On September 16, with the official release of the iPhone 14 series, instant retail competition reignited. First, at 11:06 AM, Meituan announced that its drone delivered the first iPhone 14 in 5 minutes and 56 seconds. Then in the afternoon, JD.com released a report stating that as of 2 PM on the launch day (September 16), cumulative sales of iPhone 14 series via JD Daojia and Hourly Shopping exceeded 200 million yuan.
This year, instant retail has become a hot track, with Meituan and JD.com making significant moves. However, Alibaba, which holds the top position in e-commerce and owns Ele.me with instant delivery capabilities, seems to be quietly watching.
Taking the iPhone 14 series launch as a focal point, after Apple's autumn launch event on September 8 announced the iPhone 14 series, Meituan and JD.com ignited the battle, each releasing statements that day: Meituan said "Buy iPhone 14 on Meituan, fastest delivery in half an hour," and JD.com said "JD Daojia and Hourly Shopping offer exclusive pre-orders for iPhone 14 instant retail, with fastest delivery in minutes on launch day."
On September 11, Ranciyuan searched for "Apple" and "iPhone" on Meituan Waimai, JD Daojia, and Ele.me. On Meituan Waimai, results included iPhone 13 products from Apple authorized stores. On JD Daojia, iPhone 14 products with "pre-sale" tags and iPhone 13 series were visible. However, on Ele.me, only iPhone-related accessories like chargers and cables from convenience stores were found.
By September 16, Ranciyuan again searched for "iPhone" on the three platforms. Meituan Waimai and JD Daojia both had iPhone 14 and iPhone 13 series products from Apple authorized stores, but Ele.me still only showed accessories from convenience stores.
Image: Search results for "iPhone" on Meituan Waimai, Ele.me, and Taobao (from left to right: Meituan Waimai, Ele.me, Taobao)
Alibaba has made efforts in instant retail. In March 2022, when searching for "contact lenses" on Taobao, Ranciyuan found instant delivery products from Ele.me in the search results. However, this path was not continued. Additionally, Ele.me has long had instant retail categories like supermarkets, convenience stores, fruits and flowers, and medicine, and launched "Omni Supermarket" in March 2022, offering fresh produce and daily necessities.
But everything seems lacking, and Ele.me, which appears most suitable for instant retail, does not seem to be Alibaba's main battlefield for instant retail.
Alibaba's business lines including Ele.me, Taoxianda, Tmall Supermarket, and Hema all involve instant retail. On September 16, Ranciyuan searched for "iPhone" on Taobao and, after scrolling to the second screen, saw iPhone 14 products marked "Same City Purchase," provided by "Apple Authorized Stores," with an estimated delivery time of 2 hours.
Overall, Alibaba's instant retail seems to be still in observation mode. First, although Alibaba has multiple instant retail business lines like Ele.me, Taoxianda, Tmall Supermarket, and Hema, these seem limited to fresh produce and daily necessities, far from the "deliver everything" approach of Meituan and JD.com. Second, strategically, unlike Meituan and JD.com's high emphasis and frequent mentions in financial reports, instant retail does not yet appear to be a focus for Alibaba.
After more than 20 years of development, Alibaba also has concerns. In the second quarter, JD Retail revenue grew 3.87% year-on-year, and Pinduoduo's revenue grew 36%, but Alibaba's China Commerce revenue declined 1% year-on-year. With user growth peaking and weak consumption, Alibaba needs new space.
From Alibaba's current layout, the new focus seems to be on cloud business and overseas expansion. Although instant retail is a hot track, it is not yet a priority for Alibaba.
However, given the trend of changing consumer behavior and the continuous attacks from Meituan and JD.com, Alibaba must respond, as instant retail is essentially retail business and will inevitably consume some of consumers' traditional e-commerce retail demand.
Can Alibaba, which has "started late," catch up? And how?
01
Who Will Carry the Banner?
This year, instant retail has become a hot track, with countless companies diving in.
Besides platforms like JD.com and Meituan, many traditional supermarkets have also joined, such as Walmart and Carrefour, which have opened cloud warehouses and membership stores this year, offering instant retail services through online ordering and "one-hour express delivery" to home.
The industry generally divides instant retail into two models: platform and self-operated. Meituan, JD Daojia, and Alibaba (Ele.me) are classified as platform models, while Hema, Dingdong Maicai, RT-Mart, and Yonghui, which need to build their own stores or warehouses and online platforms, are classified as self-operated models.
However, a research report by Zheshang Securities pointed out that the platform model is superior: "We estimate that the market share of platform and self-operated models will change from 64% and 36% in 2021 to 80% and 20% in 2025."
The report further stated: "The platform model is a nationwide business with full-category operations, expanding faster and with larger scale space. Fulfillment costs can be shared with merchants (self-operated must bear trunk and last-mile fulfillment costs), and food delivery platforms can reuse restaurant delivery capacity, thus having stronger profitability."
"The self-operated model is more regional, requiring capital expenditure and limited to high-tier cities," the report noted. "Compared to platform models, high-quality fresh produce and private label products are unique advantages."
