Order Luckin Coffee on JD.com, and Meituan will cry for it

JD.com recently launched a new service that allows users to order coffee for 9.9 yuan with free shipping, which has caused quite a stir among consumers. In this way, JD.com has successfully attracted a large number of new users and occupied a place in the instant retail market. This service not only includes coffee, but also extends to fresh food, supermarkets, and medicine delivery. JD.com's strategy of instant delivery is obviously intended to challenge old players in the instant retail market such as Meituan and Ele.me. As the instant retail market continues to expand, it is expected that the market size will be three times that of 2022 by 2025. JD.com's move has undoubtedly intensified market competition, while also bringing more choices and convenience to consumers.

"Have you ever had the 9.9 yuan coffee given away by JD.com?" When the fitness coach asked Dong Ming (pseudonym), Dong Ming was stunned for a moment.

"What does it mean to have coffee delivered by JD.com? Isn't JD.com a shopping app?" When it comes to delivery of coffee and other drinks, Dong Ming's knowledge is still limited to "Ele.me" and "Meituan".

The coach opened the JD App with familiarity: "Just order Luckin, Kudi, Nova... They're all only 9.9 yuan, and there's no delivery fee, and the delivery is very fast."

At that time, Dong Ming had never downloaded the JD.com app. However, starting from the next day, he started ordering a cup of coffee from JD.com every day and began to recommend JD.com's instant delivery service to people around him.

As early as May this year, the "Second Delivery Zone" appeared in the core position of the homepage of JD.com App. Then it used a combination of money-spending "punches" such as free delivery for coffee drinks at 9.9 yuan, compensation for overtime of 10 minutes, and lucky draws for cash coupons when placing orders, relying on word of mouth from users to gain a large number of new users.

Image source: JD App

On August 21, Dada Group released its second quarter 2024 performance report data showing that the number of users and order volume in JD.com's core delivery areas increased by more than 100% year-on-year in the second quarter, especially for high-frequency users, with a year-on-year growth rate of more than 110%.

It can be said that JD.com’s first step of occupying the minds of users by spending money on subsidies has opened up the situation.

The plate of instant retail is also getting bigger and bigger. According to the "Instant Retail Industry Development Report (2023)" released by the Ministry of Commerce's International Trade and Economic Cooperation Research Institute, the instant retail industry has continued to maintain a high-speed growth trend in recent years, with an average annual growth rate of more than 50%. The market size has exceeded 500 billion yuan in 2022 and is expected to triple in 2025.

JD.com's move is undoubtedly an attempt to step on Meituan and Ele.me to "get ahead", while Douyin, which is currently conducting internal testing of the corresponding section, is also eyeing it covetously.

The drama of instant retail has already begun.

01 Spend money to grab mature users

Currently, JD.com’s delivery business in Shanghai is concentrated in four major sectors: fresh food, supermarkets, coffee and beverages, and medicine delivery.

Coffee drinks are one of the most frequently consumed categories, so they receive the largest subsidies. The slogan "9.9 free shipping" is also highlighted.

In Shanghai, most of the merchants are familiar to white-collar workers, such as Luckin Coffee, Kudi, Mixue Ice City, and Nova Coffee. The common feature of these brands is that they have many stores and are widely distributed. In downtown Shanghai, if it is not a peak period, you can really get a cup of coffee in 10 minutes if you order it.

Image source: JD App

The strategy of spending money is indeed simple and crude, but emphasizing timeliness and service is still JD.com’s main theme.

In July, JD.com’s express delivery department officially announced that it had signed Liu Xiang as its “timeliness witness officer” and launched a punctuality guarantee service. For orders with a delivery delay of more than 10 minutes, users will be automatically compensated with no-threshold coupons, effectively guaranteeing the user’s shopping experience.

In mid-August, JD.com announced the launch of services in Beijing including "refund for expensive orders", "compensation for slow orders", and "free shipping for returns starting from 0 yuan".

This series of measures shows that JD.com wants to capture consumers in first-tier cities first. These consumers have often received a lot of "market education", are more receptive to new things, and tend to pay more attention to the quality of service.

Previously, coffee and tea brands such as Luckin Coffee and Kudi have planted the "9.9" consumer mentality in the minds of many users, but this price basically requires going to the store or picking up the goods in person. JD.com's delivery subsidy solves the problem of the last mile, making "lazy people" more willing to place orders. It is a win-win situation for JD.com and these brands.

In terms of supermarkets, JD.com’s Express has the exclusive cooperation advantage with Walmart compared to Meituan and Ele.me, and can provide delivery services for Sam’s Club.

On the JD.com delivery page, there are coupons for some Sam’s Club products, which are cheaper than ordering on the Sam’s App. This is also a major reason why many Sam’s Club consumers “fall into the trap” of JD.com delivery.

Image source: JD App

However, it is worth noting that the future cooperation between JD.com and Walmart may still be uncertain. On August 20, US time, Walmart, which was originally the second largest shareholder of JD.com, sold 144.5 million shares of JD.com at a price of US$24.95 per share, and no longer held JD.com shares, which also caused JD.com's Hong Kong stocks to fall by more than 10% during the intraday trading.

Afterwards, although both parties told the media "The Paper" that they would continue to maintain business cooperation, some business media interpreted it as Walmart being short of money and reorganizing its asset resource allocation. But this is not good news for JD.com after all.

However, even if it loses Walmart, JD.com's delivery service has been connected to fresh food supermarkets such as Dingdong Maicai and Hema Fresh. Together with its own JD convenience stores, it can still basically cover consumers' demand for fresh food, supermarkets and convenience store products.

From the above, it can be seen that in the field of instant retail, JD.com mainly targets consumers who have mature consumption habits in categories such as coffee, tea, and supermarkets - using large subsidies to lure them from their original platforms to JD.com.

