Douyin quietly creates a "family bucket"

I don't know if you have noticed in your daily life that Douyin's advertising content has increased a lot, and it seems to be evolving into a "family bucket" platform for eating, drinking, playing and having fun, and entering the lives of young people. This article analyzes Douyin's approach to entering the local life market, let's take a look.

Douyin cannot hide its ambition to "compete head-on" with local lifestyle giants.

Ziyue, a frequent Douyin user, felt this deeply. Ziyue said, "I would see some advertisements when I was browsing Douyin, but it was not until October last year that I found that I would find restaurants, coffee shops, and cake shops that I often go to in the same city, and there were obvious group purchase entrances, and the prices were much cheaper than in the store."

By comparing the prices of a hot pot chain restaurant she often goes to, Ziyue found that the price difference between Douyin group buying and Meituan for the same set meal was more than 30 yuan. "I didn't search Douyin specifically before, I just watched whatever they recommended. This time, after comparing the prices, I realized that the things on Douyin are cheaper. I must take advantage of this bargain," said Ziyue.

On the other hand, merchants who want to seize the market with the help of the Douyin platform are also busy. For example, Haidilao, which was previously lukewarm about Meituan Takeaway, entered Douyin Local Life in August 2022. The GMV of the first live broadcast in the country exceeded 20 million. By creating marketing activities such as "Back to School Season" and "Douyin Heart-Stirring New Product Day", Haidilao's GMV on the Douyin platform exceeded 500 million in less than half a year. In January this year, Shanghai Auntie also showed off the report card of Douyin group buying. During the three-day Douyin live broadcast from January 21st to 23rd, more than 1.5 million group purchase coupons were sold, and the transaction volume exceeded 23 million.

"We launched Douyin group buying last year, and it has been half a year now," Yu Shuo, the owner of a music barbecue bar in Shijingshan, Beijing, told Value Planet. Due to the epidemic, the overall customer flow in the store was relatively low last year. In order to increase revenue, she successively joined multiple group buying platforms. It happened that Douyin's field sales staff contacted her at that time, so they started the group buying business together.

"In the past six months, we sold nearly 300 barbecue packages for 2-4 people and more than 140 packages for 4-6 people. Overall, it brought the store nearly 100,000 in sales. Although it is not the highest on the group buying platform, it has helped us solve certain problems," said Yu Shuo.

In fact, Douyin group buying has been actively attracting more merchants since last year, especially catering merchants. Coupled with the recently popular Douyin takeaway and Douyin supermarket, Douyin seems to be evolving into a "family bucket" platform for eating, drinking and having fun, in the hope of fully invading the lives of young people.

1. "Low price for volume" strategy

Since 2018, Douyin has set its sights on the local life business, formed a "Point of Interest" team, and launched a feature-rich merchant page in 2019, but it has achieved little success. It was not until the outbreak of the epidemic that Douyin's local life business ushered in an opportunity for explosion.

At the end of 2020, ByteDance's commercialization department established a "local direct business center." In January of the following year, after the original SMB small and medium-sized customer business line was withdrawn, about 10,000 employees were transferred to the local business center to explore customers in industries such as life services and catering.

Subsequently, Douyin group buying appeared in succession at the entrance of the “Same City” page in cities such as Beijing and Shanghai, with store visits being its main content, and related content received strong support on Douyin.

Douyin has also shown its sincerity to merchants. In the early days, Douyin did not charge service fees to merchants, but only charged 0.6% of the payment channel fee. A service provider said that last year, if merchants did catering live broadcasts on Douyin and put in traffic, Douyin would make a 1:1 investment, that is, if the merchant invested 10,000 yuan to buy traffic, Douyin would also invest 10,000 yuan. Although this ratio has now dropped to 1:0.7, it is still attractive enough for many merchants.

At the end of 2021, Douyin group buying started the live broadcast process. Compared with short videos, live broadcast content is more likely to stimulate consumers' impulse purchases, especially in the catering category. In addition, the 2022 epidemic accelerated the development of Douyin catering live broadcasts. Local life has truly prospered on the site, and Douyin has also found the optimal solution for the stage.

