Lulu Chen and colleagues report in Bloomberg:
In Beijing, it’s often cheaper to have food delivered than to get it yourself. Order a local restaurant’s roast duck dish for 20 yuan ($2.99), 80% less than it costs at the register, via delivery app Meituan, (which) has 600,000 delivery people serving 400 million customers a year in 2,800 cities. Meituan retained 63% of the country’s ($35 billion) meal delivery market at the end of 2018.
In Beijing, it’s often cheaper to have food delivered than to get it yourself. Like, way cheaper. Abey Lin, a 19-year-old Californian studying at Beijing Film Academy, uses his smartphone to order a local restaurant’s roast duck dish for 20 yuan ($2.99), about 80 percent less than it costs at the register, via delivery app Meituan. He can get a 40 percent discount on two pizzas topped with golden potatoes and barbecued seafood. Meituan charges $1.46 for a bean curd dish from another shop, a little over a third of the price on the restaurant’s menu. It would be tough for Lin to beat that price even if he had a kitchenette to make the dish himself. “It blew my mind,” he says.
Lin, an aspiring director, arrived in Beijing mentally prepared for the hardships of the capital—the blackened air, the bitter winters, the government bans on Instagram and Snapchat. He wasn’t as thoroughly briefed on China’s new order of city living, but he’s quickly adapted. He mostly avoids his dorm cafeteria in favor of a steady supply of burgers, noodles, and cumin meat skewers available at any time, usually within 30 minutes. When he ventures out into the smog to pick up the latest bag at the college gates, there’s always a group of deliverymen stomping their feet to stay warm as they wait for other students. “This is way more convenient, and it costs less,” Lin says. “China has this efficiency that’s ridiculous.”
Across the country, millions of people like Lin are ordering in two or three meals a day, as well as groceries, office supplies, haircuts, massages, and whatever else they might want. Behind this $35 billion delivery market isn’t exactly efficiency, though—it’s a fight between Meituan and Alibaba Group Holding Ltd., China’s most valuable company. Alibaba and its various subsidiaries dominate the country’s online retail market for physical goods, but Meituan is leading the way in services. Its namesake app, a sort of mashup of Grubhub, Expedia, MovieTickets.com, Groupon, and Yelp, has 600,000 delivery people serving 400 million customers a year in 2,800 cities. Alibaba is betting it can undercut Meituan to death. Both companies are spending billions in an escalating war of subsidies that might persuade even Jeff Bezos to cut his losses.The showdown isn’t just business. It’s personal. Alibaba funded Meituan in its early years, and the relationship ended after Meituan Chief Executive Officer Wang Xing wriggled out of that partnership, infuriating Alibaba co-founders Jack Ma and Joe Tsai. Wang, a slight figure with wire-rim glasses and a buzz cut, says the clash was inevitable. “Alibaba has this weird way of thinking,” he says at Meituan’s Beijing headquarters in his first interview since the company’s initial public offering in September. “If you do anything in commerce, they think you are stealing money from them.” Wang cuts the figure of a bashful programmer, but by China’s standards, he’s a firebrand. He calls Facebook Inc. a copycat for imitating other online services. He says Ma, China’s most celebrated founder, has an “integrity problem” that’s hurt the country’s reputation for years, dating to a surprise spinoff of an Alibaba subsidiary. Alibaba declined to comment for this story. Facebook didn’t respond to a request for comment.
For more than a decade, China’s internet has been dominated by three companies: Alibaba, Baidu, and Tencent. Now, a younger generation has a chance to take on those giants and their founders. (Ma and Tsai are 54 and 55, respectively; Wang just turned 40.) Wang’s effort to control China’s services-app market, expected to top $800 billion in annual transactions within five years, is likely to erode the sales of conventional online retailers, especially Alibaba. Hence the subsidy war.
