Matthieu David: Hello everyone. Today, for this Market Tidbits, we are going to talk about the mobility market in China. Mobility is a big thing. We are seeing in the world Uber, but in China, we are seeing Didi and Didi won the battle over Uber in China, taking actually some shares worldwide and Uber sitting at the border of Didi in China, but the mobility market in China is much bigger than only one player and you have ride-hailing, but also food delivery and many other segments. So, when we talk about mobility, Allison, what are we talking about?
Allison Malmsten: So, I would define mobility as services related to getting things from point A to point B, so this is ride-hailing like you mentioned; Didi and this is also a food delivery and this is also parcel delivery and so this is companies that have the infrastructure to get things from point A to point B, whether it’s with a car or a scooter and so, often what we will see is these companies, they will try to get onto each other’s territory. So, in the west we do have Uber, which now does food delivery, but in China, we have not had as successful a case of a ride-hailing company getting into food delivery and vice versa. All parts of mobility are pretty interesting and dynamic and competitive so we looked at the different barriers and the different dynamics of each sector of the mobility market in China.
Matthieu David: What about the numbers? For China… every time we look at China we talk about numbers. Usually big numbers, but surprisingly sometimes numbers are not as high as we would expect. For instance, there’s cases where we will look at the Chinese traveller, even if 2020 is very special, but even during 2019, it has always been less than what people would expect, based on the population of 1.4 billion. Is it the case for ride-hailing market and mobility? Are we talking about sizeable numbers or it’s still in its infancy?
Allison Malmsten: Well, I do have some big numbers to share with you. So, at most the mobility market in China reached just over 400 million ride-hailing users. So, that’s about a third of China’s population, so that’s pretty sizeable, but I think what we do see is that this is definitely very saturated in the high tier cities and big cities, but there is a lot of room to grow in 2, 3 and tier 4 cities. For food delivery, this reaches even more people so at the end of 2019 there still was about 460 million Chinese food delivery consumers, which is a couple dozen million more than ride-hailing. So, it has a little bit more market penetration. Of course, parcel delivery, that is simply using the mail. So, that service has been around for a long time. So, it also has a very high market penetration, but what we see is people in low tier cities are less likely to use some of the more unique services that deliver across the city and they’re more likely to just use the regular services that already uses, which is to send things to other cities across the country.
Matthieu David: So, the new mobility tools which are digitalised through an app are actually widely used in China when we look at the numbers, when you say 300, 400 million depending on what service we are talking about. It is basically the size of the middle class in China. It is basically half of the size of the human population and when we talk about the human population we talk about senior people; we talk about children. So, basically the penetration is very high within cities. We can say that it’s close to saturation even when we look at ideal population. When we look at the drivers; so, you talked about the users. What about the drivers because as far as I understand, it is not a fulltime job? You might have a lot of people doing that part time or even doing that some time in their life. How many people are you talking about and what kind of demographics?
Allison Malmsten: So, we have an estimated 30 million registered drivers operating in the market. So, that’s about a little bit more of the population of Shanghai and that’s for the whole country. The drivers tend to be a little bit older than the passenger. The average passenger age is from 21-40 years old, but then the driver is usually from 31-40 years old. Yes, it’s not always a fulltime job and it is a little bit of a gig economy so there is some flexibility in the market, but it’s pretty… there’s a lot of diversity between the different ride-hailing brands and the way that they hire drivers and the amount of drivers that they have.
Matthieu David: That’s something which surprised me. In our research, we looked at a player called Caocao Chuxing an eco-friendly competitor. Is it something in China that people would consider before taking a car, if it’s eco-friendly or if it has an impact on society saying that they have a bit more female users? Is it something happening in China?
Allison Malmsten: So, I think in this case yeah. The company you’re talking about is Caocao Chuxing, they are a little bit smaller and they do focus on eco-friendly car handling services for both individuals and enterprises and they do proportionally have more female users whereas competitors like Didi have more male users. So, there is a very interesting trend. We’ll see where it goes. Some could argue that that eco-friendly consumption is probably a consumption upgrade where not only do you want to buy things that are nicer for yourself, but you also want to have a guilt-free conscience and I also think that, you know, China has a lot of… it has a big initiative to have a lot of electric vehicles on the streets and there is a lot of incentive from the government to have more electric vehicles and so I think they’re very in fashion right now and anything that’s eco-friendly is becoming fashionable, so we’ll see where that goes in the future.
Matthieu David: It would be an increase case to follow, indeed. I think that the market would switch to a more eco-friendly in terms of pricing, in terms of offering a similar and there is interest in doing good and having a positive impact in society, indeed. It would be good to follow up on Tao Tao. What other elements are in to analyse the market? So, we look at individuals for their own travel, there is another segment which is food delivery and there’s another segment which is parcel delivery. How do you analyse the food delivery market and how is it impacted by COVID-19 that one of the markets which might have been positively impacted?
Allison Malmsten: So, the food delivery market is dominated by two main players, which is Ele.me and Meituan and so yeah, during COVID-19 it was still negatively impacted in a way because overall people were eating out less; whether that’s either delivery or eating out, but the proportion of easting restaurant food was way more on the side of delivery so it is not as hurt as restaurants were, but it could have started off a trend of maybe acquiring a lot of new users; first time users who have now downloaded the app. The friction of downloading the app is deleted and so, they can just use it a second, third, fourth time very easily even though the pandemic is over in China.
