Inside China’s USD37 billion online food delivery services market
September 19, 2017 Category China News Round-up, Weekly
About 256 million people in China used online food ordering services in 2016, a number that is expected to grow to 346 million by next year – about a quarter of the country’s population. The services already cover 1,300 cities and the market is estimated to be worth over CNY240 billion next year. Food delivery services are taking off rapidly in line with the surge in all things online in China, but unlike many other sectors such as e-retailing, the market has come to be dominated by just two players: Meituan Dianping, backed by Tencent, and Ele.me, whose main investor is Tencent’s rival Alibaba, with a 45.2% and 36.2% market share respectively in transaction value in the first six months this year.
A third operator, Baidu Waimai, backed by online search firm Baidu, was sold to Ele.me last month after failing to make a profit and lagging far behind in market share. The failure highlights the tough competition in the market that is likely to mean the new duopoly will be in place for some time. Neither of the two market leaders are profitable. Foreign companies in particular, such as U.S.-based UberEats, Germany’s Foodpanda or Britain’s Deliveroo, would find it very difficult to compete with Ele.me and Meituan, analysts said.
“The development of the Chinese online food delivery market has proved that as long as a company has users and funds in China, it has opportunities in the market,” said Xue Yu, Senior Analyst with research company IDC in Beijing. “However, the costs for companies to acquire users are high so this will act as a brake on interest in the market by newcomers,” he said. The services work through apps, which show lists of food providers near the users’ location and allow them to search for specific restaurants that may not be on the list. Clicking on the restaurant brings up the menu and the ordering system, which uses online payments or bank credit cards. The apps also show the location of the delivery driver, so an order can be tracked, and allow users to rate the food and service.
About 35% of app users said they ordered food one to three times a week and another 35% said they used them four to six times a week, according to a report by iMedia Research. “Aside from food delivery from restaurants, cake and flower delivery, delivery from supermarkets and even medicine delivery are now options on both the platforms,” said Yang Xu, Analyst with Beijing-based internet consultancy Analysys, as reported by the South China Morning Post.
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