Frost & Sullivan releases the '2023 China Instant Delivery Industry Trend White Paper'

The digital transformation of retail has driven the rapid development of various intra-city logistics services such as intra-city freight, intra-city express delivery, and instant delivery. Among them, instant delivery has obvious advantages in terms of fulfillment timeliness and scenario flexibility:

Note¹Flexibility is comprehensively evaluated from dimensions such as order response speed, whether door-to-door pick-up and delivery are provided, the diversity of service scenarios, and customization level.

The value chain of instant delivery mainly consists of three parts: brand merchants, local merchants, and other commodity suppliers; multi-polarized traffic channels connecting suppliers and consumers; and instant delivery service providers. As consumers' demand for 'instant needs, instant satisfaction' continues to rise, instant delivery services have become a key bridge connecting online consumers with offline products.

With the rapid improvement of infrastructure for new business models and urban distribution service networks, instant retail characterized by half-day delivery, hourly delivery, and minute delivery has become a new trend in retail model innovation. In today's era where 'express delivery is not fast enough' is becoming an explicit pain point for consumers, instant delivery services have become increasingly important means of fulfillment in the online consumption field due to their ability to 'satisfy immediate needs and demands' of consumers.

Current instant delivery mainly serves the catering and takeout, as well as instant retail sectors. Among them, catering and takeout have developed relatively maturely, with a penetration rate as high as 24.5%, significantly higher than the current penetration rate of instant retail in overall commodity retail, which is only about 2.1%. Instant retail provides convenient shopping anytime and anywhere, meeting consumers' new consumption value proposition of 'instant satisfaction, on-site enjoyment, personalized experience' in the new era. It has become a high-growth segment in the recovery process of traditional retail after the post-pandemic era, bringing new volume to the retail industry. Under the trend of consumer demand being met instantly, instant retail has become a high-determinacy lifestyle. Offline retail/catering, remote e-commerce, etc., are actively embracing instant services, and local online retail and pick-up services will continue to be high-growth tracks.

In 2023, the order scale of China's ready-to-go catering industry achieved a relatively significant growth on the basis of the recovery in catering services and retail. The total industry order scale reached approximately 40.88 billion orders, a year-on-year increase of 22.8%. The average annual compound growth rate over the past five years has reached 21.4%.

In the future, in addition to the catering and takeaway scene, the trend of instant retail for all things at home is accelerating, bringing continuous growth momentum to the instant delivery industry. It is estimated that by 2028, the national scale of instant delivery orders will reach 81.31 billion orders, maintaining a double-digit growth rate of 14.7% per annum over the next five years.

The digital transformation of local retail has accelerated, with traditional e-commerce platforms, content-based e-commerce platforms, catering and retail brands, and instant delivery services actively entering the local consumption market. The trend towards multi-polar traffic is significant. In addition, leading supermarkets and catering brands obtain orders through online channels such as self-built apps and mini-programs, reducing their dependence on a single external platform for traffic and capacity. This also helps to improve user stickiness, repurchase rates, and brand loyalty. In recent years, the proportion of orders from leading KA self-operated channels has significantly increased. For example, a large chain supermarket in 2023 had about 60% of online orders coming from its own operations. A higher proportion of multi-channel orders, especially those from self-operated channels, will further drive demand for third-party pick-up services with sufficient capacity and strong fulfillment capabilities. High-quality third-party pick-up fulfillment has become a key approach for supermarkets and catering brands to improve service quality and brand image.

The sinking market refers to the markets in third-tier and lower-tier cities, counties, towns, and rural areas, which are the largest in population base, area, and potential in China. The number of retail stores distributed in these sinking markets, such as third- and fourth-tier cities, accounts for more than 90% of the total number of traditional retail stores nationwide. In addition, the mobile internet user base in the sinking market exceeds 700 million, with potential instant retail users exceeding 250 million and potential catering takeaway users exceeding 300 million. Therefore, instant delivery has great development potential in the sinking market. The same-city same-day delivery service, characterized by 'online ordering, offline delivery within 30 minutes,' can meet the more diverse and evolving consumption needs of residents in the sinking market.

Policy guidance has further enhanced the development momentum of the instant retail and delivery industries in the lower-tier markets. In July 2023, the Ministry of Commerce, together with eight other departments, issued the 'Three-Year Action Plan for County-level Commerce (2023-2025)', aiming to strengthen the commercial network and diverse business forms in counties. Third-party instant delivery platforms represented by SF Express and Flash Express are becoming the infrastructure for building county-level logistics 'fast lanes', not only increasing the scale of instant retail in county-level commerce but also significantly activating the consumption vitality and potential of county-level markets. In addition, the lower-tier markets not only have great potential but also show a clear trend of consumption upgrading. Brand-oriented consumption is becoming increasingly popular, with leading chain brands announcing plans to expand stores in these markets.

China's express delivery business volume has exceeded 100 billion pieces for three consecutive years, representing a huge scale. Especially during peak shopping seasons such as '618' and 'Double Eleven', the short-term high growth in express delivery volume has placed great pressure on express transportation capacity. However, the instant delivery model helps to improve fulfillment efficiency and service quality in aspects such as pickup at the origin and last-mile distribution through its massive transportation capacity and efficient coordination mechanism. It also optimizes user experience.

