大家好 Hello everyone 👋
Hope you had a good week. Spring is on its way but it’s not like people can go outside. More time to read the news and keep up to date with everything. At the moment I am really enjoying a new podcast series from The Economist about Covid-19 vaccines called "The Jab", which I highly recommend. In other news, China calls for a reset of the relations with the US, which maintains a strong stance.
This week, I want to share my view on the Food Delivery industry in China. If you lived there or follow China's growth, the scale of its importance to the Chinese society is not unknown to you, and you are used to seeing the swarms of on-duty delivery drivers as well. This industry has been expanding internationally quite a lot in the last couple of years, even more so during the current pandemic.
I am looking for feedback from you if possible (on my writing style and suggestions for future topics). Feel free to leave a comment or DM me on twitter (@jorgegoncalo).
Index:
Intro
Main Players in China
Convenience vs Issues
So what’s next in the Food Delivery scene?
Intro
China’s online food delivery market is huge, the worlds biggest in fact. It generates the equivalent of 45 billion USD yearly which is almost double that of the US. But it was actually US companies like KFC that started this phenomenon with in-app purchase and delivery possibilities, while “hole in the wall” restaurants would just bring you a meal around - usually by asking a family member - if you gave them a ring in advance.
I remember how amazing it was ordering McDonalds to my university's dormitory in Tianjin back in 2013, when I was feeling lazy or simply just missed some Western "food”.
The industry's growth is not only in big cities like Beijing and Shanghai though, but also tier 3,4,5 cities (smaller cities with over 1 million people but of provincial and regional significance). For example in 2019, only 35% users of China’s O2O (Online to Offline) food delivery apps came from these smaller cities. This means that there is still a big growth possibility as the majority of China's population lives in these locations.
Actually one of the players in this market Meituan and the "king” of rural China Pinduoduo are expanding in these areas a lot already, but with a bigger focus on groceries and other house/small tech products. If you want to read about community group buying (bulk delivery of groceries) please check this great article from the Chinese Characteristics newsletter.
Main players in China
Meituan 美团 (Tencent backed) - 67% of the market
Being funded by Tencent, Meituan is closely integrated with Wechat (the “mother app” of Chinese consumers). This means they are the platform that has the biggest audience reach and it has a really low barrier of entry and usage of the platform. Simply link your WeChat account and “boom” get a first time delivery voucher, share pics of your food with friends and fill your belly in less than 40 min.
Meituan aims to be a complete lifestyle aggregator with a focus not just on food delivery but also:
groceries, or also known as community group buying;
medical appointements;
urban mobility - bicycle renting or ride-hailing services;
entertainment - booking massages, karaoke rooms, or movie tickets;
tourism - tour packages, hotel bookings;
beauty - booking a hairdresser or a make-up consultation;
others - like electric power banks just in case you need an extra boost to post more pictures for your social media feed!
Meituan's success enables them to experiment in new technologies and on improving their logistics infrastructure. For example they are even dabbling in driverless cars with a range of 5km for their delivery system.
Eleme 饿了么 (Alibaba) - 26.9% of the market
Eleme is more focused on food but still tries to somewhat diversify into groceries. Also they have an interesting feature where you have picture filters for your food which I personally enjoy (foodie alert). They are part of the Alibaba ecosystem since 2018 when they were bought for 9.5$ billion and are, therefore, closely integrated with their Alipay solution as well.
Convenience vs Issues
Most office workers in China simply do not have time to go around and cook - as overtime is the norm in the famous 996 mentality - and most importantly, there is already a strong incentive of eating out in most cities during the week.
Think about it, if you are a young office worker that is constantly on-call ,why go and spend X and go through all the trouble of cooking if you could spend just a little more - or less depending on what you eat - and get a warm bowl of noodles made by an auntie, who has been cooking the same dish for 20 years? Plus, maybe you get a discount coupon for your next meal!
