ByteDance enters China’s crowded food delivery market with a new Douyin feature

July 22, 2022 0 Comments

Douyin, China’s version of TikTok, has expanded its service offerings with the launch of a new food delivery feature embedded within the short video app, a potential move that may enable Douyin’s parent company, ByteDance, to compete with Meituan and Alibaba-backed Ele.me for market share in China’s oversaturated food delivery market.

Short videos titled “Douyin offers food delivery service” have been circulating online since July 12, when Douyin users posted a screenshot that showed some of Douyin’s restaurant channels, featuring the option to order food with delivery.

The page layout for ordering food within Douyin is similar to that of a food delivery app like Meituan. Users can order food directly from the app without being redirected back to the merchant’s mini-program or third-party platform.

The food delivery service is still in its infant stage. Douyin now only supports some core food delivery features, allowing users to browse restaurant listings, place orders, and access after-sales services. However, restaurants must provide their own delivery personnel or utilize the services of a different delivery platform, such as Dada Nexus.

It is not the first time Beijing-based ByteDance has entered China’s highly competitive and congested food delivery sector. In October 2021, ByteDance reportedly set up a team for a food delivery business, and the media speculation was later confirmed after the company announced the launch of an internal test for a food delivery mini program named “Xindong Waimai.”

As short video platforms emerged as one of the most popular forms of entertainment, Douyin became an important market channel that provided business opportunities for brands and merchants to reach consumers.

The largest competitor of Douyin, Kuaishou, has already formed a strategic alliance to integrate their services and products via a new micro app. The mini application grants Meituan access to Kuaishou’s extensive user base. In return, users of Kuaishou may directly access local services, including food delivery services and coupons provided by Meituan’s merchants.

Not only do short video platforms want a piece of the food delivery market, e-commerce powerhouse JD.com has also revealed ambitions to establish a food delivery-focused business division.

Xin Lijun, chief executive of JD Retail, stated that the company is exploring the establishment of a food delivery business unit since Dada Nexus, JD’s logistics subsidiary, has significant same-city delivery capabilities.

Backed by JD and Walmart, Dada Nexus saw exponential growth during the COVID-19 outbreak in China.

As of December 31, 2021, Dada has registered over 634 thousand active riders and 822 million delivered orders. Its intra-city delivery service spans over 700 Chinese cities and counties.

It currently connects with about 100,000 supermarkets and offline merchants and is partnering with major supermarket chains including Walmart, Yonghui, and CR Vanguard, among other offline merchants.

Food delivery is a challenging sector in China with a high entry barrier. Due to the dominance of internet giants such as Meituan and Ele.me, only a few competitors are able to capitalize on this industry. Meituan held a 67.3% share of China’s food delivery business in 2021, while Ele.me held a 26.9% share, according to statistics provided by Statista.

In addition, the food delivery business is not as profitable as it was in the early days; new entrants may face declining profits as the market becomes more saturated; and a new policy to raise riders’ pay and lower merchants’ commission fees has made it difficult for food delivery platforms such as Meituan to increase their profits.

In February, the National Development and Reform Commission issued directives mandating that the country’s internet platforms further lower the service price criteria for businesses, in order to help them reduce operating expenses and offer discounts to restaurants in areas hit hard by COVID-19.

Shares of both Meituan and Alibaba, which owns the country’s second largest food-delivery platform Ele.me, were down significantly following the announcement.

In the past, food delivery platforms such as Meituan and Eleme charged exorbitant commission fees. For example, Meituan’s commission rates rose from 1.1% in 2015 to 12.6% in 2021, while commission for new restaurant merchants increased from 25% to 26%.

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