In the instant retail market in mainland China, Chinese e-commerce giants JD.com and Alibaba are engaging in a fierce battle for market share. In recent times, consumer spending in China has been severely weak, prompting the two companies to attract consumers with massive discounts but at a high cost.
According to the Financial Times, in recent months, both companies have introduced rapid delivery services in mainland China, delivering ordered food and consumer goods to customers within 30 minutes through their respective fleets, intensifying competition in the industry. In the past few years, the food delivery industry was mainly dominated by the Beijing-based company, Meituan.
Alibaba is investing $7 billion to promote its Taobao Flash Purchase service, while JD.com plans to invest $1.4 billion in the next year to expand its food delivery business. Both companies are vying to become the leader in China’s consumer goods and services industry.
Major cities in China are filled with advertisements for Alibaba and JD.com’s new services. JD.com is selling coffee and pearl milk tea for as low as $0.25 to attract consumers.
Analysts warn that the competition for the leading position in instant delivery in China may be prolonged and costly. Unlike the previous subsidy war, the current competition is unfolding against the backdrop of low consumer confidence and a weak economy.
Concerns among investors about the increasingly fierce competition dragging down profits in the long term have already led to a 25% drop in Alibaba’s stock price since mid-March. During the same period, Meituan’s stock price fell by 35% and JD.com’s stock price dropped by 31%.
Meituan, which holds about 70% of the delivery market share in China, has vowed to “defend its business at all costs.” The group has increased consumer discounts and is investing in central kitchens to have food prepared at their operational sites by merchants to improve food quality and safety while reducing delivery costs. Alibaba and JD.com were encouraged recently by the government’s subsidies to upgrade electronic products for consumers, but Meituan and Pinduoduo platforms did not participate in the subsidy activities.
Experts point out that it is currently unclear how long the latest retail industry battle will last. Mr. Zhu from Bernstein Investment Company added, “But regardless of who ultimately triumphs, they may face a Pyrrhic victory.”