Chinese Food-Delivery Company Ele.me Raises $630 Million, Valued At $3 Billion

Yue Wang ,

Chinese food-delivery start-up Ele.me has raised $630 million from investors including CITIC Private Equity, department store chain Hualian Group, China Media Capital and private equity firm Gopher Asset, it announced today.

The deal, which values the company at more than $3 billion, has catapulted it into one of the largest food ordering platforms after U.S.-based Grubhub, German takeout company Delivery Hero and the United Kingdom’s Just East.

Ele.me, whose name translates as “Are you hungry now?”, plans to use the proceeds to expand into more cities and build its own delivery network. The company, also backed by Tencent Holdings and Chinese e-commerce giant JD.com, already operates in more than 260 Chinese cities, with almost 40 million users placing as much as 60 million yuan ($9.4 million) in orders every day, according to the firm.

Ele.me is also part of China’s so-called online-to-offline trend, where consumers use their smartphones to order offline services from taxi rides to manicures. Alibaba and Chinese search engine operator Baidu are also investing heavily in this area to drive users to their platforms. Ele.me says 98% of its orders come from mobile device users.

But the company, along with food-delivery services backed by Alibaba and Baidu, is facing mounting concerns that it is burning cash at an unsustainable rate. Ele.me and its peers are all spending heavily to provide user coupons and dole out incentives to their delivery staff.

Baidu, for example, saw its share price pummeled after the firm revealed aggressive plans to connect smartphone users with offline services. The company said in June it would invest $3.2 billion in O2O services, including its group-buying service Nuomi, over the next three years.CEle.me, headed by Zhang Xuhao, who in 2013 was on the Forbes China 30 Under 30 List, currently leads China’s online food ordering sector with a 40% market share, according to Beijing-based consultancy Analysys International. Meituan, in which Alibaba has a small stake, has 34%. Baidu, which has 8.7% of the market, ranks a distant third.

Ele.me has raised $1.1 billion in total funds since its founding in 2009. In January, it raised $350 million from investors including CITIC Private Equity, Tencent, JD.com and Sequoia Capital.

Unfair Competition: Food Trucks vs Restaurants

• Business

Are, as many restaurant owners across the country claim, food trucks playing dirty? Do food trucks hold an unfair advantage over restaurants? If the actual answer was yes, perhaps it’s time for the National Restaurant Association to file an unfair competition lawsuit on behalf of their members.

What Defines Unfair Competition?

In the United States, unfair competition is typically applicable when one business (food trucks in this case) gains an unnatural advantage over another entity.

“[U]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are…unlawful.”

So what are these unfair competition practices that food trucks are using to affect commerce? There are different types of unfair competition practices, let’s see if any of them apply.

Different Types Of Unfair Competition

• Intellectual Property Infringement (this includes infringing on copyright, trademark and patent laws)
• Antitrust (if a food truck got too big and was detrimental to a healthy economy)
• Misappropriation of Trade Secrets (a competitor or former employee steals trade secrets, then profits from them)
• Trade Libel (inventing falsehoods about the competition to gain a market advantage)
• Tortious Interference (messing around with another businesses’ contracts)

Now if food trucks were actually involved in any of these practices, we would stand with them and declare that specific truck was unfair competition. But, you really never hear restaurants making these claims, instead they state that the unfair competition stems from food trucks having lower overhead.

Unfortunately that argument hold no water.

Yes, restaurants have higher overhead, but that’s by choice for the honor of having climate controls, tables, chairs and bathrooms.

You who else has lower overhead?

• Amazon.com compered to Borders Books
• Redbox compared to Blockbuster Video
• Uber compared to Medallion Taxis

While Uber is currently facing some backlash from taxi unions and some city governments, I’ve yet to find a single state or local government seeking to ban the sale of online books or merchandise. I have yet to see a cities ban the placement of Redbox kiosks to protect video stores that pay property taxes.

Of course we know why that isn’t happening…those types of laws or ordinances would undermine the free market.  It would stifle competition and public choice.

So what’s different when it comes to food trucks? Nothing!