Many investors are betting on Alibaba, which has a market value of more than 12 times Meituan’s $36 billion. With investors rattled by Wang’s aggressive spending, Meituan’s share price is down about 30 percent since the IPO, which raised more than $4 billion and made Wang a billionaire. But his backers say he’s no less willful. “He’s a very scary person,” says Kathy Xu, founder of Capital Today Group, a venture firm that’s backed Meituan. “Once he’s hooked on something, he can fight with you forever. He just has that patience to go to the very end.”
Wang’s life traces his country’s tumultuous transition from poor, agrarian nation to economic powerhouse. Private enterprise was illegal until 1980, the year after he was born. His father’s father, a middle school provost and playwright, died during Mao Zedong’s Cultural Revolution as intellectuals were purged and sent to the countryside. “Nobody really knows what happened,” Wang says. “The official ruling was that he committed suicide.” At 16, Wang’s father had to figure out how to support his mother and three younger brothers. He tried mining, gardening, and several other ventures before succeeding in the cement industry, where his son got a close look at what it takes to create a business.The younger Wang studied at Tsinghua University, China’s answer to MIT, then pursued a Ph.D. in computer engineering at the University of Delaware. But in 2003, he dropped out, inspired by Friendster, a Facebook precursor, to create a social network for China. He teamed up with his undergraduate roommate, Wang Huiwen, and a middle school classmate. They rented cheap office space near the northern gate of Tsinghua’s campus and built a website.
It didn’t go well. Their site, Xiaonei (“Within Campus”), attracted tens of thousands of college students, but Wang Xing and his co-founders soon spent the 800,000 yuan they’d raised from family and friends and had to sell. Their 2007 effort, a popular Twitter look-alike called Fanfou, had to suspend operations in 2009 as it struggled to keep up with government censorship requirements. After that, Wang says, “I wanted to do something less controversial.”In 2010 he created Meituan in the mold of Groupon Inc., then one of the hottest startups in the U.S. (The Chinese characters for the name Meituan mean “beautiful together,” a nod to the benefits of group discounts.) That field quickly became crowded; what’s come to be known locally as the 1,000 Groupon War soon followed. Hundreds of Groupon-esque startups poached one another’s employees, spread rumors about rivals’ imminent bankruptcies, and wooed customers with unsustainably low prices. Meituan’s staff often worked from 7:30 a.m. until after midnight. “It was live or die,” says Gan Jiawei, an Alibaba veteran who joined Wang in 2011.
Wang had learned from his mistakes. He expanded quickly, to hundreds of cities in 2011, but spent less recklessly than his competitors did. While two leading, homegrown group-discount sites flamed out and Groupon shut down its China business, Wang focused on food and dining to develop steady repeat customers. “They thought the business was group buying,” he says of competitors. “We thought the business was e-commerce for services.” By 2013, with rivals continuing to fade away, he shifted from volume discounts at restaurants to direct food delivery. He won over merchants with free, reliable technology that helps them keep their books and restock inventory, along with taking orders. “Meituan is definitely No. 1,” says Jack Wang (no relation), whose popular Vietnamese restaurant in Beijing works with several delivery services.