In the instant retail field, platform models like JD Daojia and Meituan are more discussed. Ranciyuan also noticed that more physical supermarkets, when entering the instant retail battlefield, do so by joining platforms like JD Daojia and Meituan. For example, Walmart, Carrefour, China Resources, Wumart, Jingkelong, and Wushang have all disclosed in financial reports that they have joined instant retail platforms and achieved performance growth.
Alibaba's instant retail business is scattered across multiple business lines including Ele.me, Taoxianda, Tmall Supermarket, and Hema, involving both platform and self-operated models. But the public focuses more on Ele.me as a platform model.
For instance, the Zheshang Securities report also mentioned: "Ele.me's non-food business can reuse delivery and users, promoting order scale growth and helping optimize Ele.me's overall UE (Unit Economics)." Additionally, "We are also optimistic about the development of Ele.me's non-food business; related incremental orders can help reduce Ele.me's overall fulfillment costs, thereby improving overall UE and enabling Alibaba's local life services segment to achieve sustainable development."
The growth of Ele.me's instant retail and non-food delivery services brings obvious benefits. Ranciyuan saw multiple mentions in Alibaba's Q1 FY2023 earnings report: "Ele.me's unit economics improved" and "steady growth in Ele.me's non-food delivery orders."
According to the financial report, in Q1 FY2023, Ele.me's non-food delivery services grew, and Ele.me "met the increasing market demand for daily necessities such as groceries, medicines, and baby care products, leading to higher average order value." Additionally, due to year-on-year increases in average order value and other factors, "in the quarter ended June 30, 2022, Ele.me's unit economics turned positive."
Over the years, Ele.me has not fallen too far behind in instant retail. For example, Meituan's advantageous categories like flowers and medicines are also available on Ele.me.
At the end of March 2022, during the pandemic, Ele.me piloted "Omni Supermarket" in Shanghai, then gradually launched in Beijing, Hangzhou, Guangzhou, and other cities. Later, it moved the "Omni Supermarket" entrance from under "Supermarket Convenience" to the first-level entrance at the bottom of the homepage. This move was also seen as an effort to strengthen instant retail.
But compared to the aggressive attacks of JD Daojia and Meituan Flash Shopping, Ele.me has been drowned out in terms of visibility, almost ignored.
02
Can Ele.me Make It?
Ele.me's instant retail is almost ignored, partly because compared to the momentum of JD.com and Meituan, Ele.me's voice is not loud, but it must also be admitted that Ele.me's strength lags behind JD Daojia and Meituan Flash Shopping, which are backed by JD.com and Meituan.
But the later story is known to all: Ele.me lacked momentum, its market share was continuously overtaken, and now it only has 30%.
Ranciyuan also saw from Analysys Qianfan data that in August 2022, Meituan Waimai's monthly active users were 74.3668 million, while Ele.me's were 73.4363 million. Ele.me's MAU has always been close to Meituan Waimai's but consistently lower.
In terms of order volume, according to Meituan's Q1 2022 financial report, "(in that quarter) Meituan's food delivery business transaction volume reached 3.36 billion orders," which can be estimated as "Meituan Waimai's daily average orders at 37.35 million." Based on the 70-30 market split between Ele.me and Meituan in the food delivery industry, Ele.me's daily average orders are estimated at 10 million.
Given the disparity in strength, even if Ele.me has instant retail capabilities and complete functions, it is still hard to be optimistic.
On the consumer side, the insufficient supply of Ele.me's instant retail is also felt.
"A couple of days ago, I suddenly needed to measure something, so I needed a tape measure. But I didn't want to go out, so I searched on Meituan Waimai and Ele.me. In the end, Meituan Waimai had more results, including the tape measure I needed with various styles, while Ele.me had tape measures but with limited styles, and after scrolling a bit, steel rulers and other products appeared. So I ordered on Meituan," said consumer Qiuqiu.
Image: Results of searching "tape measure" on Meituan Waimai and Ele.me (left: Meituan Waimai, right: Ele.me) Source: Provided by Qiuqiu
Zheshang Securities pointed out that fulfillment, users, and merchant supply are the three competitive factors in instant retail.
In terms of fulfillment capability, according to the "2022 Blue Knight Development and Guarantee Report," in 2021, 1.14 million riders earned stable income through Ele.me. Meituan's Q4 and full-year 2021 financial report showed that in 2021, 5.27 million riders earned income on the Meituan platform.
From this perspective, Ele.me lags in users, merchant supply, and fulfillment capability.
This is a precursor to a vicious cycle. A Xueqiu user put it clearly: "Categories affect user mindset or habits. For example, if you can't find something on other platforms but find it on Taobao, after one or two times, Taobao becomes the first shopping platform you open." And "Do you think it's easy to fill in product categories?"
Will Ele.me, with insufficient supply, lose its ticket to instant retail?
On September 2, at the 2022 China E-Commerce Conference, Ele.me President Fang Yongxin mentioned that local instant order volume is in a high compound growth stage, and by 2030, daily orders are expected to exceed 300 million. He also pointed out two core points for local instant services: first, ensuring delivery capacity; second, judging, analyzing, and gaining insights into effective supply.
