After Douyin suffered a setback, did Kuaishou win the food delivery business?

How are short video platforms Douyin and Kuaishou entering the food delivery space? This article analyzes their strategies and challenges. It is suitable for business observers interested in the dynamics of emerging markets.

Recently, the food delivery business of the two major short video platforms has undergone new changes. Douyin's food delivery has "changed its home", and Kuaishou's food delivery is also advancing rapidly. Starting from June 15, Douyin's group purchase and delivery business under Life Service will no longer add new merchants, and group purchase and delivery products are expected to be removed from the shelves on July 15, and no new orders will be received. This business will be integrated into Douyin's e-commerce Doudian home delivery platform.

In February this year, media reported that Douyin's food delivery business had been adjusted from the local life business line to the Douyin e-commerce business line, and integrated with the instant retail business of "hourly delivery". Now the adjustment has been finalized. Douyin's e-commerce business line is vigorously promoting "hourly delivery" and developing instant retail business, which is more in line with the home delivery scenario.

At the same time, many users have noticed that there are more and more pure food delivery merchants on Kuaishou.

Search for "takeout" in the Kuaishou app, and you will see live broadcasts of takeout-only merchants occupy prominent positions, with related packages labeled "delivery only" or "home delivery." After placing an order, consumers need to make an appointment through the merchant's mini program, and the food will be delivered to their door by a third-party transporter.

After trying it, Alphabet List found that ordering takeout on Kuaishou is currently cumbersome. Users need to manually fill in information such as the recipient, delivery address, and delivery time. Some merchants also require consumers to contact the store by phone one hour in advance. The delivery speed of third-party riders is also much slower than that of Meituan and Ele.me.

It is not difficult to see that Kuaishou Takeout, which has a bumpy user experience, is still in the trial stage.
Kuaishou has long coveted the takeaway cake. At the end of 2021, Kuaishou and Meituan reached a strategic cooperation in interconnection, announcing that they would integrate content scene marketing, online transactions and offline fulfillment service capabilities to achieve "one-stop" complete consumption.

But in the following two or three years, this cooperation was limited to Meituan opening a Kuaishou mini-program, selling group purchase coupons and discount packages, etc., mainly targeting in-store scenarios; the "offline fulfillment" mentioned when the two parties joined hands was not actually implemented.

By the end of 2023, as the number of local life merchants on Kuaishou increased significantly, some merchants began to sell takeaway group purchase packages and arranged door-to-door delivery. In March of this year, Kuaishou optimized related functions, and takeaway merchants also expanded from the initial KFC and Haidilao to crayfish, barbecue and other categories, and consumers' perception gradually increased.

The general background of Kuaishou's increased investment in food delivery is that local life is becoming increasingly important in Kuaishou's business layout.

Kuaishou entered the local life market in July 2020. In the early stage, it mainly provided in-store services such as catering, hotel and travel by connecting with platform-based merchants such as Ctrip and Meituan. In September 2022, Kuaishou upgraded the local life department to a first-level business unit, standing shoulder to shoulder with the main site, commercialization, e-commerce, and internationalization, and the entire business segment began to accelerate.

At the 2023 earnings conference call earlier this year, Cheng Yixiao, founder and CEO of Kuaishou, said that 2023 is the true first year of Kuaishou's local life business, achieving many breakthroughs from 0 to 1. This momentum has continued into 2024: in the first quarter of this year, the average daily paying users of Kuaishou's local life business increased nearly 9 times year-on-year.

In the trillion-level local life market, Meituan is the only one in the market, and Douyin ranks second. Kuaishou is far behind the top two in terms of both user numbers and sales. To narrow the gap, Kuaishou needs to make up for its shortcomings in home delivery, and the most important one is food delivery.

However, Kuaishou faces similar challenges as Douyin in its food delivery business.

As a short video platform, Kuaishou does not have the ability to fulfill orders offline and has to rely on third-party delivery. The construction logic of the platform infrastructure is a content platform rather than a transaction platform, and it also needs to make adaptive adjustments for food delivery and even local life. Douyin has already waded through these "mines", and Kuaishou needs to go through them again.

