Market Insights | Food Delivery Chain Landscape (Part 1): China VS SEA

Written by Pheona T.

On September 9, Delivery Hero, a major player in the food delivery industry, announced plans to sell a portion of its Southeast Asian operations, including the renowned Foodpanda brand, in response to a regional growth slowdown. This proposed deal covers operations in Singapore, Malaysia, Thailand, Cambodia, Myanmar, Laos, and the Philippines. Sources suggest Grab may invest over $22 billion in this acquisition.

The current state of the food delivery market in China is noteworthy, considering its rapid evolution and maturity. As the Southeast Asian food delivery market expands, following the ripple effects of the COVID-19 pandemic, there arises a compelling question: What lessons can be drawn from China's well-established food delivery market? How could Southeast Asia adapt and learn from China's experiences to foster its growth and development in this sector?

The food delivery ecosystem typically comprises four key participants: online platforms, merchants, delivery riders, and users. In Part 1 of our exploration of the food delivery chain landscape, we will delve into the dynamic among online platforms, merchants and users in both China and Southeast Asia. Subsequently, Part 2 will provide further insights into the role of delivery riders in this evolving industry.

China's Duopoly: Meituan VS Ele.me

In recent years, China's food delivery market has grown significantly due to shifting consumer habits and the rapid development of the platform economy, becoming a driving force in the restaurant industry. According to data from ChinaIRN in December 2022, China has a massive user base of 521 million online food delivery consumers, showcasing the widespread adoption of online food ordering. In 2022, per capita spending averaged CNY 789.7 (approximately $108), a notable 11.3% year-on-year increase, representing 25.4% of per capita dining expenses.

Historically, food delivery was mainly associated with fast food takeout services. However, the emergence and widespread adoption of the "food, delivery and lifestyle" have broadened the scope to include a wide array of products. Before 2008, telephone orders laid the foundation for online food delivery in China but were not widely adopted. The launch of platforms like "Ele.me" in 2008 marked a turning point, propelling the industry's rapid growth. After intense competition, China's food delivery sector has matured, with Meituan and Ele.me now collectively dominating 90% of the market.

Meituan and Ele.me represent the "to-home" Online-to-Offline (O2O) business model. Meituan, with its extensive user base and resources, holds a strong market position, while Ele.me, established earlier and growing rapidly, initially gained a significant market share. In 2011, Meituan entered the food delivery market, steadily growing its market share and launching a food delivery app. With a user-centric approach, a focus on quality, and cost-effective operations, Meituan has successfully cultivated a youthful brand image.

Meituan's food delivery transactions surpassed CNY 700 billion ($95.83 billion) in volume, marking a 43.6% year-on-year increase, resulting in CNY 96.3 billion ($13.18 billion) in revenue. Beyond commissions, Meituan's income from online marketing and other services has steadily risen, enhancing its business monetization and profitability. Additionally, Meituan excels in key metrics, with double the daily order volume of Ele.me, and superior performance in active users, delivery personnel, and daily deliveries.

Regarding their primary profit models, Meituan and Ele.me diverge. Ele.me predominantly charges businesses for platform entry, whereas Meituan primarily profits through commission fees. However, when it comes to generating revenue via bidding rankings, value-added fees, and advertising expenses, Meituan Waimai's profit methods closely resemble those of Ele.me.

Chinese food delivery platforms follow a two-stage strategy. Initially, they provide subsidies to food businesses to encourage them to offer delivery services and extend these subsidies to consumers to promote food delivery adoption. This strategy effectively nurtures the growth of the food delivery market.

In the later stage, these platforms reduce subsidies, introduce minimum order requirements, and implement higher delivery fees to ensure profitability while maintaining a thriving delivery ecosystem. However, the changing economic landscape and capital market stability suggest that massive subsidies are no longer sustainable, leading to shifts in user habits. Building strong user retention strategies becomes a top priority for future platform development.

SEA's Market: Grab's Dominance

In comparison with China, there's more players in Southeast Asia, however Grab remains leader position. The Southeast Asian food delivery industry is in a robust developmental phase, with Grab retaining its dominant market position, especially in Malaysia and Vietnam, where it has outpaced competitors like Foodpanda and ShopeeFood. Despite numerous entrants in the past decade, challenges have led to casualties such as Uber and Foodpanda in countries like Indonesia and Vietnam. For instance, the entry of Meituan into the Hong Kong market in 2023 poses a direct challenge to Foodpanda, shedding light on recent transformations in the Southeast Asian food delivery landscape.

Last year, Grab dominated with 54% of the regional food delivery GMV, while Foodpanda and Gojek held 19% and 12%, respectively. Indonesia, Thailand, and Singapore saw declines, whereas Malaysia, the Philippines, and Vietnam recorded substantial growth, primarily driven by Grab and ShopeeFood.

Grab's second-quarter 2023 report revealed a remarkable 118% YoY growth in Delivery revenue, or 126% YoY on a constant currency basis, soaring from $134 million to $292 million in the same period in 2022. This exceptional growth was primarily attributed to a reduction in incentives, GMV expansion, and a change in the business model of certain delivery offerings in one of their markets.

Anthony Tan, Group Chief Executive Officer and Co-Founder of Grab, commented on these achievements, saying, "We had a strong set of results for the second quarter. Deliveries GMV grew year-over-year to hit record highs, supported by our continued focus on key affordability initiatives and a growing GrabUnlimited subscriber base. More people are using Grab today than ever before, as we achieved our highest Monthly Transacting Users to date." The adoption of GrabUnlimited, their subscription program, continues to thrive, with total GrabUnlimited subscribers increasing by 43% YoY and 25% QoQ. Users subscribed to GrabUnlimited exhibited average retention rates approximately 2 times higher than non-subscribers in the first half of 2023.

Competing alongside Grab in this dynamic market are notable rivals like Foodpanda, Deliveroo, Gojek, and Uber Eats. They've earned significant market share, utilizing various strategies, such as promotions and diversifying revenue streams beyond commissions, including subscription services, advertising, and financial services. Super apps like Grab and Gojek have ventured into B2B services, contributing to their success.

In essence, Meituan's success provides valuable lessons for players in Southeast Asia and global companies aiming to expand into the SEA region. These lessons emphasize diversification, a long-term perspective with prudent capital use, a relentless focus on operational efficiency, scaling order volumes and density, and the agility to mobilize resources in the face of competition. These insights collectively guide industry players in achieving success, similar to Meituan, amidst evolving challenges.