JD, Alibaba, and Meituan Join the Food Delivery Fray: Is This the E-commerce Endgame?

Following the previous article explaining JD.com's motivation and purpose for entering the food delivery market, this article focuses on the current state, possible outcomes, and the impact on the industry and companies of the instant delivery war between $JD.com(JD.US) and $MEITUAN(03690.HK).

Let's dive into the main content:

I. What is the current status of JD.com's food delivery?

1. The undeniable fact of astonishing scale growth

After discussing JD.com's motivation for entering the food delivery market, how has JD.com actually performed in food delivery in recent months? In short, according to data released by JD.com, the growth has been very rapid, likely exceeding the original expectations of most people in the market.

At several key points, since JD.com officially launched its food delivery service on March 1st, the daily order volume exceeded 10 million after 53 days, and just three months after the launch on June 1st, it announced reaching a daily order volume of 25 million, surpassing the industry-recognized threshold for achieving breakeven under normal conditions (with normal subsidy levels). According to the company's disclosure, the above order volume does not include the JD Daojia (now JD Express) business.

Of course, this does not mean that the average daily order volume of JD.com's food delivery has remained above 25 million since June 1st. There are also voices in the market suggesting that the disclosed order volume by the company is inflated, and that the vast majority are contributed by "low-quality" beverage orders (we will discuss this further). But for now, let's assume JD.com's disclosed data is accurate.

On other key operational indicators: ① As of the end of May, JD.com's food delivery covered about 350 cities, far fewer than Meituan's 2,000 cities, and JD.com's food delivery is still mainly focused on mid-to-high-tier cities (matching its main site positioning);

② The total number of JD.com's food delivery riders is about 1.1 million, with about 100,000 being full-time (recent news indicates a rapid expansion to 150,000). Meituan's full-time riders and total rider numbers are about 7-8 times that of JD.com (as of the end of 2023). However, according to published data, Meituan's daily orders for food delivery and flash purchases are only about 3-4 times that of JD.com.

If the data is accurate, this means that each JD.com food delivery rider currently delivers more than twice as many orders per day as a Meituan rider (a rough estimate). This data is somewhat surprising and may suggest that JD.com's disclosed food delivery order volume is somewhat inflated. However, it also highlights the significant capacity gap in JD.com's food delivery, which is in a "bursting order" state. On the other hand, it also reflects the role of significantly increasing JD.com's instant delivery order scale and density through the food delivery business.

③ The cost of these impressive results is JD.com's extremely high subsidy levels and per-order losses, according to research at the end of May, the loss per order may be between several yuan to more than ten yuan. However, due to dynamic changes in subsidies and charges to merchants, the actual per-order loss of JD.com's food delivery fluctuates greatly, which will be further discussed later.

In summary, the current status of JD.com's food delivery is that—by relying on extremely high subsidies and losses, JD.com has successfully scaled its food delivery business to a considerable size in a very short time, reaching about 1/3 to 1/4 of Meituan's scale, and surpassing the order volume scale required for breakeven under normal operations.

2. Why choose beverages as the entry point, and is beverage delivery a "low-value" business?

According to research on April 30th, over half, about 54% of JD.com's food delivery orders are beverages such as milk tea and coffee; whereas according to research around 2020, about 70% of orders in the food delivery industry as a whole are composed of three main meals, with afternoon tea accounting for less than 20%. (Currently, the proportion of non-main meals such as afternoon tea and late-night snacks should have increased).

It is evident that the proportion of beverages in JD.com's food delivery is indeed far above the normal industry level, and the rapid scale growth can be said to be built on beverages. However, why did JD.com choose beverages as the focus for scaling up? Are beverage orders "low-quality" orders with no value?

First, why choose beverages as the main focus, Dolphin Research believes the reasons are:

① Beverages are typical discretionary consumption, more likely to generate incremental demand under subsidy stimulation. In contrast, the demand for main meals is relatively fixed and unlikely to increase from three meals a day to four or five meals due to subsidies.

② The supply chain of beverages is more highly chained (according to research, it may have reached about 50% currently), much higher than the overall chain rate of the catering industry. By cooperating with chain brands, it is convenient and quick to expand store coverage.

③ As mentioned earlier, beverage delivery does not have very concentrated demand and delivery peaks like main meals, making it relatively easier to manage delivery capacity.

