Meituan, DoorDash, Uber: What are the major differences between food delivery services in China and the United States?

At the end of 2023, Dolphin Research once explored the reasons behind the vastly different outcomes between Didi and Uber in the article "Didi & Uber: Similar Births, Different Fates" using Didi and Uber as the focal points. Despite their similar beginnings (established around the same time with similar business models), Uber's market value is 7-8 times that of Didi.

1. Earlier and Successful International Expansion: Uber started expanding into overseas markets one year after its establishment, with over half of its revenue now coming from non-North American markets.
2. Successful Horizontal Business Expansion: Uber ventured into the food delivery business in 2016, and to this day, food delivery contributes over half of its Gross Transaction Value (GTV).
3. Significant Discrepancy in Platform Monetization Rates: Our calculations show that Uber's monetization rate (20%-30%) far exceeds Didi's (around 10%) on a comparable basis.

This article, as the second in the series, focuses on the food delivery sector under the local life category. It compares and discusses the similarities and differences between the food delivery industries in China and the United States using Meituan in China and Uber and DoorDash overseas as examples. The conclusions are as follows:

① The transaction volume of the food delivery industry in the United States, on a single market basis, is almost equivalent to that of China after adjusting for exchange rates. However, in terms of penetration rate in the overall catering industry, the penetration rate of food delivery in the United States is slightly lower than that in China, approximately 18%-19% vs. 21%-22%. In terms of order volume, the United States may only have about 1/7-1/8 of China's volume.

② The food delivery format in the United States took shape earlier than in China, but in the early days, it was mainly in the form of chain stores self-delivering. Even by 2022, the proportion of self-delivery by businesses was still close to 50%, and the integrated food delivery platform of "ordering + delivery" had an actual penetration rate of less than 10%.

③ In the United States, delivery costs account for a higher proportion of the food delivery industry compared to China (lower delivery efficiency), platform commissions are higher, and consumers need to pay a considerable additional cost for food delivery services (about 30%-40% more expensive than dining in). In contrast, Chinese consumers only need to pay around a 10% markup, with most of the additional costs like delivery/commission borne by the businesses. In other words, the value brought to consumers by food delivery services and platforms in the United States is not significant.

④ Despite having a significantly higher net monetization rate in the United States (14% vs. around 7%-8% for Chinese platforms, excluding delivery costs based on actual payment prices), the profit margin of Chinese platforms is higher than their overseas counterparts, with an adjusted EBITDA margin of 4% in China vs. 3% in the United States. Overseas platforms are not as efficient as their Chinese counterparts in operating leverage, internal cost control, or the ability to "roll" profits.

⑤ For further insights, please refer to the end of the article

The following is the detailed content of the main text:

I. Past Performance: Who Wins and Who Loses

Starting from the ultimate goal of investment - from the perspective of stock price returns, the four major global listed food delivery platform companies, Meituan, DoorDash, Uber, and Grab, can be divided into two groups: ① Uber and DoorDash, with developed (or high consumer spending power) countries such as Europe and the United States as their main markets, have relatively outperformed in stock price performance, with Uber, which is driven by both food delivery and ride-hailing, performing the best; ② On the other hand, Grab and Meituan, with developing (low consumer spending power) countries such as Southeast Asia and China as their main markets, have seen their stock prices more than halved since the beginning of 2021, with Grab, which operates both food delivery and ride-hailing businesses, performing the worst.

However, it is obviously too simplistic to distinguish and explain the differences in performance among these companies based solely on whether they are rooted in developed or developing markets.

Looking further from a fundamental perspective, in terms of the growth of the food delivery business volume of the four companies in the past: in the year of 2020, the first year of the epidemic, except for Meituan, which grew slower due to control measures, the other three overseas companies also experienced a surge in the growth of their food delivery business during the outbreak period (with growth rates as high as 90% to 200%). However, in the following years, the growth rates of the food delivery transaction volume of each company quickly declined and tended to be consistent. After 2022, the growth rates of the food delivery business of each company had fallen to below 30%, and somewhat surprisingly, in 2023 and the first quarter of this year, Meituan's food delivery transaction volume growth rate was the highest among the four peers.

