By Laurie Burkitt
BEIJING--China's rapidly diversifying Internet giants are now
taking on Western food chains at their own game--door-to-door
delivery--and finding a huge appetite among urban consumers.
Wooing customers with discounted dishes and the choice of
thousands of restaurants, startups backed by the likes of Alibaba
Group Holding Ltd. and Tencent Holdings Ltd. are enjoying brisk
business as more diners opt to order in.
The growing fleet of motorbike couriers on Chinese roads is the
latest challenge to long-established but struggling Western
companies such as McDonald's Corp. and Yum Brands Inc., which owns
KFC and Pizza Hut outlets. For years, the fast-food chains got a
leg up over rivals by speeding hamburgers and fried chicken to
buyers' homes and offices, building their own armies of
bike-driving couriers who dash out orders that were phoned in or
place online.
The Western chains became popular in China for two main reasons:
"Because they were foreign and they delivered," said Nathan Snyder,
a research analyst at brokerage CLSA. "That's no longer an
advantage," he said, referring to the delivery.
Startup companies Ele.me and Meituan Waimai, which operatives
via mobile applications and are backed respectively by Tencent and
Alibaba, are getting economy of scale by teaming up with tens of
thousands of food outlets across China. Their apps display menus of
smaller local shops as well as big chains, and online customers are
more likely to download a delivery app that gives them access to
multiple menus than one for a single restaurant.
The services are attracting investment and following similar
moves by Internet companies to dominate the market for everything
from cinema tickets to taxi rides. Food sales running through the
startups reached 97.5 billion yuan ($15.7 billion) last year, up
54% from 2013, according to research firm iResearch.
The surge in delivery firms is evident from the proliferation of
uniformed couriers zipping around major cities on motorbikes with
insulated bags. Yan Shihui, who works for Ele.me, says he can
deliver to five customers per hour on his motorbike in Beijing.
Mr. Yan, 19, who has been on the job for only a few months, hits
the streets as early as 9:30 a.m. until as late as 11:30 p.m.,
hopping from mostly Chinese restaurant chains to homes and offices,
earning money for each delivery.
The trend for food delivery is boosting sales for smaller
regional chains too. Beijing Weizhiwei Catering Ltd., which sells
noodles and meat sticks from China's southwestern Yunnan region,
has 50 outlets in Beijing and the nearby city of Tianjin.
Employees in a Beijing branch of the chain say the shop pulls in
an extra 1,000 yuan, or $161, a day from three different delivery
firms. A spokesman for Weizhiwei didn't respond to requests for
comment, according to a manager at a branch in northeastern
Beijing.
The noodle shop also offers up to 20% off on some dishes ordered
through apps, a key attraction for consumers. The noodle shop
covers the discount, but in some cases the startups have absorbed
discounts to build up their user-bases.
The startups themselves are using investment money to try to
become the dominant player in a so-far fragmented market.
Tencent-backed Ele.me--which is one the two biggest players
alongside Alibaba-supported Meituan--said it secured $350 million
investment in January. A spokesman declined to disclose details of
its revenue and profit. Alibaba announced in June that it would
plow nearly $1 billion into building up another food-delivery
service called Koubei. Alibaba and Tencent didn't respond to
requests for comment.
Yan Cong is one consumer who has stopped ordering from
McDonald's and KFC, which charge 8 yuan ($1.30) and 9 yuan
respectively, for delivery on top of a 30 yuan ($4.83) meal.
"They don't save me money," said Mr. Yan, a 23-year-old
athletic-club promoter. He uses food-ordering company Ele.me five
or six times a week to buy noodles dishes that cost 15 yuan to 25
yuan. That is about half the amount he used to spend ordering from
KFC, he said.
Couriers see incoming orders on a mobile app and will bundle
them together when customers in nearby locations order from the
same or neighboring restaurants. But orders have to be made within
the same window of time to ensure that delivery time is under an
hour .
At an investor conference in Shanghai in May, Yum executives
flagged the services as creating growing competition for their KFC
and Pizza Hut stores. "We are facing additional challenges," a
company presentation said.
"The delivery market is getting competitive," a McDonald's
spokeswoman said, adding it was looking to seek opportunities on
the online platforms.
It is unclear how much the new delivery companies may be eating
into sales for Yum and McDonald's, but they are getting in on the
act. Yum and McDonald's are now partnering with the delivery
startups.In the past year or so, KFC, Pizza Hut and McDonald's have
joined with Baidu and Alibaba-backed Meituan. KFC and Pizza Hut
also partner with Ele.me.
Delivery charges and food prices are clearly marked on the apps.
McDonald's and KFC both incur a nine-yuan delivery charges, which a
spokesman for Ele.Me says is kept by the delivery company.
Ele.me said 6% of total orders are from Western outlets like
Pizza Hut and McDonald's.
Yum says deliveries accounted for 7% of its $6.82 billion sales
in China last year, or about $477 million.
Industry experts say increased competition is hurting fast-food
chains already fighting to regain business that they have lost to
rivals as the cachet of their brand has waned and rival fast-food
chains have spread.
Yum's sales in China, which accounts for roughly half of the
company's revenue, dropped 4% to $1.6 billion in the second quarter
from the same period a year earlier. McDonald's doesn't break out
its China sales. Executives said in an earnings call last week that
same-store sales remained negative, down about 3% from a year
ago.
Write to Laurie Burkitt at laurie.burkitt@wsj.com
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