02 JD.com and Dada’s determination

This year, under the leadership of newly appointed consultant Guo Qing, JD.com Home Delivery and JD.com Hourly Delivery were integrated into JD.com Seconds Delivery, and Dada Express Delivery was renamed Dada Seconds Delivery. The two "seconds delivery" reflect JD.com's determination to stick to instant retail.

Since Dada went public in 2020, its performance has not been very good. Although the second quarter report showed a significant increase in users, its revenue was still lower than the same period last year, and it was not profitable at all. JD.com decided to continue to "transfuse blood" to Dada.

Photo by "New Consumption 101"

On September 6, JD Logistics issued an announcement, announcing that it had signed two framework agreements with Dada Group, namely, a freight service framework agreement and an operation support service framework agreement. The annual service fee caps stipulated in the agreement are RMB 569 million in 2024, RMB 652 million in 2025, and RMB 780 million in 2026.

Based on historical data, the transaction amount between JD Logistics and Dada Group was about 124.9 million yuan in 2023. As of June 30, the transaction amount of freight services between the two in the first half of 2024 was about 153.6 million yuan.

It can be predicted that the transaction amount between the two will more than double this year, and in the second half of the year, JD.com will continue to invest a lot of money in JD.com’s second delivery.

In addition, JD.com, which entered the market from supermarkets, medicines, and tea drinks, is also preparing to reversely penetrate the takeaway catering market. Dada Chief Financial Officer Mao Jun said in the second quarter earnings conference call: "In the second quarter, the overall revenue of chain merchants increased by nearly 50% year-on-year, of which the net income of restaurant chain merchants increased by nearly 80%, and the number of new stores more than doubled year-on-year."

Mao Jun believes that judging from the business development trend, the demand for on-demand takeaway services in catering, beverages, supermarkets and other industries is still growing rapidly. Therefore, he emphasized that the catering key customer business is the top priority this year.

This also means that Dada may have to expand its team so that JD.com can expand its instant retail business.

However, the user growth rate of JD.com's express delivery service has begun to exceed Dada's transportation capacity, and consumers can also feel it.

Dong Ming told us that half a month ago, he also placed an order on JD.com at around 11 o'clock, and the order was delivered to him in 10 minutes. However, recently, there have been more and more delays, and recently there was even one time when the order was delayed by nearly an hour.

Image source: JD App

03 Meituan and Douyin can’t sit still

Today, the instant retail market is so big that it is inseparable from the years of development by "old players" such as Meituan and Ele.me.

After being bullied by JD.com, Meituan, which currently has the largest market share, certainly can't sit still. In a conference call after the release of the second quarter financial report, Meituan CFO Chen Shaohui said that more and more categories have joined the flash sale business, hoping to expand catering delivery to a wide range of on-demand delivery business, which is an important growth driver for Meituan.

"The growth rate of flash sales is more than three times that of food delivery, and we expect this growth to continue in the next year." Chen Shaohui gave the specific forecast data: "During the peak season next year, perhaps our daily order transaction volume will exceed 100 million."

Photo by "New Consumption 101"

In the second quarter, the delivery service business revenue, which reflects Meituan’s takeaway and flash sales, reached 23 billion yuan, a year-on-year increase of 12.7%. In the second quarter, Meituan’s total instant delivery orders were about 6.2 billion, a year-on-year increase of 14.2%.

However, even for Meituan, the penetration rate of its flash sales in all retail categories was only 0.4% as of the end of 2023.

At the same time, Douyin is also ready to move.

Douyin, which does not have logistics and distribution capabilities, can only cooperate with third-party platforms such as Ele.me, SF Express, and Dada. Among them, Douyin has the closest connection with Ele.me.

As early as August 2022, Ele.me and Douyin officially announced their cooperation. In January this year, there were rumors that "Douyin is negotiating with Alibaba to acquire Ele.me", but both officials denied it afterwards.

In June this year, Douyin also launched a "food delivery" portal in the "Hourly Delivery" channel of the Douyin Mall, covering most cities. After that, Douyin began internal testing of the "Douyin Store·Home Delivery" business. In early August, Douyin adjusted its organizational structure and merged Douyin Takeaway from the e-commerce section back to the local life section.

These moves are seen as signals that Douyin is accelerating its layout of instant retail. So far, a new round of "land grabbing" movement among e-commerce platforms has begun.

Previously, a large number of fresh food e-commerce companies went bankrupt, and the profit models of new models such as forward warehouses and flash purchase warehouses were still quite controversial. The trend of instant retail has blown in again.

Although instant retail covering more categories may bring more stable revenue and profits to these platforms, in the fierce competition, the platforms also need to invest in new customer acquisition and marketing expenses regardless of cost.

However, these platforms don’t care about so many things. They just invest the money first and then get the employees back.

The consumers’ reaction was, of course, to drink their 9.9 dollar coffee while shouting, “Fight! Fight!”

References:

1. "JD Logistics and Dada Group Sign Freight and Operation Support Service Agreement, Annual Fee Cap Increases Year by Year", Financial Times

2. “JD.com and Meituan are at war”, E-Commerce News

3. "JD.com's daily peak order volume hits a new high in the second quarter. JD.com Group consultant Guo Qing becomes chairman of Dada Group", Economic Observer

4. "'Slow delivery must be compensated', 'Expensive delivery must be refunded' Liu Qiangdong continues to enhance JD's service advantages", Huanjingjin News Network

5. "Scale or Profit? Analysis of the Semi-annual Reports of Meituan, Dada, and SF Express: Instant Retail Strives for a "New Match Point", National Business Daily

6. "Instant Retail, the "New Battlefield" of E-commerce Platforms?", Tide Business Review

Author: Qian Luoying | Editor: Tian Qiaoyun