HONG KONG, Sept 12, 2018 - (ACN Newswire) - Around the world, food is a central focus of daily life - whether a family meal or a social event like a date, party, or small get together with friends. Nowhere is this truer than in China, where people love not just eating, but eating many different types of foods. There is a saying in China that "food is the most essential part of people's lives."
Meituan Dianping has always operated under this belief, engineering its platform from the beginning to help people both eat better and live better. The dedication to this mission, and a focus on ensuring a better user experience, explain why Meituan Dianping has emerged as the world's largest provider of food delivery services today, seeing over ten times the daily average food delivery transactions of leading international companies like Delivery Hero or GrubHub.
Meituan Dianping's success is deeply rooted in the user focus that shaped its platform. When the company launched its food delivery business in 2013, it was originally a marketplace model. In 2015, however, the company made a strategic decision to build its own delivery network. While this required significant investment in both engineering and offline team management, it allowed Meituan Dianping to ensure the best user experience: one in which orders are delivered reliably and quickly.
This strategic decision made the company unlike U.S. food delivery apps that are either solely marketplace models or provide varying levels of delivery support to restaurants. By building its own network, Meituan Dianping took ownership of the delivery process, rather than placing this burden on restaurants, which may not have the resources to respond to delivery orders in a timely fashion. Indeed, in 2017, more than 70 percent of the orders on Meituan Dianping's platform were completed by the company's own delivery network.
As Meituan Dianping built its food delivery network, it was able to take advantage of numerous positive macro-economic factors unique to China that are conducive to the growth of the consumer service industry.
First is the massive market size. The restaurant business in China was about RMB4 trillion in in 2017, while overall food consumption was about double that, at RMB8.7 trillion. Total food consumption in China will grow to RMB14 trillion by 2023. The company believes food delivery is not just an alternative for restaurant meals, but actually addresses this larger market, reflecting the reality that young people are cooking at home less than ever. In an 82-page report titled "Is the Kitchen Dead?" published in June by investment bank UBS, a survey of 13,000-plus consumers worldwide found that millennials are three times more likely to order in than their parents. Still, the e-commerce penetration rate in China's massive food consumption market remains low, at only 13.4% in 2017. By 2023, it is projected to grow to 29.5%. The combination of the rapid growth of China's food consumption market, and the increasing e-commerce penetration rate, will mean explosive growth in food services e-commerce.
A number of other key factors also make China different from the U.S. The consumer service industry is primarily concentrated in urban areas with high population density. China's massive population and rapid urbanization have led to the emergence of a large number of cities, further accelerating the growth of the consumer service industry across the country. By the end of 2016, China had 156 cities with a population of more than 1 million, compared to just 10 cities with over 1 million population in the U.S., according to an iResearch report. Population density in China's cities was 2,426 people per square kilometer in 2017, more than seven times that in the U.S., according to iResearch.
Likewise, labor supply dynamics are favorable in China, where a large labor force is transitioning from agriculture and manufacturing, into consumer service. Abundant labor supply in China accelerates the development of new business models in the consumer service industry, such as on-demand delivery. For example, the labor cost for each food delivery order in China is approximately US$1, compared to US$5 in the U.S., according to iResearch. In addition, it takes an average of 35 minutes for each delivery order in China, less than half the 75 minutes in the U.S., according to iResearch. Since 2013, labor cost per delivery order in China declined from RMB10.3 to RMB7.6 by 2017, and is forecast to continue declining to about RMB7 by 2019, according to iResearch.
Finally, the high penetration of the mobile internet and availability of online payment infrastructure in China has accelerated the adoption mobile payments, and the growth of e-commerce. Mobile payment penetration among mobile internet users in China was 70% in 2017, yet only about 20% in the U.S., according to iResearch.
All of these factors have helped Meituan Dianping achieve food delivery on a scale unseen in other markets. This scale is crucial as it brings greater order density, which means that delivery riders travel shorter distances to fulfill orders. Shorter distances traveled translate into lower energy costs and shorter delivery times, which lowers labors costs while enhancing user experience.
Meituan Dianping's rise to become the largest food delivery service provider in the world has been built on a commitment to ensuring the best user experience. As the company continues to serve as the super app of choice for food delivery in China, its success will remain rooted in improving people's lives, as embodied by its steadfast mission to help people eat better and live better.