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Source: Visual China

In the past six months, the fire of instant retail has been burning more and more vigorously. As of July, Taobao, JD.com, and Douyin Mall have opened a first-level traffic entrance for instant retail business on the homepage of their APP.

From the user's perspective, with the modernization, urbanization, and the extensive coverage of distribution networks, user consumption habits are shifting from shelf e-commerce, live streaming e-commerce, community group buying and other forms to instant delivery.

From the perspective of e-commerce platforms, the battle for GMV of existing e-commerce is essentially a battle for user usage time and the ultimate user experience, and a battle for the first entrance on the mobile terminal. Against the backdrop of the slowdown in the growth of traditional B2C e-commerce, the battle for the first entrance has spread to the instant retail business.

JD.com, Taobao, and Douyin are all involved in instant retail, all of which are related to Meituan. In 2018, Meituan launched its flash sales business, transforming from delivering takeout to delivering everything. Meituan has been engaged in instant retail for more than 6 years, and its flash sales penetration rate in all categories of commodity retail is only 0.4% (as of the end of 2023), and this track is still in its early stages of development.

According to the "Instant Retail Industry Development Report (2023)", the scale of the instant retail market will reach 504.286 billion yuan in 2022, with an average annual growth rate of about 50%. It is expected that the scale of the instant retail market will reach three times that of 2022 in 2025. As for the e-commerce market, the "2023 China E-commerce Market Data Report" shows that the scale of China's e-commerce market will reach 50.57 trillion yuan in 2023, a year-on-year increase of only 6.31% compared with 2022.

In the context of traditional B2C e-commerce taking low prices as the mainstream narrative, instant retail with an average annual growth rate of more than 50% is no longer an option, but a must-do question. Whether it is Meituan and Douyin, or JD.com and Taobao, instant retail is a battle that cannot be lost.

Douyin failed to take a bite out of Meituan’s instant retail pie

In the past six months, Douyin, which once made Meituan feel uneasy in the local life field, has not become a threat to Meituan in the instant retail field. Judging from the number of cities opened, the cities currently covered by Meituan Flash Purchase and Douyin Hourly Delivery are not in the same order of magnitude.

An insider close to Douyin revealed to Shenzhen Net, "Since May this year, Douyin's 1-hour delivery service has slowed down its plan to open new cities. Except for the six cities where 1-hour delivery service has been launched, namely Beijing, Shanghai, Shenzhen, Fuzhou, Xiamen and Chongqing, other cities will no longer support new merchants to enter the 1-hour delivery service."

According to public information, as of February 2024, the number of cities covered by Meituan’s flash purchase service has exceeded 290.

Regarding the gap between Douyin’s 24-hour delivery and Meituan’s flash purchase coverage in cities, a Douyin service provider told Shenzhen Net, “Douyin’s 24-hour delivery does not have a direct application page for entry outside the six cities. However, if large chain organizations, such as MINISO and Yonghui Supermarket, want to open Douyin’s 24-hour delivery service outside the six cities, they can directly apply to Douyin’s BD (shop assistant). As long as the turnover scale meets the requirements, they will generally be approved.”

"The restrictions outside the six cities are mainly set for small businesses that do not have delivery capabilities. It is not difficult for merchants with resources and connections to open hour-delivery services outside the six cities. For example, Douyin will give 50-100 authorization codes to certain chain brands. With the authorization codes, hour-delivery services can also be opened outside the six cities. I have friends who have opened Douyin hour-delivery services in Jinhua, Zhoushan and other cities in Zhejiang." The above-mentioned Douyin service provider added.

Regarding Douyin's slowdown in opening cities for its "12-hour delivery" service, Fengnian, CEO of Midas Touch, told Shenzhen News that "instant retail has passed the stage of simply seeking traffic and blindly expanding its scale. When Douyin's 12-hour delivery product categories are not perfect and warehousing and distribution and other fulfillment links cannot keep up, it is an expedient measure to temporarily postpone the opening of cities and fine-tune the operation of the 12-hour delivery service."

It is worth noting that the suspension of the city opening plan does not mean that Douyin does not attach importance to this business. In the newly launched Douyin Mall APP, Douyin Supermarket and Hourly Delivery are both placed in prominent entrance positions.

"Douyin's warehousing mainly relies on merchants' inventory, and distribution relies on merchants' self-distribution or external third-party terminal same-city logistics. The progress of opening cities in 1-hour delivery is highly related to the ability to fulfill delivery. If Douyin's 1-hour delivery wants to ensure fulfillment and user satisfaction, it cannot blindly pursue scale. Douyin's 1-hour delivery requires a fulfillment time limit of about 120 minutes, and has an extremely strict fulfillment penalty and guarantee system." Fengnian added.

