Tik Tok is having trouble getting past Meituan

After developing the local group-buying business, Douyin is busy again. At the beginning of this year, the media reported that Douyin would enter the food delivery industry. What are the advantages of Douyin launching the food delivery business? How far has it progressed? Can it pose a threat to Meituan? The author of this article interprets and analyzes these questions one by one. Let's take a look.

"Tear a crack in the mature business, and then work hard to make miracles happen" has always been the principle that Douyin believes in.

In the past year, Douyin has opened up a gap in the local group-buying business. This year, Douyin has started to disrupt the food delivery business. After piloting the food delivery internal testing business in Beijing, Shanghai and Chengdu, on March 5, according to Ebrun, Douyin launched the food delivery business in 15 cities across the country, and the merchants entering the business are still mainly in the catering industry .

This time point is 4 days later than the media report that "Douyin will fully launch its food delivery business on March 1", but compared with Douyin's previous exploration process in the field of life services, the progress bar is obviously much faster, which also indirectly confirms Douyin's determination to enter the food delivery business.

Douyin's determination is obviously not limited to this. An industry insider revealed to Kas that Douyin's commercial traffic currently accounts for 40% of the total platform traffic, of which 50% will be released to life service content in stages, and it is not limited to 18 cities . On the other hand, Douyin's life service team has also begun to link up with multiple leading service providers in the region to launch a high-density takeaway business.

In a community where Kas is located, a local life service provider in Xi'an even stated: in order to encourage employees to expand offline businesses to Douyin food delivery, employees were promised that as long as they successfully expanded a new store, 1% of the store's turnover in the next year would be given to them.

As the biggest "catfish" in the local life market, every move of Douyin in life services this year can trigger a chain reaction among industry players. However, the food delivery business is not as simple as imagined. It is not something that can be done well by platforms with traffic and support. It comprehensively tests the platform's operational capabilities, merchant resources, delivery coordination, as well as the education of user minds and the formation of ordering habits . From this perspective, the hard battle between Douyin and Meituan on the front battlefield has just begun.

1. Where has Douyin Takeout gone?

Douyin’s ambition to enter the lifestyle service industry is long-standing.

As early as 2018, Douyin established a POI team, hoping to snatch some local life merchants from Meituan through POI carrying a variety of grass-planting videos. In essence, Douyin's layout around local life at this stage is still focused on the level of "traffic trading", with the goal of driving the growth of advertising on the platform. Later, Douyin also launched a feature-rich "Merchant" page based on the needs of local life merchants, supporting merchants to publish various promotional and preferential information on the merchant page, similar to the micro-official website built by local life merchants on Douyin.

In 2020, the outbreak of the epidemic made local life the industry most affected. Under the influence of phenomenal cases such as "cloud disco" and "cloud shopping", the number of Douyin corporate accounts exceeded 5 million, among which the catering and service industries grew fastest. It was at this point in time that ByteDance determined the direction of future commercialization - transforming from an advertising sales platform to a commercial operation platform. Among them, commodity trading, in-store business from online to offline, and garages became the three core directions of the commercialization department, and the life service business was born in this transformation context.

Then, in the life service sector, Douyin launched services such as "group purchase discounts" and "online reservations", and launched the "expert store exploration" function on Star Map. In 2021, Douyin also internally tested "Heart-moving Takeaway", inviting major brands such as KFC and Heytea to join. This was once regarded by the industry as a signal that Douyin had officially entered the takeaway industry, but in the end, this signal was shelved after a media response that "Douyin currently has no business plans related to takeaways, and the investment and agency information related to 'Heart-moving Takeaway' is not true."

It was not until the second half of 2022 that Douyin's activities around life services really started to move, with group buying business still taking the lead.

In July 2022, Douyin began to pilot "group purchase delivery" in cities such as Beijing, Shanghai and Chengdu. In August of the same year, Douyin and Ele.me announced their official cooperation using mini programs as a carrier, supporting users to use mini programs to place orders and enjoy instant delivery services. Four months later, Douyin announced cooperation with Dada, SF Express and Flash Express to provide merchants with same-city delivery services.

