If you have ever lived in America, you certainly have experienced this scene: You are at home and starving. The fridge is empty and you don’t feel like cooking. Finally, you decide to pick up the phone and give the pizza place a call. 30 minutes later, a guy shows up at your door. You pay him for the pizza, but you better tip the guy as well.
Food delivery is nothing new. It is the service provided for those willing to pay more for being lazy: Instead of going out themselves, they now pay for a service to take the food to their places to consume. Yet it would be hard for anyone to imagine the potential size of any food delivery businesses to be huge: They are constrained by locations, number of staffs, and types of services they can possibly offer. Perhaps you can to be a millionaire for owning a few franchises that serve take-out deliveries, but there is no way that these could turn into anything big.
However, a Chinese firm proved otherwise. According to a news report from business journal Financial Times, the largest Chinese Internet Food Delivery corporation Ele.me was acquired by Industrial giant Alibaba for US$ 9.5 billion.
Not only can one start a business using a rather traditional business model, one can also become a billionaire by investing on the right thing.
Fitting in the needs in ‘the Nation of Culinary’
It is fair to call China a ‘nation of food’. The variety of food and the emphasis people put on eating are always the most important issue for most Chinese residents. In China, there is a saying that ‘people treat food as god’. In this most populated country in the world, food is the number one issue at all time.
Food delivery services in China existed before the prevalence of the Internet. You call a number, simply tell the server what they want. And a guy will show up at your doorstep to deliver the dishes you need. This business model was totally changed by the innovative applications of Ele.me and Meituan Take-out. Users switched to smartphone applications to order the kind of food they want.
Similar to Uber Eats, users can select their preferred restaurants and pick their selected food. After paying a delivery surcharge, which in US dollars is usually between 50 cents to 2 dollars, consumers will get their take-outs in less than one hour.
By transferring the take-out business to their respective mobile applications, Ele.me and Meituan also reshaped the way Chinese – especially those young professionals living in higher tier cities – eats. Already probably the most mobile-savvy consumers around the globe, these Chinese youths are so used to getting all sorts of life services done within few taps on touch screens.
Where there is demand, there is supply; and while there is excessive supply, there is a price war as a result of competition derived from the excessive supply. The costly land grab battle between then Didi, Kuaidi and Uber China might be the first revelation of to what extent rivalry in the Chinese internet industry could go, but it’s definitely not a sole case.
In the field of food tech, Meituan, Baidu and Ele.me were also once locked in a similar incentive-driven battle where it costs less to order the same dishes and get someone brought them to your doorstep comparing to dine-in.
The three companies behind the food tech push bled hundreds of millions of money they hard-earned or raised to make Chinese consumers receptive to the idea of ordering take-outs with few taps, hence cultivated a new market with huge potential.
According to a research report by Meituan, Chinese online take-outs market grew to RMB 205 billion (approx. $ 32.5 billion) on a 23% yoy growth. And almost 300 million out of China’s 750 million mobile users have used the service, meaning that almost half of Chinese mobile users are food tech service users.
The subsidies once accomplished Chinese ride-hailing market, also helped contribute to the prosperity of Chinese food tech sector. Now with Alibaba-backed Ele.me taking over Baidu Waimai operations, the only other significant competitor in the market would be Tencent-backed Meituan. The game of three kingdoms changed course to a play of duopoly.
Ele.me is one small step ahead of Meituan in terms of market share but the gap isn’t big, we would expect to see an on-going and even escalating war between Meituan and Ele.me until the last-standing man wins through in the end.