Just months after Meituan agreed to pay $717 million for Dingdong, a national online grocer, Alibaba is reportedly bidding twice that amount for a regional player. The target: Pupu, the dominant online grocer in South China's affluent Fujian province. According to a Bloomberg report last Friday, Alibaba is offering $1.5 billion.

At the highest level, this is about China's cutthroat instant commerce war. That category started with groceries and takeout—things that spoil quickly—but has expanded to include daily-use items that can be delivered from local warehouses in under an hour. Alibaba, Meituan, JD.com, and SF Intra-city are all fighting for market share.

Alibaba originally focused on takeout through Ele.me, but now pushes groceries and other products under its Taobao Instant Commerce brand. Meituan has long relied on delivery services for about a quarter of its revenue. JD.com jumped into instant commerce last year, starting with takeout. And SF Intra-city, the delivery arm of SF Holding, is also moving aggressively.

Pupu is one of the last independent online grocers. It controls 70% of the online grocery market in Fuzhou, Fujian's capital, and operates over 400 warehouses in Fujian and parts of Guangdong. In 2024, Pupu generated 30 billion yuan in revenue—20% more than Dingdong's 24 billion yuan from its national network. But Pupu's gross margin of 22.5% trailed Dingdong's 29.2%.

Alibaba's bid is more than double the $600 million offered earlier by traditional grocer Sun Art. Reports from late May suggest Meituan and JD.com were also bidding for Pupu. This looks like a classic bidding war, and Pupu could sell for even more than $1.5 billion.

Investors unimpressed

The instant commerce war is taking a toll. Alibaba and Meituan shares are both down about 23% this year. SF Intra-city is down 29%. JD.com has fared better, down just slightly year-to-date, but that's not impressive given the broader rally in China tech stocks.

Meituan's delivery revenue fell slightly to 25 billion yuan in Q1 from 25.8 billion a year earlier. But huge subsidies swung it to a 6.83 billion yuan loss from a 10.1 billion yuan profit. Alibaba's quick commerce revenue jumped 57% to nearly 20 billion yuan, but adjusted EBITA for its core e-commerce segment tumbled 40% to 24 billion yuan. JD.com's new businesses segment revenue rose 9.2% to 6.28 billion yuan, but its operating loss ballooned to 10.3 billion yuan from 1.33 billion. SF Intra-city looks best: its on-demand delivery revenue rose 47.6% last year to 13.5 billion yuan, and overall profit more than doubled to 278 million yuan.

China's market regulator has repeatedly called in Alibaba, JD.com, and Meituan to ease the competition. The companies say they are heeding the call, but the latest financial results and this bidding war suggest no one is backing down. Notably, Meituan's purchase of Dingdong has yet to receive regulatory approval. Whoever wins Pupu will need similar approval. Three or four strong players might represent healthy competition, but the regulator could veto one or both sales as punishment for ignoring its calls to cool the price war.