As for whether beverage orders are "low-value" orders, Dolphin Research believes it has two sides:

① On the downside, the customer unit price of beverages is relatively lower than that of main meals, so even under normal conditions with reduced subsidies, the potential per-order profit margin for this type of order will also be lower; at the same time, the discretionary, non-fixed consumption characteristics of beverages, although they scale up quickly, may also decline rapidly after subsidies are reduced, which is not conducive to cultivating loyal users.

② But on the positive side, as mentioned earlier, instant delivery businesses (and many other business models) often have a large volume of business that is not primarily profit-driven. In other words, the main value of beverage orders for JD.com currently may only be in volume, supporting the scale and density of delivery capacity and orders.

③ In summary, focusing on beverages is likely a proactive strategic choice, with the purpose of scaling up, and it is not a problem in the short term. The more critical issue is, whether JD.com's food delivery can successfully cultivate a sufficiently large and stable food delivery consumer group within the time window supported by beverages, and diversify and rationalize the categories and order structure of instant delivery.

3. The surge in scale is backed by "huge" subsidies and losses

Despite the impressive performance of JD.com's food delivery from a scale growth perspective, the cost behind it is huge subsidy expenditures and per-order losses.

According to recent expert research disclosures, the per-order loss of JD.com's food delivery reached high single digits to more than ten yuan by the end of April (the differences between different sources are quite large). And taking a per-order loss of 10 yuan as an example, multiplied by a daily order volume of 20 million, means that the loss in just one month could be as high as 6 billion yuan, which is clearly not a sustainable state.

Specifically, what causes the huge losses of JD.com's food delivery? As seen in the table below:

① Nominally, the technical service commission of JD.com's food delivery is roughly the same as Meituan's, with JD.com currently at 6%, and Meituan disclosed to be around 6%~8%. However, since JD.com currently waives commissions for merchants who joined before May 1st for the entire year of 2025, and the customer unit price of JD.com's food delivery (mainly beverages) is significantly lower than Meituan's, the average per-order service commission income gap between JD.com and Meituan is about 1~3 yuan, depending on whether JD.com merchants enjoy certain commission reductions.

② The gap in delivery UE is not very large: Overall, the gap on the revenue side is about 1.2 yuan, and the gap on the cost side is about 0.6 yuan, totaling a UE gap of about 1.8 yuan between JD.com's food delivery and Meituan's food delivery. The main reason for the difference is that JD.com's current fulfillment charges are relatively low, which is essentially a subsidy on JD.com's fulfillment, and the company has strong self-regulation capabilities in this regard.

In terms of more efficient delivery costs, according to Dolphin Research's estimates, Meituan's per-order fulfillment cost in 2024 is about 6.5 yuan, while according to recent research, JD.com's per-order fulfillment cost is only about 7.1 yuan (somewhat unexpected). If the research data is roughly accurate, the gap in fulfillment costs between JD.com's food delivery and Meituan's is not significant. This means that after JD.com raises its fulfillment charges to benchmark Meituan, the gap in per-order fulfillment profits between the two will not be very large, possibly only a few tenths of a yuan.

③ "Huge" user subsidies are the main reason for the losses: The most significant factor causing the huge gap in per-order profits (UE) between JD.com and Meituan's food delivery is the front-end subsidies to consumers. According to research, as of April 30th, the per-order user subsidy amount borne by JD.com's food delivery platform is as high as about 5.6 yuan, compared to Meituan's food delivery platform bearing only about 1 yuan per order (about 2% of GTV).

4. Summary—The key to success is whether the order volume can be maintained after subsidy reduction

Summarizing the above, regarding how JD.com's food delivery has performed so far, it can be simply summarized as "low-quality" "high-speed growth".

The good points are: ① The scale growth is very rapid, with JD.com's food delivery reaching a daily order volume of 25 million by early June, close to 1/3 to 1/4 of Meituan's. ② According to some research, at the current order volume scale, the gap in fulfillment and backend per-order costs between JD.com's food delivery and Meituan's is not very large.

The low-quality aspects are: ① The category structure of food delivery is poor, mainly beverages, with a lower proportion of meal deliveries with higher demand certainty and repeatability, which also drags down the customer unit price; ② The above achievements are all based on high commission reductions for merchants and subsidies for consumers, resulting in significant losses for JD.com. Such a level of loss is certainly not sustainable.

Combining the two, the key signal for the "life and death success" of JD.com's food delivery is very simple—whether the order volume can be maintained and still grow (even if the growth rate slows significantly) after the subsequent reduction of commission reductions for merchants and subsidies for consumers. If this can be achieved, Dolphin Research believes that JD.com's food delivery is likely to achieve a rough breakeven, allowing it to operate long-term. From the perspective of JD.com's food delivery business itself, this can already be considered a success.

