JD’s Bold Bet on Food Delivery: Hasty Gamble or Strategic Play?

Since March, when $JD.com(JD.US) made a high-profile entry into the food delivery market, it has achieved a daily order volume exceeding 25 million within just three months through substantial subsidies. However, most in the market remain skeptical about JD.com's yet another "must-win battle."

To date, there has been considerable discussion in the market about this, but Dolphin Research believes JD.com's aggressive entry into $MEITUAN(03690.HK)'s home turf is a long-term war rather than a short-term venture. Its impact will gradually become clear and unfold over a significant period.

Therefore, in the following text, Dolphin Research will present our thoughts on this issue from multiple perspectives, including JD.com's motivation, purpose, current status, possible outcomes, and the impact on the industry and the company.

Due to space constraints, this article mainly addresses JD.com's motivation and purpose, while the next article will focus on analyzing the impact on industry players.

Detailed Analysis Below:

I. Instant Retail and Food Delivery: Sibling Businesses with Interconnected Bloodlines

1. Not Just Food Delivery: Behind It Lies a Trillion-Dollar Instant Retail and Multi-Trillion-Dollar Omnichannel Retail Business

Firstly, Dolphin Research believes that when analyzing JD.com's food delivery venture, the perspective should not be narrowly focused solely on food delivery (including items like milk tea, cakes, etc.), but should be placed within the broader perspective of "general instant retail" to better understand JD.com's intentions and determination in food delivery.

① The First Perspective of Instant Retail: From "Far-field E-commerce" to "Near-field E-commerce": The Origin of Narrow "Instant Retail" (also known as "near-field e-commerce") can be traced back to the maturity of the "far-field e-commerce" (traditional e-commerce) industry, where traditional e-commerce giants have explored a new niche—selling e-commerce goods through faster delivery times (within hours) as a new sales channel, supplementing the traditional e-commerce model. (In the following text, "instant retail" without a prefix refers to this narrow concept).

This is the mainstream perspective on "instant retail" in the market and the path JD.com has taken to enter instant retail.

② The Second Perspective of Instant Retail: From Instant Food Delivery to Instant Delivery of Everything: Meituan's approach is to enter instant retail from food delivery—viewing instant food delivery and instant consumer goods delivery as a whole "general instant retail" perspective, which seems to be often overlooked by the market.

Most market estimates of the instant retail market size generally only consider instant delivery of consumer goods, excluding food delivery. They separate "food delivery" and instant consumer goods delivery into two independent tracks.

③ Far-field E-commerce vs. Food Delivery: Which is More "Similar" to Instant Retail? Dolphin Research believes that the similarity between instant retail and food delivery is higher than that between instant retail and far-field e-commerce.

We won't delve into this issue, but the main contradiction is that the differences between instant retail and far-field e-commerce lie in similar product categories but different fulfillment methods; whereas compared to instant retail, food delivery has consistent fulfillment methods but different types of goods delivered. The uniqueness and core asset of "instant retail" clearly do not lie in what goods are delivered, but in its closer proximity to consumers and more stringent fulfillment time requirements, with a focus on fulfillment delivery.

④ The purpose of the above discussion is to understand JD.com's move into food delivery not as an e-commerce company making a large cross-border entry into a completely new industry—food delivery—that cannot reuse existing resources and operations, but as a company that already possesses "narrow" instant retail business and instant offline fulfillment capabilities, expanding the types of goods delivered from e-commerce products to food, beverages, and more.

In simpler terms, why should JD.com, with millions of Dada instant delivery riders, limit itself to only "general e-commerce goods" instant delivery business? It can be said that JD.com should have expanded its instant delivery business to food delivery earlier, such as during the pandemic's boom period.

This point is evident from the fact that when JD.com and Alibaba strengthened their promotion of food delivery business, they did not provide a separate entry for food delivery (although Alibaba has a standalone food delivery app, Ele.me, it was not adopted), but unanimously used the same entry for food delivery business as "Flash Purchase" business (i.e., instant retail).

