A truce has been declared in the taxi war between Tencent and Alibaba (see WiC272) but the fight goes on in food delivery.
This follows news that food delivery service provider Ele.me has raised a further $350 million from an investor group including Tencent and JD.com.
Ele.me has lined up against Alibaba-backed Meituan in one of the key battlegrounds in the O2O market (online-to-offline) in which consumers order items through smartphone apps and then collect them, or have them delivered.
The competition for customers in O2O was covered in last week’s Focus publication, The Battle for China’s Internet, which profiled the rivalry between tech titans Tencent and Alibaba. Alibaba first invested in Meituan four years ago. Back then Meituan was focusing more on group discount deals, in the style of the American site Groupon, but it has since become more of a marketplace for services from hotels, restaurants and entertainment venues. It launched a food delivery platform two years ago, leading to direct confrontation with Ele.me. Occasionally the rivalry turned violent, with reports of companies’ sales reps fighting each other. Last year an undercover staffer from Meituan published a video of a training session at Ele.me. China Entrepreneur reports that at this event a participant seemed to be telling other staff, “Don’t be afraid of beating up their (Meituan) workers. We guarantee your safety.”
Meituan says that it is now getting 1.5 million orders a day. Ele.me on the other hand operates in about 250 cities, with 200,000 restaurants and 20 million users, and has daily orders thought to be a little higher than Meituan’s.
With Rmb15 billion ($2.4 billion) spent last year, according to O2O research agency Pintu360.com, the food delivery market is less than 1% of total caterin outlays. So the prospects look good. Ele.me is stronger in places like Shanghai and Beijing, while Meituan has tried to take the lead in smaller cities. Both platforms are targeting white-collar workers and college students.
And both try to build market share by cutting price. That doesn’t look like a sustainable strategy, although customers are having a great time of it while it lasts. “Last month I ordered takeaway every day,” one student told China Entrepreneur. “Any order costing more than Rmb20 gets an Rmb10 discount, so basically I can have a meal for Rmb10, which is cheaper than eating in the cafeteria.”
Ele.me is the more vertically integrated of the two firms, running a delivery team of more than a thousand people in its main markets. “By 2016 I hope to see our delivery people at every crossroad,” its boss Zhang Xuhao has boasted. “We will become the lifeblood of last-mile delivery in these cities.”
Meituan’s strategy has been different, relying on the restaurants to deliver the meals. This is a lower-cost model although China Business Journal says Meituan is having to rethink this approach because it is missing out on contracts with restaurants that don’t have the means to deliver.
That may see it refocus on the bigger cities, the newspaper speculates, because it will need to find markets large enough to support higher logistics costs.
The distinction in the duo’s operating models also mirrors one of the differences between Alibaba and its nearest challenger in online retail in general, JD.com. While Alibaba has opted for an asset-light strategy – using third parties for warehousing and delivery – JD.com has invested more heavily in in-house fulfilment.
JD.com has now teamed up with Tencent to invest in Ele.me, as has the restaurant review site Dianping. But most commentators assume that Tencent (an investor in both JD.com and Dianping) is the driving force behind the consortium, as part of its ongoing battle with Alibaba.
The goal: that customers browse restaurant storefronts on WeChat – Tencent’s dominant messaging and social media app – ordering meals through Ele.me and paying for them with Tencent’s digital wallet app Weixin Payments, which also sits on the WeChat platform.
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