Dinner at your door: inside China’s US$37 billion online food delivery services market
Demand is expected to grow as services extend to smaller cities and as the two companies that dominate the market offer new products and services to keep users loyal. But analysts say the duopoly means there isn’t much room for new entrants
Eileen Zhang is a big fan of food delivery services. The 30-year-old, who works for an international trading firm in the southern Chinese city of Shenzhen, just loves the convenience.
“I normally order lunch from them on weekdays so I don’t have to queue outside the restaurants, which are usually swamped with consumers during peak hours,” she said. “Sometimes I will also place orders during weekends when I am not in a mood to cook or go out to eat.”
Zhang is one of the 256 million people in China who used online food ordering services in 2016, a number that is expected to grow to 346 million by next year – still only about a quarter of the country’s population. The services already cover 1,300 cities and the market is estimated to be worth over 240 billion yuan (US$37 billion) next year.
Food delivery services are taking off rapidly in line with the surge in all things online in China, but unlike many other sectors such as e-retailing, the market has come to be dominated by just two players: Meituan Dianping, backed by internet giant Tencent, and Ele.me, whose main investor is Tencent’s rival Alibaba, also the owner of the South China Morning Post.
A third operator, Baidu Waimai, backed by the other member of China’s dominant internet triumvirate, Baidu, was sold to Ele.me last month after failing to make a profit and lagging far behind in market share. The failure highlights the tough competition in the market that is likely to mean the new duopoly will be in place for some time.
“The development of Chinese online food delivery market has proved that as long as a company has users and funds in China, it has opportunities in the market,” said Xue Yu, a senior analyst with research company IDC in Beijing.