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A Close Look At Baidu Food Delivery

|Includes: Baidu, Inc. (BIDU)

Food delivery market in China keeps rapid growing pace in the recent years. According to iResearch, in 2015 the size of China's food delivery market was about RMB 239 billion, accounting for 7.4% of total catering consumption in China. And this ratio is expected to reach 14.8% in 2018, with the overall size of the food delivery market exceeding RMB 660 billion.

Data source: iResearch

Meanwhile, O2O food delivery market also maintains strong growth momentum. According to iResearch, the size of China's O2O food delivery market reached RMB 44.2 billion in 2015, accounted for 18.5% of overall food delivery market. Compared with the penetration rate of 1.5% in 2012, it has increased over 10 times in past 3 years.

Data source: iResearch

Currently, O2O food delivery market is developing from "price war and coupon competition" to the stage of "speed and service quality improvement". After the two-year price war, most of the small-to-medium-sized players had been eliminated. Now there are only three major platforms left, which are Ele.me, Meituan Takeout and Baidu Takeout Delivery, backed by the Big Three Internet companies in China, i.e. Alibaba, Tencent and Baidu.

China's O2O food delivery market started to come into sight of capital market since 2012. Ele.me, Meituan Takeout and Baidu Takeout Delivery gradually made figures in the market, thanks to the popularity of smart phone, and users were gradually accepting the emerging O2O food delivery services. After the early accumulation of brand reputation, the above-mentioned O2O food delivery brands stood out from the competition with the others. Different from the early period of "savage expansion", now users of food delivery platform are not only focusing on the discount strength, but more caring about service quality and food safety.

Data source: Company data

Among the three major platforms, Aladdin Data chose Baidu Takeout Delivery, which has the best user quality, to track and analyze some of its key operational metrics.

Baidu Takeout Delivery is a platform under Baidu's O2O services, specializing in food delivery services in China. It was officially rolled out on May 20th 2014, targeting mid-to-high-end white-collar user market. According to the company, up to the first half of 2016, this service had covered more than 140 cities in China. Now in the top 40 cities, Baidu Takeout Delivery is taking a leading position in white-collar user market. The delivery relies on both full-time in-house employees and third party couriers, with the average delivery time at 32 minutes. Baidu Takeout Delivery has a wide arrange of traffic contributors, including PC sites, mobile App, pubilc accounts on WeChat, and the access of "delicious food nearby" on Baidu Map.

Aladdin Data selected some of its key operational data in 18 first- and second-tier cities on 2016 Christmas Day, trying to outline its business expansion strategy.

In terms of the number of restaurants covered by Baidu Takeout Delivery in different cities, the numbers for first-tier cities (Beijing, Shanghai, Guangzhou, Shenzhen) were much higher than that of second- and third-tier cities, with the average number of restaurants at 12,659 per first-tier city. The number of restaurants covered in Beijing was the highest, which might be because that Baidu's headquater is located in Beijing. For second-tier cities, the average number of restaurants was 5,462, among which the number for provincial capital cities like Shenyang, Xi'an and Jinan were close to that of first-tier cities. We can see that the development of Baidu Takeout Delivery takes the first-tier cities and provincial capital cities as the center and then radiates to other lower-tier cities.

Data source: Company website, Aladdin Data

Looking at the monthly orders on Baidu platform, we can see the number in Beijing was significantly higher than the others. Though the numbers of covered restaurants for other first-tier cities were close to Beijing, the monthly orders were even lower than a quarter of that in Beijing, with large room to improve. The monthly order quantities of second- and third-tier cities were all less than one million, with the average number at 0.37 million.

Data source: Company website, Aladdin Data

By store, the monthly order per single restaurant in Beijing was about 292. As for other first-tier cities: Shanghai was about 130, Guangzhou and Shenzhen were all around 100. For second-tier cities, the number for Tianjin was 137, Suzhou was 103, both close to that of first-tier cities. Other second-tier cities all fall far behind.

Data source: Company website, Aladdin Data

In terms of the average starting prices for delivery service, except for Chengdu and Jinan, all the other cities were all around RMB 20. Shanghai was RMB 25.4, the highest among all cities.

Beijing took a leading position in terms of delivery cost, which was nearly RMB 9. And the delivery costs in other cities were all around RMB 2-5.

Data source: Company website, Aladdin Data

To sum up, Baidu Takeout Delivery develops more maturely in Beijing, with the market size, the number of covered restaurants and the number of orders per single store all significantly higher than other cities, so was the delivery cost.

As for second-tier cities, the covered restaurants in provincial capital cities were much more than other second-tier cities. In terms of average monthly orders per single store, Suzhou and Tianjin were comparable with first-tier cities, while other second-tier cities fell much behind.

Compared with Beijing, at current stage, we think the focus of Baidu Takeout Delivery in other first-tier cities as well as second- and third-tier cities will still be increasing the number of restaurant and developing users' habits. Delivery cost increase is expected to come up later after the markets get relatively more mature.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.