Posted on Thursday, Nov 19th 2015
China’s total consumption in the food ordering industry is estimated to grow from 450 billion yuan (~$70.6 billion) in 2013 to 700 billion yuan (~$109.9 billion) by 2016, at an annual growth rate of 16%. Back in 2013, food delivering accounted for nearly 10% of this market, which indicates that the food ordering and delivery industry will reach 70 billion yuan (~$11 billion) by 2016. China’s Billion Dollar Unicorn Ele.me is a leading player in this segment.
Shanghai-based Ele.me was founded in 2008 by Zhang Xuhao, who was studying mechanical engineering at Shanghai Jiao Tong University. One night while playing online games at the University with his friends, Zhang realized that they couldn’t find anyone to provide express service to deliver food. He then set up an online business to cater to the problem. By 2009, Zhang had expanded his enterprise by launching the website Ele.me, which translates to “Are you hungry?”. The platform allows users to order meals from the restaurants who have signed up with the platform. The founding team visited restaurants near the university campus and got them to sign up on the platform. Within a few years, the platform became well known and expanded to multiple university campuses and cities.
Today, Ele.me operates in 260 cities across China, has a user base of 40 million patrons, and has tie ups with over 300,000 restaurants. It operates on the increasingly popular O2O model that successfully integrates the online and the offline world. Consumers can order food through their website and mobile app, and food is delivered by Ele.me’s fleet of bicycle riding delivery team. According to researcher Analysys International, Ele.me currently accounts for nearly 40% of China’s O2O food ordering market. Market research estimates the O2O food delivery market to be worth $22.3 billion this year.
Ele.me earns revenues by charging a fee from the restaurants on the orders placed through its platform. Last year, Ele.me had helped process 1.2 billion yuan (~$192 million) of food deliveries. Recent reports suggest that the number has grown to orders worth 60 million yuan (~$9.4 million) each day, translating to an annual transaction value of more than $3 billion. Ele.me’s revenue share and profitability figures are not known.
Ele.me has been venture funded so far with $1.09 billion in investments from Sequoia Capital, Tencent Holdings, CITIC Capital Holdings and Hualian. Interestingly, of that amount, $980 million were raised this year. Its last round of funding was held in September when it raised $630 milllion from CITIC Capital Holdings and Hualian at a valuation of $3 billion.
The market opportunity for food delivery services may be big, but it is not an easy market to make money in. The competition in the sector is high with other Chinese giants like Baidu and Alibaba that are invested in similar businesses through Waimai and Meituan. To fight off competition, companies are offering discounted coupons and employee incentives that are sure to hurt their margins.
This seems to be yet another sector that is developing around the world with unsustainable unit economics.
More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.
This segment is a part in the series : Billion Dollar Unicorns
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