II. Why JD.com Wants to Do It and Whether It Should Do "Food Delivery"

1. Offensive Move: Larger Scale, Higher Frequency, More Users in Food Delivery

The simplest and most direct reason for JD.com's entry into the food delivery market is—compared to the narrow "instant retail" of delivering goods (again, a reminder that "instant retail" mentioned alone in the following text refers to the narrow concept), "food delivery" is a larger and more valuable niche track. This is reflected in larger GTV/order volume, more users, stronger user stickiness/order frequency, and other aspects.

① Food Delivery is Larger in Scale and More Concentrated in the Market: Firstly, in terms of industry scale, although instant retail, as a newer track, has consistently outpaced food delivery in growth rate in recent years (for example, Meituan's recent food delivery order growth rate is only about 10%, while Flash Purchase growth rate is over 30%), by 2025, the overall industry scale of food delivery will still be nearly 2x that of instant retail. According to Dolphin Research's forecast, combined with third-party estimates, the total industry scale of food delivery is approximately 1.8 trillion, while the overall scale of instant retail is around 1 trillion.

Moreover, unlike food delivery, which was dominated by a duopoly of Meituan and Ele.me before JD.com's entry, the market share of instant retail is quite fragmented. JD.com Express/Meituan Flash Purchase platform models, Xiaoxiang Supermarket/Dingdong Maicai front warehouse models, Hema/Sam's Club/Costco warehouse-store integration, and diverse models exist.

In other words, food delivery is a larger-scale track with market share more concentrated among a few players, simply put, a "sexier" niche track.

② Food Delivery Has More Users, Higher Frequency, and Naturally "High Frequency Drives Low Frequency":

In terms of user scale and stickiness, within the "instant retail" niche track, Meituan Flash Purchase's average single-user order frequency increased from about 5 times to about 9 times between 2021 and 2023, while JD.com Express (JD.com to Home) user annual order frequency remained at 3.6~3.7 times. Meituan Flash Purchase's user usage frequency is 2~3 times that of JD.com Express.

Looking across niche tracks, Meituan Food Delivery's user annual order frequency is about 45 orders, JD.com's main site user order frequency is about 12~15 times, while instant retail user order frequency is in the single-digit range.

It is evident that in terms of order frequency across different business models, food delivery> JD.com e-commerce (this is a unique issue of JD.com's "quality self-operated" e-commerce, platform e-commerce like Taobao does not have lower order frequency than food delivery) > instant retail. Therefore, the significantly leading order frequency of food delivery logically can play a role in driving traffic to lower-frequency instant retail (and even JD.com's main site e-commerce).

Moreover, the situation where Meituan Flash Purchase's user order frequency is several times that of JD.com Express is partly due to the difference in "parent business" (Meituan Food Delivery vs. JD.com's main site) traffic driving ability.

In summary, from an offensive perspective, food delivery compared to JD.com's existing instant retail business is a larger market scale track with naturally concentrated market share, offering JD.com the opportunity to bring revenue far beyond its current instant retail business scale; at the same time, the high opening frequency of food delivery logically can provide some traffic driving effect to JD.com's main site and instant retail business, which significantly lag behind peers in usage frequency.

2. Defensive Move: JD.com Express Lags Behind Meituan Flash Purchase, Counterattack Food Delivery as Defense

① JD.com, entering "instant retail" from "e-commerce," cannot compete with Meituan, entering "instant retail" from "food delivery," JD.com's intention to do food delivery is partly "offensive defense."

As mentioned above, both JD.com and Meituan have repeatedly emphasized viewing instant retail as an important second growth curve outside their core business. However, in terms of actual results, Meituan Flash Purchase has consistently been nearly twice the GTV scale of JD.com to Home since 2019, and the gap between the two has been widening in recent years, currently Meituan Flash Purchase's scale may have reached about 3 times that of JD.com to Home.

Due to the huge scale gap, the instant delivery business model heavily relies on order volume scale effects, Meituan Flash Purchase's unit profit (UE) is also significantly better than JD.com Express.

