Meituan has been fighting a long and hard battle against Alibaba on the food delivery front. So far it is prevailing against ele.me, a company Alibaba acquired two years ago.
Now the battle is expanding into the on-demand retail space. In March 2020, Wang Puzhong, senior vice president of Meituan and president of Daojia business group, said in an internal meeting that Alibaba is now facing the competition of Pinduoduo and JD, hoping that it will also be ‘encircled’ by Meituan ‘Flash Buy’ (闪购) in the future.
It is rumoured that Meituan’s internal target for ‘Flash Buy’ is 100 billion yuan (US$14 billion) per annum, a few times its current level.
Coincidentally, Alibaba and JD have both conducted re-org recently to accelerate on-demand retail: Tmall Supermarket （天猫超市）was upgraded to Inter-city Retail Business Group, absorbing Ele.me into the same business unit. JD.com established the Dashangchao omnichannel business group to integrate the original JD Supermarket, Consumer Products Division, New Channel Division, 7FRESH and No. 1 Store – its various retail offerings.
This is significant. Ecommerce now represents more than 20% of total retail sales in China. However, further growth will not be as fast as it used to be using the same model. To capture the incremental market is a top priority.
For Meituan, retail can become a key pillar of growth after food delivery and OTA. It will also leverage its large fleet of delivery riders and the backend dispatching system. If retail delivery could utilise the downtime of food delivery riders (i.e. non meal time), the overall efficiency of Meituan could improve drastically.
Strategically, it is also important for Meituan to expand its sphere to fend off Alibaba.
How Meituan does it
Meituan defines “flash buy” as a 30-minute delivery option or online convenience store. The key selling point is abundance of products with faster fulfillment speed. While Meituan has another unit focusing on groceries, the ‘flash buy’ service focuses on daily necessities such as medicine and even condoms.
Officially launched in mid 2018, Meituan ‘flash buy’ is the first step of Meituan’s ambitions in ecommerce of physical goods (as opposed to services).
With more than 200 million products (SPU) from hundreds of thousands of stalls on the platform, the daily order volume has reached millions. By China’s standard, this is slow – and some attributed it to the fact that Meituan did not do aggressive, cash-burning campaigns for this. Insiders are saying that the service has broken even.
A key difference between Meituan and its rivals is that the former focuses a lot more on small stores, as opposed to large chains or hypermarkets. The reason was that it is relatively difficult (i.e. more costly) to fulfill from hypermarkets, even though they boost richer product selections.
From food delivery to goods delivery, Meituan does not lack customers or distribution systems, but lacks control of the supply chain.
The same customers using food delivery also use ‘flash buy’. With Meituan’s network of 600,000 daily active riders, fulfillment and logistics are easy (relatively). However, without its own inventory and warehouses – it is difficult for Meituan to control the product quality.
Is the demand real?
It seems that Meituan’s Flash buy model also came through many iterations and pivots. The Covid-19 pandemic accelerated the development of the current business model, as well as the competition.
While Meituan focuses on 30 minutes fulfilment, Alibaba looks more at how to transform supermarkets into 1 hour, half day or next day fulfilment circles. JD also does 30 minutes, though not for all products.
Aside from Meituan, JD and Alibaba, smaller players including Hema (which is also part of Alibaba ecosystem) and Dingdongmaicai are also present. Hema runs offline supermarkets with a focus on fresh seafood, and fulfils on demand orders within a certain radius; while Shanghai’s Dingdongmaicai (or Miss Fresh in Beijing) built a series of distributed warehouses for fast fulfilment of groceries.
While many suspect the business models will eventually converge, some also question whether the models are valid. First is whether the demand for “30 minute delivery” really exists except for certain categories such as condoms; second is whether such a system can be built at scale in a cost effective way.
With the investment of major players, time will tell.