China’s food delivery market is forecasted to exceed 941.74 billion RMB in 2022, making China the world’s biggest O2O (online to offline) food delivery market. Despite the enormous market size and growth, it has displayed, the O2O food delivery market is still far from fully saturated. As the market scale continues to grow rapidly, the penetration rate of the food delivery industry continues to increase. In 2020, the penetration rate among Chinese netizens was 42.3% and the COVID-19 pandemic has accelerated the penetration of online delivery apps – which increased to 52.7% by December 2021. Therefore, it is important to understand the current landscape of the O2O food delivery market in China and identify the impacts of the lockdown restrictions on the market to stay informed of the market trends in face of the uncertainties of COVID-19.
The food delivery market is a duopoly dominated by Chinese tech giants Alibaba and Tencent, who own Ele.me (饿了么) and Meituan (美团) respectively. Combined, these two delivery apps control 95% share of China’s food delivery market.
Longtime rivals Alibaba and Tencent have been competing across industries for years, and meal delivery is just another sector for them to battle in. The two giants are not just competing for the O2O food delivery market in China but are racing to gain new users who can be guided to other Alibaba or Tencent services. Owning Ele.me gives Alibaba a treasure trove of consumer data, and the same goes for Tencent’s ownership of Meituan. Data derived from Chinese meal delivery apps provides insights into consumer spending power, eating preferences, and payment profiles.
There is a high barrier to entry in Chinese food delivery market due to the duopoly in the industry. Meituan Waimai controls 69% of the local food delivery market and is an O2O food delivery app that provides users with online ordering, meal delivery, and some other related services in China. Significantly, Meituan offers more non-food delivery services than Ele.me, such as flowers, office supplies, and more. Secondary to Meituan, Ele.me is another meal delivery giant in China with 26% market share of the local food delivery market.
Who are China’s food delivery industry’s consumers?
Chinese meal delivery industry is so large and profitable because of how often consumers make purchases. According to a report by iiMedia Research in 2021, 27% of Chinese consumers order food six to ten times per month, and 14.3% of users order food 11 to 20 times per month. Notably, only 18.5% of the respondents said they never order food online.
Online food delivery service users are primarily white-collar workers
In 2015, about 63% of online food delivery app users were white-collar workers and 30.5% were students. However, in 2022, 83% are white-collar workers, and only 10% are students.
Lower-tier cities are showing strong growth
Consumers are clustered in top-tier cities, with Shanghai boasting the highest number of users per capita. However, according to Meituan’s report in 2021, due to the high penetration rate of the online food delivery market in China’s top-tier cities, lower-tier cities are showing higher growth rates and potential.
Gender demographics are roughly evenly split
Women make up 51% of food delivery app users. Users are overwhelmingly young, with 85% between 18 and 40. Notably, the total number of online food delivery orders from the generation born in the 00s increased by nearly 20%, which has become an important part of the customer base.
Fast food category that dominates China’s O2O food consumption
In 2021, fast food accounted for 60.5% of O2O food consumption, followed by western food which made up 47.1% of the market. Such categories include noodles, Mala Tang (麻辣烫), tea-based drinks & desserts, and barbecue was also popular among Chinese consumers when ordering food online.
Semi-prepared food and vegetables as a new trend in the O2O meal delivery market in China
Online shopping for semi-prepared dishes has become a new choice for young consumers, particularly in the singles economy and lazy economy in China. This new trend has led to a rapid increase in sales of semi-prepared food. The market size of the semi-prepared food market was 345.9 billion RMB, an increase of 19.8% from the previous year. According to iiMedia’s report, around 28.0% of the consumers purchased pre-made food products because they are considered healthier than food delivery which are usually high in sugar, fat, and salt.
Transformation of eating habits in China
Getting takeout food is a relatively recent phenomenon in the country. The trend started with foreign fast-food franchises such as McDonald’s in the 1990s. Homegrown local restaurants, such as noodle houses and those offering regional specialties, followed suit. However, it was not until the rise of online food delivery platforms that the O2O delivery market in China took off.