However, unlike the "group purchase and delivery" in Beijing (users place orders directly on the Douyin merchant homepage, and then the delivery is made by a third party or the merchant itself), in the newly opened 15 cities, most of the group purchase and delivery orders are completed by users clicking on the Douyin merchant homepage and then jumping to the Ele.me Douyin mini program. In other words, the food delivery capabilities of the 15 newly opened cities are still based on cooperation with Ele.me, but with the addition of the merchant homepage as an entrance. The group purchase and delivery project carried out by Douyin in a closed loop is still limited to Beijing, Shanghai and Chengdu.

Kas, who is in Beijing, also had some more realistic perceptions after having an in-depth experience with Douyin's food delivery business:

First of all, from the entrance point of view, there are currently several ways to enter the takeaway ordering page, such as directly searching for "takeaway" on the homepage or entering the relevant page through the "nearby food" in the local channel, and then filtering the corresponding conditions according to personal needs; searching for the Ele.me mini program and placing an order directly; and completing the order through short videos, live broadcasts, merchant homepages and other scenarios;

Secondly, although it has been in internal testing for more than half a year, the number of restaurant stores available for Douyin takeout is still very limited, and they are basically catering businesses, involving brands such as full meals, cakes and drinks, among which chain catering companies account for the majority.

The reason for this phenomenon is not difficult to understand. At present, Douyin has strict selection criteria for merchants entering the takeaway market: not only must they have complete qualifications such as business licenses, but they must also have physical stores. Such a threshold will undoubtedly exclude a large number of stalls that only do takeaways and cannot provide dine-in services. For this reason, large chain brands are currently the focus of Douyin's takeaway business. Since the middle of last year, Douyin has been communicating with large brands point-to-point about the takeaway business, and most of the merchants that have launched Douyin's takeaway business are also chain catering brands.

The second obvious perception is that the average order value of current online merchants is relatively high . Takeout orders of over 100 yuan are common, and many products are sold in the form of packages, so users cannot choose individual items on their own. On the other hand, the delivery time of takeout is difficult to compare with that of Meituan and Ele.me. Some are even difficult to be defined as "takeout". After all, in the race against time for food delivery, a delay of 10 minutes may affect consumers' consumption decisions and consumption experience. If the gap is as long as half an hour, it is enough to discourage a group of users.

In Kas's opinion, the overall high average order value of Douyin takeout is because: although the platform only takes a 2.5% commission, there are still many costs "pressing" on merchants, such as the commission of service providers, the errand delivery fees that are higher than the takeout platform, and the invisible operating costs such as video shooting and live broadcasting. Overall, the operating costs are not low, so the average order value of merchants is relatively high. The delivery time is difficult to guarantee because there are relatively few merchants settled in, and users have not developed the mentality of placing orders on Douyin, resulting in few riders willing to accept orders, riders cannot make money, and the enthusiasm for taking root in Douyin is not high, so the delivery efficiency cannot be improved.

Judging from the current real perception, the current situation of Douyin's food delivery business seems to be not so clear. So in the long run, can Douyin run the food delivery business? Or, how can Douyin run the food delivery business?

2. How does Douyin run the food delivery business?

Douyin has its own first-mover advantages in entering the food delivery business.

Public data shows that as of November 2022, the number of Douyin users is around 842 million, with more than 700 million daily active users and an average daily usage time of more than 120 minutes per person . Behind the huge user scale, Douyin has accumulated a sufficient number of life service user tags through the joint efforts of life service experts and merchants since it officially entered the life service business in 2021. Therefore, Douyin is now able to find people who are interested in various types of restaurants based on original data such as user content, behavior, consumption preferences, and factual data such as age, gender, and region, and make sufficiently accurate recommendations.

Of course, Douyin has more cards in its hand.

After more than two years of deep cultivation in the life service track, Douyin has accumulated a certain amount of experience in organizational structure, internal processes, merchant resources, anchor resources, user habits, etc.

