Food Fight! Douyin’s local services business
How Douyin charged into Meituan's group-buying territory, teamed up with an unlikely partner and takes aim at food delivery.
Table of Contents
Please note that chapters 2 and 3 are only available to paying subscribers.
Things that caught our attention
36Kr recently reported (link in Chinese) that Douyin’s overall GMV target for 2023 is no less than 2 trillion yuan, which is roughly a quarter of GMV in Alibaba’s ecosystem in the past 2 years. Douyin is increasing its focus on search-based ‘shelf-commerce’ and wants it to account for 50% of e-commerce GMV within 3 years. Currently, it is almost 30%. To learn more about the app’s initiatives in ‘shelf-commerce’, read our November article ‘Douyin's E-Commerce Efforts & Increasing Taobao-fication’.
Xiaohongshu is upgrading its livestreaming business to a separate first-level department, moving it out from under the community department and hoping to boost the platform’s commercialization (source: LatePost). In our Xiaohongshu article of last month, we described the conflicts between the commercialization (revenue) and community (user experience) departmental goals that drove this decision.
After launching in Canada in February, Pinduoduo’s cross-border e-commerce platform Temu has also launched in Australia and New Zealand this week and is expanding to the UK by the end of the month. Last month Ed was interviewed about Temu by Bloomberg and TechinAsia. The TechinAsia article can be read here for TiA Premium subscribers. A recording of the Bloomberg interview with added visuals can be found here as a series of 8 short videos.
This week, we are taking a deep dive into Douyin’s local services and food delivery ventures. After adding e-commerce to its platform and invading Alibaba’s turf (about which we wrote in November), Bytedance has now also encroached on Meituan’s territory.
Chapter 1 is based on an article Ed wrote about Douyin’s ventures in local services last summer and is available to all subscribers Chapter 2 contains exclusive information we gathered from expert interviews in the Six Degrees Intelligence database. Chapter 3 summarizes relevant recent developments taken from Chinese tech media. Chapters 2 and 3 are only available to paying subscribers.
Since launching local services in early 2021, Douyin has actually conquered a large market share in the group-buying market (Meituan’s initial business). It has also made several attempts at the much larger market of food delivery, including a highly touted partnership with Ele.me.
Douyin is aggressively chasing this market not just because of the potential GMV but because onboarding these merchants will lead to more advertising revenue. In addition, Douyin has always been very conscious about evolving into more than just a “time wasting” app but one that brings its users real practical benefits.
It’s clear that Douyin management believes travel to be a high potential growth vertical based on the headcount they’ve poured into the business, and the strategy also emphasizes the “sinking market” (3rd tier cities and below).
Douyin previously had a sizeable staff in local services, but seems to be moving to a lighter model where it is relying more on third party service providers.
Key disadvantages of Douyin include: being far removed from the point of actual transactions, limited search functionality, high operational costs, low ROI, and short-lived content popularity.
The key advantage of Douyin is its strength in livestreaming, which gives merchants branding opportunities and the ability to promote new products, whereas group-buying is primarily about deep discounts.
The ability to brand and promote and the hurdle of creating content also means that Douyin attracts a large number of top-tier customers ie larger chains.
While Meituan leads (by far) in transactions, Douyin’s importance as an advertising platform is not to be dismissed, as many merchants who are active on both platforms spend a majority of their advertising budget on Douyin.
Chapter 1: Douyin’s history in local services
In early 2021, Bytedance took a remarkable next step in monetizing its (at the time) 600 million daily active users by adding links to local services to Douyin. In China, the ‘local services’ market includes all kinds of intra-city services like meal delivery, cinema ticketing, bike rental, and more. Previously, this sector was often referred to as O2O (online-to-offline) because consumers place orders online in an app and have products or services delivered offline. In the past decade, local services were a territory of companies like Meituan and Alibaba’s Ele.me.
Bytedance entered local services by offering group-buying discounts at restaurants and accommodations in Beijing and Shanghai through an early version of a channel for location-based recommendations in Douyin. It tried to lure in users by offering even better deals than Meituan, the company that had won the group-buying battle among thousands of Chinese Groupon clones in the early 2010s (check out this Tech Buzz podcast episode for this story).
For this new functionality to become popular, Bytedance needed to recruit lots of merchants interested in offering their products and services on Douyin. Quite a challenge since Meituan is known for having a strong foothold with a powerful offline sales team. But Bytedance made merchants an ‘offer they couldn’t refuse’ by initially charging them only a 600 yuan registration fee and no sales commission (compared to Meituan’s 10-26%). Douyin also allocated 10.000 employees to build the local services business.
Traveling with Douyin
As early as July 2020 (link in Chinese), Douyin started allowing merchants to add options for ticket booking and hotel reservations to their personal pages. By April 2021, Douyin users could buy deals on meals and book hotels in more than 300 cities in China. At the same time, Douyin users would see restaurants promoting themselves on livestreams or advertising in short videos. Douyin even worked on a test with the mapping platform AutoNavi, making merchants visible on a map. All this is to get Douyin users interested in actually visiting these establishments.
