China’s online-to-offline industry continues to blend and merge, as competitors seek firmer footholds in the rollercoaster business. Two leaders in the on-demand delivery service on the Chinese internet Dianping and Meituan announced a merger that is set to make more waves for Yum brands like Pizza Hut and KFC.
Why Brick and Mortar Yum Has Cause to Worry in China
The estimated $15 billion merger comes hot on the heels of a Reuters report confirming emerging disenchantment with ordering off a single menu. The newshound cites a 20-year-old student who says, “On my phone I have Meituan, Baidu and Ele.me, and I use whichever brand has the biggest discount.”
“We are experiencing what we believe is a short-term but significant impact of online-to-offline ordering aggregators entering the casual dining space in China,” Yum’s chief financial officer Pat Grismer said after results showed it shares dropped 20%. He went on to blame a ‘dud marketing’ campaign that dented the Pizza Hut brand badly.
How Online-to-Offline Services Discriminate
Traditional e-commerce firms on the Chinese internet like Taobao tend to focus on purchases that have a life span. for example fashion goods, digital products, and cosmetics (although fresh produce is creeping in). By contrast, online/offline providers like Dianping and Meituan deliver instant consumables like car washes, massages and, of course fresh-cooked food.
Can American Fast Food Hold Mama and Papa Off
Mama and Papa kitchens in China are just that: Small family-run business supplying home-cooked food to their near neighbours. Not being Chinese internet savvy in terms of delivery on the internet, makes online-to-offline providers their obvious choice.
Yum may think that, “These guys are only going to get busier in a down market.” I tend to disagree. Once you have pizza or deep-fried chicken on the dining table, brand differences become harder to spot. When Mama and Papa’s food is also cheaper, that makes the deal – unless of course you are dining in a fast food restaurant with all that ambiance. Clearly, not everybody is going to win.