China’s eateries eye JD.com’s delivery plans with anxiety, hope
Chinese tech giant has floated prospect of entering lucrative market currently dominated by Meituan and Ele.me.
Beijing, China – Beijing restaurateur Ray Heng is ambivalent about the prospect of Chinese e-commerce juggernaut JD.com entering China’s lucrative food delivery market.
Heng, the proprietor of a popular Mexican restaurant, doesn’t see any reason to believe the arrival of a challenger to the Meituan and Ele.me duopoly will benefit restaurant owners.
Heng also downplays the popular notion that delivery platforms have been a lifeline for businesses during China’s stifling “zero COVID” restrictions.
JD.com’s potential foray into the market – which was worth an estimated $58.7bn in 2021, according to IMARC Group – comes after JD Retail CEO Xin Liju said last month that the company has been exploring the idea, with the timing depending on capacity and other factors. Meituan and Ele.me, owned by tech giant Alibaba, currently control 95 percent of the market, which is predicted to double in size in the next five years.
“Honestly I don’t like working with delivery apps that much,” Heng, who runs Pebbles Courtyard in Dongcheng district, told Al Jazeera.
During the initial waves of the coronavirus in early 2020, Heng went as far as taking customer orders himself on the messaging app WeChat and recruiting Shansong, a general courier, to avoid relying too heavily on Alibaba’s Meituan or Ele.me.
Now Heng, who has streamlined his menu to focus on items that travel better, is considering boycotting the platforms completely.
While potentially bringing in new customers, Meituan and JSS, a delivery app aimed at upmarket customers, take 16-20 percent of Heng’s profits in fees, he says. He also bemoans Meituan’s weeks-long process for transferring payments collected from customers, which can cause problems for restaurants like his that need to buy produce daily to maintain standards.
“We often get in fights with Meituan carriers because they’re rushing to get the food delivered, as fines will be applied when they’re late,” Heng said, referring to the rigid stipulations that notoriously push drivers to rush between deliveries.
“Dine-in focused restaurants cannot bust out food during the dinner rush. When we reached out to the platform, they only said ‘guests don’t like to wait for food for that long’. So I suggested an option for longer waiting on the app — if they [the customers] really like the food they’ll wait, or plan ahead. And if they don’t then why not go for some other fast food restaurants? But the platform never got back to us on that.”
Meituan, Ele.me and JD.com did not respond to Al Jazeera’s requests for comment.
Sharon Ng, the head of the marketing division at Nanyang Business School in Singapore, said it is not surprising that some restaurants are wary of the delivery platforms.
“Such apps have a positive effect of extending the restaurant’s reach, especially in China whereby traffic conditions are bad and it may be a hassle to go to a restaurant far away. However, the downside is such apps will also make competitors more accessible to a restaurant’s existing market,” Ng told Al Jazeera.
“This inevitably heightens competition. Using such apps would also be costly as the restaurants need to pay the app a fee. The net effect will depend on the type of restaurants, brand equity of the restaurant, the margin the restaurant is making and if it is enough to cover the delivery fees.”
While the heightened competition is good news for customers, it also means greater pressure for small eateries that often survive on razor-thin margins.
Fast food brands and large restaurant chains can weather this “price war” much better than independent eateries, said Hui Huang, a PhD candidate at King’s College London’s Department of International Development.
“In my opinion, these platforms are like ‘vampires’, who use monopoly status to make the restaurants, particularly the small restaurants, to be their ‘slaves,’” Huang told Al Jazeera, describing the plethora of choice in China that encourages customers to be constantly on the hunt for bargains, discounts and promotions.
As an independent restaurateur, Heng is cautious about how JD.com’s entry could shake up the sector.
“I don’t know what their terms are,” he said. “So I’ll have to see if JD is friendly.”
Henry Timberlake, who runs the Slider Nation burger restaurant in Chaoyang district, is more enthusiastic about the prospect of another platform on the scene.
“I’m 100 percent behind it and encourage it,” Timberlake told Al Jazeera. “The more the merrier. The more outreach to our customers the better.”
While other restaurants struggled, Timberlake saw his business boom during the pandemic.
“Back when I started, I just didn’t see COVID going anywhere any time soon,” Timberlake said. “People will always need to eat and the convenience of delivery is too great. Even if any slice of ‘normal’ comes back, there will still be people that are just comfortable ordering delivery.”
If Pebbles Courtyard and Slider Nation are at opposite ends of the spectrum, Mr Shi’s Dumplings may be more typical of restaurants’ relationship with platforms like Meituan.
Restaurant owner Shi Xinzhong hopes that JD.com’s entry will lead to lower fees across the sector.
“Because Meituan and Ele.me are so dominant, I hope other companies can come in and compete,” Shi told Al Jazeera.
“JD already knows a lot about shipping and delivery. So I would be more comfortable with its potential takeout platform than a new platform from another company that was less established.”
Apart from brand recognition, JD.com has deep pockets, taking in $94.4bn in revenue in 2020-21.
Nevertheless, JD.com may need all of its considerable resources to succeed given the fortunes spent by Meituan and Ele.me to establish their dominance of the scene, according to Zhang Yi, CEO of iiMedia Research.
Zhang said JD.com would be entering a sector with a much faster pace than it is used to, likening the company to a tortoise trying to race a hare.
“It is best to wait for those fast, further-down-the-line competitors to fall asleep, so that you can see your opening and take it,” he told Al Jazeera.
“So far, I see no indications of such complacency from Meituan or Ele.me, or that JD.com is offering something those sector leaders aren’t in order to stand out.”
Ng, the Nanyang Business School academic, is more optimistic.
“Given that it is a new entrant to a very competitive market, I will expect JD to come up with ways to differentiate their services from existing ones,” she said. “How are they going to do it? We will have to wait and see.”