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JD.com considers food delivery business, a market almost completely controlled by Meituan and Alibaba's Ele.me

An executive at China's second largest e-commerce firm JD.com has floated the idea of starting a food delivery service, a move that would directly challenge a market dominated by Meituan and Alibaba Group Holding.

Xin Lijun, chief executive of JD Retail, told Bloomberg News that the company was exploring a move into the business segment because Dada Nexus, JD's logistics affiliate, has strong capabilities in same-city delivery. The launch time will depend on the company's capacity, Xin said.

A Dada representative said that the food delivery service is "still in the planning stage". JD declined to comment.

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JD has already been in talks with some restaurants in cities like Zhengzhou, in central Henan province, and will let Dada handle the deliveries, according to a report by Chinese online media outlet LatePost earlier this month.

If JD fully commits to food delivery, its main strength will be in logistics, according to Li Yingtao, director of retail and brand analysis at market research firm Analysys. "The company has built up a comprehensive delivery system and has rich experience in it," he said.

As an e-commerce platform, JD has long stood out for its courier services, which provide same-day delivery for certain products. The company's local grocery delivery service JD Daojia can even get fresh food to a customer's doorstep within an hour. By the end of 2021, JD's delivery unit employed more than 224,000 people, making up 58 per cent of the tech giant's total workforce.

China's food delivery market represents a big opportunity for any new entrant able to crack it. In 2021, total users of food delivery platforms jumped nearly 30 per cent to 544 million, according to Chinese consultancy Zhiyan. It had already been growing quickly before the Covid-19 pandemic, which created even more demand while people have been forced to stay home during various lockdown periods across different cities.

However, nearly the entire market is controlled by two companies: Meituan, with 69 per cent in 2020, and Alibaba's Ele.me at 26 per cent, Zhiyan data showed. Alibaba owns the South China Morning Post.

This has drawn the attention of other technology giants looking to shake up the market by leveraging their massive user bases in other areas. TikTok owner ByteDance was the biggest new name to jump into food delivery last year. Internet search company Baidu waded into the market in 2014, only to sell off Baidu Waimai three years later to Ele.me, which rebranded the service Star.Ele.me. That service made up 4 per cent of the market in 2020, according to Zhiyan.

A worker in a protective suit gets food from a delivery worker at a closed residential area during a lockdown to fight the spread of Covid-19 in Shanghai on May 25. Photo: Reuters alt=A worker in a protective suit gets food from a delivery worker at a closed residential area during a lockdown to fight the spread of Covid-19 in Shanghai on May 25. Photo: Reuters>

In addition to a strong logistics base, JD has a lot of resources it can throw at a new venture.

"Another advantage is that as [a member of] Big Tech, JD will invest a lot of money, talent and other resources to support it," Analysys' Li said, adding that JD's real challenge will be securing enough time.

"Rivals like Meituan and Ele.me have formed powerful and efficient business operations, have access to a loyal customer base and cultivated user habits," he said. "People may not necessarily give JD time to grow."

JD is also contemplating a move into the market at a time when other players have recently seen weaker revenue growth owing to new government regulations on protecting delivery staff and cutting fees that platforms can charge restaurants.

In February, Li estimated that a 5 per cent reduction in commission fees could result in a 14 per cent drop in revenue for Meituan.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.