At the beginning of 2021, Douyin established a "local direct sales center" to expand its life service business, and transferred more than 10,000 employees from the SMB (small and medium-sized customers) business line to the center to explore customers in industries such as life services, cultural tourism, and catering. In the second half of 2021, Han Shangyou, the head of Douyin's live broadcast, also served as the head of Douyin's life services and Douyin's open platform. It is worth mentioning that in December 2022, Douyin Group adjusted its organizational structure. Han Shangyou became the new head of Douyin and managed the original business line at the same time. This also means that in the next stage, Douyin's investment in life services may be further increased.

So based on these advantages, how can Douyin run the food delivery business? In the opinion of Daqi, a partner of Kas Academy, Douyin may need to make up for a few key points at present.

The first is to increase subsidies to attract more merchants to join. Although compared with other food delivery platforms with a commission rate of up to 20% (including delivery fees), Douyin's commission rate during the pilot period is only 2.5% (excluding delivery fees), but it is still unknown how long the low commission system can last. As mentioned above, the comprehensive operating costs of food delivery merchants on Douyin are not low, and in the initial stage, the volume of food delivery orders of merchants is difficult to reach the expected level. Therefore, if Douyin wants to attract and encourage more merchants to join, it undoubtedly needs greater subsidies.

Secondly, after more than two years of market cultivation, Douyin has accumulated very mature user tags for life services, which can fully achieve accurate matching of algorithms. However, on this basis, we can continue to allocate more traffic to the life service field, encourage more businesses to enter the market, and make them feel that business is not that difficult; secondly, we can simultaneously provide certain benefits to users, encourage them to place orders for takeout through Douyin, and thereby cultivate corresponding consumer mentality, so that a virtuous circle can be formed on both the merchant side and the user side.

When enough merchants enter the market and the order volume increases, the most uncontrollable link of the riders can be resolved, the riders can make money, and the Douyin food delivery business can be successful.

However, Daqi believes that merchants who want to deliver food on Douyin must meet two requirements: one is to have a central kitchen, and the other is to have dense distribution outlets, so that they can take on pulse orders under peak consumption. The reason is what we mentioned above: users attach great importance to the takeaway experience. In the scene of food delivery, where every second counts, a delay of ten minutes may affect consumer decisions and consumer experience. A difference of half an hour is enough to discourage a group of users.

In addition, for merchants, a sudden increase in orders is a very difficult matter. After all, consumers have fixed demand for three meals a day. Once a sudden increase in orders occurs, merchants cannot produce products through mechanized mass production. Instead, "stability" is the most important thing. According to Daqi, in areas like Qinhuangdao, there are only about 100 takeaway merchants that can deliver 100 to 300 orders a day.

3. Can Douyin, which does food delivery, defeat Meituan?

Regardless of the situation, Douyin's determination to enter the food delivery business is unstoppable. So in this tough battle, can Douyin defeat Meituan?

Before studying this issue, let’s first discuss why Douyin wants to get involved in food delivery.

There is no doubt that TikTok is in desperate need of new growth.

At the all-staff meeting in December 2022, Liang Rubo, CEO of ByteDance, made a speech: "This year, the company's revenue growth has slowed down, and product DAU is growing, but the growth rate is lower than the target set at the beginning of the year. We will continue to promote the organization's 'fat reduction and thinning'." There is no doubt that 2022 is not a good year for ByteDance, and revenue is still highly dependent on advertising business, especially the single platform of Douyin. Advertising and e-commerce are the main means of commercialization of Douyin, but with the gradual disappearance of mobile Internet traffic dividends and technology dividends, the slowdown in advertising growth has become an indisputable fact. Although e-commerce is growing very fast and the overall monetization rate is much higher than Kuaishou, estimated to be more than 10%, it is still difficult to carry the behemoth of Douyin to sail further.

It is for this reason that Douyin needs to find new solutions. In the context of the proven success of e-commerce business and the inevitable decline of entertainment live streaming, local life is undoubtedly the best answer at the moment.

