Food delivery platforms push into lower-tier cities, new retail for growth: report

China’s food delivery market posted steady growth as Tencent-backed Meituan Dianping and Alibaba’s Ele.me further establish themselves as a market duopoly.

According to a new report by iiMedia Research, the market reached 358 million users in 2018, representing a 17.4% increase compared with the year prior. The size of the food delivery market surpassed RMB 240 billion ($35.6 billion) last year, posting solid growth of 17.6% compared with a year earlier.

In terms of delivery order volume, Ele.me claimed 47.4% share last year, closing the gap with long-time market leader Meituan Dianping, which held 51.8%.

The report also noted a notable shift in target markets. As upper-tier cities become more saturated, users from third and fourth-tier cities emerged as a new driving force in China food delivery market and a new battleground for industry players. Subsequently, the percentage of food delivery users from first-tier cities fell by 6% last year, while users in third and fourth-tier cities increased by 5.8%.

This comes as no surprise. Ele.me has said previously that growth in lower-tier cities was significantly outpacing that of big cities, and it recently announced a new initiative (in Chinese) that aims to provide localized services to third and fourth-tier cities in China.

Food delivery giants have been seeking other sources for growth, expanding their businesses beyond the food sector into new retail, such as grocery deliveries. In the fourth quarter, Meituan Dianping and Ele.me both saw significant growth in new retail, 24.8% and 32.2% growth in transaction volume, respectively.

Although China’s food delivery market appears to be growing steadily over the past year, new challenges arise as these companies try to improve profitability in the increasingly competitive market. In January, both Meituan Dianping and Ele.me hiked the fees they charge food seller, spurring backlash from small restaurant owners.

Appetite for food-delivery apps wanes among small restaurant owners