On the other hand, short video platforms are good at "planting grass" and promoting impulse consumption; this runs counter to the instant satisfaction and high certainty of food delivery. Douyin Food Delivery gave up the goal of 100 billion yuan GMV (gross merchandise volume) in June last year and tried to run the business process in more ways; today, Douyin Food Delivery has not found a new answer, while Kuaishou Food Delivery is moving along a similar path.

01

Kuaishou has entered the food delivery and even local life market, following the same logic and strategy as Douyin, and is also facing similar difficulties as Douyin.

Both major short video platforms officially entered the local life market at the end of 2020, but both viewed this business as an extension of their existing business: Kuaishou's local life business is divided between the main site and e-commerce departments, while Douyin places it in the commercialization department.

When going deep into the hinterland of local life, Douyin and Kuaishou tend to "avoid the heavy and focus on the light" , handing over the costly and time-consuming necessary work to third parties. This allows them to move forward at a high speed in the early stages of business development, but after a certain stage, they often encounter bottlenecks.

The logic behind Douyin and Kuaishou’s choice is still to sell advertising. Just like selling brands and performance advertising, the two platforms still hope to build a “reservoir” with content such as store visits when facing the local life cake, and then sell precise traffic to local businesses of all sizes through personalized distribution.

Douyin and Kuaishou hope to continue to act as "water sellers" and do not intend to stick to offline. One year after entering the market, the two major platforms have cooperated with Meituan and Ele.me to open up traffic scenarios and part of the profits to potential competitors, in order to expand local life supply as soon as possible, increase the number of users and transaction frequency.

But now it seems that cross-border cooperation has not allowed Douyin and Kuaishou to gain a firm foothold in the local life field. After all, most netizens are not familiar with the Douyin and Kuaishou mini-programs; and Meituan and Ele.me cannot bet wholeheartedly on Douyin and Kuaishou.

Douyin and Kuaishou gradually realized that if they want to do a good job in local life business, relying on selling traffic to "make money without doing anything" is just wishful thinking, and they still need to get involved in person.

The two platforms subsequently raised the strategic position of local life business and invested more funds, resources and manpower to expand into cities and attract investment in categories. The cooperation with Meituan and Ele.me did not bring much growth to Douyin and Kuaishou; but with the support of huge traffic, the two platforms still made significant progress in the local life field.

Takeout, which is in high demand and has a high frequency, is one of the largest traffic entrances for local life services. Douyin and Kuaishou, which are determined to become local life apps, also need to fill in this key puzzle piece.

Douyin moved faster, launching a group purchase delivery service in March 2020. In July 2021, Douyin also established a special food delivery team, and began pilot projects in Beijing, Shanghai, Chengdu and other places the following year, setting a GMV target of 100 billion. Kuaishou did not start increasing its investment until the end of 2023.

However, in the process of entering the food delivery market, Douyin and Kuaishou once again showed a tendency to "avoid the important and focus on the trivial".

Delivery capability is the core of food delivery service. Both Meituan and Ele.me have spent huge amounts of money to build delivery platforms, recruit riders, and continue to invest in maintenance every year. To this day, delivery is still the biggest cost of food delivery platforms. In contrast, Douyin and Kuaishou did not choose to build their own transportation capacity, but hoped to postpone the fulfillment capacity and let merchants and third-party transportation curves solve the problem.

However, the “three-piece set” of platforms selling traffic, merchants selling packages, and riders selling services was soon proven to be unworkable in the food delivery industry.

Douyin previously reached cooperation with a series of instant delivery services such as SF Express in the city, trying to provide support for food delivery. However, in actual operation, merchants often face problems such as insufficient transportation capacity and high freight costs, and consumers also need to wait longer. Faced with various problems, Douyin Food Delivery gave up the goal of 100 billion yuan and re-polished its business processes.

Today, Kuaishou Food Delivery also faces the challenge of lack of transportation capacity, but has given the same answer as Douyin. Douyin, which has more traffic and resources, has hit a wall, and Kuaishou, which has a similar model, will also face challenges.

