Food Delivery War Hots Up

In the last week of August 2015， Chinese food takeout startup Ele.me announced that it has raised 630 million dollars in the Series F funding round led by Citic Private Equity Funds Management Co（CITIC Private Equity）， Shenzhen-listed Chinese shopping mall operator Beijing Hualian Department Store Co Ltd， China Media Capital Co Ltd and private equity firm Gopher Asset Management Co Ltd， which soon grabbed headlines.

The new round of funding valued the Shanghai-based startup at more than 3 billion dollars， catapulting it into one of the worlds largest food ordering platforms after U.S.-based takeout ordering company Grubhub， Germanys Delivery Hero and the United Kingdoms Just East.

Ele.me， which means “Are you hungry？” in Chinese， already operates in more than 260 Chinese cities， with almost 40 million users placing as much as 60 million yuan in orders every day. The company says it plans to use the proceeds to expand into more cities and build its own delivery network.

Ele.mes Six Rounds of Financing

The start-up was founded in 2009 as a student entrepreneurial project and just two years later， it acquired 1 million dollars in the Series A funding， led by GSR Ventures. In 2012， the company raised 3 million dollars in the Series B funding from Matrix Partners China and GSR Ventures.

In November 2013， it secured another 25 million dollars in Series C funding led by Sequoia Capital. Matrix Partners China and GSR Ventures were also involved in the investment

In May 2014， the food delivery platform raised 80 million dollars in Series D funding from Dianping， Chinas leading ratings and reviews service. The startup confirmed that the founding team was still the controller of the startup after the funding.

At the same time， Ele.me reached a strategic cooperation with Dianping， which also launched a food delivery channel in 2013， to share user and mer- chant data and traffic， as well as to integrate food ordering services.

The tie-up with Dianping is expected to introduce more middle- and high-tier partner restaurants and attract white-collar customers to the startups site and app.

In January 2015， the food takeout platform secured 350 million dollars in the Series E funding led by CITIC Private Equity. Other investors included Tencent Holdings and e-commerce giant JD.com， as well as Dianping and Sequoia Capital.

This round of funding was considered as a part of those Internet giants efforts to grab a share in the online-to-offline（O2O） market. They wanted to compete againsttheir common rival—Meituan， as well as its investor Alibaba， through the young and ambitious company. Meituans takeout channel Meituan Takeout launched in January 2014

Tencent is also a shareholder of Dianping with a 20% stake. Through Dianping and Ele.me， the Internet giant is the frontrunner in Chinas food delivery market in the O2O food delivery industry， while Chinas e-commerce mega-player Alibaba is a late comer in the industry

The landmark 630-million-dollar funding in August has become the the focus of peoples attention， as it makes the food delivery platform become Chinas third-most funded startup and also refreshes the single financing record for a food delivery company across the world.

However， on September 6， a VentureBeat report said the new round of funding may have actually been less than $400 million， citing a source familiar with the matter.

The source， who asked to remain anonymous because they represent a well-known venture capital firm unassociated with the deal， said： “The valuation is actually in the 1.5-billion-dollar range. Still a unicorn， but not the 3-billion-dollar figure that they are claiming. Thats a 2x exaggeration… The total investment was less than 400 million dollars.”

In response to the report， the com-pany said： “The （630-million-dollar） figure is correct. And rumors are rumors.”

By far， the company has secured a total of 1.1 billion dollars in the six rounds of funding. Started as a service targeting university students and the low-end catering market， Ele.me has become the countrys largest food delivery platform.

According to Beijing-based consultancy Analysys International， Ele.me is Chinas largest food delivery company with a 40% market share， while Meituan Takeout， ranks second with a 34% market share.

In addition to Tencent and e- commerce big players Alibaba and JD.com， search engine operator Baidu Inc. also investing heavily in the O2O market. It purchased Nuomi for 160 million dollars in 2014 which operates in more than 330 Chinese cities as well as 650，000 online stores.

On June 30， 2015， the search giant announced that it would invest 3.2 billion dollard over the next three years to boost O2O service offerings by stimulating group-buying website Nuomi.

Its food takeout channel Baidu Takeout currently ranks a distant third with an 8.70% market share.

Huge Potential in O2O Food Delivery Market in China

Ele.mes success is attributed to Chinas booming online-to-offline（O2O） trend， where consumers use their smartphones to order offline services such as manicures， taxi rides and food delivery. According to the company， 98% of Ele.mes orders come from mobile device users.

The dense population and the number of mega-cities in China present a very unique opportunity for the O2O commerce， which is deemed to be the next big thing in Chinas e-commerce sector.

Driven by the countrys “Internet Plus” plan， O2O services， which is also known as “on-demand services”， are taking over Chinas market with gusto， spanning fields including catering， taxis and car washing.

Delivering services， such as manicure and food delivery， to consumersdoorstep in a mega city like Beijing and Shanghai brews huge business opportunities for startups.

According to research by Tencent the penetration rate of online food ordering services among Chinese netizens reached more than 30% in 2014.

Data from Analysys， a major Chinese think tank on the development of new media， shows that over the course of 2014， a total of 376 million orders were fulfilled by Chinas O2O catering industry and in the first quarter of 2015，176 million orders were placed.

Internet consultancy firm iResearch estimates that Chinas O2O food delivery market will grow at a rate of 30% per year and cross 32 billion dollars by 2017.

Zhang Xuhao， the founder of Ele. me， was listed on the Forbes China 30 Under 30 List in 2013， said： “In the near future， consumption amount for food delivering will account for 30% of the total consumption amount of Chinas catering industry.”

Concerns on Cash-burning O2O Model

Growing demand for online food takeout services in the most populous country is driving the growth of Ele. me-like startups. More and more venture capital firms and Internet companies are setting their eyes on such startups， with an aim to grab a share in the lucrative O2O market.

Currently， Ele.me and Meituan Takeout dominate the O2O food delivery market. Now， the food delivery war among O2O companies is heating up. They are all spending heavily to provide user coupons and dole out incentives to their delivery staff， in a bid to attract customers to their platforms. However， problems are also ensuing.

Some insiders say that Ele.mes O2O business model is burning money“like crazy，” and the company which now claims to be operating in 260 cities across China， is “overstretched geographically”.

Meituan Takeout， Baidu Takeout and other O2O food delivery startup are also facing mounting concerns that they are burning cash at an unsustainable rate. Baidu， for example， saw its share price pummeled after the search engine giant revealed aggressive plans to connect smartphone users with offline services.

Besides， food safety and logistic distribution are also consumers main concerns over the O2O food delivery model.

China is ushering in an era of O2O commerce and those food delivery startups need to do more to increase user engagement.