with a valuation of about 10 billion US dollars and falling behind Meituan Takeaway in the competition can actually pry the nerves of the three Internet giants at the same time, Douyin, Alibaba and Meituan.

Relying only on taxis cannot support local life

Although Ele.me's market share has been repeatedly eroded by Meituan, if Ali loses Ele.me, the story of local life will be unsustainable.

In July 2021, Alibaba announced a major organizational restructuring, integrating AutoNavi, Ele.me and Fliggy into the life service sector "Soaring High", which was led by Yu Yongfu, CEO of Alibaba Local Life, and reported to Daniel Zhang, then chairman and CEO of Alibaba Holding Group.

After that, AutoNavi Map once again upgraded its brand, clarified "life service" as the company's new strategic direction, and officially upgraded it to "open service platform for good life when going out", trying to "use a map to carry food, clothing, housing and transportation".

In March 2023, the merger of Ele.me's in-store business (formerly "word of mouth") and AutoNavi finally landed. After that, all the local life stores under Ali will be integrated into the entrance of AutoNavi Map.

If you really lose Ele.me, and the user sees the information and reputation of a certain store through AutoNavi, he can only carry out some group buying and waiting for in-store services, but he can't order takeout. After years of market education, Chinese Internet users have become very accustomed to solving all their problems with eating, drinking and lazing through a mobile phone, and without the support of food delivery business, the local service experience will be greatly reduced.

Therefore, Ali once again denied the rumors of Ele.me being acquired on the latest earnings call, saying that Ele.me is an important "near-field" asset of Alibaba.

If there is no Ele.me, then the "near-field" business of Ali's local life will only be left with online car-hailing services. Judging from the current market pattern of online car-hailing, Didi's position is still unshakable. According to the information publicly disclosed by platforms such as Insight Data Research Institute and Analysys, even though Didi still retains about 70% of the market share during the removal of the app by other competitors, Didi still retains about 70% of the market share and is still the number one player in the domestic ride-hailing industry.

In the first half of last year, AutoNavi also rushed to the hot search for "squeezing" drivers. Since March last year, AutoNavi taxi has set off the first price reduction, in Guangzhou, Shenzhen, Chengdu, Chongqing and other places began to adjust the price, some drivers posted a complaint video on the Internet to say that the fare of one dollar and one kilometer directly began to compete with the bus.

In the previous online car-hailing money burning war, the platform burned money at both ends of users and drivers through subsidies and discounts, but now with the successive departure of capital, if we continue to maintain a low-price strategy, we can only reduce the unit price to attract users to choose.

From the user level, this move undoubtedly reduces the cost of travel, and there will be more possibilities in travel, which in turn helps AutoNavi to attract more users; from the perspective of drivers, the labor remuneration for daily work is reduced, and there is a disgust for AutoNavi, which causes the loss of drivers on the platform in disguise.

The online car-hailing platform is to sort out the relationship between supply and demand in the travel market, and to maintain the two basic disks of users and drivers.

Therefore, Ali cannot bet all the future of "near-field" on Didi's still dominant ride-hailing business. The existence of Ele.me still has the strategic significance of enriching the user experience and sharing business risks.

Ele.me is still in Alibaba, which is very important to Meituan

After entering 2018, Douyin began to cultivate the local life business, and gradually increased its investment, which has now posed a substantial threat to Meituan.

As early as 2018, Douyin began to test the waters of the local life business, and at the end of 2021, Douyin's local life business became an independent first-level department, and since then, it has set an annual GMV target for itself, and has continued to jump upward.

In October 2022, it was disclosed at the Douyin Local Life Service Provider Conference that Douyin Life Services have covered 377 cities across the country, with more than 1 million cooperative stores, involving more than 80 sub-categories such as eating, drinking, and entertainment, tourism and accommodation, and personal care and hairdressing. Compared with 2021, the number of sales merchants on the Douyin life service platform has increased by 22 times, and the overall transaction amount has increased by more than 30 times. According to relevant media reports, the GMV of Douyin's in-store business will exceed 70 billion in 2022.

According to the data released by the WeChat official account of "Douyin Life", the total transaction volume of the Douyin Life service platform will increase by 256% year-on-year in 2023, and more than 4.5 million stores will achieve business growth on the platform.

Haitong International Research predicts that the total transaction volume of Douyin's local life will be close to one-third of Meituan's in 2023.

After the release of its Q3 earnings report at the end of November last year, Meituan's stock price has been falling. The main issues exposed in this earnings report are that competition with Douyin has led to a decline in the operating margin of Meituan's core local business, lower growth expectations for the food delivery business in Q4, and no significant improvement in new business losses.

