Who needs Dingdong? Alibaba answers Meituan with super-sized Pupu bid

Alibaba is reportedly offering $1.5 billion for regional online grocer Pupu, more than double the $600 million offered by a previous bidder

Key Takeaways:

• Alibaba is reportedly bidding $1.5 billion for Pupu, the dominant online grocer in South China’s affluent Fujian province
• The bid is more than double the $717 million Meituan is paying for national online grocer Dingdong, as competition for assets heats up in China’s instant commerce wars

By Doug Young

Just months after one of its rivals agreed to pay $700 million for an online grocer with a national footprint, e-commerce giant Alibaba Group Holding Ltd. (BABA.US; 9988.HK) is reportedly bidding twice that amount for a regional player in the hotly contested space.

There are quite a few elements that explain why Alibaba is reportedly willing to pay $1.5 billion for Pupu, the dominant online grocer in South China’s affluent Fujian province, according to a report last Friday in Bloomberg. The bid comes just four months after Meituan (3690.HK) agreed to buy leading online grocer Dingdong (DDL.US) for $717 million.

At the highest level, Alibaba is engaged in a cutthroat war in China’s emerging market for instant commerce. That category initially included categories like groceries and takeout dining that required quick delivery due to their perishable nature. But increasingly it’s also come to include many other daily-use items that can be warehoused and delivered locally, with companies often promising to deliver such goods in less than an hour.

Alibaba originally focused on takeout dining through its Ele.me service, but has expanded that under its Taobao Instant Commerce brand to include groceries and other products. Such instant commerce services have been one of Meituan’s main revenue sources for quite a while, with delivery services accounting for about a quarter of its revenue in its latest quarterly report. Meantime, JD.com (JD.US; 9618.HK) has also been pushing heavily into instant commerce since last year, with an initial focus on takeout dining. While most attention goes to those three companies, another playing moving aggressively into the space is SF Intra-city (9699.HK), the city-level delivery arm of national delivery giant SF Holding (6936.HK).

Pupu is one of the last remaining independent online grocers, and is quite the dominant player in Fujian and parts of adjacent Guangdong province, two of China’s wealthiest areas. The company reportedly controls 70% of the online grocery market in the Fujian provincial capital of Fuzhou, and operates a network of over 400 warehouses in Fujian and Guangdong, according to one Chinese media report.

Even more striking, Pupu generated 30 billion yuan in revenue in 2024, according to the report in 21^st Century Business Herald, which, if true, would be 20% more than the 24 billion yuan that Dingdong generated from its much larger national network last year. But Pupu’s gross margin of 22.5% in 2024 trailed Dingdong’s 29.2%.

Still, Pupu’s dominant position in its home market, combined with the larger instant commerce war, is probably what’s leading Alibaba to make such a high bid for the Fujian company. The Bloomberg report noted that Alibaba’s bid was more than double the $600 million offered in an earlier bid by traditional grocer Sun Art (6808.HK). And other media point out that reports in late May said Meituan and JD.com were all also bidding for Pupu.

All that appears to show this is a classic bidding war, meaning it’s quite possible Pupu could ultimately sell for even more than the $1.5 billion in Alibaba’s latest bid.

Investors unimpressed

The instant commerce wars have taken a toll on all three companies’ financials, as they spend heavily to build up their businesses and offer billions of yuan in subsidies to gain market share. That’s scared off investors, with shares of both Alibaba and Meituan down about 23% so far this year. SF Intra-city is down by an even larger 29%, even though the company appears to be growing its instant commerce business more profitably. JD.com’s stock has fared better, down just slightly year-to-date, though even that doesn’t look too impressive in the broader rally for China tech stocks this year.

A look at each of these companies’ financials shows the toll the instant commerce war is taking on its business.

Meituan has suffered the most, reporting revenue from its delivery services fell slightly to 25 billion yuan in the first quarter from 25.8 billion yuan a year earlier. But the huge subsidies it has offered to compete with the others dragged the company deeply into the red, as it swung to a 6.83 billion yuan loss for the quarter from a 10.1 billion yuan profit a year earlier.

Revenue from Alibaba’s quick commerce segment jumped 57% year-on-year in the quarter through March to nearly 20 billion yuan. But its heavy spending to ramp up the service caused adjusted earnings before interest, taxes and amortization (EBITA) for its core e-commerce segment to tumble 40% to 24 billion yuan from 39.7 billion yuan a year earlier.

JD.com was similar to Alibaba, reporting a 9.2% year-on-year rise in its new businesses segment, which includes local delivery services to 6.28 billion yuan. But the segment’s loss from operations ballooned to 10.3 billion yuan from a 1.33 billion yuan loss a year earlier.

SF Intra-city looks the most impressive among the group, reporting its intra-city on-demand delivery services rose 47.6% last year to 13.5 billion yuan from 9.12 billion yuan in 2024, citing big gains in food delivery and on-demand retail. The company didn’t break out profitability for that segment, but its overall profit for the year more than doubled to 278 million yuan from 132 million yuan a year earlier.

China’s market regulator is aware of the intense nature of the instant commerce price wars, and has repeatedly called in Alibaba, JD.com and Meituan to ease the competition. While the companies have repeatedly said they are heeding that call, the latest financial results, combined with this latest bidding war, appear to show that no one is really backing down just yet.

Notably, the Bloomberg report points out that Meituan’s purchase of Dingdong has yet to receive regulatory approval. Whoever ends up making the winning bid for Pupu will also require similar approval. We would argue the presence of three or four strong players in the instant commerce market represents relatively healthy competition.

What’s more any regulatory veto could imperil the longer-term prospects of smaller players like Dingdong and Pupu, which lack the financial resources of Alibaba, Meituan and JD.com to weather a prolonged price war. But China’s market regulator doesn’t always follow such logic, and could easily veto one or both sales as a sort of punishment for Alibaba and Meituan for failing to heed its call to lower the heat in their ongoing price war.

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