What makes a hero? Is it the will to persevere and triumph against the odds, or the humility to recognise when you’ve met your match and should step aside? For Delivery Hero, the answer appears to be the latter.
Berlin-based Delivery Hero is a third-party food order and delivery service, much akin to Just Eat, Grubhub, or Deliveroo. When it entered the Chinese market four years ago it took the name Waimai Chaoren, which translates more closely to “Takeaway Superman”. Unfortunately, this firm’s kryptonite turned out to be commonplace competition. At the beginning of March CEO Niklas Östberg announced that Delivery Hero would be divesting its Chinese business.
Östberg explained: “The competition in China has become anything but sane where the companies have been flooding the markets with free food to users and no commission to restaurants. There will likely be someone making a lot of money in China but the amount of investment required is going to be big.”
The “Chinese companies” mentioned by Östberg are no ordinary competitors. In fact, they are backed by the tech triumvirate Baidu, Alibaba and Tencent (popularly known as the BAT).
Baidu has its own food delivery operation in Baidu Waimai. But Alibaba and Tencent have been busy undercutting each other’s strategic investment in this booming 020 market. According to a report by Caixin Weekly in December last year, Alibaba invested $1.25 billion for a 27.7% stake in Ele.me. The fundraising made Alibaba the biggest single shareholder of the Shanghai-based food delivery firm, at the expense of Tencent, a key early investor of Ele.me. Intriguingly, the deal came just a month after Tencent had acquired control of Meituan, previously an Alibaba affiliate, following a merger between Meituan and the Tencent-backed Dianping, a restaurant booking website.
Ele.me was in fact a rival to Waimai Chaoren long before it became part of the BAT. When Delivery Hero moved into China, it did so by assimilating an alternative Shanghai-based food order and delivery platform Aimifan. In 2014, it spent a further $5 million in an M&A deal with Kaichiba – another platform of the same ilk. According to Beijing Business Today, Waimai Chaoren amassed over 5 million users and served meals from over 30,000 restaurants, but despite this the company was only included within the “others” category in a recent ranking of China’s largest online delivery groups. The winners’ podium was occupied by Ele.me, Meituan-Dianping, and Baidu Waimai.
In hindsight, the name Takeaway Superman may well have been an overestimation of the company’s abilities. According to one food merchant serviced by Waimai Chaoren and its rivals, the former doesn’t offer nearly as many benefits to the restaurant trade. Beijing Business Today cites the restaurateur as saying that whilst some delivery firms offer restaurants immediate payment, provide free cutlery, or help distribute advertising leaflets, Waimai Chaoren only subsidised the cost of including a free drink.
But Delivery Hero’s demise in China has heightened concerns that there is a bubble in the O2O food delivery business, inflated by the industry leaders providing below-cost services and subsidising their losses with huge fundraising rounds, hoping they can eventually dominate the market. The competition has deteriorated into turf wars (see WiC273, for a description of the fights between rival delivery staff).
In the light of this brutal battlefield, Germany’s Delivery Hero has clearly come to the conclusion that departing the scene is the best option. Its withdrawal from China is only the latest in a series of exits that WiC has reported over the years, which include Home Depot, Best Buy and German retailer Media Markt shutting their Chinese operations.
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