When the first food delivery app, Ele.me, appeared in China in 2009, the number of customers using Ele.me has grown from zero to 58.07 million MAU by December 2021, after Meituan, whose MAU reached over 62.64 million during the same period, exhibiting enormous growth of the food delivery market in China over the past decade.
The development of online delivery has improved the food processing and supply capabilities of offline restaurants. At the same time, it has also stimulated new demands due to the convenient and fast services.
Why is food delivery so popular in China?
Food delivery service is significantly more popular in China than in the West. This is partially due to the higher price sensitivity of Chinese customers and lower food delivery costs, which are about 10 to 20% of the price in the US. The extreme affordability of meal delivery in China comes from the fierce competition between delivery service providers. Due to this tense competition between delivery apps in Greater China, consumers often receive steep discounts and coupons when placing an order. This can often make online ordering cheaper than dining in. The intensive couponing practice is a result of price wars between the industry’s two major players, Ele.me and Meituan. Meituan was burning an enormous amount of cash to achieve a dominant position, whose loss at its high point once reached over 100 billion RMB. After 9 years of huge losses, Meituan finally turned profitable in 2020. Today, consumers still receive coupons often, but no longer as large as they once were.
Pros and cons for restaurants of being on food delivery apps in China
Being listed on food delivery apps provide restaurants in the Chinese market with various benefits, from raising brand awareness, to gaining new customers through multiple channels. Building a presence on multiple food delivery platforms can be so profitable that some “virtual restaurants” operate out of the kitchen.
However, being on food-delivery apps does not always boost profits for restaurants. To gain market share, food delivery platforms provided restaurants with subsidies to entice them into selling food on their apps. However, as the apps struggled to make profits, they started to raise commission rates on the food providers. To make ends meet, restaurants have to choose between sacrificing their own revenues to keep consumers happy or raising menu prices, which could lead to a loss of customers.
The future of China’s food delivery industry
Although the online food delivery market in the Middle Kingdom has been dominated by two key players for years, China’s e-commerce giant JD.com is considering entering the O2O food delivery scene in June 2022, which might end the duopoly situation of the industry. Apart from the changes new players might bring, other forms of food delivery business are also emerging and booming due to the strict restrictions implemented in major cities to prevent COVID-19 cases.
Group-buying (团购) plays a major role in cities under lockdown
Group-buying is now becoming increasingly popular among Chinese residents in top-tier cities, even a “lifeline” for those who did not have access to food supplies during Shanghai’s lockdown in 2022. According to Qimai Data, the number of downloads for Meituan Select, Meituan’s online community group-buying platform, increased by 26.63% from 8th to 27th March 2022, during which Shanghai went from reporting a few local cases to strict lockdowns.
Although the lockdown restrictions have been lifted in Shanghai, group-buying might continue to be a trusted food-buying option in China’s top-tier cities for its unique advantages as compared to traditional e-commerce methods, such as more bargaining power for the communities and guaranteed quality of products.
The pandemic has brought new opportunities to the grocery delivery market
Despite having gone from prosperity to decline in terms of its performance in the financing market in the late 10s, China’s grocery delivery industry is reaping the benefits of the stay-at-home economy the COVID-19 pandemic has stimulated in China. The pandemic has introduced older demographics into the market. Whether customers prefer bulk-buying or grocery delivery, there is a growing audience of e-grocers under the context of the COVID-19 pandemic.
Key takeaways of China’s food delivery market
- Currently, the Chinese food delivery industry is primarily dominated by two giants, Alibaba and Tencent, which might be challenged in the near future as new players like JD.com enter the market.
- Although fast food still dominates the O2O food delivery market, healthier options like semi-prepared food and vegetables are becoming a new trend, especially among young consumers.
- White-collar workers make up the majority of online food delivery users and China’s lower-tier cities are showing strong growth. During the COVID-19 pandemic, more people are becoming e-grocers, including older demographics.
- Group-buying took off during lockdowns in major cities of China in 2022, and for its distinct advantages in terms of food quality and bargaining power, it will probably remain popular after lockdowns.