Overseas food delivery companies have been significantly driven by the epidemic, experiencing a short-lived explosive growth, but the growth rate quickly declined year by year, with more pronounced fluctuations. In contrast, Meituan in China did not experience an explosive growth during the epidemic, so it did not experience a sharp decline in growth rate after the epidemic. Currently, it has the highest growth rate in food delivery business among its peers.

In terms of the absolute volume of food delivery transaction, although the data disclosed by each company may vary slightly, in general, Meituan's food delivery business volume in China alone is still higher than that of overseas counterparts such as Uber and DoorDash, which operate in multiple countries in Europe and the United States. While DoorDash's market share in the U.S. food delivery market is significantly higher than Uber Eats, the food delivery transaction volumes of the two are roughly similar, indicating that Uber has been more successful in expanding beyond its domestic market in the United States.

II. Differences and Similarities between the Chinese and American Takeout Markets

1. Industry Size and Penetration Rate

First of all, looking at key indicators such as industry size, penetration rate of takeout formats, development history, and market share structure:

① The size of the takeout markets in China and the United States is almost identical. In 2017, both were slightly over $40 billion in size, and by 2023, they were both around $200 billion. However, although the sizes at the two time points are similar, in terms of growth trajectory, China's takeout industry has shown a more stable and continuous growth trend; the growth in the U.S. market is largely attributed to the doubling in 2020. It can be said that without the stimulus of the epidemic, the size and development of the takeout market in the United States would likely be significantly inferior to that of China.

② In terms of the penetration rate of takeout (delivery) turnover in the overall catering industry, the U.S. market lags behind China. According to the disclosed takeout turnover of companies such as Meituan, the penetration rate of takeout in China was close to 29% in 2023, which is comparable to the penetration rate of physical e-commerce in China. In contrast, the estimated penetration rate of takeout turnover in the U.S. in 2023 was slightly above 18%. Similarly, unlike the stable increase in the penetration rate of the takeout market in China, the penetration rate in the U.S. was mainly due to the explosive growth in 2020, followed by a slight decline over the next 3 years, stabilizing at around 18%.

③ However, since the transaction amount disclosed by Meituan is the pre-coupon price, the actual payment amount should be between 70% to 80% of the pre-coupon price. Therefore, the actual penetration rate of takeout in China may be closer to 21% to 22%, and by this measure, the penetration rate of takeout in the U.S. is only slightly lower than that in China.

2. Dining Out Habits in the U.S. are More Common, but Self-Pickup is the Mainstream

Although currently the development of China's takeout industry is ahead of the U.S., in reality, the U.S. takeout industry started earlier than in China. In 2001, the large chain store Papa John's launched online ordering services, and in 2004, 3rd party takeout platforms like Grubhub and delivery.com were established, while China's takeout pioneer Ele.me was founded in 2008.

Moreover, the non-dining habits of American consumers (including takeout and takeaway) formed earlier and are more common than the takeout habits of Chinese consumers, but self-pickup by consumers is the main form.

In terms of data, in 2019 before the epidemic, about 50% of restaurant consumption in the U.S. was in non-dining scenarios, with takeout (delivery) accounting for less than 10%. By 2022, driven by the epidemic, the proportion of takeout has significantly increased to 18-19%, but at the same time, the proportion of dine-in takeaway and drive-thru pickup has also increased The growth of the penetration rate of takeout in the United States is more about further replacing dine-in scenarios. Compared to takeout, American consumers still "prefer" self-pickup without significant changes.

Simply put, the commercial model of takeout was developed earlier in the United States, and consumers are more accustomed to takeout or delivery for historical reasons:

The proportion of fast food in American cuisine (such as burgers, fried chicken, fries, pizza, etc.) is higher, naturally more suitable for takeout and delivery scenarios.

The chain rate of the American catering market is higher (nearly 60%), and large chain restaurants commonly have their own online reservation platforms and delivery capabilities. This has helped cultivate the habit of American consumers using takeout, but it has also led to the fact that when the takeout industry started in the United States, it was more of a light-asset pure reservation platform, and a widespread delivery system was not established. Therefore, by 2023, nearly half of takeout orders in the United States are still delivered by the merchants themselves.