5. Spillover value—The spillover value of food delivery has already shown initial results

As mentioned earlier, the value of JD.com doing food delivery is not only in the food delivery business itself, but also significantly in its spillover effect on JD Express and the overall group in terms of traffic. In this dimension, how is JD.com's food delivery currently performing?

Although there is no specific data to measure the actual cross-selling effect of food delivery on JD Express and the main e-commerce business, according to Liu Qiangdong's speech on June 17th, about 40% of JD.com's food delivery users also purchase e-commerce products on JD.com. Moreover, from the user volume and user stickiness data, JD.com's food delivery has already shown some effectiveness in terms of traffic.

As can be seen from the chart below, according to Questmobile data, among the three major e-commerce platforms in China from January to April this year—Taobao, Pinduoduo, and JD.com, the monthly active/daily active user volume of Taobao and Pinduoduo remained roughly the same as last year (with slight increases or decreases), only JD.com's monthly active/daily active user volume showed a significant increase compared to last year, especially in April, with monthly active and daily active user volumes increasing by 18% and 27% year-on-year, respectively.

From the data, it can be seen that since JD.com started doing food delivery, it has indeed brought a lot of new users and stronger user stickiness to the overall group ecosystem. It has indeed played a role in driving traffic from high-frequency to low-frequency to some extent. Of course, from a more cautious perspective, simply bringing in more users in the short term is not enough; it is still necessary to see how many of them can be retained and bring real cross-sales between JD Express and the long-distance e-commerce business.

IV. Can JD.com's food delivery succeed?

1. What level of success can be considered successful

After discussing the current status of JD.com's food delivery, looking to the future, from a medium to long-term perspective, can JD.com's food delivery ultimately succeed? Regarding this question, Dolphin Research believes that for JD.com's food delivery, "success" can be divided into two levels:

① The first level of success, that is, achieving near breakeven at a decent order volume scale (daily average of several million orders) while playing a role in cross-selling to flash purchases and e-commerce businesses, and strengthening JD.com's instant fulfillment capabilities;

② The second level of success, JD.com significantly breaks Meituan's advantage barrier in the food delivery field and captures a considerable market share from Meituan.

In simple terms, Dolphin Research believes that JD.com's food delivery has a good chance of achieving the first level of success, but currently, there is basically no one in the market who believes that JD.com can significantly threaten Meituan's leading position and market share.

2. Why do we believe JD.com's food delivery has a chance to achieve the first level of success?

As for why Dolphin Research believes that with good execution, JD.com's food delivery has a good chance of achieving the first level of success mentioned earlier, the main reasons include:

① JD.com's food delivery has already achieved initial success in the past few months, crossing the order volume scale required for breakeven within more than three months; user volume data also shows that food delivery has shown some traffic effect; according to research information, if JD.com's food delivery normalizes subsidies for merchants and consumers and aligns its charging standards with Meituan, achieving UE breakeven should not be a big problem.

② JD.com's existing customer base matches well with the target users of food delivery. As a consensus, instant retail and food delivery are "relatively high-end" discretionary consumption, with a relatively high proportion of high-income, high-tier city residents, and highly educated people in the food delivery customer base. This overlaps well with the positioning of JD.com's main site users.

Therefore, logically, JD.com only needs to migrate the existing main site and JD Express users' food delivery demand from other platforms to the JD.com food delivery platform, and does not necessarily need to cultivate a new user mindset of ordering food delivery on JD.com from scratch. The difficulty is relatively not that high.

According to some research, the main target and the customer base contributing more than half of the order volume for JD.com's food delivery are its loyal users (Plus members) on the main site and the student group (new customer group). According to research, by the end of April, Plus members contributed more than 1/3 of the food delivery order volume, and the student group contributed about 1/5 of the order volume.

④ The difficulty of the first level target is not that high. After all, in this scenario, JD.com's food delivery only needs to achieve a daily order volume of around 20 million to 40 million and a per-order profit around breakeven. It does not need JD.com to achieve the same operational efficiency as Meituan, leaving some room for error. JD.com not being able to beat Meituan does not mean that JD.com's food delivery cannot survive in the food delivery market.

3. Is there a possibility that JD.com's food delivery can beat Meituan's food delivery?

As for whether JD.com's food delivery can significantly threaten Meituan's leading position and significantly take away Meituan's market share, the market consensus is that it is basically impossible. There is not much disagreement on this, and there are many related articles, so we will not repeat them. In simple terms, Dolphin Research also does not believe that JD.com's food delivery can beat Meituan, and related references can be found in the previously published article by Longbridge community influencer Demo, "Meituan vs. JD.com: Core and Boundaries, Mindset and Traffic".

