Online food delivery market in China and why Ele.me is losing the “food delivery wars”
Meituan and Ele.me are the biggest food delivery services in China. Currently, Ele.me is often in the news. Why? Because in its App, it will introduce a “non-urgency” option. Basically, there will be a button called “I am willing to wait 5/10 more minutes”. Thus, the delivery will arrive later. Unsurprisingly, the feedback was quite negative. Personally, I find this development quite puzzling since Ele.me has been losing market share against Meituan.
Both Meituan and Ele.me started out similarly and have been similar in sizes and operations. Yet, in the last few years, Ele.me has been losing market share to Meituan despite having Alibaba in the back. Why? Let’s find out together!
History of Meituan and Ele.me
First of all, let’s take a look at both companies history. Herefore, I created a simple graphic. It shows the companies timelines, their highlights and milestones.
Meituan and Ele.me both started in 2009. While Ele.me started as a food delivery service, Meituan started as a Groupon clone, the engagment in food delivery came in 2013. The Ele.me founders are from Shanghai and started the company as a food delivery service within the Shanghai Jiaotong University campus where they studied. On the other hand, Wang Xing, Meituan’s founder, was already a successful internet enterpreneur. His resume includes the predecessor of renren.com (“人人网”).
Thus, Meituan is the first one to be active on the capital market. Within 2 years, it has received approx. 62 million USD in funding. It took Ele.me 4 years to get half of the funding. Using these funds, both companies started the “food delivery wars” in 2014.
And soon, Alibaba and Tencent started their engagements in Ele.me and Meituan respectively. Even though they are already big, in 2018, both companies turned into real behemoths. Ele.me was acquired by Alibaba for 9.5 billion USD and Meituan-Dianping had its IPO in Hong Kong with a value of approx. 55 billion USD. As you can see, the story of the Meituan and Ele.me rivalry is also a story of Alibaba and Tencent’s competition.
Online food delivery market development in China, the rise of Meituan and Ele.me and food delivery wars
Before we go into both food delivery companies’ rivalry, let’s take a brief look at the food delivery market in China first.
In 2011, the online food ordering/food delivery market was merely 21.7 billion RMB, yet it grew significantly over the last 10 years. This year, the market is expected to reach 325 billion RMB. The market increased by 15 times in the last 10 years with an average growth rate of 35% year-on-year!
Ele.me entered the market in 2012 and Meituan did so one year later. And in 2014, the 2 companies engaged in “food delivery wars” and expanded rapidly.
From 2014–2017, Ele.me and Meituan had similar market share. Even though it acquired Baidu food delivery in 2017, Ele.me could not really outgrew Meituan. And since then, it has been losing ground in the on-going rivalry. In Q1 2020, it only has 30% market share while Meituan has over 2/3 of the food delivery market. So, how could this happen?
Tencent and Dianping are the key to Meituan’s success
The key to Meituan’s success lies in Tencent and Dianping. Let’s look at Tencent first. As you may know, Tencent is a highly diversified company, runs numerous investments in various fields and is highly successful. It started to invest in Meituan in 2016. It has invested approx. 8.7 billion USD and is Meituan’s biggest shareholder.
Not only did Tencent open up its wallet, it also opened up WeChat. By integrating Meituan food delivery into WeChat, it became omnipresent just like WeChat itself: WeChat has a DAU of more than 1.1 billion! And it’s really convenient. Why should I download Ele.me if can just go on WeChat and order via Meituan?
Now let’s look at Dianping. Dianping is the Chinese version of Yelp and Tripadvisor. Users can rate everything from restaurants, hotels to car dealerships. With its merge with Meituan, it really created some huge synergies (this synergy is called “Food + Platform”). Thus, it’s really easy for users to look at a restaurant’s rating and then order food delivery from it. Meituan-Dianping has approx. 5.8 million restaurants.
In comparison, Ele.me’s scale is much smaller. Alibaba combined it with Koubei, which is a Dianping competitor, hoping for the same scale. Yet, Koubei itself is much smaller than Dianping. Ele.me and Koubei have a combined 3.5 million restaurants on their platforms.
So from both offering side (number of integrated restaurants) and demand side (number of active users), Meituan has the upper hand. And with this upper hand, customers tend to use Meituan.
My take
Personally, I don’t use Ele.me at all. I find Meituan super convenient and there is simply no need for me to install Ele.me. And the option to slow down delivery by 5 or 10 minutes certainly won’t make Ele.me anymore attractive. Of course, Meituan has also built in some time buffers in its delivery time. But it’s not worse than Ele.me, so there is no need for me to switch platform.
Considering market share, I am pretty sure Meituan’s dominance will further increase in the future. Why? because a chain reaction will occur. As Meituan has more restaurants and customers, 3 things will happen. First, customers will leave Ele.me as Meituan offers more options. Second, restaurants will leave Ele.me due to the decreasing number of customers (which in return leads to lower number of options on Ele.me and thus more customers leaving). Finally, delivery personnel will leave Ele.me as they don’t have any business anymore (which means longer waiting time for delivery leading to more customers leaving…).
I know I am painting a quite bleak picture for Ele.me and things won’t happen that quick. Yet, things don’t look so good for Ele.me. Ele.me can still win the “food delivery wars” and achieve turnaround. One option is to go the Luckin Coffee/Didi route and start subsidizing restaurants and users heavily (again). But it’s highly questionable if these incentives are sustainable. Another way would be for Alibaba to leverage all its platforms and not only Koubei. If Ali could create synergies between Tmall, Taobao, Hema and Ele.me, Ele.me’s market share surely will increase.
What do you think of Meituan and Ele.me? Who are the food delivery champions in your country? Let me know your thoughts in the comments section below.
Cheers
Lois
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