For logistics groups or e-commerce groups, their instant delivery platforms can more effectively leverage the internal business synergy. This includes warehousing facilities, transportation networks, delivery express services, as well as a rich order and inventory information system. Through close internal coordination, express services can seamlessly integrate with instant delivery at a lower cost, not only improving resource utilization efficiency but also providing consumers with faster and more reliable delivery services.

The protection of employment rights and interests has become a key topic for flexible employment enterprises such as dispatch platforms, with multi-level measures to ensure riders' rights and interests becoming a common trend in the industry. Leading companies in the industry, such as Meituan Distribution, Bird Logistics, SF Express Local Delivery, Dada, etc., have introduced a series of rider rights and interests protection measures, including extending delivery hours, ensuring rider safety, emphasizing rider training and career development, investing funds to motivate riders and further increasing their income.

The cost reduction and efficiency improvement effects of driverless vehicles/ drones are significant: Drones/driversless vehicles benefit from their automation, intelligence, and easy positioning capabilities. They can autonomously complete delivery services in special areas such as parks and scenic spots under specific conditions, and their large-scale application in the long term will significantly reduce delivery costs.

The current application of artificial intelligence/cloud computing is more mature, mainly through more intelligent and efficient fleet allocation and route planning to improve fulfillment efficiency and optimize the rider experience.

Under the trend of rapid digital transformation in local retail, continuous improvement in the chain rate and digitalization level of catering, SF Express Local, as a leading third-party instant delivery service platform, leverages its fully covered and capable elastic transportation network, neutral and open attributes, and intelligent new technology application capabilities across all links. It grasps the diversified trend of multi-polar traffic scenarios, accurately understands the pain points of individual consumer needs, and deeply collaborates with SF Group's large network. It provides high-quality fulfillment delivery services that are scenario-specific, customized, integrated, and one-stop for merchants, individual consumers, and logistics service providers.

SF Express Local focuses on tapping into the growth potential of the underserved market and non-food categories, and is dedicated to enhancing the refined operation of local delivery. Strategic measures include:

1) Precise the service accuracy from city-level to business district-level. Make different classifications and stratifications for business districts to precisely allocate transportation capacity and discount intensity, continuously optimize the rider's fulfillment experience, and improve fulfillment efficiency;

2) Develop customized service plans based on the specific needs and order characteristics of merchants of different scales and C-end users;

(3) Build a diverse and multi-level highly elastic and resilient transportation system, introduce four-wheel vehicle and drone transportation capabilities, and launch 'half-day' and 'two-wheel + four-wheel' connecting service products to meet the needs of various non-standard distribution scenarios such as long-distance transportation, heavy cargo handling, and multi-point delivery.

4) Actively adopting cutting-edge technologies, we launched the Fengpei Cloud and CLS city-wide logistics integration solution. Leveraging our deep accumulation in distribution big data and multi-category instant delivery services, we have built a 'full-scenario, full-process' instant delivery service system for merchants.

Meituan is a leading comprehensive local life service platform and technology retail company in China. In recent years, Meituan has focused on catering and delivery, and with its vast business flow and C-end user traffic, it has successively launched new businesses such as Meituan Flash Shopping and Little Elephant Grocery, actively expanding the boundaries of 'Everything at Home'. Meituan Delivery is an instant logistics platform under Meituan, providing flexible instant delivery and courier services for merchants and C-end users, becoming the most important fulfillment guarantee for Meituan's catering and delivery as well as instant retail businesses. Currently, Meituan Delivery has completed more than 40 million orders per day, with an average delivery time of only about 30 minutes per order, and has connected with 6.3 million merchants, 460 million consumers, nearly 4 million couriers, and various ecological partners.

In March 2023, Alibaba carried out the '1+6+N' organizational restructuring, with Local Life becoming one of the six business groups operating independently: Kuaishou and Ele.me's in-store services were merged into Gaode Map, while Ele.me retained and focused on its home delivery business. This restructuring will grant greater autonomy to the Local Life Group and Ele.me, but it also faces challenges such as the divestiture of 'in-store' services, loss of Taotian's support, and reduced stability of Alipay's traffic entry points. Therefore, Ele.me urgently needs to find new business growth points, such as non-meal instant retail.

In the financial report for the June 30, 2023 quarter, Alibaba attributed the growth in GMV to improved consumer demand, an increase in active merchants, and enhanced delivery capabilities. It also declared that it will 'continue to focus on diversifying the supply of high-quality products in non-food categories'.

Dada Group attaches importance to the growth potential of the underserved market and non-meal categories, and is committed to refined operations of same-city delivery: 1) Continuously improving the rider fulfillment experience and efficiency; 2) Providing personalized service solutions according to different customer needs and order characteristics such as large stores, small and medium-sized stores, small stores, and C-category stores; 3) Actively applying new technologies to optimize rider tiered operations, empowering the entire chain of operations including volume distribution, route area operation, and knight recruitment with digitalization; and focusing on unmanned delivery by building an open platform for unmanned delivery. During the performance period, Dada Express achieved significant year-on-year growth in the number of orders from the underserved market and non-meal categories.