The competition rages on, with potential dark horses lurking in every corner!

Editor: Li Er

Style: Junyi

Source: Rhodium Finance - Rhodium Finance Research Institute

The world of e-commerce is always brimming with new tales. This time, instant retail has emerged as the new battleground for giants like Alibaba and Meituan. Can JD.com, with its robust entry, rewrite the rules of this "competition"?

On the evening of July 5, the food delivery industry was once again stirred up. Alibaba and Meituan, the two titans, unleashed a flurry of large food delivery red envelope coupons, encompassing multiple no-threshold offers such as "21 off 25," "20 off 25," and "16 off 16." As a result, the prices of products from Luckin Coffee and KFC plummeted, attracting a flood of users to place orders.

How intense was the frenzy? That night, due to the unprecedented number of orders, Meituan triggered server traffic protection measures, leading to temporary service disruptions in some areas, including page lag and abnormal coupon usage. Subsequently, the company assured users that the issue had been fully resolved, and affected coupons could be extended to the next day for use.

This food delivery subsidy war may seem abrupt but is actually inevitable. The Ministry of Commerce predicts that China's instant retail market size will approach one trillion yuan by 2025 and could surpass two trillion yuan in the long term. This immense market potential has attracted capital from all quarters, driving the e-commerce industry into the second half of an ecological competition.

1. Integration of Ele.me and Taobao: Exploding Orders

Can a bold move after adversity turn the tide?

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Instant retail is a home consumption business model with high timeliness, built on an instant delivery system. It's a quintessential new retail format and consumption model, characterized by "ordering online and delivering offline within 30 minutes." Its convenience and flexibility have made it increasingly popular among consumers, especially the youth.

Just a week after the 618 shopping festival, Alibaba embarked on a new round of significant integration for its local life services.

On June 23, CEO Wu Yongming sent an email to all employees announcing that starting immediately, Ele.me and Fliggy would be merged into Alibaba's China e-commerce business group. Fan Yu would continue as Chairman and CEO of Ele.me, while Nan Tian would remain CEO of Fliggy, both reporting to Jiang Fan.

This change had been anticipated by the market. According to a Beijing News report in April, Alibaba's instant retail business, Hourda, announced an upgrade to "Taobao Flash Buy." During the May Day holiday, some employees relocated to Xixi to form a cross-departmental project team. Insiders revealed that internally, it was felt that Ele.me had already infiltrated Taobao, with businesses seemingly interconnected.

The Book of Changes says that when one reaches the end of one's rope, change is necessary, and change leads to success, which in turn leads to longevity. Ele.me, long in a weak position, had to change.

Looking back at China's food delivery market, 2015 was a pivotal year. In this year, Alibaba launched Koubei, a new food delivery platform, while Baidu entered the fray with Baidu Waimai, and Tencent, having invested in Dianping, brought Meituan under its wing.

In this fierce competition, the strategy was straightforward and brutal: lavish consumer subsidies to attract merchants, riders, and consumers at any cost. All three parties benefited immensely from this approach.

Fast forward to 2018, when Baidu Waimai was acquired by Ele.me, which in turn was sold to Alibaba for $9.5 billion. Alibaba further merged it with Koubei. Meanwhile, Meituan leveraged its merger with Dianping to tap into Tencent's traffic network, officially ushering in a duopoly in the food delivery market.

Analysys released the "Insight into China's Local Life Service Industry in the First Half of 2019," revealing that in the first half of 2019, Ele.me's market share reached 43.9%, with a quarterly increase of 3.7%, while Meituan's share declined by 2.5%. Ele.me displayed a comprehensive catching-up trend.

However, this momentum did not last long. According to Trustdata statistics, in the first quarter of 2020, Meituan's food delivery transaction share reached 67.3%, while Ele.me and its subsidiary "Ele.me Star Selection" accounted for a combined 30.9%. In just over half a year, Ele.me's share shrank by nearly 30%. According to International Finance News, industry analysis predicts that by 2024, Meituan and Ele.me will jointly occupy 98% of the market share, with Meituan accounting for 65% and Ele.me for 33%.

It's worth noting that Zhang Xuhao, the founder of Ele.me, once stated that Alibaba had high hopes for Ele.me. As Ele.me became part of the Alibaba Group, the connection between the two ecosystems would tighten, significantly enhancing collaboration efficiency and synergies. Joining the Alibaba ecosystem would elevate Ele.me's development platform to new heights.