From short videos of influencers visiting stores to self-broadcasts by merchants, Douyin Local Life has completed the transition from user accumulation to improving user conversion, from solving product pain points to solving business process bottlenecks. While expanding cities, cultivating influencers, and developing live broadcasts, Douyin is also accelerating the integration of local life businesses including bathing and massage, comprehensive supermarkets, flowers, etc., and each step is gradually eroding the cake of other giants in the local life field.

On June 1, 2022, Douyin officially began to charge commissions to local life merchants on the platform. This change indicates that the relationship between Douyin and merchants has changed from one-way traffic diversion to two-way mutual benefit. Binding with merchants through commission contracts will also help stabilize the cooperative relationship between the two parties.

In fact, since the third quarter of last year, Douyin's group buying business has shown a strong momentum of development. Low-price group purchases such as "McDonald's teriyaki chicken burger for 6.5 yuan", "Luckin Coffee double cup of whipped cheese latte for 29 yuan", and "Starbucks 99 yuan afternoon tea for two" triggered a wave of coupon hoarding. It was from then on that Ziyue began to frequently receive coupons for consumption on Douyin.

According to her recollection, the thing that impressed her most was the rush to buy tickets for the movie "The Moon Walks Alone" last year. At that time, the ticket prices in many live broadcast rooms were as low as 19.9 yuan per ticket, but the quantity was limited and it was difficult to get one. The actual price of the movie tickets she bought was 52 yuan for two tickets, and she could get a discount of 0.5 yuan by using "Douyin Monthly Payment". Compared with the standard price of 50-80 yuan per ticket on the market, the discount was close to 30% to 50% off.

Image source: TikTok

This form is essentially the group buying model of the "Thousands of Group Wars", that is, attracting users with low prices and "burning money for scale". However, the low-price strategy will definitely not last long. It is difficult for merchants to bear the cost of long-term low-price attraction, especially this year, when the impact of the epidemic gradually dissipates and the market stabilizes, they are less likely to offer large-scale deep discounts, so the overall discount rate this year may be reduced.

After the discount is reduced, Douyin group buying may also lose its appeal to consumers. Moreover, the local life attributes and Douyin push mode determine that there is a certain degree of uncertainty in its redemption rate.

2. Comprehensively develop the local market

As Douyin has invaded local life, the probability of seeing various group buying coupons on Douyin has become higher and higher.

After achieving a GMV of approximately 77 billion in 2022, Douyin's local life service target for 2023 is 150 billion, which is equivalent to an increase of nearly 100%.

For Douyin, in addition to being a commission business for local life merchants, the local life track can also bring it more advertising scenarios. In June last year, ByteDance launched a marketing platform specifically for local life merchants - Local Push, which supports the promotion of stores or products through short videos and live broadcasts.

As the layout deepens, local life business is gradually upgraded within Douyin.

Information from the Jiuqian middle office expert minutes shows that the local life department is a first-level department of Douyin, which also includes the live broadcast department and the e-commerce department. According to the minutes, the business segments of Douyin's local life department are currently divided into dining, general services and culture and tourism, and the culture and tourism team accounts for half of the local life team's manpower and resources. Dining, general services and culture and tourism are all within the local life framework, and cooperate with different front ends to expand business. The overall content conversion belongs to the OKR (objectives and key results) of local life.

He Shuai, a media person in the technology industry, believes that in the field of mobile Internet, Douyin is a giant. The appetite of a giant is definitely big, and it is understandable that it explores various business models and revenue models based on the existing traffic.

"In addition, Douyin is about to go public. It needs a large amount of revenue to support the development of its various business segments. It also needs to expand its business and tell its own story more perfectly and movingly, which will help improve its valuation. Douyin's biggest advantage is that it has a large amount of surplus traffic at a very low cost. A large amount of surplus traffic needs an outlet and landing, so it is natural for Douyin to do e-commerce." He Shuai said.

