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Startup Spotlight: Ele.me

Ele.me, the Chinese Grubhub is hoping to deliver on its potential

27Oct

In the space of five years, Ele.me has grown from an idea to a platform covering 200,000 restaurants across China. Along with Meituan - its closest competitor - it’s taken over the takeaway market by allowing its users to buy food the same way they would if ordering a cab on Uber.

Like Just Eat in the UK and Grubhub in the U.S, China’s Ele.me is dominant in its domestic market. And having raised $630 million in another funding round, the company has set its sights on building its own delivery network, and expanding into the few remaining Chinese cities it doesn’t operate in.

Now the third largest startup in China by valuation, Ele.me isn’t quite in the same bracket as Didi and Xiaomi - the country’s two highest valued startups at $15 and $45 billion respectively - but at $3 billion, it represents excellent progress for the Shanghai-based service.

The fast food provider is a beneficiary to the online-to-offline (020) trend in China, where e-commerce still only accounts for 5% of retail sales. In 2014, for example, three of the nation’s most successful companies - Wanda, Baidu and Tencent - formed their own O2O joint venture, estimated to be worth $1 billion. According to Venture Beat, Ele.me already has 40% of the 020 food ordering market.

Ele.me’s appetite for investment, however, is cause for concern. In a similar vein to Amazon, the company reinvests almost every dollar it makes. Forbes contributor, Yue Wang states: ‘[Ele.me] is facing mounting concerns that it is burning cash at an unsustainable rate.’ And that: ‘its peers are all spending heavily to provide user coupons and dole out incentives to their delivery staff.’ Baidu, for example, experienced similar concerns when it revealed its own aggressive investment plans, which caused its share price to drop considerably.

But it seems that investors continue to share Ele.me’s senior management beliefs that the company has a sustained period of success in front of it. Since 2009, $1.1 billion has been raised, from a diverse range of VC firms. It seems, however, that the company is going to need every penny, and probably more. Serious challenges - which include improving service capabilities and the quality of the restaurants they work in partnership with - won’t be going away. Not to the mention finding a way to grow with more control.

The company’s CEO, Zhang Xuhao, remains confident. The Global Times reported that he expects takeaway services to account for 30% of the total food and beverage market soon - it’s currently at 10%. If Ele.me can take that extra 20%, the company will unquestionably be worth all the money’s that’s been invested in it.

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