With the support of advertising, live broadcasting and other businesses, the two major short video platforms are accustomed to the "light" dividends and tend to continue the past way of doing things. Without investing huge amounts of money, they can get a piece of the food delivery market with just a little effort. Douyin and Kuaishou try to rely on third-party transportation to deliver food, which is actually in line with their early cooperation with Meituan and Ele.me.

However, food delivery and even local life are "heavy" businesses, and huge investments in online and offline infrastructure are essential. These investments not only simplify the business operations of merchants, but also improve user experience, thus forming a virtuous circle.

In contrast, Douyin and Kuaishou handed over the fulfillment to the merchants, becoming "lighter" themselves, but merchants and consumers need to bear higher costs and worse experience; over time, Douyin and Kuaishou's content and traffic advantages in the food delivery field have been exhausted, and their development has naturally slowed down.

02

In addition to facing the problems of weak infrastructure and lack of delivery capabilities in the food delivery industry, Douyin and Kuaishou face a deeper challenge: short videos’ special ability to stimulate impulse purchases is difficult to directly project onto food delivery.

Douyin and Kuaishou have occupied a place in the in-store field of local life. The key is that short videos can show stores and products in a richer dimension. Compared with the graphic content of Meituan, Dianping, and Ele.me, they can better encourage consumers to place orders and stock up coupons, and then make purchases in stores.

But this also means that when consumers place orders in short videos and live broadcasts, they are satisfying non-immediate and non-urgent needs. After users see a package they are interested in and place an impulse order, they often do not go to the store to consume immediately, and there is a long time difference between buying the coupon and using it.

As a result, the write-off rate of packages on short video platforms is relatively low. According to data from Jiuqian’s middle platform, the overall write-off rate of Douyin’s life services, which covers in-store dining, in-store comprehensive services and hotel and travel, is about 60%, while Meituan’s is over 85%.

In order to improve this indicator, Douyin has made multiple efforts, such as offering commission-free benefits to merchants and large discounts to consumers. This allowed Douyin to narrow the gap with Meituan for a time; but as the intensity of subsidies declined, the battle line between the two gradually stabilized, and consumers' habit of "searching for coupons after meals" has not been replaced by "stockpiling coupons in advance."

In the sub-sector of local life - food delivery, the shortcomings of short video platforms such as "non-instantaneous" and "non-urgent need" are more prominent.

A typical scenario for food delivery is that when it is time for lunch, workers open the app to browse nearby restaurants and place an order, and the food delivery guy delivers the food to their door within half an hour. Few people will watch videos, choose meal sets, and have the patience to wait for more than an hour when they are hungry.

Takeout is about "people looking for goods". Platforms and merchants need to match the most suitable goods according to users' immediate needs and deliver them to their doorsteps as quickly as possible. However, Douyin and Kuaishou still follow the logic of "goods looking for people". Their ability to provide accurate goods and meet personalized needs is destined to be inferior to Meituan and Ele.me. The "planting of grass" that short videos are good at will reduce the efficiency of the entire transaction chain.

Faced with natural shortcomings, merchants doing food delivery on Douyin and Kuaishou have to turn to categories that do not have high requirements for timeliness.

Taking Kuaishou as an example, the catering businesses currently settled in the platform are mainly crayfish, barbecue and other categories, and the meal packages are designed for gatherings of more than three people, rather than the need of a single person to fill their stomach quickly.

But the problem that follows is that a large number of fast food merchants are excluded from short video platforms, and these merchants are the main suppliers of food delivery platforms. Short video platforms have never been able to expand the scale of food delivery business. In addition to the cumbersome ordering and slow delivery, too few restaurants and monotonous supply are also important reasons.

In fact, both Douyin and Kuaishou seem to have certain concerns about how big their food delivery business can be.

In addition to canceling its annual target, Douyin also announced at the end of last year that it would not renew its agents in some regions. Now, it has moved its group purchase and delivery business to e-commerce. Kuaishou has not yet opened a separate entrance for food delivery. Users need to carefully check the group purchase packages to determine which ones can be delivered to their homes.

Overall, the main significance of Douyin and Kuaishou's food delivery business is to help fill the ecological gap in local life and form a certain degree of linkage with the in-store business; before the online and offline shortcomings are fundamentally changed, it is difficult to regard them as real rivals of Meituan and Ele.me.