However, Huaxi Securities analysts believe that from the underlying logic, for short video platforms with massive traffic, the core advantage is to push content across the entire network based on algorithms, but this advantage does not apply to local life. Unlike e-commerce businesses that can radiate across the country with the help of logistics, local life itself has a smaller fulfillment scope and distinct regional attributes, requiring higher algorithm accuracy, and the traffic brought by users is fragmented, which limits Douyin's advantages.

In terms of user scale, Douyin has 710 million monthly active users (MAU) and 440 million daily active users (DAU). Local life visitor visits (VV) account for 8.5%, so local life daily active users are about 50 million. Among Meituan, Dianping is all in-store. Excluding Meituan APP's takeaway and other businesses, based on a 30% in-store ratio, the daily active users are about 40 million. So the two are similar in terms of traffic.

In terms of merchant scale, Douyin's merchant scale lags far behind Meituan, and its coverage rate in lower-tier cities is also low (GTV in first-tier cities accounts for 53%, second-tier cities 30%, third-tier cities 11%, and fourth- and fifth-tier cities and below 6%), mainly concentrated in the top KA merchants (KA accounts for 48%, mid-tier accounts for 32%, and tail accounts for 20%).

Judging from the redemption and repurchase, Meituan users have strong consumption demand, mainly through active search, so the in-store redemption rate is also relatively high, at around 83%. Douyin users are mainly passive consumers, and the GTV generated through search accounts for only 12%. Users are accustomed to hoarding coupons first, which leads to a low redemption rate of only around 62%, about 20 percentage points lower than Meituan.

Some industry insiders believe that perhaps only after Douyin group buying takes off its "low-price" cloak can we see how big a threat it poses to Meituan.

3. “Enter the village quietly, don’t shoot”

After making some gains in the local life field, Douyin began to expand into more fields. It is reported that Douyin will launch a nationwide food delivery service on March 1, and is currently conducting internal testing in Beijing, Shanghai and Guangzhou.

Looking back at the development history of Douyin’s food delivery business, we can clearly see ByteDance’s hesitation and confusion in this field.

As early as March 2020, Douyin launched the Douyin group buying function on the APP, providing two services: group buying in stores and takeaway delivery. This was the first time that Douyin had contact with the outside world. However, at this stage, Douyin was more of a wedding dress for others, and the delivery service was also provided by Ele.me and Meituan.

In July 2021, the media revealed that ByteDance had set up a new team to develop a food delivery business. The project was named "Xindong Takeaway" and its slogan was "Xindong Takeaway, Eat What You Love". According to employees, in order to promote the implementation of Xindong Takeaway as soon as possible, ByteDance also transferred a large number of personnel to form a special team, and promoted it through the Douyin main site and major ByteDance apps.

However, the relevant person in charge of Douyin later responded that there is no business plan related to takeout, and the investment and agency information related to "Xindong Takeout" is not true.

Having said that, a look at media reports at the time revealed that Xindong Takeaway had already attracted a number of merchants to join. Under the strong appeal of Douyin, brands such as KFC and Heytea were rumored to be the first batch of "Xindong merchants" to take the lead. Driven by these leading brands, the enthusiasm for Xindong Takeaway's investment even exceeded Douyin's expectations.

However, after a period of excitement, Xindong Waimai did not gain a firm foothold in the fiercely competitive food delivery market. In August 2021, Douyin issued an announcement stating that "Xindong Waimai is in the internal testing stage and is not currently recruiting external investors," and warned merchants to distinguish the qualifications of project agents, partners, and operators to prevent being deceived.

In January this year, videos related to food delivery began to appear on Douyin’s official local business service platform “Douyin Laike”. Titles such as “Douyin has also started to deliver food” and “Go to Douyin to deliver food” were very prominent.

Image source: TikTok

An employee in charge of investment promotion for the life service project at Douyin revealed that the goal of Douyin’s life service is to help businesses recover. Considering the actual needs of businesses and users, opening a catering takeaway business is also an inevitable choice, but the project is still in the exploratory stage. He said that Douyin’s takeaway has been tested in several first-tier cities since last year, and "the internal test data is still good." Before the Spring Festival of the Lunar New Year of the Rabbit, Beijing, Shanghai and Guangzhou will open up to takeaways, and businesses that meet the relevant qualifications can apply. There is a clear statement in the internal investment promotion strategy that "enter the village quietly, don't shoot", and the internal requirements for the project are absolutely confidential, and brand expressions such as "Douyin Takeaway" must not appear under any circumstances.

