The realms of online and offline commerce are rapidly coalescing
Print Edition
Shanghai resident Eva Xu likes to order meals from online vendors so she can eat at home after work and not have to trudge to a restaurant on a cold winter’s night.
“I switch between several online food-ordering apps, taking advantage of incentives such as 5-10 yuan in cash coupons for each order,” she said. “It actually saves me money over the cost of a restaurant.”
Food delivered to the doorstep is part of the booming online-to-offline services sector, and Chinese Internet giants have been eager to cash in on the trend. In many cases, they have teamed up with smartphone app companies to reach consumers.
Search engine giant Baidu has said it will invest 20 billion yuan (US$3.2 billion) to promote its daily deals website Nuomi, which is also a portal for online food delivery and other cash coupons for offline merchants.
Ride-hailing company Uber and smaller players such as online chauffeur-booking app eDaijia and home furnishing service provider Jia.com are also scrambling to gain a firm foothold in the fast changing landscape. It’s a landscape with tantalizing prospects.
China’s online-to-offline food sector is expected to grow 46 percent this year to 142 billion yuan, accounting for about 4.6 percent of the country’s overall catering industry, according to domestic Internet consultancy iResearch. By 2017, the sector is forecast to do business valued at 200 billion yuan.
According to a McKinsey survey of more than 6,100 Chinese Internet users, 71 percent of respondents said they use online-to-offline services, and 97 percent of those said they would continue to do so.
Moody’s Investors Services is predicting that investors will remain keen on the sector. Although many of the Internet giants involved in the trade aren’t generating big revenues from it yet, the ratings agency said their huge cash resources cushion them from any ratings downgrades.
E-commerce giant Alibaba has said it hopes to turn more than 300 million online shoppers into users of its online-to-offline services.
Alibaba and its small financial services arm Zhejiang Ant Small Financial Services Group have invested 6 billion yuan into food vendor Koubei, which will become the center for Alibaba’s online-to-offline services.
At the same time, the company’s food-ordering service Taodiandian will be moved to the Koubei brand, with Ant Financial services such as hospital appointment bookings gradually added to help expand Koubei’s reach beyond food.
Anecdotal evidence suggests it’s a good strategy for Alibaba. Most of my friends and colleagues who have purchased goods on Alibaba retail sites Tmall and Taobao told me they have had no difficulty shifting into Koubei services.
On-demand service
Consumers access Koubei.com through Ant Financial’s Alipay Wallet app and Alibaba’s Mobile Taobao app, allowing them to use mobile devices to find and purchase a variety of on-demand services, ranging from car repairs and movie tickets to take-away lunches and hospital appointments.
“It’s important for Alibaba to establish a service network that covers every aspect of a consumer’s life, both online and off,” said Xue Shengwen, senior analyst with domestic research firm CIConsulting.
Koubei is connected with more than 400,000 offline merchants and eateries nationwide and plans to cover more than 200 cities in China within a year. Last month, the vendor said three Chinese restaurant chain operators — Haidilao Hotpot, Xibei Restaurant and Grandma’s Home — came in as strategic investors.
Aside from subsidies for consumers, Koubei hopes to leverage its e-commerce related consumer data and its partners’ logistics capability to help merchants better attract visitors, both online and offline.
“By introducing these new investors, we hope to share our capability with merchants, instead of just selling coupons or providing payment services for them,” said Koubei Chief Executive Fan Chi.
Meanwhile, Alibaba rival Tencent, China’s largest Internet service portal, is banking on its popular mobile instant messaging and social platform WeChat to attract consumers to services offered by partners, such as theaters bookings, which are embedded in the WeChat app.
Unlike Baidu and Alibaba, Tencent has developed its online-to-offline strategy by taking minority stakes in companies in key service sectors, such as car hailing app Didi Kuaidi, lifestyle information site Dianping.com and classified information site 58.com.
“This has allowed Tencent to establish its ecosystem within a relatively short period of time,” Moody’s vice president and senior analyst Lina Choi said in a research report. “But it has to ensure that the consumer experience remains consistent when they’re tapping into services provided by partners.”
In 2016, more capital is expected to pour into the online-offline realm, and established companies will need to think beyond just offering discount or coupons to attract customers.
“More businesses will be seeking to expand into previously untapped regions in 2016 because the segment has yet to reach mass populations in lower tier cities and rural areas,” said Philix Liu, trends analyst at Mintel for the Asia-Pacific.
Big money entering the industry means that the quality of services and the overall user experience are certain to be lifted, he summed up.
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