A $9.5bn deal puts China’s food delivery sector on the verge of duopoly status, but there are rewards to be reaped for regional foodservice operators, as Thomas Lawrence reports
China’s tech landscape is dominated by two big beasts: Alibaba, China’s biggest online retailer, and Tencent, known for its multi-purpose instant messaging platform WeChat.
Both have made inroads into food delivery over recent years, taking on Baidu, Meituan, Ele.me and other big players in the sector. Over time, the market consolidated; Ele.me bought out Baidu, Alibaba took shares in Ele.me, and Tencent threw its weight behind Meituan.
A range of operators continue to vie for dominance over food delivery in China, but Alibaba’s acquisition of Ele.me at the start of April nudged the market closer to duopoly than ever before. Already a majority shareholder, Alibaba’s purchase of the remaining shares boosts Ele.me’s enterprise value to $9.5bn and throws down the gauntlet to competitors.
With Tencent and Alibaba locked in battle to be crowned ruler of Chinese tech – and food delivery the battleground of choice – it’s a tumultuous time for the nation’s foodservice industry.
Alibaba is reportedly planning to expand Ele.me’s remit by linking it to local listings service Koubei. Tencent has pledged to increase its financial backing for Meituan – significant as the firm is planning an initial public offering worth at least $60bn, possibly as early as this year – with Martin Lau, Tencent’s president, telling financiers “we feel it’s important at this stage to make the necessary investments to get market position.”
Nationally, the battle for supremacy between China’s digital behemoths is likely to heat up in the coming years. But at a local level the food delivery market is showing signs of more vibrant competition.
The headline figures suggest the Tencent-Alibaba dominance of food delivery is insurmountable, with the company’s combined interests amounting to an estimated 90% of the market. But some regions are bucking the trend.
Incursions from Western companies into the Asian market suggest domestic conglomerates may be in for a rude awakening. European and American firms are establishing bases across Asia, and, with China perhaps the biggest and wealthiest market of all, the likes of Deliveroo, UberEATS and even Facebook are unlikely to be deterred forever.
Another potential development is big players in the world of Chinese logistics and hospitality pouring resources into the delivery market, eating up the duopoly’s dominance.
Didi, the ride hailing app established in 2012, has overcome stiff competition from the likes of Uber to become one of China’s most used taxi summoning services. It’s now trialling food delivery via its widely used app in the city of Wuxi to the west of Shanghai. Didi has already occupied 30% of the local food delivery market, generating 334,000 orders on its first day.
Restaurateurs poised to benefit
These figures belie the purported Tencent-Alibaba vicegrip. As the two throw their weight behind quashing emergent threats to their dominance, customers are seeing some unexpected perks. Reports from Wuxi suggest competition between the city’s three delivery apps was so fierce in the first week of service that eaters were able to purchase entire meals for as little as ¥0.01 after applying the various coupons and waivers on offer.
Regional power struggles aside, the delivery sector looks to have been sewn up by China’s tech conglomerates and ambitious new entrants with vast cash reserves to drawn on. But caterers, restaurateurs and other foodservice operators across the country could be ideally placed to gain. The fight for supremacy is feeding consumer demand for on-the-go food, with the delivery giants shouldering the costs. As the example of Wuxi demonstrates, this could see demand for home-delivered food skyrocket.
As China’s increasingly wealthy population becomes wealthier still, the demand for food combining quality and accessibility will only grow. Consultants in the region should be poised to ride the takeaway wave – as the duopolists battle it out, they may be the ones to collect the spoils.