According to iResearch Consulting data, the scale of China's local life service market was 19.5 trillion yuan in 2020, and this figure will grow to 35.3 trillion yuan by 2025. In the entire local life service system, food delivery undoubtedly plays an important role. In 2021, the scale of China's food delivery market reached 1 trillion yuan, a year-on-year increase of 50.23%; as of the end of December 2021, the scale of online food delivery users in China reached 544 million, a year-on-year increase of 29.92%. In other words, food delivery is an undoubted "long slope" track, and the growth of market scale and penetration rate is highly certain.

As for Douyin, although the local life business exceeded the GMV target last year, the write-off rate of group purchase vouchers was not high. According to Zhongtai Securities' calculation, the conversion rate of push-based group purchase GMV to actual write-off is only 50%-60%. In Douyin's conception, food delivery services may increase user stickiness and repurchase rate, and shorten the consumption chain as much as possible and improve transaction efficiency through the "see, click and deliver" content delivery model, so as to screen out accurate high-value groups for the platform, thereby helping the platform to better realize through advertising business.

So can Douyin, which has a huge amount of traffic, defeat Meituan in the food delivery business? In the eyes of Li Hao, founder of Kas Academy, the answer is no in the short term.

Takeout is not a business with room for imagination. It is not a business that can be done just by having traffic and being willing to provide subsidies. Instead, it is a comprehensive test of the platform's operational capabilities, merchant resources, delivery coordination, etc. Although the strong entry of Douyin will definitely stir up the market structure, for Meituan, which has experienced the baptism of the "Thousands of Group Wars" and has a deep moat in terms of user mentality, usage habits, business logic, and instant delivery, this impact is not enough to reach the level of "threat".

For platforms, mindshare is a user asset that is extremely difficult to accumulate.

"JD.com is fast, Taobao has everything, and Pinduoduo is cheap" are the first ideas that users have already cultivated. Meituan Takeout, which occupies more than 50% of the national market share, has also long cultivated a strong mindset among users in this field.

But when looking at Douyin, the first thing that comes to users’ minds is still entertainment, and it is on the basis of entertainment that related businesses such as interest e-commerce and life services are derived. In addition, although Douyin has huge traffic, its essence is still a content platform, and the traffic given to the commercial section must be limited. At present, Douyin's commercial traffic has accounted for 40% of the platform's traffic, of which 50% of the traffic will be released to life service content in stages. This traffic distribution ratio has almost reached its peak and it is difficult to rise again. It is still unknown how long it will take for users to cultivate the corresponding consumer mentality under the current traffic offensive.

The user's first mind is only one aspect. A strong food delivery team is also a core competitiveness that Meituan cannot surpass.

Meituan's 2021 financial report shows that there are about 5.27 million riders on the Meituan platform. Relying on the "millions of riders", Meituan has successfully connected merchants and consumers, building a closed loop of online ordering and offline services. Although the cost of building a delivery team is high, this is precisely the corporate barrier that Meituan Waimai and Ele.me have built over the years.

On another level, a former executive of Ele.me once revealed that the core reason why Meituan’s market share can beat Ele.me is that Meituan’s order-taking algorithm for riders is much better than Ele.me’s, so it can attract more riders to take orders, and the riders’ order-taking speed and delivery speed will directly affect the user’s consumption experience and ultimately determine the winner. On the other hand, Douyin has not yet built its own delivery team, and although it can recommend suitable content to users with corresponding needs through algorithms, its order-taking algorithm for riders is not mature enough, and the fulfillment problem is difficult to solve and the delivery capability is poor. This is undoubtedly another major shortcoming of Douyin’s takeout.

According to 36Kr, Douyin's GMV target for catering group purchases in 2023 is 75 billion, while the target for takeout is 4 billion, accounting for only 5% of the total catering target. From this perspective, Douyin's planning for the takeout business is actually very low-key. In the future, in addition to traffic, whether Douyin can "fill" its shortcomings at the merchant, consumer, and distribution levels and achieve efficient coordination in all links will truly determine the direction of the battle between it and Meituan.

Author: Kas Data

Source: caasdata (ID: caasdata6)