These coupons are actually a key aspect here as they somewhat “gamify” the whole thing. We see this in other apps, of course but, food being a recurring necessity, you find whole communities dedicated to trading these coupons between themselves on social media. Finally, both Meituan and Eleme offer premium monthly subscriptions that come with free deliveries for around 3-4$.
This convenience comes with costs, of course. Environmental costs are big, in terms of all the material that is needed for delivery and consumption of the meals, as these mostly end up in landfills. China started to tackle this issue recently with the ban of single use plastics for food consumption in 2020 but there is still much more to be done, as the whole range of the ban should only happen by 2025.
The biggest issue here is a human one. As in this industry - and other logistics focused enterprises - there is a dependence on the gigantic population of migrant workers as a cheaply paid courier workforce. This workforce actually is further segmented into couriers that are directly hired by the platforms themselves and sub-contracted or freelancing drivers who are more at risk here as they most often lack work safety nets.
These riders were one of the few professionals allowed to somewhat join health workers in the frontlines during the harder days of the pandemic in China. They provided a crucial link between the lockdown population and foreclosed restaurants. They fed a nation while being paid not so much for it. An unknown mass of “heroes” in the eyes of the Chinese social media that went through countless nucleic acid tests, temperature readings and the mental stress of putting themselves in environments prone to contagion.
There are downsides to this commission-driven model, and in the race from restaurant to doorstep, these workers are often the first hit when such orders go awry. Given that these drivers are often speeding across China’s urban environments to deliver food on time — they risk being docked in pay when delivering a late order — there has been debate over the role the delivery explosion plays in road safety and traffic accidents.
The delivery deadline expectations from platforms and the commission paying system pushes drivers to race against the clock in a clearly unstainable way. For example, in the first half of 2019, Nanjing, one of the biggest cities of China had 3,357 accidents related with food delivery drivers.
The takeaway sector grew rapidly in 2020, with food delivery revenues at Meituan growing year on year in the 3.2$ billion mark. Unpaid wages from sub-contractors that face increasing pressure from such platforms though are leading sad events like the one where a driver set himself on fire out of desperation to make a living and provide for his family.
So what’s next in the Food Delivery scene? (Own opinion)
Most probably in other counties besides China you will start seeing the rise of non-traditional food businesses catering only to deliveries and take-out. For restaurants this completely cut the costs that maintaining a location and waiting staff require. Those would be the so called “ghost kitchens” that are already rising in popularity in Europe and India for example.
One thing to be careful with though his the restaurant's excessive reliance on subsidies from these companies as they often give discounts - remember those coupons we talked about before? - and then pay back the difference. Smaller restaurants, meaning your typical “hole in the wall” joint have also little to none bargaining power in the case if companies like Meituan or Eleme decide to rise their percentages. In some cases, some just quit those platforms and roll back to phone only deliveries and others create their ultra local solution.
China will most probably continue issuing regulations on these platforms. Besides the environmental issues there are also societal in terms of the payment issues and algorithm based expectations that put way too much pressure on their drivers. This last point results in a safety issue i.e. more people zig zagging across the streets to meet delivery times.
All in all food delivery is here to stay and it will be the increasing norm until the pandemic is controlled worldwide and the the general population feels safe eating outside. Personally, I will keep dreaming about having an espresso sitting outside with friends during sunset like in circa 2019. ☕️
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My name is Jorge and China Abridged is where I write weekly about Chinese technology and society. I have a B.A in Asian Studies with the University of Lisbon, won a scholarship from the Confucius Institute for academic excellency and lived for 2 years in the Middle Kingdom.
For the past 4 years, I have been involved with one of the biggest fin-tech startups in the world and now I spend my time honing my language skills, perusing articles about 中国, and perfecting my RSS feed.
You can check out all past issues here. Also I would be extremely thankful if you shared this article with your friends and colleagues if you found it interesting.
Any suggestions for topics or feedback? Let me know on Twitter 🐦 @jorgegoncalo.
Pretty cool reading as usual! 👏