New kid on the food-delivery block could shake up the competition

Sherry Qi, a marketing consultant in her 30s who typically orders a coffee and sandwich takeaway for breakfast from a local shop, discovered last month that she could save 30 percent by ordering the same meal from e-commerce JD.com's new food-delivery service.

"In the future, I'll always check out what discounts are available on JD," she said.

JD announced earlier this week that its new service, launched in early February, has partnered with over 300,000 "quality" dine-in restaurants and expanded to 126 Chinese mainland cities.

The company is also benefiting from an additional subsidy of up to 20 yuan for those in its paid membership program JD Plus and for college students.

It also announced that the first batch of 10,000 full-time delivery riders have joined with formal labor contracts and all the social security insurance according to relevant laws.

Is the food delivery service industry poised for a major competitive challenge?

JD's efforts to tap quality restaurants for meals deliveries promise a one-year, commission-free period for those that sign up before May 1.

Chen Liteng, a digital lifestyle service analyst at private consultancy 100EC.cn, estimates that means a smaller restaurant could save up to 50,000 yuan (US$6,920) in commission charges, but he said JD still has to prove it has more value for both merchants and consumers in the long haul.

Currently, most of the fare on JD's menu doesn't seem to differ much from the likes of competitors such as Meituan or Alibaba's Ele.me. Its price range of between 20 yuan and 30 yuan is generally in line with simple meals and drinks available from most takeaway services.

Without extra discounts, it's easy for price-sensitive customers to prove very fickle in their choices.

"There are fewer discounts than I expected on JD, so I would rather stick to more familiar sites which much wider options," said Jasmine Hu, who orders family dinners as well as snacks from Ele.me two or three times a week.

JD's latest announcement of coverage in 126 cities gives the impression of a strong strategy launch, but beyond ambitious slogans, the service will have to distinguish itself in a very competitive market.

China's online food-delivery market is projected to grow to US$197.9 billion by 2033 from US$81.9 billion last year, according to ResearchAndMarkets.com.

JD was founded in by Liu Qiangdong in 1998, and its retail platform went online in 2004. Its portfolio spans retail, technology, logistics, health care, industrials, property management, insurance and international business. In 2023, it was China's largest retailer by revenue, ranking 47th on the Fortune Global 500 index.

The launch of the new food-delivery service seems a natural extension of its expansive warehousing and logistics capabilities.

Since as early as 2015, JD has been testing the waters with its own online supermarket and fresh food businesses.

It has forged ties with physical stores to offer deliveries of groceries, personal-care products and home digital electronics within two hours.

Food delivery would seem an indispensable addition to the instant retail business and high-frequency shopping realm.

Dominant market player Meituan has about two-thirds of the food-delivery market, trailed by others such as Alibaba's Ele.me.

Competitors have been cautious about breaking into that realm. Platform Toutiao's parent company ByteDance Ltd scaled back its ambitious plan to challenge Meituan's dominance after initial forays between 2022 and 2023 proved unpromising.

Kuaishou and Douyin online platforms believed that their short-format videos promoting food and drinks were a natural springboard to enter the food takeaway business, but efforts by both faltered because they failed to appreciate the complexity of nationwide logistics and the different consumer preferences from region to region.

Yang Shule, a consumer who usually orders coffee from delivery platforms along with work colleagues, said he doesn't think JD will be his go-to platform.

"Ele.me has extra discounts for its monthly subscribers, and, besides, many leading coffee and tea chains, like Starbucks and Heytea, offer delivery services through their own online stores," he noted.

Meituan spent nearly a decade establishing an operational model tailored to different parts of the country and to different categories of merchants, leading analysts to wonder if JD can successfully leapfrog that long trial period in just a couple of months.

JD will also likely to face more margin pressure after it began making insurance and housing-fund payments under China's social security system for all JD full-time delivery riders.

The company is also facing growth pressures in its core home appliance and electronic gadgets markets, which have been heavily relying on government subsidies for sales.

Still, the company invested 5 billion yuan last year in its lifestyle service-related digital infrastructure, suggesting a firm commitment to proceed with ambitious plans.

But the long-term profitability in meal delivery relies on steady operations, loyal customers and a trustworthy platform linking customers and service providers.

Some analysts have suggested that JD set up a separate smartphone application for food takeaway services, like Ele.me and Meituan have done. Others suggest that the company look for niche restaurant providers to differentiate from usual menu fare.

For their part, investors are waiting to see how the new food-delivery service pans out, but they seem to remain upbeat on the company in general.

JD shares have outperformed many other shares on the tech-heavy Nasdaq market in New York.

The shares have risen about 27 percent this year and 7 percent in the last month. Analysts attributed the gains to JD's announced e-commerce partnership with the UEFA Champions League and to its strong earnings report for the 2024 fiscal year.

The company said net income increased to 41.36 billion yuan from 24.17 billion yuan a year earlier.