In recent weeks, our WeChat Moment newsfeeds have been heavy with posts about home-cooked meals. With much of China under lockdown, people have started devoting their free time to whipping up meals—prompted by boredom as much as necessity. Cookies, steamed buns, and pancakes have replaced restaurant takeout on Chinese tables. As a recent meme goes: After the quarantine began, everybody has suddenly become a great cook.
In Focus | Meituan #6
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The newsletter ran from Nov. 20, 2019 to April 29, 2020.
Meituan, the country’s food-delivery giant, has been front and center for this development. The company’s data show that its sales from fresh produce—vegetables, seafood, and meats—jumped more than 200% year-on-year this month (as of February 20). Seafood sales topped the chart with a nearly fourfold surge. Meanwhile, the average order size has spiked 70% during this period.
Meituan is a relative latecomer to the sector, having entered it three years ago. In an effort to broaden its revenues beyond its core business of restaurant order delivery, the company expanded its on-demand delivery service to groceries and non-food delivery in 2017. The service, which allows customers to order merchandise from partner retailers on the platform—such as supermarkets, bakeries, and flower shops—leverages Meituan’s delivery fleet, which now boasts 700,000 active couriers on a daily basis.
In addition, the company also operates a grocery store chain, Ella Supermarket, a rival to Alibaba’s grocery chain Freshippo, as well as the self-operated grocery shopping business Meituan Maicai.
Meituan has suffered some heavy blows from the Covid-19 outbreak since its staple businesses—restaurant food delivery, and online travel and ticketing—all have an offline business core. The company’s share prices dropped 15% to $12.60 on February 25 after reaching a historical high of $14.50 on January 17.
Daily active users for the core takeout delivery business declined 4.2% year-on-year during the 2020 Spring Festival holiday, according to a report from data intelligence firm Quest Mobile.
However, demand for groceries is opening up new opportunities for the company, which it began ramping up in January. Meituan has registered several produce and grocery trademarks since January, according to data from corporate intelligence platform Tianyancha.
Online grocery delivery
Meituan is not the only tech firm seeing a surge in demand for groceries. Compared with the period of January 2 to 8 (prior to the Lunar New Year holiday, which is when the outbreak began to spread in earnest), average daily usage for major grocery and fresh produce apps surged 56.2% during Spring Festival and 96.4% in the two weeks after the holiday (February 3 to 16), according to data from Quest Mobile. Over the past month, the self-isolation adopted by millions of Chinese citizens across the country has spawned innovation in the burgeoning sector of grocery delivery platforms, which had already been operating under various business models:
- Self-operated platforms use an asset-heavy approach, running self-built warehouses and logistics, enabling the platforms to offer a better customer experience. Meituan Maicai, which operates in first-tier cities like Beijing and Shanghai, is a self-operated platform. Dingdong Maicai, a top player in the vertical, nearly doubled its daily active users during the holiday, according to Quest Mobile data.
- Platforms such as Alibaba’s Freshippo (known as Hema), Meituan’s Ella Supermarket, JD’s 7Fresh, and Tencent-backed Super Species all employ the online + offline model. Part of China’s new retail push, this model focuses on offline experiences as well as speedy delivery to customers within a three- to four-mile radius.
- Grocery retailer marketplace platforms, including Meituan and rival Ele.me, operate a marketplace for offline vendors and offer delivery support. JD Daojia is another marketplace platform, a joint venture between JD.com and Dada Group. This model offers a wide range of offline options, and thus more flexibility for users; however, controlling product quality and standardizing prices can be a challenge. Ele.me claimed that its fresh produce delivery grew ninefold (in Chinese) compared with last year.
- Community-based group purchasing offers lower prices and only serves users within a certain geographical range. Usually managing their customers through WeChat groups, group-buying platforms like MMchong enjoy higher user stickiness resulting from the social element of group purchasing and users who may live in close proximity or are friends in real life.
- During the epidemic, offline seller WeChat groups have emerged. Many merchants housed in local wet markets are using group chats on WeChat to sell produce and meat. Instead of using grocery platforms which set the delivery price, such as Alibaba’s Ele.me and Meituan, they rely on independent drivers who charge by distance. Customers also score cheaper prices if they purchase in groups with these small sellers, who are usually located in their community.
From convenient service to lifeline
With an entire country reluctant to go outdoors for fear of being infected, grocery deliveries are not just booming, they are overloaded.
With her 4-year old son’s return to kindergarten postponed due to the epidemic, Shanghai housewife Deng Shuang would prefer to sleep in, but her top priority is making sure she can get groceries on time for meals. “It’s like Singles’ Day all over again. Instead of discounted products, I’m snapping up daily groceries,” she said.
At midnight, the grocery platforms start accepting orders for the next day. Deng has to wake early to place her orders before all of the delivery slots are taken. “I have to check several platforms to buy popular products like pork since they can sell out very quickly.”
According to Meituan data, during the Spring Festival holiday, 60% of its users placed grocery orders before noon. Their Shanghai users are one of the most active consumer segments, with some 30% placing orders between 7 a.m. and 8 a.m.
Yan Li, a Shandong native who now lives in Shanghai, became a regular user of several grocery apps after the outbreak. She sees herself continuing to buy groceries online once the Covid-19 crisis eases, but mainly as a complement to offline purchases.
For Ding Ge, who lives in Qiqihar in northeast China’s Heilongjiang province, buying groceries online is just a temporary thing. Grocery delivery platforms haven’t yet expanded to lower-tier cities, and fresh produce deliveries are a recent development. For users and merchants in smaller cities, online grocery purchases are more of a coping mechanism during the virus outbreak, with WeChat groups being the most popular channel.
“I feel people here will switch back to offline wet markets as soon as the quarantine ends. For a RMB 139 vegetable combo delivered to the community gate, I have to pay an extra RMB 25 for the delivery cost and packing materials. That’s a large sum of extra spending, especially for small-town residents who are very price-sensitive,” Ding said.
TechNode’s visual reporter Shi Jiayi, who has been restricted to her hometown of Zhangjiagang in east China’s Jiangsu province, has also spotted similar WeChat-based grocery delivery services in that city.
Ups-and-downs of a “difficult industry”
China’s grocery and fresh produce e-commerce industry has had a tumultuous past decade. It’s seen as a difficult sector due to the perishability of the goods and the significant logistical requirements, which weigh heavily on margins. However, the huge market and rising user demand continues to attract new players.
The sector boomed in the early 2010s, culminating in multiple firms bowing out, including Amazon-backed Yummy77 and Xianpinhui. Starting in 2017, the onset of “new retail,” along with improved supply chain management and more savvy users, triggered another surge in fresh produce and grocery e-commerce. Major players in all sectors related to the business hopped on the trend, including tech giants like Alibaba, Meituan, JD.com, and Tencent, the courier service SF Express, and supermarket chains like Yonghui.
However, many have stumbled in their efforts to gain traction in the offline fresh produce segment, which has proved an expensive endeavor due to logistics and traffic acquisition costs. In 2019, Meituan downsize its Ella Supermarket operations, although it ramped up investment in self-operating Meituan Maicai. Last year, SF Express shuttered its high-end grocery stores that operated under the SF Best brand in a number of major cities, including Shanghai and Xi’an. The most recent casualty of the sector is Dailuobo, which collapsed in December after burning through hundreds of millions of yuan.
The countrywide lockdown has opened up an opportunity for e-commerce and social platforms, but keeping users in the long term may prove the bigger challenge.