THIS MATERIAL IS A MARKETING COMMUNICATION.
China’s On-demand Delivery Sees Rising Demand
Online groceries will be one of the major growth drivers of the overall e-commerce industry in China. With China’s e-commerce penetration reaching 35%, analysts expect further growth in the low teens over the next three years.1 While online penetration is high for certain product categories like home appliances (44%) and beauty and personal care (39%), the penetration rate for online groceries is only 15.7%.2,3 On-demand delivery has been a rising star in online groceries this year, and we expect this business to sustain its robust growth in the coming years. For investors, we believe this shift presents a compelling opportunity to capitalise on the competitive advantages of leading food delivery players as they grow their presence in the on-demand delivery space.
- On-demand delivery businesses are emerging as a key driver of online grocery sales growth across China.
- The penetration of on-demand delivery still has significant headroom for growth, representing just 2-3% of total grocery sales in China.4 We expect the channel to sustain robust growth, driven by changing consumer habits, focused investment from e-commerce players, value-added benefits for merchants, and government support.
- Leading e-commerce and food delivery businesses that can leverage existing rider networks have a strong competitive advantage to lead in the on-demand delivery segment.
On-demand Delivery to Drive Growth of Online Groceries
Since the pandemic, major e-commerce players have invested heavily in their Community Group Purchase (CGP) businesses as consumers shifted to purchasing groceries online. However, the growth of CGP businesses has slowed down this year partly due to government regulation. Large platform companies were found to be selling grocery products at significantly discounted prices, sometimes even at a loss, mainly to gain market share. These pricing tactics competed not only with other e-commerce companies but also directly with small mom-and-pop stores, leading to the government’s intervention.
Since then, companies have gradually shifted their focus from CGP to on-demand delivery businesses. For example,
On-demand delivery has shown a robust growth rate, with a large part of the sales mix coming from grocery products like fast-moving consumer goods (FMCG) and fresh products.5 Globally, on-demand delivery businesses are facing challenges with the rising cost of capital. However, we believe that Chinese companies can leverage their moats in food delivery to sustain high growth rates in on-demand delivery businesses and become profitable in the near future. Key success factors of China’s food delivery industry include the country’s high population density and lower rider costs compared to other developed economies. By applying this same logic to on-demand delivery businesses, we expect this service will be a leading driver of China’s online grocery growth in the years to come.
Low Penetration Provides Headroom for Growth
China’s penetration of on-demand delivery is currently low, representing just 2-3% of total grocery sales and around RMB 254 billion in gross merchandise value (GMV) across the top players in 2021.6 For the leading player,
Despite the low penetration rate, on-demand delivery is already a meaningful channel for leading supermarkets. According to Bernstein, on-demand delivery represented around 18% of revenues for the top 20 supermarket chains in China.8 Thus, we expect on-demand delivery to sustain robust growth and take a greater share of China’s overall grocery market, supported by several key drivers:
- Changing consumer habits: Many consumers relied on on-demand delivery services during the lockdowns in China this year. After trying the service, many consumers are willing to pay a premium for the extra convenience. In addition, younger consumers tend to have a higher willingness to pay for convenience, especially in China, where like other major Asian countries such as Thailand, Taiwan, Japan, and Korea, we see high penetration of convenience stores.
- Investments by e-commerce companies: As mentioned above, platform companies are shifting their investments to on-demand delivery businesses. In particular, the focus is on the grocery category, where online penetration remains low and presents ample growth opportunities.
- Value add for merchants: More merchants are willing to join on-delivery platforms as the service provides incremental revenue with delivery enabling larger catchment areas. While the top 20 supermarket chains already have 18% of their revenue from on-demand delivery, this figure is still tiny for smaller merchants and has significant room for growth.9 Moreover, on-demand delivery is not only for grocery products but also extends to flowers, consumer appliances, pharmaceutical products, etc. For
Meituan, Instashopping increased the number of new merchants by more than 30% year-on-year in 2Q22.10
- Government support: The Chinese government supports on-demand delivery as the business model helps digitise small- and medium-sized merchants. But, more importantly, on-demand delivery supports small and medium enterprises (SMEs) rather than taking shares from them, which was the case previously with the CGP model.
Leading Platforms Have a Head Start in the On-demand Delivery Segment
We believe leading e-commerce names like
Most players are currently loss-making. Thus, considering unit economics, we think players with food delivery businesses may continue to gain market share while front distribution centre models like Dingdong and Missfresh will lose.
Staying Ahead with Mirae Asset’s Latest Insights
1. Source: Morgan Stanley, July 2022
2. Source: Euromonitor, Morgan Stanley, July 2022
3. See our previous note which touched on why e-grocery penetration has been lower than other categories
4. Source: Bernstein, August 2022
5. Source: Bernstein analysis, August 2022
6. Source: Bernstein, August 2022
7. Source: Ibid.
8. Source: Ibid.
9. Source: Bernstein, August 2022
10. Source: Company data, August 2022
11. Source: Morgan Stanley, May 2022
12. Source: Bernstein estimates, August 2022
13. Source: Company data, August 2022
Disclaimer & Information for Investors
No distribution, solicitation or advice: This document is provided for information and illustrative purposes and is intended for your use only. It is not a solicitation, offer or recommendation to buy or sell any security or other financial instrument. The information contained in this document has been provided as a general market commentary only and does not constitute any form of regulated financial advice, legal, tax or other regulated service.