Another Douyin insider once said that ordering takeout on Douyin is mainly divided into three links. The first is the native link, that is, the merchant directly settles in the Douyin platform. The second is the mini-program jump, which is to jump to the official account on Douyin to place an order on its own mini-program. This method is suitable for large brand merchants with self-delivery capabilities (such as KFC). The third is to cooperate with Ele.me and jump to the Ele.me mini-program through Douyin to place a takeout order.

We have observed that there are not many takeaway merchants in Douyin. For example, in Liangmaqiao, Beijing, where we are located, there are only more than 10 stores when searching for "takeaway" in Douyin, and consumers do not have many options for ordering food.

A store that has already settled in Douyin Takeaway told us that Douyin currently gives a commission rate of 2.5% to food (catering) merchants, excluding delivery costs. In contrast, the commission rate of Meituan Takeaway is about 6%-8%, also excluding delivery costs. In comparison, Douyin is still quite attractive.

Even though the news that Douyin Takeout will be launched nationwide on March 1 was later reported to be a misunderstanding, Douyin's ambition for the takeout market will not stop. On ByteDance's official website, multiple positions related to takeout have begun recruiting, and the work content of the relevant positions includes the establishment of the takeout business system, merchant growth, product supply and operation, etc.

Recruitment information for positions related to food delivery business. Image source: ByteDance official website

He Shuai believes that Douyin has its advantages in delivering food. In addition to cheap traffic, it can also provide services based on geographic location. For example, Douyin bloggers can provide services within a few kilometers, realizing the realization of short videos and live broadcasts. "Douyin will burn money for subsidies in the early stage, and there will be a small peak in user use and merchants entering the market, but it will be difficult to shake Meituan's position in the short term. In addition, Meituan and Ele.me are gradually helping merchants to upgrade digitalization, which is actually a gradual binding. This means that from users to merchants, and then to deliverymen, the three parties are doing in-depth bonding and binding. Therefore, it is very difficult for new entrants to take a large share of the food delivery market." He Shuai said.

In addition, Douyin's food delivery service faces a huge challenge in the delivery process. Douyin currently has no self-built delivery team, and delivery is still done through SF Express (600,000 active riders in 2021) and Dada Express (less than 1 million active riders). In comparison, Meituan's active riders exceeded 5 million in 2021. As the number of orders increases, the ability to fulfill orders will become a constraint on the development of Douyin's food delivery business.

Although ByteDance's Star Leap project has built its own logistics system and has recruited for food delivery-related positions on its official website, this is obviously not something that can be accomplished overnight.

4. A Contest of Heroes

With the continuous integration of the food delivery industry, the industry's competitive landscape has gradually stabilized. At this stage, a "2+N" situation has been formed, with Meituan and Ele.me together accounting for more than 90% of the food delivery market share.

According to data from China Research Network, Meituan Waimai accounted for 69% of China's food delivery market share in 2020, while Ele.me accounted for 26% in the same period. According to the "2022 Meituan and Its Industry Chain Research Report", by 2022, Meituan's market share in the food delivery field may be close to 70%, and its revenue will be three times that of Ele.me.

Data shows that as of Q3 2022, Meituan had 687 million annual transaction users in the past 12 months. According to Guohai Securities, Meituan's transaction users in Q4 2022 will reach 690 million, an increase of about 2.9 million from the previous quarter, and the number of active merchants in Q4 2022 is expected to reach 9.5 million, an increase of about 200,000 from the previous quarter.

Although Meituan still has an advantage in market size, it still feels a sense of crisis in the face of an increasing number of entrants.

