With a commission rate of 2.5% and an average customer spending of over 100 yuan, can Douyin take over the food delivery business?

After increasing its investment in local life services, Douyin has set its sights on food delivery. It is reported that Douyin will launch its food delivery business nationwide starting March 1. Can Douyin win this business, which is considered a difficult business? What kind of differentiated path will it take? Let's take a look at Tech Planet's views, welcome to read~

In the past year, Douyin has made a breakthrough in the local life service field. This year, Douyin has set its sights on food delivery.

According to a recent report by Titanium Media, Douyin will fully launch its food delivery business on March 1. Douyin officials responded that they will consider gradually expanding the pilot cities depending on the pilot situation, and there is no specific timetable at present.

Food delivery is not a business that leaves much to be desired. Under the extreme algorithm, the platform needs to constantly balance the relationship between itself, merchants, riders and consumers, and achieve a delicate balance in order to achieve profitability.

Douyin has been exploring the food delivery business in a low-key manner. After more than half a year of internal testing, Douyin has not given the food delivery business a clear entrance. Currently, in the pilot cities, the merchant occupancy rate is not high, and it has not set off the price subsidy war that consumers expect.

Douyin is well aware that the opponent it is facing this time cannot shake its market position for the time being. More importantly, Douyin does not seem to have a clear idea of ​​how to fight this battle.

01 Differentiation Path of Douyin Takeout

As a latecomer, Douyin did not choose to follow the others 100% in the food delivery market, but still wanted to find a different path.

In terms of merchant selection, merchants entering Douyin Takeaway need to have complete qualifications, such as business licenses, and must have physical stores. This threshold will exclude merchants who only do takeaways and cannot provide dine-in services.

Large chain brands are the focus of Douyin's food delivery business. Since the middle of last year, Douyin has been communicating with large brands point-to-point about food delivery business, such as DQ Ice Cream, Panda Lao Zao Hot Pot, and Nova Coffee. Most of these merchants that have launched Douyin food delivery are chain restaurant brands.

Picture caption: Some of the merchants currently offering Douyin food delivery in Shanghai.

However, Douyin's takeaway business is limited to restaurants (non-fresh food) businesses. Taking Shanghai as an example, it mainly involves brands such as formal meals, cakes and drinks. The vast majority of takeaway businesses are formal meals, and they are mainly chain restaurant brands, such as barbecue, pickled fish, and hot pot.

Although Douyin Takeaway has been in beta for more than half a year in Beijing, Shanghai and Chengdu, there are not too many merchants online. Taking downtown Shanghai as an example, there are about 70 merchants within 6 kilometers, including some chain stores of the same brand.

A Douyin takeaway business manager told Tech Planet that currently 5% of group-buying merchants in Shanghai have launched takeaway services. Before the launch of self-service in January this year, merchants could only open takeaway services by connecting with staff.

Currently, Douyin food delivery can be delivered throughout the city, and merchants can choose the delivery range independently, up to 15 kilometers. At the same time, Douyin also prefers merchants with high customer unit prices and long-distance delivery in the fulfillment service fee mechanism. Douyin's fulfillment service fee is divided into starting price + mileage surcharge + time surcharge + other surcharges. Compared with the industry, Meituan's current fulfillment service fee is divided into distance, price and time.

Caption: The left picture shows the Douyin takeaway fulfillment service fee mechanism, and the right picture shows the Meituan takeaway fulfillment service fee mechanism

Tech Planet found that if a delivery order with a unit price of 20 yuan and a distance of 3 kilometers is delivered, Douyin Takeaway needs to pay 6.5 yuan for delivery, while Meituan needs to pay 3 yuan. However, if an order with a unit price of 50 yuan and a distance of 5 kilometers is delivered, Douyin Takeaway needs to pay 7.4 yuan for delivery, while Meituan Takeaway needs to pay 10.3 yuan.

Therefore, under the current package model with an average customer price of more than 100 yuan, merchants are not very concerned about the delivery cost. "For merchants who are concerned about delivery costs, we usually recommend that they combine higher-priced products into packages to increase the average customer price and cover the delivery cost," the investment manager told Tech Planet.

