Depth report

　　

Finn Liu works in the heart of Beijing’s “Silicon Valley” and works 60 hours a week. It is no exaggeration to say that what supports him is the takeaway delivered to his desk. He is not alone: as soon as lunch time arrives, uniformed food delivery troops come to his office building, yelling numbers, and employees flock to receive their noodles, lunch boxes, and salads.

    If this scene looks like a battlefield, it is very appropriate. According to data from iResearch, the battle for dominance in the food delivery and restaurant reservation industry is ultimately between the two world-class giants-the two major Chinese technology giants Alibaba and Tencent, with a total market value of US$900 billion. -In between, they grabbed a huge share of the 8.73 trillion yuan (1.27 trillion U.S. dollars) food retail and service market.

    Like other wars, it is a money-burning war: huge subsidies make it cheaper for diners to order takeout than to cook. Finn Liu’s calculations illustrate this point: He spends a total of 70 yuan for lunch and dinner every day; if he cooks for himself and his roommates, each meal will cost 50 yuan. In addition, he shrugged and said, "I'm too busy to have time to cook, and I'm a bit lazy."

    Not everyone is so happy. Drivers complain that the road is now blocked by crazy-driving food delivery guys, who will be punished if they are late for delivery; other neglected companies have to pay higher courier fees; the mountain of garbage has shocked environmentalists.

    Investors may have also suspended their investment due to fear. This is a familiar story to most people, especially in China. A new industry is booming—whether it’s mobile payments or shared bicycles—and many players have poured in, burned a lot of cash, and eventually gave up the market to two or three players.

    As Tencent-backed Meituan Dianping prepares to go public-Meituan Dianping hopes to obtain a valuation of $60 billion-this strategy has attracted attention. According to its IPO prospectus, Meituan's mission is: "Helping everyone eat better and live better." The company also provides hotel reservations, taxi-hailing and other services, and its net loss more than tripled last year to 19 billion yuan.

    A banker who did not participate in Meituan’s IPO said: “Meituan may be the first super-large company listed in Hong Kong that does not know when it will be profitable. For me, this will become one of the key tests of the market. ."

    Last year, Meituan spent 4.2 billion yuan on "transaction user incentives"—in other words, discounts to consumers. It is not afraid to continue to attract consumers with discounts, which prompted Alibaba's Ele.me (Ele.me) to launch its own 3 billion yuan subsidy program for consumers this summer. In order to attract more high-end customers, Ele.me also cooperated with Starbucks to provide latte and iced tea delivery services for this American coffee chain.

    The wealthy Alibaba acquired the loss-making Ele.me this year and valued it at $9.5 billion (including debt), which also lets people know that it is willing to raise money—not for money, a banker said, but When your competitors are talking about IPOs, "it’s a good thing to get people to talk about you."

    These takeaway apps don’t care about subsidies, they see them as temporary phenomena (the usual form of subsidies is a discount on the total price of meals), and they pay more attention to market growth. The urbanization movement to transform into a consumer economy in accordance with high-level instructions and a rich labor force have created a food retail and service industry that iResearch predicts will reach 14.13 trillion yuan by 2023.

    Meituan expects to benefit from the self-enhancing network effect: the stronger the scale and strength, the lower the cost of adding new customers. Therefore, although its sales and marketing expenses surged to 10.9 billion yuan last year from 8.3 billion yuan in the previous year, the ratio of such expenses to total revenue was halved to 32%.

    A spokesperson for the company said: "As our business grows further, we believe that our huge scale, coupled with network effects, will allow us to acquire consumers and merchants in a more cost-effective way."

    This sentiment is very similar to the statements made by Uber executives in the US startup Uber before the company was squeezed out of the Chinese market by local competitor Didi Chuxing in 2016.

    In addition, subsidies obscure actual demand: if there is no subsidy, part of the market will evaporate overnight. Finn Liu himself is a fickle user. He said: "If the cost of each meal rises to RMB 40-50, I will give up online ordering and go directly to the restaurant to eat."

    This will please many restaurants in China that are under pressure. Although Ele.me and Meituan are happy to provide incentives to consumers and food delivery staff, they are unwilling to pay for merchants. On the contrary, merchants have to pay a certain percentage of the meal fee based on the marketing and other services used.

    Ms. Xu said that nearly one-tenth of her revenue from the pie restaurant in the east of Beijing comes from takeaway orders. According to the receipt in her mobile phone that she showed to the British "Financial Times", she paid 30% to the platform provider. Ms. Xu only disclosed her last name.

    She said that in addition, she must further discount her own meals and compete for customers from rival restaurants. "Now you have to pay for the promotions. If we don't offer discounts, there will be no orders." She shrugged. Other companies that rely on temporary workers have also suffered. Sandy Wu, the owner of a corporate gift company in Beijing, said that food delivery workers can earn 10,000 yuan a month, forcing her to pay three times the salary to temporary workers who pack goods during the peak holiday season.

    She said: “(During busy times) we have to raise wages to attract young people, otherwise we can only hire middle-aged people who don’t know how to ride scooters and don’t understand the express delivery business.”

    One last point, environmental pollution: takeaways delivered to homes and offices leave piles of garbage. After placing 100 orders through the mobile app, Greenpeace found that on average, each order used 3.27 pieces of disposable plastic tableware, or 60 million pieces per day.

    Liu Hua, the project director of the environmental organization, said: “The plastic tableware used for take-out food will be covered with cooking oil and leftover food, making it difficult to recycle.”

Meituan and Ele.me can only hope that the piles of garbage will not become a symbol of their industry.