At the beginning of last year, Kuaishou announced that its local life service business would cooperate with SF Express, which would provide instant delivery services; and in June last year, Xin Lijun, CEO of JD Retail, revealed in an interview with the media that JD was studying the possibility of entering the food delivery field; coupled with the fact that Douyin Food Delivery has been tested in Beijing, Shanghai and Guangzhou, the food delivery market that has been silent for many years has ushered in a new "catfish".

In fact, the high growth of the takeout industry in the past few years is based on the penetration of takeout from first- and second-tier cities to county and township cities.

Wang Zheng, an investor in the consumer industry, believes that the growth center of the food delivery industry has changed at this stage. He shared a set of data with us. According to the overall food delivery revenue = user scale * annualized transaction scale, annualized transaction scale = annualized transaction frequency * customer unit price, the contribution of each major factor can be calculated. It can be found that the growth center of the food delivery industry in 2021 has changed.

Before 2020, the growth center of the food delivery industry mainly came from the increase in the number of transactions per capita; after 2020, the growth center of the food delivery industry changed from the number of transactions per capita to the user scale (the two-year CAGR of user scale is 17%, and the two-year CAGR of the number of transactions per capita is 6%). However, from the perspective of "number of meals per person", the penetration rate of food delivery in "eating" is still in its early stages.

Image source: Tianfeng Securities

The research report data of Tianfeng Securities also verified Wang Zheng's point of view. According to the calculation based on the number of urban residents * the number of formal meals (three meals), the actual penetration rate of takeout in the "eating" share of urban residents in 2021 is only 2.1%, which is close to the 2.2% penetration rate announced by Meituan Research Institute, that is, the number of takeout orders only accounts for one-fiftieth of the number of formal meals of urban residents, which is still far from the penetration rate of e-commerce in social retail of over 25%, and there is also a certain gap compared with the neighboring country Japan where food accounts for about 10%. This huge market gap is also the motivation for giants such as Kuaishou, JD.com, and Douyin to re-enter the takeout market.

The industry believes that Douyin's launch of food delivery may be a big move. "This is an era of video traffic. Through the video portal, Douyin can discover and solve user needs. Short video users have high stickiness and long stay time. After obtaining the user's geographic location authorization, it can provide a one-stop service of eating, drinking and playing based on LBS, just like Meituan in its early days, through high-frequency businesses such as eating and drinking, driving low-frequency businesses such as hotels and travel, thereby maximizing the value of traffic." said the analyst.

Analyst Xiao Miao also believes that the cost for merchants to choose Douyin takeaway is higher, so they can only make up for it by selling high-priced goods. Therefore, Douyin takeaway may be an opportunity to gain incremental income for high-priced merchants such as hot pot, barbecue, and seafood supper, but it has no advantage for fast food merchants with low customer unit prices.

According to analysts at Zheshang Securities, there are two points worth noting about Douyin's food delivery business: First, Douyin's share of the food delivery market may be higher than expected. First, Douyin has adopted a third-party aggregation model for delivery providers, which helps save costs. Second, some market views believe that food delivery is a planned consumption and is not suitable for Douyin push (more suitable for impulse consumption), but in fact, this view ignores the market for late night snacks and afternoon tea. According to data from Meituan Research Institute, late night snacks account for about 14% of GMV and are growing faster.

Second, Douyin takeaway faces the problem of high costs in the short term. According to media reports, Douyin takeaway currently has a relatively high average order value, generally higher than Meituan, which is also in line with observations. This is because the cost for merchants to choose Douyin takeaway is higher, so they can only make high-average-order products to make up for it.

5. Family Bucket for Young People

The reason why Douyin has been able to enter local life so high-profile is that it has now completely invaded the lives of young people.

According to Quest mobile data, the number of monthly active users of Douyin APP reached 680 million in the first half of 2022, while the average monthly active users of Kuaishou in the same period was 590 million, which has opened up a gap between the two. Now, the pattern of "Kuaishou in the north and Douyin in the south" has taken shape.

During the Spring Festival holiday this year, Xiaowei, who was working in Nanshan District of Shenzhen, returned to her hometown in Jiangxi. The first thing her brother, who was in his second year of high school, said when he saw her was: "Sister, do you use TikTok? Let's follow each other."