According to estimates, between 2022 and 2024, Meituan Flash Purchase's UE model has successfully turned profitable, while JD.com Express (formerly JD.com to Home JDDJ) still had a unit loss of over 1 yuan by 2023.

In short, in the important incremental track of instant retail, JD.com is clearly lagging behind Meituan Flash Purchase in both scale and profitability. A more "horror story" consideration is that if Meituan Flash Purchase "delivers everything" further encroaches on consumers' "good" and "fast" mindset in JD.com's advantageous categories like daily necessities and 3C products, some voices suggest that JD.com's main site business could even be threatened by Meituan Flash Purchase.

Therefore, from the perspective of defending against Meituan's attack on JD.com Express and main site e-commerce business, "offensive defense," entering Meituan's business territory is clearly an important consideration behind JD.com's decision to do food delivery.

② Why Can't JD.com Express Compete with Meituan Flash Purchase?

Looking further, what are the reasons why JD.com Express couldn't beat Meituan Flash Purchase? Firstly, the first point mentioned above, in terms of traffic driving ability, Meituan's food delivery business is significantly stronger than JD.com's main site e-commerce.

The second point is Dolphin Research's judgment in the first major section, "the similarity between "instant retail" and "food delivery" is higher than that between "instant retail" and "far-field e-commerce." Data-wise, the overall user numbers of Meituan and JD.com are roughly equivalent, with the former slightly more at about 680 million, and the latter at about 610 million (both 2022 data), the difference is not significant. However, Meituan Flash Purchase's user numbers are approximately 3x that of JD.com Express.

An important reason behind this is that over 1/3 of Meituan's overall users have converted into Flash Purchase users, while only about 13% of JD.com's group users have converted into Flash Purchase users. Therefore, it is evident that the overlap between food delivery users and instant retail users is high, and far higher than the overlap between "instant retail" and "far-field e-commerce" users.

The third reason, we believe, is precisely because JD.com Express's product categories are limited to supermarket goods and 3C products (partly due to JD.com's stronger mindset and merchant advantage in these categories). In contrast, Meituan Flash Purchase's product categories are significantly more diversified, covering various product types and store formats.

And precisely due to the limitations in product categories, JD.com to Home becomes a high-ticket but very low-frequency consumption behavior. Although JD.com Express's GTV is still about 1/3 of Meituan Flash Purchase, JD.com to Home's order volume is only 1/6~1/7 of Meituan Flash Purchase, with an even larger gap. And order volume scale and density are precisely the most critical indicators for instant delivery business, significantly affecting the UE model, which is one of the key reasons why JD.com to Home's quarterly profit is far lower than Meituan Flash Purchase.

In summary, the three main reasons JD.com lost to Meituan in instant retail include: ① the traffic driving ability of the original core business, JD.com e-commerce is far weaker than food delivery, ② the conversion between e-commerce users and instant retail users is far less smooth than the conversion between food delivery and instant retail users, ③ JD.com Express's coverage of product categories and store formats is too narrow, resulting in too low order volume scale and density, and a poor UE model.

Therefore, one of the purposes of doing food delivery is to reverse the above three major shortcomings.

3. Core Value: Reuse of Delivery Capacity

Since fulfillment efficiency and cost optimization ability are the market consensus "instant delivery" business model's most core competitiveness (perhaps without exception), and also one of the main determinants of profit, we will expand on this key point.

Firstly, the order volume and fulfillment cost of instant delivery business move inversely, and unit profit moves positively, which is a logically and data-wise quite obvious conclusion.

The chart below shows that the turning point for Meituan's food delivery business to become profitable was when its daily order volume reached 20 million in 2018~2019, therefore the industry consensus indicator for whether instant delivery business can achieve breakeven is whether the daily order volume can reach 20 million orders or more.

The decisive factor behind this rule is the "utilization rate" of the fulfillment team (i.e., delivery riders). The more the delivery capacity of delivery riders can be fully utilized, reducing their "idle" time, the higher the unit UE can be achieved. This is similar to "capacity utilization rate" in industrial manufacturing, "loading rate" in the courier industry, "occupancy rate" in the transportation industry, etc.