Once Wang (of Meituan) had control of the meal delivery market, he began to spend more aggressively. He discounted the food so he could upsell users on hotel bookings and airfare. He was the first in China to make movie ticket sales easy online. Within a few years he’d shifted that market from 10 percent digital to more than 60 percent. By mid-2015, soon after Meituan raised $700 million in venture funding from Alibaba and others, Wang had spent so much money to keep up that he needed another round of venture capital.Alibaba refused to put more money into Meituan, because the younger company wouldn’t fully integrate its app with Alibaba’s, according to Meituan co-founder Wang Huiwen. Wang Xing worried he’d lose control of the business if that happened. Instead, Meituan brokered a deal with Alibaba’s longtime archrival, Tencent Holdings Ltd., best known for its WeChat super-app. Tencent agreed to lead Meituan’s fundraising by pledging $1 billion, merge Tencent’s own delivery service with Meituan, and let the combined company operate independently. “It was a very easy meeting,” Wang says. “What they had, we needed. What we had, they needed.” When Meituan called a board meeting to make things official, Alibaba got 12 hours’ notice and no choice in the matter, according to people familiar with the proceedings. Wang had what he wanted. He’d also made some fearsome enemies.Even at the company’s headquarters in Chaoyang, a sprawling district on the east side of Beijing, Meituan deliverymen on scooters dart around pedestrians to drop off meals for workers, brakes screeching. There’s real urgency to the hustle: A deliveryman who would give only his surname, Yang, says he generally makes $15 to $30 a day, and as little as 75¢ for a short trip.Inside, digital screens fill the walls of the network operations center, showing blue-and-white maps annotated with real-time orders, deliveries, merchants, and customers. One map showing all of China flashes with the company’s activity in each province. Another shows live shots of Beijing deliverymen zipping from stop to stop. Artificial intelligence software helps determine drivers’ itineraries. An average driver makes 25 deliveries a day, up from 17 three years ago; that’s about 20 million daily deliveries across the network. For comparison, Grubhub Inc., the U.S. leader and owner of Seamless, delivers fewer than 500,000 meals a day. Meituan’s scale dwarfs that of India's dabbawalas, who deliver some 80 million pail lunches a year.
The math, and Meituan’s potential, can be dizzying. China’s urban areas have 2,426 people per square kilometer (6,283 per square mile), almost eight times the comparable U.S. population density. While the U.S. has 10 cities with 1 million or more people, China has 156. Deliveries in China cost about $1, compared with $5 in the U.S., iResearch says. Meituan retained about 63 percent of the country’s meal delivery market at the end of 2018, according to Bernstein Research, even as Alibaba spent billions over the previous several years to capture most of the rest.The growing conflict and its costs have delayed some of Wang’s other initiatives. He put on hold an expansion into ride-hailing after setting up money-losing experiments in two cities. He says he’s now focused on getting each delivery person to drop off 40 percent more orders. Wang estimates Alibaba, based on its balance sheet, can afford to spend at its current level for about 12 more months, but he expects to last years.Surrounded by whiteboards and almost dry markers, he mocks rivals, former rivals, U.S. tech leaders, and even himself. Alibaba’s Ma keeps getting special attention. “I still think he has an integrity problem,” says Wang, adding that Ma did lasting damage to the global reputation of China’s business leaders by spinning off digital-payments subsidiary Alipay without the approval of Alibaba’s board. The incident happened in 2011, which may make it ancient history to most people—but not to Wang. “They tried to lie about that. They even tried to say the Chinese government forced them to do that. That was wrong,” he says. “I think the impact of that incident is still underestimated.”Wang says his role model is Ma’s longtime nemesis, Bezos, who consistently defers profits and reinvests in new businesses. Wang plans to do the same. “There’s so much to do,” he says. “We are not going to finish in one year or two years.” Among other things, he plans to introduce an Amazon Prime-like subscription service. Chief Financial Officer Chen Shaohui says one option is a membership tier that includes free rides on Meituan’s Mobike two-wheelers. Meituan is counting on more patience from shareholders than Alibaba, now entering its third decade, can reasonably expect. Profits look like a distant dream. Meituan has lost money almost every year since its founding, and though it has $8.6 billion in cash, Wang’s hunger for expansion could quickly eat into the pile. Last year, he paid $3 billion for Mobike, which also loses money.For the time being, though, Wang’s company has helped change life for hundreds of millions of people throughout China’s cities, giving them an easy way to avoid braving traffic-snarled streets when they need food. “I don’t really go to supermarkets anymore,” says Luo Rui, a thirtysomething white-collar worker in Beijing who uses Meituan pretty much every day. “You order something online, and by the time you reach your house or apartment, your delivery is already there.” Even at her office, where a crush of restaurants awaits downstairs, she’s usually better off staying put.
0 comments:
Post a Comment