03

Similar to Douyin, whether Kuaishou can find more traffic monetization scenarios will determine the heights it can reach in terms of business.

Since its launch, Kuaishou has found multiple scenarios such as live broadcast rewards, live broadcast sales, and advertising marketing. With the continuous increase in the number of users and traffic, Kuaishou's revenue scale has risen, from 8.34 billion yuan in 2017 to 113.5 billion yuan in 2023.

Today, Kuaishou's commercialization has formed a "troika": online marketing, live broadcasting and other services including e-commerce. Among them, online marketing contributes half of the company's revenue and maintains a high double-digit growth rate.

However, Kuaishou's live broadcast business, which brings in one-third of its revenue, has shown signs of shrinking. In the first quarter of this year, the revenue of this business decreased by 8% year-on-year, the only decline among the three major businesses.
As a Hong Kong-listed company, the secondary market also has doubts about Kuaishou's growth potential.

In February 2021, when Kuaishou was first listed on the Hong Kong stock market, its share price soared to more than HK$400, with a market value of HK$1.74 trillion. However, after 2022, Kuaishou's share price has been hovering below HK$100 for a long time, down 3/4 from its historical high. Today, it is only around HK$50, with a market value of about HK$180 billion.

During this period, Kuaishou's financial performance improved significantly: revenue increased from 81.1 billion yuan in 2021 to 113.5 billion yuan in 2023, and profit increased from an adjusted net loss of 18.85 billion yuan in 2021 to an adjusted net profit of 10.27 billion yuan in 2023. The user scale has also increased, with daily active users increasing from 379 million in the first quarter of 2021 to 394 million in the first quarter of 2024.

According to common sense, Kuaishou's performance has been growing steadily, so even if it cannot maintain its high stock price, it will not plummet. However, investors do not seem to be optimistic about Kuaishou's growth prospects, resulting in a long-term slump in Kuaishou's stock price.

If Kuaishou continues to expand its current business and maintain linear growth, it will be difficult for it to regain the favor of investors. Only by finding new scenarios and creating new growth curves and imagination space can Kuaishou return to its peak.

Local life is just such a new scene. It is a market worth trillions of dollars, and no one can dominate it all. Douyin has taken a large piece of the pie in the past few years, which also gave Kuaishou an opportunity.

Kuaishou has not yet disclosed the size of its local life business, but judging from its financial results in 2023 and the first quarter of this year, the driving effect of this business is becoming apparent. In 2023, Kuaishou's online marketing service revenue increased by 23% compared with the previous year; in the first quarter of 2024, the year-on-year growth rate increased to 27.4%.

However, compared with Meituan and Douyin, the scale of Kuaishou's local life is still relatively small. By developing food delivery, increasing merchant coverage, product supply and sales scenarios, and thus improving the traffic utilization efficiency of the local life sector, it has become a natural choice for Kuaishou.

However, as mentioned above, the current business model of Kuaishou Takeout is almost the same as that of Douyin Takeout two years ago. It faces similar challenges as Douyin, and its own users, funds and resources are difficult to compete with Douyin. It is very difficult to follow a completely different upward curve from Douyin Takeout.

The capital market is not very enthusiastic about Kuaishou’s food delivery service. In the past six months, Kuaishou’s food delivery service has gradually become known, but investors have not placed bets on it, and Kuaishou’s stock price has not improved significantly.

Kuaishou’s real breakthrough may be the big AI model.

In June this year, Kuaishou, which is relatively low-key in the field of AI big models, released the video generation big model "KeLing", which can generate videos up to 2 minutes long, with a frame rate of 30fps and a resolution of 1080p. Its main parameters are close to Sora developed by OpenAI, and far exceed ByteDance's "Jimeng". In the field of AI video generation, Kuaishou is temporarily ahead of Douyin, which is beyond the expectations of many people.

With the food delivery business struggling to make any sense, Kuaishou’s more reasonable choice is to invest more resources and funds into AI big models. Douyin went all-in on AI when its food delivery business was frustrated; now, Kuaishou has reason to make a similar choice.

Author: Yan Fei; Source public account: Zimubang (ID: 1092664)