① Case Study: Demand Peaks and Valleys, Inevitably Leading to "Idle" Capacity

We will expand on this through a case study from Dolphin Research's research on the ride-hailing industry. Taking "City A" in the chart below as an example, the city's daily ride-hailing demand fluctuates between 0~3500 vehicles, averaging around 2000~2500 vehicles. Logically, if ride-hailing demand is evenly distributed throughout the day, the optimal ride-hailing supply for the city would be around 2500, meeting demand while maximizing fleet utilization.

However, due to the reality of ride-hailing demand having peaks and valleys, the demand for ride-hailing during morning and evening peaks is around 3500 vehicles. To ensure passenger experience (control waiting time) and respond to sudden demand, the actual ride-hailing fleet supply in the city needs to have some surplus above the peak, in this case, around 4500 vehicles. This means that the average utilization rate of the city's ride-hailing fleet is only 50%, with nearly half of the time being idle.

② How to Fill the "Valley" of Delivery Capacity Demand

In the instant retail industry, there is a similar situation. To ensure fulfillment capacity and timeliness during peak meal demand, non-meal times inevitably lead to "idle" capacity and "waste" of resources.

To address the inevitable idle capacity issue, instant retail companies' solutions are divided into two angles: one is to form dynamic capacity through crowdsourcing, allowing capacity to rise and fall with demand.

Another perhaps more important method is to use non-meal delivery demand to fill idle capacity during demand valleys, improving overall capacity utilization and spreading capacity costs.

In this regard, Meituan uses afternoon tea, late-night snacks, and non-food demand from Meituan Flash Purchase to fill idle capacity outside peak meal times. For JD.com, due to the originally low order volume of JD.com to Home (daily order volume in 2023 still not exceeding 1 million orders), using food delivery, especially beverage orders, which are low-priced but high-volume, can quickly increase order volume scale and improve capacity utilization.

Moreover, in many business models, these volume-driven or "order-filling" businesses usually do not require much profit, approaching breakeven is sufficient. For example, low-priced e-commerce items and time-sensitive items in the courier industry, or economy class passengers and business class users in the airline industry.

Therefore, for JD.com, one of the values of food and beverage delivery is to quickly expand its instant delivery business scale, optimize fulfillment efficiency and cost from an overall perspective, and it does not need to obtain much profit from these volume-driven businesses themselves.

4. Summary: JD.com's Strategic Choice to Do Food Delivery is Not Wrong, More Depends on Tactical Approach and Execution

In the first major section of this article, Dolphin Research mainly discusses the possible motivations and goals behind JD.com's decision to do food delivery. Through the previous discussion, Dolphin Research believes JD.com's choice to do food delivery has quite sufficient and logical strategic motivation.

Within the broad perspective of general instant retail, doing food delivery is a natural extension of JD.com's existing JD.com to Home business, and it is expected to bring larger market space, more users, stronger stickiness, help quickly expand instant delivery business scale, thereby improving delivery efficiency, and enhancing the delivery UE model, among many other positive factors.

Therefore, Dolphin Research believes JD.com's decision to do food delivery is a thoughtful and determined choice, rather than a simple venture, and it will not easily give up. In other words, JD.com's competition in the food delivery industry is likely not a short-term subsidy war, but rather a long-term war.

Of course, we believe JD.com's decision to do food delivery is a reasonable strategic choice (or attempt), but it does not mean we believe JD.com will definitely succeed in the food delivery business, realize the positive effects mentioned earlier, and ultimately bring good results to JD.com (especially in the short term) .

After all, a good vision does not necessarily translate into good results, and it also depends on JD.com's actual execution ability and tactical approach effectiveness, as well as competitors' responses. Therefore, in the second major section of the following text, Dolphin Research will discuss how JD.com is currently doing in food delivery, whether there is hope to succeed in the food delivery business, and what impact it will have on itself, Meituan, and the entire industry.

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