In 2010, after several failed projects that included Facebook-clone Xiaonei and the Twitter-like Fanfou, serial entrepreneur Wang Xing launched a new startup, Meituan. With his eyes set on e-commerce, Wang focused on online sales of services—a less saturated segment of e-commerce which avoided head-on competition with Alibaba, the undisputed e-commerce giant.
This March, fresh off its 10th anniversary, Meituan has earned itself the title of the “Amazon of services.” Alibaba still dominates China’s online retail market for physical goods, but Meituan is leading the way in services.
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However, Alibaba never lost sight of its goal to build an empire spanning all e-commerce sectors. The subsidy-fueled food delivery war between Meituan and Alibaba-backed Ele.me has only recently leveled off. Alibaba has reinvigorated its bet by expanding its offensive to the broader local lifestyle services market, with popular payment app Alipay at the center.
Alipay: from payment tool to lifestyle multi-purpose app
In what Alipay CEO Simon Hu dubbed the “most important development in Alipay’s 15-year history,” the payment app has upgraded local lifestyle services such as food and grocery delivery, featuring the channels more prominently in an app update released on March 10.
With its slogan changed from “Pay with Alipay” to “Live @ Alipay,” the app is transforming from a fintech and payment tool to a Meituan-like all-services app featuring third-party service providers that offer all kinds of lifestyle conveniences for its users.
Alongside the update, the company announced a three-year plan to support the digital transformation of 40 million service providers across China. Alipay says it is responding to rising demand for local lifestyle services on its platform, which has seen the number of searches for lifestyle services jump 300% in 2019 compared with 2018.
Although both Ele.me and Koubei have their own apps, they rely heavily on Alipay—which has 1.2 billion users globally—to acquire new customers. Eleme acquired 48% of its new customers from Alipay in the quarter ending Dec. 31, according to the company.
On March 16, Alibaba’s local lifestyle arm (a unit that merged Ele.me and Koubei in 2018) set a series of goals to support the transition. Through the Alipay tie-up, the unit pledged to:
- Bring more than 100 million visitors to merchants every day.
- Offer a commission fee 3% to 5% lower than other platforms for food delivery services. (Meituan has been criticized by regional catering associations for raising commission fees to more than 20% during the Covid-19 outbreak.)
- Help 5,000 local lifestyle service providers open flagship stores on its business-to-customer marketplace, Tmall.
- Provide free services for mini-program operators who use the catering management solutions Keruyun, a platform Alibaba acquired in 2019.
- Help 1 million merchants to upgrade their operational and management platforms.
- Establish Alibaba Local Lifestyle Service University, offering 1,000 online courses within three years to train 10 million people in catering, logistics, and retail.
The company has been gearing up for the transformation since November with the launch of its “New Services” strategy (link in Chinese), an initiative designed to increase services merchant efficiencies by digitizing their operations. In addition, the firm has rolled out operating systems for merchants and supermarkets.
Meanwhile, personnel changes were made to prepare for the shift. Alibaba’s local lifestyle services have reportedly been taken over by Ant Financial CEO Simon Hu, who helms Alipay’s offerings—including its lifestyle services. Instead of just attracting users with food-delivery services, a combination of the two businesses could help Alibaba increase and retain users by directing them to Alipay, a place that offers all kinds of convenience, e-commerce industry watcher Li Chendong told local media.
Coronavirus accelerates local lifestyle services boom
China’s local lifestyle service market is expected to reach the RMB 1 trillion mark soon, according to a report released by Iimedia Research in September 2019. Some segments of the market have grown faster than others. Food delivery—mainly restaurant takeout and delivery—is the biggest chunk, with a market size of RMB 284.5 billion in 2019, Iimedia’s data showed. The fresh produce e-commerce market is expected to be worth RMB 162 billion; the community services market, ranging from housekeeping to laundry, will reach RMB 231.61 billion in 2019.
Although food-delivery growth is slowing, user demand for fresh produce, groceries, medicines, and others surged during the Covid-19 epidemic as millions remained isolated at home.
Meituan has been riding the wave with its sales from fresh produce—vegetables, seafood, and meats—jumping more than 200% year-on-year between Feb. 1 and Feb. 20.
“Amid the ongoing coronavirus outbreak, we have also seen how digital technology can be used to help service providers become more agile and respond effectively to the fast-changing market environment,” the Ant Financial CEO said in a statement.
According to the company, more than 1,200 developers answered its call to create mini-programs aimed at providing support during the outbreak for grocery delivery, legal and medical advice, and other public services.
The ride-hailing firm Didi Chuxing also introduced home delivery options to its app in two major cities during the Covid-19 outbreak. Previously, Didi had changed lanes by entering the food-delivery market to counter Meituan’s expansion into ride-hailing in 2018, but that business quickly failed.
What it means for Meituan
With the prominent positioning of the food delivery, restaurant reviews, and travel and ticketing channels, the app landing pages for Meituan and Alipay look increasingly similar.
This head-to-head competition is reminiscent of China’s recent food-delivery war. With most users in major metropoles well-acquainted with on-demand delivery, lower tier-cities are where service platforms are fighting most fiercely for users.
In this regard, Meituan has been taking the lead; 73.7% of users rated Meituan as their first choice for food delivery, while Ele.me and Koubei accounted for 24%, according to a report from mobile data service provider Jiguang.
Meanwhile, Alibaba is also shifting focus to the lower-tier markets. The company said the gross merchandise volume from local lifestyle businesses in less-developed areas grew about 40% year-on-year in the last three months of 2019.
User acquisition is just one part of the story, however. The push for the digitalization of offline services is in large part a competition to attract merchants to join their platform. Here, Alipay has an edge—because Alibaba launched a series of support measures for small- and medium-sized enterprises in its 2B shift.
The practice of subsidizing discounts for users may still happen, but there are indications that neither of the companies, nor the investors backing them, have much appetite to offer irrational cash-burning rebates after seeing unimpressive results from spending millions of RMB. Ele.me CEO Wang Lei, who pledged to offer RMB 1 billion subsidies in July and August 2018, said a year later that the food-delivery market isn’t “healthy” and that there will be no more crazy subsidy wars.
In the meantime, Meituan is also testing an expansion into the selling of physical goods online. Since 2018, the company has listed Hailan Home, a menswear fashion brand, on its platform. It recently entered an agreement with 72 physical bookstores, allowing users within 10 kilometers to place orders and have books delivered within 30 minutes.
With both platforms expanding beyond their core businesses, the competition between China’s largest and third-largest tech firms is escalating to another level.