4. What are the risks that JD.com's food delivery cannot even achieve the first level of success?

Although from a strategic direction, Dolphin Research believes that JD.com doing food delivery is a logical choice, and there is a good chance of achieving near breakeven at a scale of several million daily orders, allowing it to operate long-term, this does not mean that JD.com can indeed succeed in reality. Dolphin Research believes that the main risks are twofold: ① JD.com itself has execution problems, such as overly aggressive expansion, ② Meituan and Ele.me, as existing players, take very aggressive countermeasures, making it impossible for JD.com's food delivery to achieve near breakeven.

We mainly discuss point ①, according to recent research, JD.com's food delivery may lose tens of billions of yuan per month, while its main site's quarterly profit is only slightly over 10 billion, and that is during the benefit period of national subsidies. Clearly, such high subsidies cannot last long.

However, in addition to food delivery, JD.com seems to have intentions to explore new businesses in multiple fields such as alcohol travel and stablecoins, according to recent news. Although it is not yet clear how much JD.com will invest in the latter two, focusing on multiple new businesses at the same time undoubtedly poses the risk of excessively dispersing funds and focus.

Moreover, in the single field of food delivery, Dolphin Research believes that JD.com's better choice is to maintain its focus in high-tier cities, gradually shift to refined operations, and reduce subsidies. If JD.com's food delivery expands excessively in the future, such as sinking into low-tier cities on a large scale, intending to fight Meituan nationwide. This may lead to excessive investment in delivery capacity, ground promotion, and subsidies, and after the subsequent reduction of subsidies and the decline in order volume, it may fall into a "capacity" redundancy, a dilemma of being unable to advance or retreat, and may also drag down the overall profit of the group for a longer time.

Furthermore, JD.com's core e-commerce business is not without worries, on the one hand, how long the benefits of national subsidies can last is a question, on the other hand, Pinduoduo's first-quarter report shows a significant increase in domestic main site subsidies, which also means that the domestic e-commerce competition landscape is still very fierce. It cannot be ruled out that JD.com, affected by competition, may be forced to move subsidy funds back to the main site before the market share and user mindset of the food delivery business are stabilized.

V. What impact does JD.com doing food delivery have on the entire industry and the players within it?

After sorting out JD.com's motivation, current status, and whether it can succeed in doing food delivery, we come to the last section—what is the impact of JD.com doing food delivery on the industry and the players within it.

1. Short-term impact

In the short-term perspective, Dolphin Research sees the trend as: ① Currently, JD.com, Meituan, and Ele.me each have large subsidies, and the main impact is that the overall scale of the industry has been significantly increased in a short period, improving the user penetration rate of the instant delivery market, and the situation of players competing for market share among each other is not yet significant.

According to announcements from JD.com, Meituan, and Ele.me, these three companies have recently claimed to have achieved daily order volumes of over 25 million (pure food delivery), 40 million (food delivery + flash purchases), and 90 million (pure food delivery), respectively. Each company's order volume has shown significant growth, with none of them declining.

In Meituan's previous first-quarter report communication, when JD.com's food delivery order volume was growing rapidly, Meituan did not lower its guidance for the second-quarter food delivery order volume growth rate, which also shows that JD.com's order volume growth has not affected Meituan's original growth trend in food delivery.

② The second short-term impact is that under high subsidies, JD.com, Meituan, and Ele.me will all experience significant losses or significantly narrowed profits in the short term in their food delivery businesses. In the short term, this will have a considerable drag on each company's profitability. However, since JD.com and Meituan's overall quarterly profits are only slightly over 10 billion, it is clear that under normal circumstances, they cannot support such high subsidies for a long time.

As mentioned earlier, with JD.com's food delivery losing 10 yuan per order and a daily order volume of 20 million, the loss in just one month could be as high as 6 billion yuan. Meituan also claims to "spare no expense to win the food delivery war" and "the profit of the food delivery business will decline significantly year-on-year." According to Meituan's guidance, Dolphin Research's preliminary estimate is that Meituan's subsidies in the second quarter will be higher than the original market expectations by tens of billions to tens of billions (including revenue deductions and marketing expenses).