Judging from the above performance, reality has fallen short of these ideals. Hexun.com once quoted the views of several analysts from Founder Securities, stating that the relationship logic between various business chains of Alibaba's local life services was unclear, and the effect of diverting traffic to Ele.me was limited. The siphon effect in the food delivery industry is evident, making it easy to defend but difficult to attack. Ele.me still needs to connect various nodes of Taobao and Alipay in the future.

In summary, to stabilize its position and reverse its suppressed situation, Ele.me must eliminate the "big enterprise disease" of fighting alone and further amplify its synergistic effect and integration advantages.

Fortunately, since 2024, Alibaba, JD.com, and other major companies have continued to cut costs and increase efficiency, addressing the big enterprise disease. This time, including Ele.me in the e-commerce business group is also aimed at further breaking through internal obstacles.

At least for now, there has been a certain degree of integration success. On May 26, Ele.me and Taobao Flash Buy jointly released the latest data, showing that the daily order volume had exceeded 40 million, accounting for almost 50% of the industry's daily order volume. Compared to the previously announced order volume of over 10 million, this represented a staggering 300% increase achieved in just over 20 days.

On July 7, the two announced that Taobao Flash Buy had over 200 million daily active users and over 80 million daily orders, of which over 13 million were non-catering orders.

From the timeline, Taobao Flash Buy was officially launched on May 2, with orders exceeding 40 million on May 26 and daily orders surpassing 60 million by the end of June, far exceeding expectations for explosive growth, adding new imagination to Alibaba's layout in instant retail.

In this regard, Jiang Fan stated during Alibaba's Q1 2025 earnings call that Flash Buy is a high-frequency scenario for Taobao, with better user activity and scale. Alibaba's e-commerce hopes to transform more Taobao users into instant retail users and will upgrade Taobao's business model based on this business in the long term.

Industry analyst Wang Yanbo believes that community group buying and instant retail, as the "two sides of the same coin" of new retail, share similar supply chains and warehousing foundations. The core difference lies in the "last mile." The recent series of adjustments by Alibaba and Meituan are essentially in-depth games of resources and strategies. It marks the full-scale launch of a new round of competition centered on the efficiency of "last mile" delivery and full-category products. Alibaba's core strategy is to tap into its untapped ecological integration space and traffic entry control power, with Taobao Flash Buy playing a strategic fulcrum role.

2. Volume Increase and Loss Turning

Survival Tales from the Brutal Mixed Warfare

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The larger the market, the fiercer the competition. Compared to community group buying, the competition among giants in instant retail is more intense and uncertain.

Focusing on the food delivery market, after years of competition, the industry landscape has largely taken shape. Following JD.com and Taobao announcing daily orders exceeding 25 million and 40 million respectively, media reports have stated that since mid-June, Meituan's daily average paid orders for food delivery have consistently maintained a volume of 90 million. Meituan responded that the data was largely accurate.

According to Lei Feng Network, calculated based on GMV, the recent market shares of the three platforms, Meituan, Taobao, and JD.com, are 76%, 14%, and 10%, respectively. In other words, JD.com's entry has not significantly impacted Meituan's market share. Caught between the two giants, Ele.me needs to not only distribute subsidies but also hone its internal strength and practically improve product experience to stabilize its position in the market.

In terms of food delivery, Meituan excels with solid local fulfillment infrastructure and operational experience. Its nationwide network of lightning warehouses, the growing Qianzhi warehouse system of Xiaoxiang Supermarket, and highly organized delivery capacity constitute its unique competitiveness of "distributed warehousing + instant delivery."

Currently, market subsidies are intensifying the price war, and the high costs of warehousing and delivery urgently need to be absorbed by higher order density and operational efficiency. This battle among giants centered on "30-minute delivery" still hinges on the synergy of underlying technologies and ecosystems.

Industry analyst Sun Yewen pointed out that Meituan, with catering takeout as its foundation, is expanding into full-category instant retail, a move that directly targets the heartland of traditional e-commerce. In response, Alibaba and JD.com have aggressively attacked the instant delivery market. Although the volume has increased, the sustainability of growth in the "post-subsidy era" is questionable. In this mixed warfare, Ele.me is in the most delicate position and needs to improve efficiency in terms of timeliness, loss, and product category richness to cope with Meituan's Qianzhi warehouse model and JD.com's logistics fulfillment model. It also needs to solve the problem of balanced distribution of traffic between its original e-commerce business and instant retail. Only through in-depth business integration and transformation can it survive and thrive.

Large-scale subsidies require substantial financial support, and Alibaba's local life business still has profit-making aspirations. Resolving the contradiction between the two is a question that cannot be avoided.