Matthieu David: That’s a very god point, actually. It’s very hard to get people to download a new app. It is very hard to ush them to reuse it, but the first type is to get them to download the app and that may have happened with COVID. I remember that in one of the reports, we tried to understand how COVID would impact you and we got something wrong. It was the fact that food delivery grew bigger for them, at least it was a very good substitute for the closing of the restaurants. Do you have a bit more insight on that?
Allison Malmsten: Yeah, so Yum China, which runs KFC and Pizza Hut in China, they have multiple forms of delivery and so, they started doing delivery as early as 2001 and in 2015 they finally started using Meituan and Ele.me, so they were already doing delivery before it was the cool thing to do and currently they use a hybrid delivery model which means they get the orders from third-party platforms like Meituan and Ele.me, but then they use their own delivery driver. So, in China you will still see like a Pizza Hut driver driving around and so, because of this, they get the best of both worlds with the visibility of third-party apps, but then they also save the costs when they use their own logistics system.
Matthieu David: True. Actually, the Meituan and Ele.me are not only proxy’s for delivery, but they are also a proxy to get clients. People find the restaurants and the dishes they get to get deliver on the app.
Allison Malmsten: Right yeah and so, this gives Yum China’s restaurants a lot of visibility because you might hop on the app not knowing what to eat and you’ll se Pizza Hut or KFC and you’ll think, “Okay, that sounds good” and if you choose them, that gives them a lot of visibility, but also at the same time they don’t pay the cost of having Ele.me and Meituan do the delivery for them because they have their own delivery drivers.
Matthieu David: Meituan and Ele.me is counting for 90% of the market share for food delivery as it is written in our report. Is it representing again the fight between the two giants; Ten Cent and Alibaba behind those two players?
Allison Malmsten: Yes, so Meituan and Ele.me are both backed by giants. Meituan is backed by Ten Cent and Ele.me is backed by Alibaba. So, it is another way for the big tech battle in China, the playout.
Matthieu David: For parcel delivery I feel the game is a bit different because it seems to have grown earlier and been a bitless impacted by new players, start-up’s, scale up’s like Didi, but grew more with fast let’s say, pre-Internet or older players like SF. Is my understand correct and what are the dynamics n the parcel delivery?
Allison Malmsten: The parcel delivery in contrast to food delivery has a very low market concentration so the largest competitor is SF Express and they take 15% of the market. So, there’s a lot of different delivery companies and they all cost about the same, which is pretty cheap and what’s interesting about delivery is our focus for our research was not just, “I’m broker. I’m going to make some sales,” but mostly the new developments happening in the parcel delivery market and some of those developments are self-service mailboxes and a new service called Flash X, which is a way to deliver documents across a city instead of having it sent in the form of a mail. SO, it’s using the same kind of idea of food delivery where you just have a driver on a scooter get from point A to point B and you are the only person whose goods they’re handling.
Matthieu David: What other challenges do you see in the industry?
Allison Malmsten: So, I thin for the parcel delivery for one going on Flash X, their business model, they do face a lot of challenges. Firstly, the insufficient laws in China. Legally, it is not really clear what types of goods they’re handling so if the goods are damaged or if the consumer needs to make a complaint, it is a little bit unclear how it is to go about that. Who should pay for it and who has the rights to refund? It’s not as straightforward as, you know, regular mail like SF, but the bonus on the other side of it being it will only take half a day to get your goods delivered and then also for Flash X and new more innovative services like that is that in lower tier cities, people are less likely to use it because they only have to walk a couple blocks across the city or bike across the city to get it delivered. So, why would they pay for somebody else to do that versus in Shanghai often times people are very busy with long work days and lots of different activities and spending time with family and the city can be… it’s a pretty big city and so, I think there’s more potential for Flash X first in a large city, definitely, but there’s really not as much hope in lower tier cities and that’s kind of the trend that we see with a lot of these mobility apps, like ride-hailing and food delivery and a new parcel delivery technologies is that they have less consumption in lower tier cities.
Matthieu David: Interesting. Indeed, regulation is something we… few reports are looking at when they analyse the market, but it is really impacting how easy people transact and Taobao was great at making the transaction possible and for those kinds of accidents where delivery is not in satisfactory condition. Indeed, it is not very clear who is responsible and what to do. That’s still thigs that have to progress within the Chinese market and outwardly changing. When we look at the future, any insight on the safe-driving car or only tech energy coming up; like delivery by drones or safe-driving car or it’s more about advertising, so far?
Allison Malmsten: The research that we have done is more on examining the current market. There has been some use of delivery drones, especially in Wuhan during the initial outbreak of COVID-19., I believe it was JD actually who used drones to deliver some hospital equipment. So, I think that drones, they are pretty closed and it seems that the technology is there, but they just need to maybe sort out some safety and some, you know, legal issues like what are the risks of having drones flying over people’s heads and what if it drops something? There is a lot of risk there that they need to sort out and in order for people to be comfortable enough to use them on a regular basis.
Matthieu David: True. That would be the next step of a very exciting innovation in this industry. Thank you, Alison for being with us and you can find the report on Slide Share and also on our website. What’s the name of the report, exactly?
Allison Malmsten: It’s just called Mobility in China.
Matthieu David: Thank you very much, Alison.
Allison Malmsten: Thank you.
Read our full report on the mobility market in China