The views and information discussed or referred in this document are as of the date of publication. Certain of the statements contained in this document are statements of future expectations and other forward-looking statements. Views, opinions and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance or events may differ materially from those in such statements. In addition, the opinions expressed may differ from those of other Mirae Asset Global Investments’ investment professionals.
Investment involves risk: Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the Fund will generate a return and there may be circumstances where no return is generated or the amount invested is lost. It may not be suitable for persons unfamiliar with the underlying securities or who are unwilling or unable to bear the risk of loss and ownership of such investment. Before making any investment decision, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the Fund and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Sources: Information and opinions presented in this document have been obtained or derived from sources which in the opinion of Mirae Asset Global Investments (“MAGI”) are reliable, but we make no representation as to their accuracy or completeness. We accept no liability for a loss arising from the use of this document.
Products, services and information may not be available in your jurisdiction and may be offered by affiliates, subsidiaries and/or distributors of MAGI as stipulated by local laws and regulations. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Information for EU investors pursuant to Regulation (EU) 2019/1156: This document is a marketing communication and is intended for Professional Investors only. A Prospectus is available for the Mirae Asset Global Discovery Fund (the “Company”) a société d'investissement à capital variable (SICAV) domiciled in Luxembourg structured as an umbrella with a number of sub-funds. Key Investor Information Documents (“KIIDs”) are available for each share class of each of the sub-funds of the Company.
The Company’s Prospectus and the KIIDs can be obtained from www.am.miraeasset.eu/fund-literature . The Prospectus is available in English, French, German, and Danish, while the KIIDs are available in one of the official languages of each of the EU Member States into which each sub-fund has been notified for marketing under the Directive 2009/65/EC (the “UCITS Directive”). Please refer to the Prospectus and the KIID before making any final investment decisions.
A summary of investor rights is available in English from www.am.miraeasset.eu/investor-rights-summary/.
The sub-funds of the Company are currently notified for marketing into a number of EU Member States under the UCITS Directive. FundRock Management Company can terminate such notifications for any share class and/or sub-fund of the Company at any time using the process contained in Article 93a of the UCITS Directive.
Hong Kong: It is intended is for Hong Kong investors. Before making any investment decision to invest in the Fund, Investors should read the Fund’s Prospectus and the information for Hong Kong investors (of applicable) of the Fund for details and the risk factors. The individual and Mirae Asset Global Investments (Hong Kong) Limited may hold the individual securities mentioned. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Singapore: It is not intended for general public distribution. The investment is designed for Institutional investors and/or Accredited Investors as defined under the Securities and Futures Act of Singapore. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Monetary Authority of Singapore. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction.
Australia: The information contained in this document is provided by Mirae Asset Global Investments (HK) Limited (“MAGIHK”), which is exempted from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) (Corporations Act) pursuant to ASIC Class Order 03/1103 (Class Order) in respect of the financial services it provides to wholesale clients (as defined in the Corporations Act) in Australia. MAGIHK is regulated by the Securities and Futures Commission of Hong Kong under Hong Kong laws, which differ from Australian laws. Pursuant to the Class Order, this document and any information regarding MAGIHK and its products is strictly provided to and intended for Australian wholesale clients only. The contents of this document is prepared by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Australian Investments & Securities Commission.
Swiss investors: This document is intended for Professional Investors only. This is an advertising document. The Swiss Representative is 1741 Fund Solutions AG, Burggraben 16, CH-9000 St. Gallen. The Swiss Paying Agent is Tellco AG, Bahnhofstrasse 4, CH-6431 Schwyz. The Prospectus and the Supplements of the Funds, the KIIDs, the Memorandum and Articles of Association as well as the annual and interim reports of the Company are available free of charge from the Swiss Representative.
UK investors: This document is intended for Professional Investors only. The Company is a Luxembourg registered UCITS, recognised in the UK under section 264 of the Financial Services and Markets Act 2000. Compensation from the UK Financial Services Compensation Scheme will not be available in respect of the Fund. The taxation position affecting UK investors is outlined in the Prospectus. This document has been approved for issue in the United Kingdom by Mirae Asset Global Investments (UK) Ltd, a company incorporated in England & Wales with registered number 06044802, and having its registered office at 4th Floor, 4-6 Royal Exchange Buildings, London EC3V 3NL, United Kingdom. Mirae Asset Global Investments (UK) Ltd. is authorised and regulated by the Financial Conduct Authority with firm reference number 467535.
Copyright 2023. All rights reserved. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of Mirae Asset Global Investments (Hong Kong) Limited.