Chinese e-commerce is shifting its battleground from discount wars to building instant retail networks, with the market poised to reach $1.78 billion, offering delivery within one hour.
On September 3, 2569, at 14.17:1 PM, Reuters reported that China's e-commerce battleground is entering a new phase of competition after the subsidy war for food delivery businesses subsidized. However, the previous competition has significantly changed consumer behavior and expectations. Previously accustomed to ordering food and drinks via apps, consumers now expect a wide variety of goods, from electronics and flowers to cosmetics and medicine, to be delivered within an hour.
Throughout the past year, Chinese tech giants Meituan, Alibaba, and JD.com have poured billions of dollars into coupons, discounts, free shipping, and merchant subsidies to compete for users in the food delivery market. However, a key outcome of this price war is the emergence of "instant retail," which has become a new battleground for Chinese e-commerce.
Analysts believe the real goal of the subsidies is not simply to increase orders for cheap food or drinks, but to change consumer purchasing behavior, especially in large cities where people have become accustomed to receiving their goods within 60 minutes.
While food and beverage delivery services encourage consumers to open the app more frequently, a bigger business opportunity lies in converting these users into purchasing non-food items with higher profit margins, such as electronics, cosmetics, and other consumer goods.
Shaohui Chen, Chief Financial Officer of Meituan, stated that Quick Commerce has fundamentally changed consumer expectations regarding convenience and reliability, becoming an irreversible lifestyle shift.
The instant retail market is poised to reach $1.78 billion.
A study by China's Ministry of Commerce indicates that China's instant retail market is projected to reach 1.2 trillion yuan, or approximately $1.78 billion, by the end of this year and is expected to expand at an average annual rate of 12.6% until 2573.
Such behavior is becoming commonplace among consumers in large cities. For example, Jiang Yanxin, a resident of Beijing, ordered a doll of a character from a popular animated film while on her way to meet a friend for lunch. By the time she arrived at the restaurant, the delivery person had already delivered the item to her.
She stated that she is now accustomed to shopping this way; when she wants something, she can buy it and receive it almost immediately.
Ed Sander, an analyst from the China Digital Retail Report, believes this behavior is a key reason why major platforms are focusing so much on the Instant Retail market, as this business has the potential to take market share from traditional retail channels.
The discount war is over, but it left behind enormous costs.
However, subsidized competition places significant costs on both platforms and merchants, leading Chinese regulators to summon Meituan, JD.com, Alibaba, and other companies for numerous discussions last year, urging them to improve competition practices and enhance protection for consumers, merchants, and delivery personnel.
In April, regulators also fined and seized a total of 3.6 billion yuan from various companies for violating food delivery safety regulations.
Zhu Danpeng, a food industry analyst , stated that the competition between platforms has ended after strong government intervention. While this war has benefited consumers, the damage to small restaurant businesses remains.
The impact is also reflected in the financial performance of various companies. Luckin Coffee, which was previously a key beneficiary of platform discounts, reported a 5.3% decrease in same-store sales at its company-operated stores during April-June, compared with a 13.8% increase during the same period last year. The company attributed this to a high comparison base resulting from food delivery platform subsidies.
While Meituan turned to losses last year, Alibaba faced declining profits, and JD.com's profits virtually disappeared due to fierce competition.
Alibaba overtakes Meituan to lead instant retail.
The subsidy war has also changed the competitive structure in the market. Prior to the latest round of competition, Meituan held approximately 75-80% of the food delivery market share, but that share has decreased significantly.
When food delivery businesses are included in the Instant Retail market, data from Analysys indicates that in Q2, Alibaba's Taobao Instant Commerce held a 45.7% market share, surpassing Meituan's 45.3%, while JD.com held 7.7%.
However, the competitive landscape could change if platforms fail to retain their user base after subsidies are reduced.
The new battle has shifted from offering discounts to investing in infrastructure.
Second-quarter earnings reflect a shift in focus among Chinese e-commerce companies, moving away from using discounts to attract users to leveraging their acquired customer base for profit through expanding products and services in the instant retail market.
Alibaba's Instant Retail revenue increased 45% year-on-year to 5.33 billion yuan, while JD.com reported a significant reduction in losses in this segment, partly due to reduced losses in its food delivery business. Meituan, which boasts the largest network of stores and delivery personnel, returned to overall profitability for the first time in nearly a year after reducing subsidies.
Liu Xingliang, director of the Data Centre of China Internet in Beijing, observes that the industry is shifting from the first phase of competition, which focused on attracting users through subsidies, to the second phase, which aims to retain the user base, increase product diversity, and consider the economic viability of each order.
The new round of competition, therefore, isn't about who can offer the biggest discounts, but about competing in terms of logistics infrastructure.
Meituan is building supermarkets to expand its consumer goods business, while Alibaba and JD.com are aggressively opening Dark Stores, or stores specifically for online orders, as well as "Lightning Warehouses," high-speed warehouses in densely populated areas to enable delivery within one hour.
The competition in Chinese e-commerce is therefore shifting from an era of burning money to acquire users to building retail and logistics systems that support instant order behavior, which may become the new structure of the Chinese retail market in the long term.
Reference: www.reuters.com
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