Chicago Target Could Be Company’s First To Serve Alcohol To Shoppers

By Ashlee Kieler August 28, 2015

(Mike Mozart)

Who needs to tote around a cup of coffee or soft drink while browsing the aisles of their local big box retailer when they could have a glass of wine in hand instead? While shopping and drinking can certainly be a dangerous combination for some people (not myself, of course), that could be the next step for Target.

The Los Angeles Times reports a Target store in Chicago could be the company’s first to serve boozy beverages to shoppers, after the company applied for two different liquor licenses in the city.

The first license is rather standard and would allow the company to sell packaged liquor – much like other retailers already do.

The second application would allow the company to serve beer, wine and spirits in the store, potentially giving customers the chance to take a break between the grocery section and the shoe department for a little mid-shopping spree libation.

The Times reached out to Target for comment on the possibility that it could soon be employing a mixologist in Chicago, but hadn’t heard back yet.

Serving alcoholic drinks isn’t a new concept for retailers. According to Crain’s Chicago Business, the city is already home to several markets that serve booze including a Standard Market and Plum Market. A new Whole Foods also has a full service bar for downtown workers and shoppers.

Chicago appears to be a hotbed for companies branching into the boozy market. The area is now home to the first Taco Bell to serve adult beverages.

In other areas of the country retailers have latched onto the idea of serving mid-shopping drinks, as Crain’s points out. Grocery stores including Whole Foods, H-E-B and Hy-Vee all have stores that offer bars and prepared food.

As Amazon Fresh looms, Ocado emphasizes tech over food

BY BLOOMBERG NEWS

Online grocery competition is heating up, and UK-based Ocado may deliver more computer and warehouse technology with partners, including international ones.

(Bloomberg)—At Ocado Group Plc’s warehouse in Hatfield, a half-hour north of central London by train, hundreds of red shopping crates wind their way through a labyrinth of conveyor belts.

The plastic crates make a series of pit stops where workers fill them with any of 45,000 different products in the warehouse: corn flakes here, oysters there, bananas farther along. The crated groceries are then loaded into vans in time to make it to homes across Britain within a one-hour window.

The sophistication of the operation has many investors betting that the most important product for Ocado—the world’s biggest online grocery specialist—might not be food, but technology. With the stock trading at about 140 times estimated earnings, the stakes are high.

“If you believe Ocado is simply a U.K. grocer, the valuation is ridiculous,” saidCharles Allen, an analyst at Bloomberg Intelligence. “But if you believe they have some technology to sell, then its outlook is much brighter.”

Ocado, No. 19 in the Internet Retailer 2015 Europe 500 Guide, has plowed hundreds of millions of pounds into its U.K. distribution centers, and this coupled with the thin margins in the grocery business means the company has reported just one annual profit in its 15-year history.

Amazon Fresh

Chief Executive Officer Tim Steiner plans to boost returns by licensing Ocado’s technology to an international grocer—a prospect he has been talking up for two years. With speculation that Amazon.com is preparing a delivery station near London to offer its rival ‘Fresh’ service, the pressure is mounting.

Steiner, a former Goldman Sachs banker, says he wants to provide grocers with all of the computer technology and warehouse equipment they need to run an online service of any size. Ocado’s system offers “better operational efficiency than anything that’s been launched globally,” Steiner said on a conference call with analysts in June. He said the company is in advanced talks with multiple potential partners and aims to sign an international deal by December. Steiner declined to be interviewed for this article.

Andrew Gwynn, an analyst at UBS AG, cautioned that by targeting a deal this year, Ocado may have “backed itself into a corner.” The credibility of any partner is paramount, and Steiner shouldn’t rush into an agreement with a “lower or mid-league” grocer that wouldn’t provide the revenue boost needed to justify Ocado’s investment in technology, he said.

Ocado has ruled out partnering with any retailers that generate less than 10 billion pounds ($15.4 billion) in revenue, according to a person familiar with the matter. The decision was made due to concerns that an agreement with a smaller retailer could signal that the company was unable to attract a large grocer, said the person, who asked not to be identified because the negotiations are private.