In summary, from a macro perspective, the overall scale and penetration rate of the takeout market in the United States are close to or slightly lower than China. In fact, the takeout market in the United States started earlier than in China, and non-dine-in situations are more common among consumers. However, the high proportion of self-pickup or merchant delivery has led to less than 10% of the total U.S. restaurant consumption being accounted for by integrated (reservation + fulfillment) third-party takeout platforms. Compared horizontally with China, there is a relatively significant room for improvement in the penetration rate of integrated takeout platforms in Europe and the United States.

3. The U.S. takeout market also follows a big-small duopoly model.

The market share distribution of the U.S. takeout market is similar to that of China, with a big-small duopoly model. Similar to the 7:3 market share distribution of Meituan and Ele.me in China, the market share of the top player DoorDash in the United States is over 60%, while Uber Eats + Postmates (acquired by Uber) accounts for about 25%. The "old-fashioned" Grubhub still holds about 10% of the market share after 23 years, but due to its slow progress in building its own delivery capabilities, it has lost competitiveness and was acquired by the European takeout company Takeaway.com in 2020.

It can be seen that in the takeout business model, it is a common phenomenon that only around 2 large players can be accommodated in a single market. This is similar to the discussion we had in the previous article about the online ride-hailing business The fundamental reason behind this phenomenon is that the food delivery business, including fulfillment, or instant delivery, is a business with relatively weak economies of scale and thin profit margins, and small and medium players that cannot achieve scale will naturally be eliminated by the market due to their unviable profit models. (For a detailed discussion on the economies of scale of different business models, please refer to our previous ride-hailing study).

In other words, the barrier to entry in the food delivery industry is relatively high, and challengers find it difficult to disrupt the market once mature leaders are established within the market. (Unless challengers have huge resources and financial support, or technological innovations)

III. Who Benefits from the Food Delivery Markets in China, the U.S., and the Middle East

In the previous section, we mainly compared the key indicators of the food delivery industries in China and the U.S. from a macro and industry perspective. In the following section, we will look at the differences between the Chinese and American food delivery industries from a more micro perspective, focusing on enterprises, consumers, and merchants.

1. Unveiling the Business Model of Food Delivery in China and the U.S.

From the perspective of basic business knowledge, the value of the food delivery business model, or the profitability of food delivery platforms, depends on how much additional value this new format and platform create for consumers and merchants, as well as how the incremental value and costs are distributed among the four main participants: consumers, restaurants, platforms, and delivery drivers.

Below, we have calculated the average economic model of food delivery for the largest platforms in China and the U.S., and we have found many interesting and noteworthy points:

① Delivery costs in the U.S. account for a higher proportion of the total payment, but the difference is not significant: According to our calculations, the average delivery cost per order in the U.S. accounts for nearly 25% of the total amount paid by consumers, while in China it is around 18%. It can be seen that the fulfillment efficiency of overseas food delivery is not as good as in China. Possible reasons for this difference include: lower order density overseas, higher labor costs overseas, and the fact that the U.S. often uses cars for delivery instead of electric vehicles like in China, leading to higher energy consumption and depreciation costs.

We know that the overall transaction amount in the U.S. food delivery industry is consistent with that in China, but according to our calculations, the average order value in the U.S. is 6 to 7 times that of China after conversion. Simply put, the total number of orders in the U.S. food delivery market may only be 1/7 to 1/8 of that in China.

② Platform commission rates in the U.S. are significantly higher: Calculated based on the net income of the platform after deducting fulfillment costs from the actual amount paid by consumers,

the net realization rate of U.S. food delivery platforms is around 13%, while the net realization rate of Chinese food delivery platforms is 7% to 8%. However, when comparing various types of platforms/internet economies in China and the U.S., it is a common phenomenon that overseas companies have higher realization rates, including ride-hailing, e-commerce, video/music subscriptions, and so on To a certain extent, it reflects the difference in the commercial system and consumer purchasing power between the lower classes in China and the United States. However, it is not appropriate to simply conclude that overseas platforms have excessively high monetization, or that there is room for improvement in monetization domestically.