In May 2021, Douyin entered another Meituan territory by starting tests with a travel agent mini program called ‘Mangosteen Travel’ (Shanzhu Lüxing, 山竹旅行), offering ticket booking and hotel reservations. Mini-programs are small mini-apps that run inside another app and were first made popular by WeChat in 2017 (check out this Tech Buzz China podcast episode for more details). Since then, they have become an industry-standard in China and have been copied by most Chinese internet companies. Douyin's interest in the travel business comes as no surprise, given the platform's enormous popularity for travel-related content.
Example of accommodation booking from the ‘same city’ menu in Douyin.
Finding food on Douyin
After first generating restaurant traffic through group-buying deals, Bytedance took another page from Meituan’s playbook and entered the food delivery market … sort of. In June 2021, it added a mini-program called ‘Heartbeat Takeout’ (心动外卖, Xindong Waimai), providing food delivery services in China’s first and second-tier cities. The app followed an earlier Douyin functionality from September 2020 called ‘Heartbeat Restaurant’ (心动餐厅, Xindong Canting), in which users could post videos with reviews of restaurants.
While food delivery functionality was new to Douyin, it wasn’t the first time Bytedance offered it. In early 2020, Jinri Toutiao, Bytedance’s news aggregation app, had already added functionality to order meals from restaurants, grocery stores, and pharmacies through third-party platforms.
Douyin invited food and beverage businesses that were already active on the app to join this new Heartbeat Takeout mini-program platform. There was an important difference with Meituan though: restaurants had to arrange their own delivery.
Douyin’s Heartbeat Takeout food delivery portal could be found through its livestream channels, where hosts could also recommend specific delivery services. Users would pick a restaurant, select products, fill in their delivery address, and pay within Douyin Pay, an in-app payment option.
Left: Douyin Pay, 0.09 RMB discount per payment. Middle: Alternative payment options. Right: Link a bank card to Douyin Pay
Despite Douyin allocating a lot of staff to push the service to merchants, it wasn’t a success. After 5 months, Heartbeat was suspended and related mini-programs were removed from Douyin. Instead, the app started to focus on dine-in group-buying. Linkshop would later report (link in Chinese) that difficulties in setting up a distribution system were the likely reason for the failure of Heartbeat Takeout.
While September 2020’s Heartbeat Restaurant and June 2021’s Heartbeat Takeout remained in a testing phase, Douyin opened yet another food delivery ordering functionality to the public in the summer of 2021. Users could order food delivery through external connections to meal delivery platforms Meituan and Ele.me. As such, this looked a lot like the paid traffic Douyin previously generated for third-party e-commerce platforms.
Time to monetize
In May 2022, SCMP reported that Douyin had started charging hotels and restaurants that were promoting their businesses through group-buying discounts. The fees ranged from 2.5% for restaurant orders to 4.5% for hotel bookings and 8% for wedding services, all of which were still lower than the average industry standard. Meituan’s usual charge was roughly 20%, but remember that with Meituan, that fee also includes delivery. New merchants would also still get 60 days of commission-free access to Douyin.
In July 2022, TechPlanet reported (link in Chinese) that Douyin users could order combo meal delivery from restaurants through group-buying features in the app. Users can place an order by clicking on a product link in a short video. Restaurants arranged their own delivery drivers or used existing delivery platforms like Dada. The process ran directly on Douyin instead of a mini-program built by the merchant or other third-party mini-programs.
It was clear by now that whatever the business model, Bytedance wanted to take a bite out of China’s food delivery industry dominated by Meituan and Alibaba’s Ele.me, who had 67% and 27% market share respectively in the first quarter of 2022. According to the National Bureau of Statistics, the food delivery market was worth over 934Bn yuan ($134Bn) in 2021. Before 2022’s problems with COVID lockdowns across China, the penetration for food delivery had increased from 16.9% of online Chinese in 2020 to 19.9% in 2021. That still leaves a lot of room for growth.
Douyin had reached 22Bn yuan in local services GMV in the first half of 2022 and had raised the target for 2022 even further to 55Bn yuan. It also expanded the categories of local services: massage, supermarkets, flowers, parent-child, travel, sports, leisure & entertainment, etc.
While the Mangosteen Travel mini-program no longer seems to be operational and its official account hasn’t posted new content since August 2021, the local services ecosystem in Douyin has greatly expanded. Douyin has a channel called ‘same city’ (同城, tong cheng) in its top menu. Clicking on it brings you to a new screen that offers a menu showing lists of service providers in food, leisure and entertainment, attractions, beauty & hairdressing, accommodation, sports, and more. Douyin has allowed almost any local business to promote itself through this portal.
Early 2022, Bytedance acquired movie ticketing company Yingtuobang (影托邦), which became available as a ticket booking option in Douyin, next to Meituan’s Maoyan and Alibaba’s Taopiaopiao.
An unexpected partnership
Considering the large user base of Douyin and how Bytedance had already conquered a substantial part of the e-commerce market, the existing market leaders must have seen a potential threat coming. ‘If you can’t beat them, join them’ might be what Ele.me thought: in August 2022, it announced a partnership that lets users order food through an Ele.me mini-program in Douyin. Ele.me would promote offerings from millions of restaurants through Douyin videos.
An Ele.me driver picking up an order
Chapter 2: Behind the scenes: details of Douyin’s local services business
In this chapter, we have relied on insights from proprietary expert interviews in the Six Degrees Intelligence database.