Many of the largest potential partners already have online services, often supplied with goods directly from their own stores. Of the 24 grocers globally that generated at least 20 billion pounds ($31.6 billion) in sales last year, all but one sell food online, according to brokerage Redburn Ltd.

In the U.S., Ocado faces competition from both established players and new entrants. Royal Ahold NV’s Peapod, an online grocer with 25 years’ experience, has said it may consider licensing its technology.

Uber-esque alternative

And a startup called Instacart has a low-tech, Uber-esque alternative: Instead of building warehouses and shipping operations, the company simply hires personal shoppers. Customers place an order from their favorite grocer via an app; One of Instacart’s 10,000 shoppers goes to a store, picks up the goods, and delivers them. Instacart is valued at $2 billion—roughly two thirds of Ocado’s market capitalization—and already counts Costco, Safeway and Whole Foods among its partners.

With an international deal elusive, skepticism still surrounds Ocado. Almost half the analysts covering the company recommend selling the stock. According to data compiled by Markit, a London research firm, traders have borrowed and sold 9% of the company’s shares in so-called short sales, a bet that they’ll be able to buy the stock back at a lower price. That compares with an average of 1.7% across the FTSE 250 Index.

“There’s a lot of negative talk about Ocado’s prospects, and management are sensitive to that,” said Richard Hyman, an independent retail consultant in London who follows the industry closely. “Building revenue internationally is critical for their future, and they need to get their skates on.”

Kroger launches online shopping in Kentucky; coming soon to Lexington

BY JANET PATTON

Pam Morgan loaded up a customer's trunk with groceries bought online at Kroger in Versailles, Ky., on Aug. 27, 2015. The Versailles Kroger is one of the first stores to have online ordering in the country. Photo by Pablo Alcala | Staff PABLO ALCALA — Lexington Herald-Leader |Buy Photo

• 
• 

The Versailles Kroger — the biggest and newest of its kind in Kentucky — has added a new system that means shoppers might not even have to set foot inside: online grocery shopping.

Cindy Snapp of Versailles was picking up her groceries at the drive-through lane on Thursday morning.

"This is my fourth time," she said as Kroger employees loaded bag after bag into her car. Snapp, who has health problems that make walking difficult, said she orders water and RC Cola by the case, and then all she has to do is get it into her house. All four times that she has used online shopping, the orders have been completely correct, she said later.

The Versailles Kroger quietly started offering online ordering in mid-July, just after the new store opened. It's the first store in Kentucky to offer online shopping, which Kroger launched last year in Cincinnati.

Online shopping is now available at four stores in Cincinnati and two in Indianapolis.

By the end of the year, six more Kentucky stores will offer it, including the Richmond Road and Beaumont stores in Lexington, and stores in Nicholasville, Richmond, Elizabethtown and Frankfort.

Eventually, online shopping will spread through the company, with strategic locations in most major markets, Kroger spokesman Tim McGurk said.

Kroger got into online shopping last year after buying Vitacost, an online vitamin and supplement retailer, and merged with Harris Teeter, which already had an established "click-and-collect" ordering system.

CEO Rodney McMullen has indicated that Kroger is eager to expand into online shopping; the company would not release any numbers on the success of the program so far.

The early results have been "extremely successful," McGurk said, and it has been popular with seniors and people with mobility problems, families with small children, and busy professionals.

To order online, customers must have a Kroger Plus account; when a shopper logs in to the account, it calls up recent purchases, favorites and sale items among the 40,000 or so offered online.

Customers schedule a time for pickup; there is no minimum or maximum order. The first three online orders are free, but after that there is a $4.95 charge.

Produce selection has been well received, said Lisa Harrod, e-commerce manager for Kroger's Louisville division. Customers can put special instructions in their orders.

"Like 'please pick up the greenest bananas you have,'" Harrod said.

Not everything is available in online ordering: no hot foods, apparel or seasonal items, for instance. Pharmacy also isn't included; beer can be included but not spirit or wine.