Referring to Alibaba's 2024 financial report, for the three months ended March 31, 2024, the revenue of Alibaba's Local Life Group was 14.628 billion yuan, a year-on-year increase of 19% compared to 12.34 billion yuan in the same period of 2023. Adjusted EBITA was a loss of 3.198 billion yuan, a 21.3% reduction in losses compared to 4.063 billion yuan in the same period of 2023.

Regarding this, the financial report stated that the revenue growth of Alibaba's local life business was mainly due to the increase in orders of Ele.me and Gaode's businesses, and the reduction in losses was mainly due to the improved unit economic efficiency of Ele.me and the narrowing of losses in the "home delivery" business due to scale expansion.

As former CEO Yu Yongfu of Alibaba's local life business said, local life is a "not intense but very cruel" competition. It's not intense because there aren't many contestants, and it's cruel because there's no one-shot victory method.

Now, with JD.com's high-profile entry, the level of cruelty has intensified. How to solve the persistent problems of high fulfillment costs, increasing homogeneity, and difficulty in profitability will directly determine the final outcome of this "cruel competition."

3. Defensive Maneuvers of the Industry Leader

Beware of Three Hidden Concerns

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As the industry leader, Meituan has a first-mover advantage but is well aware of the pressure and challenges posed by the relentless onslaught and consumption strategies of Alibaba and JD.com.

According to information released on Meituan's internal network, as of 22:54 on July 5, Meituan's instant retail orders for the day had exceeded 120 million, of which catering orders exceeded 100 million, accounting for over 80%. Notably, at 20:45 that evening, Meituan's internal network showed that instant retail daily orders had surpassed 100 million. This means that in just two hours, Meituan had generated over 20 million orders.

Founder Wang Xing believes that the recent huge subsidies in the industry have effectively stimulated demand, especially in the catering takeout sector, significantly boosting short-term consumption of non-essential items such as milk tea and coffee. He also emphasized that some competitors have exposed problems in system stability, delivery timeliness, and high refund rates, while Meituan relies on its mature delivery network and advanced systems to continuously provide reliable service experiences.

However, the capital market still seems to have a strong wait-and-see attitude.

On July 7, Meituan's Hong Kong stocks hit an annual low of HK$115.80 during the session and finally closed at HK$119, down 1.49%. As of the closing price of HK$118.6 on July 10, the cumulative decline for the year exceeded 20%. In contrast, benefiting from food delivery red envelope subsidies, new tea drink individual stocks collectively strengthened. On July 7, Chabahao saw an intraday increase of up to 15%, Guming rose over 13%, Nayuki rose over 10%, and Mixue Group also reached a high of 7%.

Sorting through market sentiment, the primary concern revolves around the potential adverse impact of ongoing subsidy wars on Meituan's profitability and cash flow. Goldman Sachs, in its latest research report, has cautioned investors to brace for potential "profit shocks" from Alibaba, JD.com, and Meituan over the next 12-18 months.

In the long run, subsidies serve merely as a temporary fix. Once the frenzy subsides, the market will inevitably revert to its core: competition grounded in product diversity, user experience, and service reliability.

For Meituan, facing the dual challenge from Alibaba and JD.com, its true long-term fortress lies in the vast delivery network and sophisticated algorithm system cultivated over 11 years. These have cultivated in consumers a perception of "reliable service," impressive scale, and significant market influence. However, these strengths also harbor their own set of challenges.

For instance, there are questions surrounding excessively high commission rates. According to the Shanghai Observer, Meituan's commission rate has consistently hovered around 20%. Reports from People's Transportation Magazine and the Beijing Daxing District Catering Industry Association indicate that some merchants have complained about comprehensive commission rates of mainstream food delivery platforms, including Meituan, reaching 20%-26%. This squeezes the profits of a significant portion of catering businesses, especially small, medium, and micro restaurants. Under the pressure of high operational costs, merchants might compromise on dish quality and delivery efficiency, indirectly affecting the consumer experience.

As a newcomer, JD.com astutely seized this opportunity and launched a "0 commission" policy before May 1, 2025, offering merchants a full year of commission-free benefits. Its fee structure has been meticulously designed to ensure comprehensive fees are lower than those of competitors like Meituan. These measures have reduced merchants' operational costs and attracted a multitude of high-quality partners, fostering a differentiated advantage that paves the way for JD.com's rapid ascension as an emerging player.

Beyond merchant commissions, the protection of riders' rights is another crucial test. Prior to JD.com's entry into the food delivery industry, riders often faced issues such as low pay and a lack of social security, which not only dampened their work enthusiasm and stability but also posed risks to the platform's sustainable operations.