After following her brother's TikTok, Xiaowei discovered that he updated his videos almost every day during the holidays, with up to five videos updated in one day. The main content was "highlights" of her brother and his classmates playing video games, as well as some jokes from the Internet.

"I don't know how long he spends on recording and editing every day, but I know that my brother's daily life is occupied by Douyin, and he may have very little time and energy left for studying," said Xiaowei.

In fact, Xiaowei can also be considered a heavy user of Douyin. The factory where she works provides food and accommodation. After work, everyone goes out shopping or watches TV series and short videos in the dormitory. The difference between her and her brother is that Xiaowei basically just watches and doesn't shoot.

Source: "2022 Tik Tok Young People Observation Report"

The "2022 Douyin Young People Observation Report" released by Juliang Suansu shows that young users between the ages of 18 and 23 on the Douyin platform account for more than one-tenth of the total number of users. There are slightly more boys among these young people. They are mainly distributed in second- and third-tier cities, and nearly half of them are still students. As the saying goes, "grasping young people is equivalent to grasping the market." The large amount of information contained in short videos itself is destined to make Douyin an information platform, entertainment platform, music platform, and even a social platform. In addition to these values, as we mentioned above, Douyin group buying, Douyin takeaway, and Douyin supermarket, Douyin is evolving towards a "family bucket" platform for eating, drinking, and having fun.

Another loyal Douyin user, Xiaoxi, told us that she follows many Douyin anchors. In the past year, the total amount of her orders in various live broadcast rooms was nearly 2,000 yuan, and the types of goods included beauty products, snacks, clothing, etc.

In her opinion, shopping while watching live broadcasts has become her most common way of shopping. If the price is cheaper than in physical stores, she can't help but place an order.

From the perspective of corporate development, Douyin can only maximize the monetization of traffic value by constantly exploring new user needs.

VI. Conclusion

A well-known story is that ByteDance's Zhang Yiming once worked for Meituan CEO Wang Xing.

When Wang Xing founded Fanfou, Zhang Yiming quit his original job and joined Fanfou as the technical director. Unfortunately, Fanfou was later closed, and Zhang Yiming and Wang Xing each started a new entrepreneurial journey.

At that time, Wang Xing began to prepare for Meituan’s early business, which was to occupy the “food” position in “clothing, food, housing, and transportation”; and Zhang Yiming and his investors bet on 99fang, which was to occupy the “housing” position; at that time, Didi’s Cheng Wei was also looking for investment for his model travel business. Everyone knows the story that followed, TMD (referring to Toutiao, Meituan, and Didi) became the three brightest stars in the mobile Internet era.

Time goes by, and now Wang Xing and Zhang Yiming meet again, but their roles have changed from comrades to the most direct competitors. At present, takeaway and in-store delivery are the basics of Meituan, and "retail + technology" is the direction of Meituan's efforts; Douyin has a huge number of users as its foundation, and urgently needs to find a broader and more valuable way to realize its value, which also makes takeaway, in-store delivery, and instant retail a must-fight area for the two.

According to Jiemian, people in the local life industry said that the number of users of Douyin group-buying coupons in a third- or fourth-tier city has become about three times that of Meituan group-buying coupons. According to data recently released by Douyin, its local life services have now covered 377 cities across the country, the number of merchants on the platform has increased by 22 times, and the overall transaction amount has increased by more than 30 times.

These data may indicate that Douyin has already seized a lot of territory from its competitors in third- and fourth-tier cities.

To borrow the words of Weibo CEO Wang Gaofei, "In the second half of the Internet, the giants will become more and more similar."

Maybe Douyin and Meituan will become more and more similar.

References:

[1] “Douyin Supermarket is fully launched, e-commerce competition remains fierce”, Zheshang Securities

[2] “Takeaway Industry – Three Questions and Answers about Meituan Takeaway”, Tianfeng Securities

[3] “2022 TikTok Young People Observation Report”, Juliangsuansu

Author: Tang Fei, Editor: Lin Bili

Source: ValuePlanet (ID: ValuePlanet), discovering company value and telling capital stories