Read more here: http://www.kentucky.com/2015/08/27/4008155_kroger-launches-online-shopping.html?rh=1#storylink=cpy

A rising tide lifts all boats: Successful approach for winning the clean label challenge

Aug 28, 2015by Sean McBride in Viewpoints

Sean McBride, Founder & Principal of DSM Strategic Communications & Consulting, LLC, is former executive vice president of communications & membership services at the Grocery Manufacturers Association and former director of communications at the American Beverage Association.

You don’t need to be a history major to remember Burger King’s “Have it Your Way” television commercial from the 1970s. It was a savvy move by the company to appeal to frustrated McDonald’s customers who found it hard to get (or get in a timely fashion) a burger that was customized to their taste preferences.

Burger King was light years ahead of the curve as today’s consumers are seeking customized food experiences at home, away from home and at the store.

Research shows many consumers — as part of their personal customization plan — are seeking simple food prepared simply. This phenomenon has been dubbed the “Clean Label Movement.” What does clean label mean? It can be difficult to define, but generally clean label consumers are:

• Seeking products that are minimally processed
• Buying products made with familiar and easy to pronounce ingredients
• Looking for products that do not contain artificial ingredients, preservatives and colors

In an effort to appeal to clean label consumers, companies like Panera and Safeway have announced they are banning more than 130 artificial ingredients and colors. General Mills and Kraft have made high profile clean label changes to their most popular product lines.

RELATED

Is it time to champion less processed foods?

'Pure food' trend a boon to supermarkets, analyst says

Giving consumers what they want is the hallmark of the fast moving consumer goods sector. However, it remains to be seen what impact the explosion of customized and clean label products will have on the food value chain, prices and profits.

Increased segmentation of the value chain to accommodate organic, non-GMO and clean label products is an expensive and time-consuming effort. If consumers are willing to pay more for those products, food companies are likely to recoup the cost of duplicative supply chains and perhaps increase profits. If not, food companies must absorb the cost, negatively impacting their bottom lines.

While clean label competition between brands and private label is good for consumers, it compounds the economic problems a proliferated value chain brings. More SKUs mean store shelves and warehouses can accommodate less inventory per product, as one example.

The late Jack Kemp, former Congressman and U.S. Secretary of Housing & Urban Development, believed fiercely in the economic notion that “a rising tide lifts all boats.” That is a good analogy for how manufacturers and retailers can prosper from the clean label movement. Collaboration — not competition — on supply chain modernization and consumer communication will improve clean label economics for national and store brands alike by increasing sales and making it easier to absorb the costs associated with clean label products.

If the clean label trend is here to stay, consumers, brands and private label products can all come out winners if food manufacturers and retailers develop a long-term blueprint for success, rather than rely merely on their short-term competitive instincts to win over demanding and sometimes finicky consumers.

Higher food prices don't hurt everyone equally

• Elena Holodny
 
•  

• Aug. 27, 2015, 1:39 PM
 

One effect of higher food prices in a given country is higher consumer price index (CPI) inflation.

However, higher food prices affect people in different economies differently.

This effect tends to be much greater for countries that are 1) large net importers of food, and 2) where households spend a greater percentage of their income on food (meaning that they have a much larger weighting of food in their CPI basket).

So, using these two criteria, Nomura analysts put together a chart that shows the impact of rising food prices on CPI inflation in various developed and emerging economies — and they found a pretty clear pattern.

"The impact of rapidly rising food prices on CPI inflation is substantially larger in emerging market economies (red dots) than advanced economies (black dots)," Nomura's Rob Subbaraman wrote in the note.

Nomura

Countries like Nigeria and Bangladesh, with food weighting in the CPI basket of 64% and 58%, respectively, see a higher inflation risk. By comparison, more advanced economies that have food weighting in the CPI basket around 10-20% (like the US or Denmark) see lower inflation risk.

Notably, this isn't too far off of what happened in the real world during the financial crisis.

"Allowing for the amount of check in economies, we found that during the food price surge in 2007-2008 many economies in our high inflation risk grouping in [the first chart] are the ones that experienced the highest actual CPI inflation rates," wrote Subbaraman.