2. Medium to long-term impact

From a medium to long-term perspective, from Meituan's perspective, Dolphin Research believes the possible scenario is: ① In terms of the growth of the food delivery business, since JD.com's food delivery is unlikely to take away much of Meituan's existing users and business volume, Dolphin Research believes that Meituan's subsequent growth in food delivery is likely to remain around 10%, continuing to grow steadily.

For the current significantly increased order volume scale in the industry, Dolphin Research currently believes it is "coming fast, going fast." After subsidies return to normal, the net increase in new users created in food delivery may not be too many.

② Since JD.com's food delivery has a good chance of ultimately operating long-term with near breakeven at the third-largest scale in the industry (such as a market share of 10%~20%), the subsequent three-way competition in the food delivery and instant retail market will continue for a long time, and the scenario of JD.com being completely squeezed out of the food delivery market should be a small probability event.

And because the competition will continue for a long time (even if the intensity is not high), the main impact on Meituan's food delivery may be more reflected in the expectation of a lower increase in per-order profits in the future.

③ Since part of JD.com's motivation for doing food delivery is to defend the instant retail market, and Taobao has also cooperated with Ele.me to strengthen its investment in the instant retail market, jointly countering Meituan's rapid growth in the instant retail market.

Whether Meituan's flash purchase business will be affected by more intense competition in the future, with its order volume growth no longer significantly outperforming food delivery growth; or whether the three players' joint efforts will jointly expand the overall scale of the instant retail industry, so that Meituan's flash purchase growth will not slow down significantly, needs further observation. From a conservative perspective, it can be assumed that Meituan's flash purchase growth will slow down as a baseline scenario.

From JD.com's perspective, the medium to long-term outlook is more uncertain. In simple terms, it depends on whether it can maintain near breakeven operation in the food delivery business after subsidies normalize. ① If it succeeds, then in addition to the food delivery business itself possibly bringing a small amount of profit to JD.com (of course, it may also be a small loss), JD.com will be able to reduce its reliance on external traffic, reduce certain marketing expenses, and through cross-selling, the revenue growth and profit of its main site and JD Express business are also expected to be adjusted upwards.

② But if it fails, after realizing this result, JD.com will inevitably significantly reduce its investment in food delivery and gradually withdraw the assets generated by this attempt, but it may take 1-2 years of adjustment period, during which JD.com's overall performance will certainly not look good.

3. Valuation assessment

Finally, from Meituan's perspective, based on the previous judgments, Dolphin Research first made some adjustments to Meituan's expectations: ① Slightly lowered the medium to long-term per-order profit increase of Meituan's food delivery, significantly lowered this year's per-order profit; ② Raised this year's order volume growth rate of food delivery (stimulated by subsidies), keeping the medium to long-term unchanged; ③ Lowered the medium to long-term order volume growth rate of Meituan's flash delivery business, raised this year's order volume growth rate.

Based on the above adjustments, we update Meituan's valuation in two scenarios:

① In the conservative scenario, we use 2025, which is likely to be the worst profit year, as the valuation benchmark, packaging all businesses, including innovative business losses and headquarters costs, and giving an overall PE valuation of 17x (because it is packaged as a whole, it is higher than the valuation given to individual businesses). Referring to the table below, Dolphin Research believes that in the pessimistic scenario, Meituan's price may once again test the HK$89 price.

② In the neutral scenario, Dolphin Research believes that the subsidies for each company's food delivery should return to normal levels by 2026, and JD.com will not significantly take away Meituan's market share. Based on this judgment, using the 2026 performance as the benchmark, the SOTP method estimates Meituan's neutral valuation to be about HK$165 per share. For the innovation segment, including Youxuan, Xiaoxiang Supermarket, and overseas business, since they are still in the loss stage and the prospects are not yet clear, we do not give a valuation or penalize them.

Combining the pessimistic and neutral valuations, corresponding to the current price of about HK$128, there is about 30.5% downside potential and about 29% upside potential.

In the short term, since the competition in the food delivery war may not have entered the most intense stage yet, and the impact has not yet been clearly reflected in the company's performance and fully digested by the market, there is a risk that Meituan's current price may continue to decline in the short to medium term. Dolphin Research believes that maintaining a wait-and-see approach and observing as we go is a better choice.

However, from a medium to long-term perspective, overly aggressive food delivery subsidies will certainly not last long and will inevitably decline, and Meituan's market share is unlikely to be significantly damaged in this round of competition unless Meituan also makes mistakes in its overseas and other new business expansions. Dolphin Research believes that aside from short to medium-term fluctuations, Meituan is ultimately likely to return to its neutral valuation.

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