JD.com's commitment to full payment of five social insurances and one housing fund can be described as a game-changer, significantly enhancing riders' treatment and sense of belonging. On April 15, JD.com announced plans to recruit at least 50,000 full-time riders this quarter.

Meituan is also actively making improvements and has demonstrated a strong commitment to investment. However, given its sheer size and the accumulation of long-standing issues, this process cannot be expedited overnight. Currently, a rider pension subsidy policy is being piloted in Quanzhou, Nantong, and other locations. Under the pilot program, for riders whose monthly income meets the lower limit of the relevant contribution base in their place of employment and who meet this condition for three months within the past six months, Meituan subsidizes 50% of the cost based on the relevant contribution base. This policy is expected to be implemented starting from the second quarter of 2025, gradually providing social security for full-time and stable part-time riders.

Industry analyst Wang Yanting believes that high commissions, riders' rights, and food safety hazards are the three persistent and significant issues within the industry. JD.com's "zero commission" and "full protection" strategies bring opportunities for change to the industry, but certain shortcomings in its management experience and supply chain have also given rise to challenges. Whether it can truly challenge Meituan's dominant position or be overshadowed by it, the ultimate outcome of this offensive and defensive battle hinges on continuously optimizing operational efficiency and user experience, while firmly establishing quality control and risk management barriers.

4

Outlook for the Second Half:

Three Key Propositions and Industry Rankings

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It is undeniable that as an extension of takeout scenarios, the instant retail sector boasts a promising future and immense development potential.

The latest forecast data from the Ministry of Commerce Research Institute indicates that by 2030, China's instant retail market size is expected to exceed 2 trillion yuan, with a compound annual growth rate of 25%. This commercial transformation, which extends from takeout scenarios and focuses on accurate delivery within 30 minutes, is reshaping the circulation system of 27 major categories and millions of products, encompassing fresh produce, medicine, and 3C digital products.

Within this sector, Meituan, Alibaba, and JD.com, with their mature delivery systems, abundant traffic inlets, and inherent internet genes, are profoundly altering the supply-demand dynamics.

Among them, industry leader Meituan holds an absolute advantage, boasting a powerful food delivery traffic engine with an average daily order volume of up to 98 million, constructing a business closed loop of "dining-in + home delivery." The "30-minute delivery of everything" system successfully covers 3,000 cities, 30,000 lightning warehouses, and a transportation network of 7.5 million, with SKU support exceeding 10,000, a scheduling system response time of less than 0.3 seconds, and unmanned delivery already implemented in 20 cities, with plans to expand to 100 cities by 2027.

In terms of operating mode, Meituan adopts a light-asset model centered on "lightning warehouses," with third parties responsible for site selection, store opening, construction, and daily operations, while Meituan provides algorithms, product libraries, and delivery support. The extensive coverage of core urban areas and the "winning by volume" strategy significantly shorten the delivery radius.

Facing Meituan's scale advantage, up-and-coming JD.com emphasizes quality differentiation. It opts for the heavy-asset model of "shared warehouses," integrating self-built warehouses with social warehouse and distribution resources to achieve minute-level delivery services with "warehouse access and enjoyment," along with unified quality inspection, packaging, and temperature control guarantees.

Simultaneously, it is piloting a 15-minute "instant delivery" service in 20 cities, balancing quality and efficiency to provide core support for its market competition.

On the other hand, Ele.me leans more heavily on the Alibaba ecosystem, hoping to stimulate more endogenous motivation. It strengthens in-depth collaboration with Cainiao and Hema, while jointly establishing "near-field flagship stores" with 2,000 brands such as ZARA and Watson, aiming to achieve breakthroughs in more segmented scenarios.

Overall, while Meituan enjoys a first-mover advantage with a pronounced lead, JD.com's full-link capabilities and Ele.me's ecological collaboration introduce variables into the industry landscape, as evidenced by the recent surge in order volumes for both.

In summary, the industry rankings remain fluid, and any player could emerge as a dark horse. As the wave of subsidies wanes, the key to victory among these giants will hinge on three propositions: Can they establish an economically viable model for 30-minute delivery? Can they achieve refined operations for millions of SKUs? Can they balance cost-effectiveness and quality-price ratio to strike an equilibrium between scale, quality, and price?

As "half-hour delivery" becomes the norm, the giants are well aware: whoever prevails in this battle will define the next decade. This trillion-yuan market competition will not only reshape the retail landscape but also influence the rankings of these three industry giants. Who will emerge as the ultimate victor?

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