You can see in the second chart that the US experienced a relatively low CPI inflation rate at the time (~5%), while countries like Nigeria experienced a relatively high one (~15%).

In short, higher food prices don't hurt everyone equally. Poorer, developing economies feel it much worse.

Grocers find smaller is often better

Customers inspect tomatoes at an Aldi store in Sydney, Australia, on Thursday, June 25, 2015. Aldi, a German grocer that recently announced plans to add hundreds of U.S. stores, is one of several chains with small stores gaining popularity among shoppers. (Brendon Thorne/Bloomberg)

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By Anna Marum | The Oregonian/OregonLive 
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on August 22, 2015 at 8:20 AM

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The days of the corner grocer are coming back.
As Americans increasingly move to urban centers, they seem more willing to shop multiple times a week and less willing to travel.
New midsize grocery stores (those from about 40,000 to 60,000 square feet, like most Safeway, Albertsons and Thriftway stores), won't fit in very many commercial spaces in urban centers.
That means smaller grocery stores like Trader Joe's, New Seasons Market and Aldi are moving in. Their relatively small footprints make them more nimble, said Craig Sweitzer, founder and principal of Portland-based Urban Works Real Estate.
Smaller stores have more options in urban centers, he said, because they can move into strip malls and other retail spaces rather than being confined to former grocery store buildings.
"I think the new standard is closer to 20,000-30,000 square feet," he said. "And I think, as time goes on, we'll have even smaller stores like Green Zebra Grocery."
Win-win
Grocers with traditionally larger stores seem to be catching on. Walmart was one of the first retailers to roll out a smaller version of its big-box stores with its Neighborhood Markets, and Target soon followed with its Express stores. Now, Whole Foods is opening up 365 stores aimed at health-conscious Millennials on a budget.
Sweitzer, who said he has helped New Seasons find locations for its stores, highlighted the local grocer as one whose size allowed them to be especially nimble. While most national grocers have a high stall-to-square-foot ratio requirement for parking spaces, New Seasons' is fairly low. This allows it to move into spaces that other grocers might be forced to ignore.
And small stores have been a boon to the Portland grocer: Sweitzer says their smaller stores are more profitable than their larger ones, because the small stores are located in urban centers, which brings in more shoppers.
Those who walk, bike or take public transit to the grocery store are more likely to visit stores more often than those who drive cars, according to a 2012 study by the Oregon Transportation Research and Education Consortium.
And this is fine with Peter Koehler, director of business development for Green Zebra Grocery. The Portland company opened its first location, a 5,600-square-foot grocery and convenience store, in North Portland in 2013.
"More and more, people are opting to shop for one or two days at a time or even by the meal, instead of huge stock-up trips," Koehler said. "We're seeing our customers a few times a week."
And while their basket sizes are smaller, their frequent trips add up.
Koehler tallies this as a win for both retailers and shoppers: Retailers get more business and consumers have the chance to stock up regularly on fresh food.
The paradox of choice
Phil Lempert, a Santa Monica, California-based food industry analyst, says shoppers – especially Millennials – would rather see a better-curated selection.
"People want to shop in stores that are comfortable #1," he wrote in an email to The Oregonian. "The larger stores are just filled with SKUs [items] that don't matter."
Less room for merchandise, Koehler says, is not necessarily a bad thing. Too many choices – say, 10 types of ketchup – can be overwhelming for shoppers.
In his 2004 book, "The Paradox of Choice - Why More Is Less," psychologist Barry Schwartz argues that eliminating consumer choices can reduce anxiety for shoppers.

So instead of 10 types of ketchup, shoppers at Green Zebra Grocery (and other limited assortment stores like Trader Joe's, Aldi and Grocery Outlet) might just find three.
Koehler said Green Zebra receives lots of customer feedback, and selection is never an issue.
"People appreciate [the limited selection]," he said. "We've established trust with them. When we choose the three types of ketchup on the shelves, they know we've put thought and care into the selections."