In early July, a new round of food delivery market battle in China has reignited, where a cup of coffee can be delivered to your doorstep for just 2 Chinese yuan. The three major players in the food delivery industry – JD.com, Alibaba, and Meituan – have launched substantial subsidy plans, distributed red packets, and even introduced zero-cost purchases to stimulate consumer spending.
As veteran e-commerce giants, JD.com and Alibaba, along with Meituan which has always focused on food delivery, are the three main protagonists in this competition.
On July 2nd, Taobao Flash Sale announced a 50 billion yuan subsidy plan and released a large number of “Get 11 yuan off for spending 15 yuan” coupons three days later. Meituan quickly joined in, offering free self-pickup for milk tea and snacks and reducing the price of a delivered cup of coffee to 2 yuan (0.28 US dollars).
On July 8th, JD.com’s food delivery service also showed its strength by launching the “Double Hundred Plan”, adding 10 billion yuan to support more benchmark brands and help achieve over a million units in sales.
The effect of these subsidies is evident. Surging consumer demand has overwhelmed bubble tea and coffee shops, with order receipts stretching meters long.
According to internal data from Meituan, on July 5th, real-time retail orders exceeded 120 million, with over 1 billion orders in the food and beverage category. Taobao Flash Sale and Ele.me announced on July 7th that daily orders exceeded 80 million, with over 13 million non-food orders, and Taobao Flash Sale had over 200 million active users.
Domestic media commented that everything is aimed at growth because all platforms want to become super consumer gateways. This food delivery battle initiated by JD.com in February seems to have entered an uncontrollable stage.
Due to intensified subsidies and rising social security costs, Meituan’s average profit per order has decreased from 1.5 yuan to 1.0-1.2 yuan.
Although Chinese consumers may benefit from the price wars in the short term, it has put significant pressure on investors and businesses’ profit prospects. According to data from the London Stock Exchange, Meituan and JD.com’s stock prices have dropped by around 22% and 10% respectively this year.
Supported by China’s massive workforce and gig economy, e-commerce platforms have been competing on delivery speed. JD.com has set a market benchmark in same-day or next-day delivery services through its robust logistics network, putting pressure on competitors like Alibaba.
In February, JD.com entered the food delivery market, dominated by Meituan and Alibaba’s Food delivery platform, Ele.me.
In April, Meituan launched a new comprehensive “Flash Sale” platform covering categories such as groceries, alcohol, and electronics, and promised delivery within 30 minutes, challenging JD.com.
As the competition escalated, the relationship between the two companies became more strained. Both sides accused each other of using anti-competitive practices and blocking riders from taking orders on rival platforms. Consequently, JD.com started hiring more full-time drivers.
However, the extent of the impact of the price war on business profits will gradually become apparent.
Meituan warned that its performance in the next quarter may be affected by intensified competition in the food delivery retail sector.
An analysis report released on Thursday by Nomura Securities showed that JD.com’s foray into the food delivery business may have led to a loss of over 10 billion yuan in the second quarter. Analysts estimated that JD.com had captured about 10% of the instant delivery market share, with daily order volume reaching 20 million.
They believe that JD.com may have to re-examine its business strategy because with Alibaba increasing subsidy expenses, if JD.com wants to compete with these two market giants, it may need to deplete all profits generated from its core retail business in several quarters.
Goldman Sachs predicts that in just the second quarter, the three companies – Meituan, JD.com, and Alibaba – will collectively spend 25 billion yuan on the food delivery business. Over the next 12 months from July of this year to June of the next year, Alibaba’s food delivery business will incur a loss of 41 billion yuan, JD.com a loss of 26 billion yuan, and Meituan’s pre-tax profit will decrease by 25 billion yuan.
Concerned about the potential for a vicious cycle triggered by subsidies and massive discounts, the communist regime also attempted to intervene at one point, but to no avail.