③ Higher cost for American consumers using food delivery services: From the perspective of consumers, food delivery in China may be a consumption choice that balances "optional" and necessity, while food delivery in the United States can be considered a purely premium service, even somewhat luxurious. It is estimated that the actual amount paid by American consumers for food delivery is 30% to 40% higher than the pure food price, while the additional cost for Chinese consumers is less than 10% of the food price. (It should be noted that the pricing on food delivery platforms may not necessarily be the same as dine-in prices, so the actual markup in China may be higher).

④ Lower costs for American restaurants: From the perspective of businesses, comparing the net receipts after deducting commissions/delivery fees for food delivery with dine-in prices, it can be seen that Chinese businesses receive about 80-90% of the dine-in price for food delivery (depending on whether the business raises the delivery price to offset additional costs), while overseas businesses receive roughly the same amount for food delivery as for dine-in prices (possibly slightly higher?).

In summary, from these four perspectives, the value to consumers in the American food delivery model is quite limited. The additional fulfillment costs and platform commissions are mostly borne by the consumer alone. It is a service where consumers pay extra to have meals delivered to their door. Businesses selling through food delivery in the U.S. hardly have to give up profit margins and do not have to share delivery costs.

On the other hand, food delivery in China clearly brings more value to consumers. For a limited additional cost compared to dine-in prices, consumers can enjoy the convenience of meal delivery and a wider selection of food. The reason consumers can enjoy such convenience in China is not only due to lower fulfillment costs and platform commissions, but mainly because most of the additional costs incurred by food delivery are borne by the businesses (for example, in China, the majority of delivery fees are covered by the businesses).

In short, the food delivery business in the U.S. is purely a service that consumers pay for, while in China, food delivery is like businesses sharing some profit with consumers to provide a service, expanding the service radius of the stores and thus increasing sales.

(Below, we have listed a few real food delivery and dine-in bills, which are quite informative)

2. Overseas platforms have higher commissions but not more profitable

In addition, although European and American takeaway platforms enjoy significantly higher commissions than their domestic counterparts, the profitability of overseas platforms is not much better than their domestic counterparts. The chart below shows the profit margins of DoorDash, Uber Eats, Grab, and Meituan. Although the criteria may vary slightly, the adj.EBITDA profit margins of Uber Eats and DoorDash's takeaway business do not show a significant advantage compared to Meituan's operating profit margin. (adj.EBITDA excludes costs such as depreciation, amortization, and equity incentives, which are usually higher than operating profit)

According to the calculations based on the unified criteria in the previous UE table, DoorDash and Meituan account for approximately 3% and 4% of their respective EBITDA as a percentage of actual AOV. It can be seen that overseas platform companies have a significant gap in operating leverage and cost control compared to their domestic counterparts.

3. How to view the U.S. takeaway market and its future prospects

In summary, is the U.S. takeaway industry better, similar, or worse compared to the domestic market? How do we view the future prospects of the U.S. takeaway industry from different perspectives?

① In terms of industry scale growth or potential penetration improvement, on one hand, the overall penetration rate of takeaway in the U.S. (platform + merchant self-delivery) is not significantly different from that in China (18% vs. 21-22%), and the cost of takeaway in the U.S. is relatively high (no wonder American consumers are more accustomed to self-pickup). We believe that there is not much room for overall penetration improvement in takeaway, but more of an internal structural change where platform delivery replaces merchant self-delivery to increase the value and profit share of 3P takeaway platforms. Of course, if the cost borne by consumers can be significantly reduced, the penetration rate can increase more quickly.

② Building on the previous point, in terms of optimization potential for UE: delivery costs are relatively rigid and can only be diluted by increasing order density, which is not easily actively optimized. Therefore, in the future to stimulate industry development, the most likely optimization path is for platforms to reduce their monetization rates, or to persuade restaurants to bear more costs to benefit consumers, thereby increasing the frequency of consumer takeaway usage and diluting delivery and other costs to create a positive cycle. However, at present, the possibility of platforms reducing rates is higher, as restaurants may lack the motivation to actively reduce costs.

Dolphin Research Institute's related research in the past:

December 2023 " Didi & Uber: Similar Births, Different Destinies" Risk Disclosure and Disclaimer for this article: Dolphin Research Disclaimer and General Disclosure