In terms of product design, the biggest difference between Douyin and Meituan and Ele.me is that Douyin’s takeaway products are all in the form of set meals, and users cannot currently order their own meals. Set meal products are more like a full meal for multiple people, rather than a fast food scenario.

The investment manager told Tech Planet that the reason for this design is mainly to make a difference. Douyin's takeaway focuses more on the grass-roots attribute, rather than meeting the timeliness of dining needs of Meituan and Ele.me. "Douyin's takeaway also supports stocking up first and then delivering. You can buy first and then deliver when you want to eat, or if you regret it, you can get a refund," the investment manager told Tech Planet, "This function is also to strengthen the grass-roots attribute, rather than promote impulse consumption."

02 Merchants test the waters: After more than half a year of operation, takeaway orders have been reduced by half

In order to attract merchants to join, Douyin has formulated an extremely attractive commission system.

Compared with other food delivery platforms that charge up to 20% commission (including delivery fee), Douyin Food Delivery's commission rate during the pilot period is only 2.5% (excluding delivery fee). This is consistent with the commission rate of Douyin's group purchase of food. It is understood that Douyin Food Delivery has adopted this commission system since June last year. Before that, there was no commission and no fees.

However, food delivery merchants who have experienced the "Internet War" know very well that a system that benefits all will only exist in the initial stage of the platform. Even the investment manager dare not make too many guarantees about the duration of the low commission rate, "The 2.5% commission rate should not change for at least half a year."

In fact, compared with the low commission, Douyin's massive user base is the core of attracting merchants to join. However, according to the feedback from the current internal test merchants, the order volume of Douyin takeaway has not met their expectations.

Chen Xin, the owner of Yangjiazi Hotpot, was one of the first merchants to open Douyin takeaway service. Since April last year, Chen Xin has started to accept orders on Douyin through private messages and self-delivery. Relying on Douyin, Chen Xin has accumulated a stable customer base. After the official opening of the takeaway business, he took the initiative to apply for entry.

Chen Xin is already a single-store merchant who "invests heavily" on the Douyin platform. As a self-employed business operator, without the help of a professional team, Chen Xin has insisted on appearing in videos and operating store accounts since 2021. And since 2021, Chen Xin has continued to cooperate with store explorers with fans ranging from tens of thousands to hundreds of thousands.

For these single-store merchants, platform operation and influencer promotion are both considerable investment costs. Douyin Takeaway staff told Tech Planet that on Douyin, cooperation with 3-4 level influencers with tens of thousands of fans mainly relies on commissions from orders, which is basically 8%-10%. For influencers with hundreds of thousands of fans, the cooperation price for a video is generally around 800-1000 yuan. Starting from March last year, Chen Xin has released influencer videos every month, and in October, there were even 19 influencer cooperation videos.

But no matter how much operations are done, the decline in orders cannot be reversed. Currently, Chen Xin has accumulated 776 takeout orders on Douyin Takeout. On the Meituan platform, Chen Xin's monthly sales exceed 1,000 orders. He told Tech Planet that Douyin Takeout had a large number of orders at the beginning, but not now. Compared with last year, the current monthly order volume has been reduced by half.

"Doing takeout is mainly related to the popularity of the store. Whether your store is ranked high in the nearby city is crucial," Chen Xin told Tech Planet. This year, Chen Xin has stopped cooperating with store explorers. In his opinion, store exploration by experts "is not very effective."

Chen Xin is already considered a high-quality merchant with a large number of orders. A single-store merchant who has hardly operated since joining Douyin told Tech Planet that he only had a dozen orders in more than a month.

"If you just put up a package and expect it to sell, it's definitely unrealistic. You need to do some operations every day, watch some videos, or do live broadcasts," Douyin's food delivery manager admitted. "It's better to invest in Douyin+, which can get more traffic."

