Shares of Alibaba (BABA) - Get Report closed up 1.50% to $82.29 on Tuesday after the Chinese e-commerce company looks to diversify chicken deals with KFC (Kentucky Fried Chicken), a fast food restaurant chain that's a part of Yum! Brands (YUM) - Get Report, through "online-to-offline" sales.

Alibaba's Alipay pay service agreement with KFC China, the country's largest food delivery business with 5,000 restaurants across 900 cities, was followed by Baidu (BIDU) - Get Report 's investment in online-to-offline business, the Financial Times reported.

On Tuesday, the search engine Baidu announced it would invest $3.2 billion over the next three years to bolster its offering of online-to-offline services.

Alibaba's deal with KFC China will be the biggest in a series of partnerships with retailers to allow customers to pay by scanning bar codes using Alipay's smartphone app, the Times added.

Alibaba and Baidu are also playing catch up in the O2O market with Chinese rival Tencent (TCEHY) , the third in China's triumvirate of online behemoths, according to the Times.

China's e-commerce market is expected to grow at an annual rate of 25% over the next few years to $718 billion in 2017 from $390 billion in 2014, according to a recent study released by management consulting firm AT Kearney, reported.

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