The O2O food delivery market in China has been booming since 2015. According to the China Internet Network Information Centre, from December 2015 to June 2016, the number of online food ordering users has been growing from 113.56 million to 149.66 million in China for only six months. The number of mobile users increases from 104.13 million to 146.27 million, and users increased by 40.5% in last six months. The huge market potential has boosted online food ordering the fastest growing sector of all mobile applications, and the market has also become a brutal battleground.
Fierce competition and market over saturation in the 020 food delivery market in China
For traditional food delivery service in China, customers usually call specific restaurants directly to make an order, and the food is delivered by the restaurant. The new O2O food delivery platforms in China have their delivery team and charge restaurants service fees. This saves time and delivery cost for restaurants. Currently, the delivery cost in China is only 10% to 20% compared with the US. The key elements which caused O2O delivery services develop rapidly are low labor cost and highly concentrated population in major cities. Online delivery food sales reached 239 billion RMB in 2015, occupying 7.4% catering market share. The large potential market attracted has attracted many firms to compete fiercely. After one-year market selection, more than 70% market is now shared by three main online food ordering service providers by the end of June 2016. Waimai.meituan.com is now the biggest player in the market owns about 32.1% market share, followed by Ele.me (27%) and Waimai.baidu.com (13%). Ele.me was the earliest player in O2O food delivery market in China, built in 2009. The Chinese online food-delivery service company has received $1.25 billion in a recent round from e-commerce Alibaba Group Holding and its financial arm Ant Financial Services Group. After seeing the huge market potential, Meituan.com (China’s Groupon) as the largest group-buying website in China, established Waimai.Meituan.com in 2013 to compete in the market and merged with Dianping.com (Chinese Yelp) in 2015 to strengthen its market position. Also, Baidu acquired group-buying website Nuomi.com and founded Waimai.baidu.com in 2014.
All three largest platforms provide restaurant food, snacks, supermarket products, and flower delivery, etc. App surface design and services provided are very similar, and promotions are mostly focusing on low prices and discounts. To attract more customers, players have started a price war since 2013. Restaurants only agree to provide low price with subsidies from platforms to avoid loss. The highest subsidy from O2O firms can reach 10 Chinese Yuan per order. O2O players also subsidize customers by providing different discounts. Chinese main internet media Sina, reported Waimai.meituan had 600 million RMB losses per month from 2015 January to June. From 2015 to 2016, three companies all suffered financial problems. All of them have to call for more venture capital and reduce the subsidy. On the other hand, most Chinese consumers attracted by discount and a low price strategy are very price-sensitive. Once the subsidy is gone, these customers would switch to other platforms with lower prices. Apparently, homogenous development relying on subsidy is not sustainable.
O2O Food Delivery Market in China: Comparison of food delivery app surfaces
Meituan.waimai.com Ele.me.com Waimai.baidu.com
White collars are becoming the biggest online food delivery user group
Until the end of 2015, online food delivery service has two major user groups. About 63% of online food delivery app users are white collars, and 30.5% are students. As the largest consumer group, most white collar users are Chinese Millennials with average age 27.7 years old. About 34.76% of them are below 24-year-old, and 40.87% are between 25 to 30 years old. The average monthly income among these users is 6070 RMB Chinese Yuan, and close to 60% of users have higher than 5000 RMB income per month. According to Analysys, white collar online food delivery users can be divided into two types. Compared to Type 2, Type 1 is usually concentrated in first and second tier cities with higher income and educational background. More than 80% live in first and second tier cities. About 76.16% of them have more than 5000 RMB monthly income, and 53% hold a bachelor or higher degree. Type 1 white collars prefer brands with good experience and quality. On average, Type 1 orders ten times (compared to Type 2) more delivery food per month, and they have higher requirements on restaurants, dishes, and timing. For this group, they are less price-sensitive and willing to pay higher for excellent service. About 75.32% of them only use a single delivery app to order food.
About 52% of Type 2 white collar users live in first and second tier cities. 52.16% of them have more than 5000 RMB monthly income, and 35% have bachelor and higher degree. Compared to Type 1, they are more price-sensitive. Type 2 group usually order food online eight times per month on average. They consider delivery food as convenient and cost-efficient service. Therefore, they often compare food on different platforms and order food with the best price. Discounts and low delivery fees are both important indicators for Type 2 group. About 63.65% of them use one food delivery App. However, compared to student users, Type 2 is still much less price-sensitive. According to user profile, Type 1 white collar group has higher demand on food quality, delivery timing, and restaurant brands, so O2O platforms need to select restaurant carefully and improve supply chain efficiency; while Type 2 group focuses more on ratio of performance and price, thus it is important to provide varies services and attract more users.
O2O food delivery companies: moving from low price strategy to service differentiation
Relying on a huge cash flow advantage, three major O2O food delivery companies have already acquired more than 60% market share by offering subsidies and discounts. However, to improve brand loyalty and consolidate position in the market, platforms cannot provide homogenous service and expect to a win price war. Apparently, companies need to differentiate services and improve user experience based on customer profiles. As the largest user group, white collar consumers deserve more attention. In fact, Waimai.baidu.com has recognized the significance of differentiating service and responds to white collar consumers’ demand quickly. It has cooperated with more than 100 thousand branded restaurants and provides on-time delivery service. Waimai.baidu.com has become the most common O2O food delivery app among white collar user group till 2016 August. Baidu is building its brand image, while Meituan and Ele.me are still suffering from a price war.
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