But for the vast majority of traditional catering practitioners, they do not have the ability and experience to conduct professional video shooting, nor do they have too much time and energy to invest in Internet platform operations.

If no results are seen in a short period of time, most businesses will give up on investment like Chen Xin. For businesses, Douyin Takeout may just become a channel that they can “do easily”.

03 Douyin challenges takeout, what are the chances of success?

Douyin’s strategy for the food delivery business is not radical. Although it has been in internal testing for half a year, it is still exploring in a low-key manner.

In July 2022, Douyin began to pilot "group purchase delivery" in cities such as Beijing, Shanghai and Chengdu. In August, the cooperation with Ele.me was officially "revealed". But after that, Douyin did not increase the number of pilot cities. And in January this year, the self-service settlement function was officially released in three pilot cities.

Regarding the recent media reports that the national food delivery service will be launched on March 1, Douyin officially responded that it will consider gradually expanding the pilot cities depending on the pilot situation, and there is no specific timetable at present. However, a Douyin employee in Chongqing told Tech Planet, "The internal staff now told us that it may not be launched in March, but it should be around March. Chongqing is already recruiting rider agents."

This year, Douyin has significantly increased its food delivery activities. First, Douyin is constantly expanding its food delivery categories. According to Kamen, some tea chain brands also received internal testing invitations at the end of last year, and some brands are already under review.

In terms of team building, Douyin's food delivery business has also begun recruiting people. The Shanghai investment manager told Tech Planet that Beijing, Shanghai, and Chengdu are now fully online. Since January this year, Douyin's food delivery business has specially recruited a local promotion team. ByteDance's official recruitment website has posted relevant positions such as senior operation manager for food delivery products, operation of food delivery industry solutions, and senior manager of catering live broadcast expert operation.

In fact, in Douyin's business system, food delivery is derived from the in-store group purchase business. Douyin officially calls food delivery "group purchase delivery", which means adding instant delivery service on the basis of group purchase.

Douyin's local life business exceeded its GMV target last year, but the write-off rate of group-buying coupons was not high. According to Zhongtai Securities' calculations, the conversion rate of push-based group-buying GMV to actual write-offs is only 50%-60%. In Douyin's conception, after users watch short videos or live broadcasts and are "planted with grass" by the content, they generate consumption needs. Instant delivery is to shorten the consumption chain as much as possible and improve transaction efficiency.

Douyin’s vision of offering exquisite takeout products is good, but the industry considers takeout to be a tough business. The issue that Douyin needs to address most is the contract fulfillment issue.

An employee who has worked at Meituan for more than 8 years told Tech Planet, "Compared with local retail (such as JD Hourly Purchase, Meituan Flash Purchase), online car-hailing and other businesses, food delivery has the highest requirements for the timeliness of delivery, which is basically accurate to the minute, and there will be penalties for delays." For this reason, Meituan has designed a sophisticated delivery system.

"What merchants need most is stability. Consumers have fixed demand for three meals a day. If takeout orders explode, it will be very difficult. It is impossible to produce them through large-scale mechanized production. There is a daily limit," said the Meituan employee. "The core of takeout is not traffic, but the establishment of a distribution system, which requires accumulation. Building a system may cost billions."

However, judging from the pilot situation, Douyin has not shown any obvious signs of building a distribution system. The investment manager told Tech Planet that third-party platforms such as Dada and SF Express are fully capable of supporting the current order volume of the platform.

More importantly, judging from the business progress and merchant feedback, Douyin Takeaway did not operate well during the internal testing phase. High average order value, few merchants, and a single category are the most obvious characteristics of Douyin Takeaway.

Douyin has not set too high a KPI for its food delivery business this year. According to 36Kr, Douyin's GMV target for catering group purchases in 2023 is 75 billion, including a 4 billion target for food delivery, which only accounts for 5% of the entire catering target.

Perhaps Douyin itself knows that it is not easy to make a breakthrough in the food delivery market.

Author: Xi Rui

Source public account: Tech Planet (ID: tech618); focusing on cutting-edge Internet technology and new business.