Food Delivery Race Heats Up in Asia Pacific, Part 1: Cross-Market Comparison
With global home delivery sales in foodservice increasing 6% in 2015, the race is on for food delivery services to carve out a corner of the global market.
In developed markets across North America and Western Europe, food delivery services are investing heavily in technological innovation in order to compete in this increasingly crowded space by trying to find ways to drive down costs and reduce delivery times. While much of the attention has been focused on the West, no region comes close to matching the potential for food delivery services in Asia Pacific.
Navigating the regional market for food delivery can be a daunting task, however, and the complexities of each market in the region are distinct. While food delivery in China is dominated by domestic players, smaller markets in Southeast Asia have been more promising for global food delivery services like Foodpanda. India, though, with an already large home delivery base and consumer demand to match, may be the best target for global players looking to take a greater share of this volatile business, despite recent failures by start-ups.
In this two-part series, Euromonitor International will first navigate the distinct markets for home delivery in the Asia Pacific region. In the second part, Euromonitor International will shift the attention to India, and investigate why and how this market in particular is best suited for new food delivery start-ups looking to make their mark.
Asia Pacific dominates in home delivery
Far and away the greatest opportunities in food delivery are in Asia. In 2015, the Asia Pacific region accounted for nearly half of the total value of global home delivery in foodservice, with sales more than twice the size of the next largest region, North America, by total value. Home delivery in Asia Pacific is expected to grow at a 14% CAGR to 2020, by far the fastest-growing region globally, and is therefore the market with the most potential for food delivery services to expand to meet the intense demand.
Total Foodservice Value of Home Delivery by Region: Current Market Sizes vs Forecast Growth
Within the Asia Pacific region, China dominated the total value of home delivery in foodservice in 2015, while India remained a more distant second. This is hardly surprising, given the massive populations of both markets, as well as the fact that in the two markets combined total foodservice value is worth more than US$700 billion, or 28% of the global total.
Total Foodservice Value of Home Delivery by Market: Current Market Sizes vs Forecast Growth in Asia Pacific
Other Asia Pacific markets, especially those in Southeast Asia, proved to be good targets for food delivery services despite their relatively small sizes due to their high growth potential in home delivery. More developed markets, including Japan, South Korea and Taiwan, all experienced negligible growth during the review period in home delivery foodservice value.
China dominated by domestic giants…
While the Asia Pacific region has by far the greatest market potential for food delivery services, China tops them all. The total value of home delivery in foodservice in China grew 55% to reach over US$20 billion in 2015. The market for food delivery services is dominated by local players Ele.me and Meituan Waimai. Other app-based delivery services competing for share include Chinese search engine giant Baidu’s takeout service, Baidu Waimai, as well as smaller players Dianping.com, and Taodiandian, all of which operate on a much smaller scale.
While on-demand delivery in China was once dominated by fast food chains that offered their own delivery services, such as McDonald’s and KFC, cheaper independent services have largely taken over. With the financial backing of influential domestic companies such as Alibaba and Tencent, local food delivery services have been able to offer cheaper services with more diverse foodservice options to consumers across China. The market is so lucrative that Alibaba announced in 2015 that it intends to commit another US$1 billion in investment capital to revive another service, Hangzhou-based Koubei.
To get a sense of the magnitude of China’s market for food delivery, Ele.me (Chinese for “Hungry?”), for example, employs over 10,000 delivery workers on motor bikes, increasingly recognisable by their light blue uniforms. The service started in 2009, giving the company a distinct first-mover market advantage, and was the recipient of US$1.25 billion in investment capital from Alibaba, the domestic online giant behind the likes of Alipay, China’s largest mobile platform, and Didi Kuaidi, a hugely successful taxi-hailing service that has largely kept Uber out of the market. Ele.me delivers food from over 300,000 restaurants in over 260 Chinese cities and is by far the largest food delivery service in China.
Ele.me’s most viable competitor, Meituan Waimai, is the food delivery branch of Meituan.com, a Chinese e-commerce giant specialising in Chinese goods and services. Currently the second largest player in the market for food delivery, the company competes by tapping into Meituan.com’s highly developed system of discounts and loyalty incentives, which keep prices low for consumers and forces other delivery services to keep their prices low as well.
In other words, and to put this bluntly, the market is nearly impenetrable to outside global food delivery services looking to expand in China.
…while competition in Southeast Asia intensifies
While the Chinese market is monopolised by domestic players with solid financial backing, global food delivery services have made their mark on other Asian markets, especially in the most developed markets of Southeast Asia. Berlin-based Foodpanda, for example, has been actively expanding in the region with mixed success. After buying out local competitor, NYC-based Delivery.com, Foodpanda managed to quickly grow its share of the market in Hong Kong, a small market in overall size but with lots of growth potential. The total value of home delivery in Hong Kong grew 5% to reach over US$400 million in 2015.
Given the relatively small scale of these markets, global food delivery companies have had to diversify their offerings with new consumer incentives and innovative delivery logistics, much like they have had to do in the West, in order to stand out. In an effort to boost sales, Foodpanda is testing drone delivery in Singapore to cut down on overall delivery times, hoping that reduced delivery times will translate into higher transaction volumes.
The market for food delivery is already largely saturated in the smaller developed markets of Southeast Asia, and companies have to look for ways to steal, rather than gain, market share. Home delivery in the less developed markets of Vietnam, Indonesia and the Philippines is forecast to grow rapidly, but local market conditions will make it difficult for global food delivery players to gain ground in the near term.
No single global food delivery service, however, is yet to tap into the massive potential in India, the market in focus in the second part of this series. India is home to a massive floating population of young, single consumers working in the corporate world who have money to spend and little time to cook at home. While dining out is still relatively uncommon in India, it is becoming increasingly popular to order food for home delivery, and food delivery services that can successfully adapt to local market conditions and create a consistent and sustainable service to meet the demand will have much to gain.