Compared with B2C e-commerce, the core of instant retail fulfillment is warehousing and distribution, which requires merchants to deliver certain goods to users within a limited time, which will challenge the warehousing and distribution capabilities of each company.

Warehouse and distribution are the core barriers of Meituan's flash shopping. In terms of distribution, Meituan itself has more than 7 million riders, plus cooperation with third parties such as SF Express, Flash Express, and UU Running Errands; in terms of warehousing, according to Meituan's financial report, as of the end of the first quarter of 2024, Meituan has about 7,000 flash warehouses, and the proportion of orders has further increased.

The moat that Meituan has built in warehousing and distribution has been reflected in the financial report data. According to Meituan’s financial report, in Q1 2024, the average daily order volume of Meituan’s flash purchase reached 8.4 million, a year-on-year increase of 59.7%.

Compared with Meituan’s instant retail business which is moving in small steps and fast, Douyin’s hourly delivery business is moving in slow steps, which may be related to the changes in the senior management of Douyin’s local life business.

In November last year, Pu Yanzi, the head of Douyin's commercialization, replaced Zhu Shiyu as the head of Douyin's local life service business, and the latter was transferred to the first-level department "Growth and Business Solutions".

After Pu Yanzi took over Douyin's local life business, some service providers felt the change in Douyin's attitude towards the 12-hour delivery business. "At the end of last year, the BD of Douyin's 12-hour delivery approached me, hoping to work together to develop the 12-hour delivery business in my area. In less than a week, the BD was transferred to another position," a Douyin service provider revealed to Shenzhen Net.

An insider revealed to Shenzhen Net, "Pu Yanzi couldn't stand the fact that local life has not been profitable, so it was expected that Douyin's hourly delivery business would be temporarily suspended in the city."

JD.com and Taobao take a gamble

Just as Douyin slowed down its plan to open cities in 12 hours, traditional e-commerce giants JD.com and Taobao once again set their sights on this fast-growing pie. In fact, JD.com and Taobao entered the instant retail business no later than Meituan.

JD.com officially launched its instant retail business in 2015 by establishing its home delivery business, providing consumers with a two-hour ultra-fast delivery service from community supermarkets based on location. Two years later, JD.com founder Liu Qiangdong proposed a "boundaryless retail" model that covers all customer groups, channels, categories, and time periods online and offline.

On the eve of Double Eleven 2021, JD.com and Dada launched the "Hourly Shopping" business and opened a city entrance on the homepage of the JD.com App. In March 2022, JD.com officially announced its layout of local life and piloted catering takeaway business in cities such as Zhengzhou, with Dada responsible for delivery.

However, JD.com’s food delivery business was halted before it attracted any attention from the outside world, and it turned its focus to instant retail business.

JD.com's increased investment in instant retail business started with the pre-sale of new iPhones, which Meituan Flash Purchase values ​​the most. The instant retail business of Apple authorized stores was first cooperated with Meituan Flash Purchase. When the iPhone 14 was released in September 2022, JD.com Daojia and Xiaoshigou spread the news that "iPhone 14 attracted more than 200 million yuan in sales within 6 hours".

In September 2023, JD.com's instant retail service was renamed "Hourly Delivery". In May this year, JD.com's instant retail business brand was integrated and upgraded from the original JD Hourly Delivery and JD Home Delivery to "JD Second Delivery", and a first-level traffic entrance was opened for it on the upper right of the JD.com APP homepage.

JD.com's integration of Hourly Delivery and JD.com Home Delivery can further fragment the terminal delivery. On the warehousing side, JD.com has 8 large warehouses and more than 1,500 cooperative supermarkets across the country. Combined with JD.com's strong terminal logistics capacity, it can solve the problem of cargo abundance to the greatest extent.

In 2017, when Liu Qiangdong proposed the "boundaryless retail" model, Taobao entered the one-hour delivery market from Tmall Supermarket. On July 21, 2017, the first station of Tmall Supermarket's one-hour delivery was launched in Beijing, providing users with one-hour delivery services based on geographical location. A year later, when the fresh food retail track was raking in money, Alibaba's Hema Fresh Food proposed the goal of "half-hour delivery".