It can be said that based on the traffic pool of 700 million monthly active users, in addition to the business of food delivery, which needs to be supported by "near-field" assets, Douyin has caught up with Meituan in an all-round way.

At the same time, Ele.me and Alibaba's local life businesses are at risk of marginalization within the Alibaba Group.

In November last year, Wu Yongming participated in the quarterly earnings analyst conference call for the first time as the CEO of Alibaba Group, and he said at that time that for the core business, he will maintain long-term focus and high-intensity investment, ensure that the product always closely follows the needs of users to iterate and evolve, and maintain long-term vitality and competitiveness, and for non-core business, he will realize the asset value as soon as possible through a variety of capitalization methods.

Therefore, when rumors appeared that Ele.me was going to be acquired by Douyin, the outside world was generally optimistic about the transaction, believing that the addition of Ele.me could largely make up for Douyin's weakness in the distribution link of the local life service sector, and continue to put pressure on Meituan's business.

As early as August 2022, when Douyin cooperated with Ele.me to provide users on the platform with local life services ranging from content planting, online ordering to instant delivery, Douyin also started the "Hourly Delivery" service from Shenzhen at the same time.

From the perspective of the current environment of the logistics industry, in addition to the participants under the far-field service of e-commerce logistics such as Tongda, SF, JD.com, Cainiao and J&T, the only two competitive advantages in terms of near-field performance capabilities are Meituan and Ele.me.

For Meituan, although the relevant core data of Ele.me has gradually improved in the past two or three years, the playing style and routines have been relatively familiar, and if you come to Douyin's system, there will be many uncertainties.

Snatching "instant retail" within Ali

Judging from the current trend of Ali focusing more on e-commerce, cloud computing and other main businesses, if Ele.me wants to continue to maintain a certain volume in the Alibaba system, it needs more novel stories.

After Alibaba's "1+6+N" reform in 2023, the group is positioned as an investment holding company, with most functions to manage assets and funds. As an "investment holder", it is necessary for Alibaba to sell or reduce its holdings of "bad assets" to increase the value of the group's asset portfolio. This is also an area in which Tsai Chongxin and Wu Yongming excel.

In November last year, Alibaba Group CEO Wu Yongming gave a detailed introduction to Alibaba's three important priorities for the future: technology-driven Internet platform business, AI-driven technology business, and global business network.

Almost at the same time that Wu Yongming expressed the core of Alibaba's future business to the outside world, the Ele.me instant e-commerce brand merchant conference landed in November last year. At the meeting, Ele.me officially announced that instant retail is the key strategic direction of the platform.

Statistics from the China Federation of Commerce show that the average annual compound growth rate of instant retail in the past five years is as high as 65%, significantly exceeding the 8.9% of the entire e-commerce industry, and the market size is expected to reach 850.4 billion yuan in 2023, exceeding the trillion scale of the takeaway market is just around the corner.

From the perspective of Alibaba's internal resource and weight allocation, the instant retail business is scattered in different business segments, such as Hema Fresh, Taoxianda, Eleme, Tmall Supermarket and other products all occupy a certain scale in various segments of the instant retail industry, and these businesses began to increase the "hourly delivery" service last year.

Ele.me threw out "instant retail" at the first time, which quickly occupied the high ground of public opinion and formed a fait accompli. On December 22, 2023, Wu Yongming issued an order to transfer Chen Weiye (nickname: Chuduan), the former chief operating officer of Ele.me, to Taotian Group, responsible for Taobao Business Division, Taotian Merchant Platform Department and Taotian Customer Satisfaction Department.

From the perspective of Alibaba Group to balance the overall situation, "instant retail" is dispensable for other business segments, and there is no need to carry out it with great fanfare, for Ele.me and the local life business segment, backed by Alibaba Group's e-commerce and logistics system, "instant retail" will further enrich the "near-field" service capabilities of local life business.

At the very least, "instant retail" can help Alibaba's local life business tell a good story and sell it at a good price to go public. After all, the independent listing of business sectors such as local life is in line with the core interests of Alibaba Group.

Resources:

E-commerce newspaper "Local Life, Douyin is Determined to Win"

Snow Leopard Finance & Economics "Falling from a 2.6 trillion altitude, Meituan returns to 2018"

Golden Horn Finance "When AutoNavi Taxi Becomes a "Public Enemy of Drivers"?"

Blue Whale Finance "Douyin, Meituan fight again in 2024, who else is in the trillion-dollar market of local life"

National Business Daily "Douyin, Meituan fight again in 2024, who else is in the trillion-dollar market of local life"

Titanium Media "Robbed 180 billion business with low prices, Douyin "drove crazy" Meituan?