Meituan and Didi starts to compete on food delivery and ride-hailing

Chinese consumers commonly order takeout with Meituan and hail rides with Didi. Yet, the two seemingly unrelated apps will start to compete with each other. Meituan will unveil ridesharing service on March 21 in Shanghai, while Didi will finalize preparations for the launch of its takeout business.

SEE ALSO: Meituan Takeout on Chinese New Year’s Eve: Popular Dinners Cost over $315

Drivers: over 20,000 registered drivers

The first 20,000 registered drivers on Meituan in Shanghai will receive three months of waived service fees to the platform, which is normally eight percent of the fare on top of a 0.5 yuan ($0.08) information fee for each ride.

Drivers who meet the daily requirements of 10 online hours and 10 rides between 6 a.m. to midnight will be guaranteed earnings of 600 yuan ($95). Drivers who surpass the 600 yuan mark will receive an additional 200 yuan ($32) bonus.

Meituan has obtained licenses to operate online ride hailing services in Nanjing and Shanghai. Contrary to ride hailing competitors who have previously started by attracting passengers first, Meituan aims to first attract drivers.

“Didi currently takes a 25 percent cut of the fare, equivalent to a 25-yuan service charge for every 100 yuan,” a driver said. “A recruitment company calculated that Meituan drivers can earn an additional 3,000 to 4,000 yuan ($474 to $632) per month if given Didi’s order volume. The extra earnings is even before considering other bonuses.”

In order to attract driver sign-ups, Meituan lowered its service fee to eight percent in Nanjing and also introduced many activities and rewards. Since their pilot operation last February in Nanjing, the number of Meituan rides have exceeded 100,000 per day.

Consumer: it’s cheaper to hail a ride

As Meituan enters the transportation industry, many Shanghai consumers deem it cheaper to hail a ride.

“We will choose the cheaper option,” said a citizen named Miss Wang. The competition of capital, or oligopoly, doesn’t phase consumers.

Many online ride-hailing platforms have taken early measures to tackle the new challenge. Didi, Shenzhou and several other online ride-hailing platforms have introduced preferential policies to retain users.

Take Didi as an example. After its battle with Uber, Didi gradually reduced its customer rewards. Currently, both Didi’s express car and limousine services provide bonus rewards. When customers load 2,000 yuan ($316) into their account, Didi automatically applies a 400 yuan ($63) bonus to their account for a total of 2,400 yuan ($379). Customers loading 3,000 yuan ($474) receives a 650 ($103) yuan bonus, and for 5,000 yuan ($791), a 1,100 yuan ($174) bonus.

Entering the transportation and takeout business

In response to Meituan entering the transportation business, Didi countered by directly targeting Meituan’s main business of food delivery.

On April 1, Didi will launch meal delivery service in the eastern city of Wuxi, where the company is offering “loyal deliverymen”, or basically full-time delivery drivers, a minimum monthly salary of 10,000 yuan ($1,581). Other incentives include double earnings per ride for part-time drivers.

In order to offset the financial blow from offering massive reward incentives, Didi will expand its scale of financing. The Shanghai Stock Exchange’s corporate bond information platform showed that the CITIC Securities [N] phase CP asset support special plan was approved on March 19. The plan is to issue 10 billion yuan ($1.6 billion) classified as asset-backed securities (ABS).

The war on transportation and food delivery between Meituan and Didi has begun. According to an industry observer, the battle should not be considered simply from the business or competitive perspective, as the larger purpose behind it all encompasses platform, ecosystem and entrance.

Since transportation and food delivery are inextricably linked, there are successful business cases for reference.

Uber launched UberEats in 2014, exploring the transportation and food delivery operation mode. By the end of last year, UberEats was profitable in 45 cities around the world. In the fourth quarter of last year, UberEats contributed $1.1 billion to, or 10 percent of, Uber’s total revenue.

“The two major areas of transportation and food delivery are trending, which means that their ecological patterns will gradually improve. Industry giants need to grasp more traffic and assume strategic positions,” said the above observer. He thinks the war between Didi and Meituan may accelerate the evolution of the two industries and affect the future market.

Viewpoint: Meituan ride-hailing service strikes Didi

In essence, the user’s logistical flow with using the two apps are different.

Meituan is a trading platform integrating entertainment, food delivery, information and reviews. Common sense dictates that consumers seek out entertainment and food first before the need for transportation. In other words, users often use Meituan for their entertainment and food needs first, and then use Didi to hail a ride.

Meituan is upstream of Didi with respect to user experience.

As long as Meituan offers ride-hailing incentives to users who already use the app to satisfy their entertainment and food needs, the same users will most likely go on to request rides through the app. For this reason, its conversion rate will likely be much higher than Didi’s.

Meituan has hundreds of millions of users. If and when Meituan attracts a substantial volume of consumers to its new business, it will be simple for Meituan to ride the Matthew effect, where “the rich get richer and the poor get poorer.”.

Meituan has been operating its ride hailing business since last December in Nanjing, where it has exceeded 100,000 daily rides. Meituan has the opportunity to capture additional market share from Didi as it seeks to expand to other cities, and the crucial matter now is how they will do so.

It may actually be unwise for Didi to launch a food delivery service as it lacks business resources. Its sole purpose as transportation tool makes it far from becoming a trading platform. It may be difficult for Didi to cultivate users to habitually order food on the app.

Didi won the war against Uber because both parties were playing on the same field, and Didi was stronger. Here, Didi is not in the same realm with Meituan, so it is hard to ascertain the outcome of this war.