At the end of 2021, Alibaba Local Life CEO Yu Yongfu, after 100 days of taking charge, issued an internal letter mentioning that the local life business is essentially a business driven by the dual wheels of "instant commerce flow" and "instant logistics," where "instant commerce flow" refers to the Ele.me app and "instant logistics" refers to Fengniao.
It is clear that Ele.me has expectations and ambitions for instant retail. However, according to a report by LatePost, at a local life managers' meeting on November 23, 2021, Yu Yongfu spent the most time on "instant logistics." He proposed that the barrier to future local life competition lies in instant logistics, and Fengniao should become an independent company, establishing a "Big Fengniao," which would become an instant delivery platform, open to both internal and external use, to increase market awareness of Fengniao.
Even internally, "instant commerce flow" seems to be secondary.
03
Alibaba's Alternative Path
Ranciyuan noticed that compared to Ele.me, the larger Taobao ecosystem seems more feasible as Alibaba's instant retail platform.
Besides the March 2022 instance where Taobao search results showed Ele.me instant delivery products, and the September 17 search for "iPhone" on Taobao showing "Same City Purchase" products, on September 8 during the Mid-Autumn Festival, Ranciyuan saw a "Same City Delivery" tag on a product detail page on Taobao.
The product page stated: "Due to the approaching Mid-Autumn Festival, Guangzhou and Foshan have opened errand services [Same Day Delivery]. Contact customer service for details."
It is understood that because the product was Hanfu (traditional Chinese clothing), and Mid-Autumn is an important time for Hanfu demand, the store opened the "Same Day Delivery" service. However, the store's customer service told Ranciyuan that the service was launched by the merchant itself, not organized by the Taobao platform, and the "instant delivery" service has now been discontinued: "We've been too busy these days; we can't do same-city delivery anymore."
Image: A Taobao merchant offering "Same Day Delivery" service
"This logic seems feasible. From a user habit perspective, people usually use Meituan Waimai or Ele.me to order food and drinks, then see supermarket convenience, flowers, and fruits, and expand their purchase scope to use so-called instant retail. And when opening Taobao, it's usually based on specific product purchase needs. If the product I need can be delivered instantly, it will definitely increase my purchase likelihood," Qiuqiu said.
"It's not that I don't use it, but it's hard to think of using it specifically," said Baibai, a Beijing user at the time.
User habits are the biggest problem for Meituan to break into traditional physical e-commerce. "Meituan's core users are mostly focused on same-city food, drink, and entertainment, which is somewhat different from traditional e-commerce users," Zeng Ying, an analyst at Analysys for brand retail, told Ranciyuan at the time.
If Alibaba can connect local merchants and provide more accessible instant retail services, with its massive user base and good user habits, it seems promising.
However, behind this are issues such as merchant fulfillment costs and whether stores on the Taobao platform are suitable and capable of completing instant or same-day delivery.
But in any case, Alibaba's current focus is not on instant retail. According to Alibaba's Q1 FY2023 earnings report, revenue was 205.555 billion yuan, with China Commerce revenue at 141.935 billion yuan (69% of total), International Commerce at 15.451 billion yuan (7%), Local Life Services at 10.632 billion yuan (5%), Cainiao at 12.142 billion yuan (6%), and Cloud at 17.685 billion yuan (9%).
Additionally, Digital Media and Entertainment revenue was 7.231 billion yuan (4%), and Innovation Initiatives and Others revenue was 479 million yuan.
Image: Alibaba Group Q1 FY2023 revenue data
Although Alibaba mentioned in the report that "the decline in adjusted EBITA for China Commerce was partially offset by improved unit economics at Ele.me, narrowing the adjusted EBITA loss for Local Life Services," Local Life Services is still not a revenue focus for Alibaba.
In terms of growth, in Q1 FY2023, the year-on-year growth rates for Alibaba's seven segments were: China Commerce -1%, International Commerce 2%, Local Life Services 5%, Cainiao 5%, Cloud 10%, Digital Media and Entertainment -10%, and Innovation Initiatives and Others -30%. Cloud growth is clearly stronger.
From external communications, it is also clear that cloud and overseas are Alibaba's current focus besides China Commerce represented by the Taobao ecosystem.
In the Q1 FY2023 earnings call, Alibaba mentioned: "We first consider opportunities from a cloud computing perspective," and "An important point in this process is going global, with a two-vertical, one-horizontal strategy: the two verticals are consumption and cloud, and horizontally, whether we can expand to overseas markets... capturing this opportunity from the perspective of consumption and cloud."
Consumption, cloud computing, and globalization are Alibaba's three major strategies.
But with the development of JD.com and Meituan's instant retail and the competition for retail market share, perhaps one day Alibaba will have to turn back and respond to instant retail.
References: "Exclusive | Yu Yongfu Takes Charge of Alibaba Local Life for 200 Days," Source: LatePost; "Platform vs. Self-operated, Meituan Flash Shopping vs. JD Daojia - Instant Retail Industry Special Report," Source: Zheshang Securities.
*The title image and some in-text images are from VCG. *Qiuqiu and Baibai are pseudonyms. Source: Ranciyuan (ID: chaintruth)