Instant delivery is the threshold for developing instant retail. On April 2, 2018, Alibaba and Ant Financial completed a full acquisition of Ele.me for US$9.5 billion, making up for the shortcomings of Taobao's instant retail in delivery and completing the closed loop of Alibaba's new retail "three-kilometer ideal living circle".

On July 3, 2024, Taobao App added "Hourly Delivery" as a first-level traffic entrance on its homepage. In addition, Taobao's "Hourly Delivery" also cooperates with Ele.me to provide 24-hour local life services. With the support of Ele.me's instant delivery, Taobao's hourly delivery supply no longer relies on large supermarkets such as RT-Mart and Lianhua, and the supply range of Taobao's hourly delivery is further expanded.

Regarding JD.com and Taobao's increased investment in instant retail this year, a merchant revealed to Shenzhen Net, "At a time when traditional B2C e-commerce has adopted low prices as the mainstream narrative, instant retail that meets users' 'urgent' needs has room for premium. In the case of 'urgent need', users can accept price in exchange for service."

A user once told Deep Web about his shopping experience on JD.com's 1-hour delivery service, "For the same memory stick, the price for immediate home delivery on the same day is 369 yuan, while the price for delivery the next afternoon is 199 yuan. Although it is more than 100 yuan more expensive, I am willing to pay this premium because I need it urgently."

A battle that Meituan cannot lose

For JD.com and Taobao, instant retail is a growth point besides their traditional B2C e-commerce business. But for Meituan, which relies on local life as its core business, instant retail is equivalent to its "lifeline" and a battle that must be won.

Wang Xing, the founder of Meituan, has shared internally many times that Meituan has been engaged in retail. In the past, it was mainly engaged in group buying, takeout, and hotel and travel businesses, which were service retail. Now Meituan will also do more physical retail. In September 2021, Meituan raised retail and technology to a strategic level for the first time, and upgraded the company's strategy from the original "Food+Platform" to "Retail+Technology".

Wang Puchong, CEO of Meituan's "Core Local Business" division, predicted at the "2021 Meituan Flash Purchase Digital Retail Conference" that the retail market will move from the "everything store" to the "everything delivered to your home" era, and the market size of instant retail is expected to reach one trillion in five years.

According to the revenue structure of Meituan's financial report, flash sales and takeaway, in-store, hotel and travel, homestay and transportation ticketing all belong to Meituan's core local business. In the first quarter of 2024, Meituan's core local business revenue was 54.6 billion yuan, accounting for 74.5% of its revenue.

Judging from operating profit, while Meituan’s new businesses (Xiaoxiang Supermarket, Meituan Youxuan, Kuaidi, online car-hailing, bicycles and motorcycles, power banks, restaurant management systems, etc.) are still losing money, Meituan’s core local business is the main driving force behind the company’s profitability.

Although Meituan’s financial report did not directly point out how much revenue flash sales contributed to the company, its year-on-year growth rate of approximately 50% shows the status of this business within Meituan.

According to Meituan’s Q1 2024 financial report, this quarter, the annual active users of Meituan’s food delivery business increased to nearly 500 million, the number of instant delivery orders on the platform increased by 28% year-on-year to 5.46 billion, and the average daily order volume of Meituan’s flash purchases reached 8.4 million, a year-on-year increase of 59.7%.

In order to upgrade its delivery capabilities, Meituan has recently added four-wheeled transport capacity in addition to two-wheeled transport capacity to achieve rapid delivery of medium and large household appliances. Data shows that the addition of four-wheeled transport capacity has brought 14,000 new users to Meituan Flash Purchase.

"Looking at the future competitive landscape of e-commerce from another perspective, user consumption can be divided into near-field e-commerce (instant retail) and traditional B2C e-commerce. Meituan does not directly compete with JD.com and Taobao in the field of shelf e-commerce, but uses its own strong local distribution capabilities to do 'time-sensitive' product business in the instant retail scenario; JD.com and Taobao increase their investment in instant retail, which is both a search for new performance growth and a defense in the field of shelf e-commerce. Fengnian analyzed to "Shenwang".

When discussing business, Meituan executives like to use the Silver Bullet to make extreme inferences about the competitive landscape. In the current situation of instant retail, Meituan may shoot this silver bullet at JD.com and Taobao, which also have a warehouse and distribution base, rather than Douyin, which is "choked by the distribution system".

Meituan’s “big retail” concept is also in line with JD.com’s ultimate imagination of “boundaryless retail” and Taobao’s “new retail”, which means that the rapidly growing instant retail will not be a peaceful battlefield.