China's Hottest Internet Sector Is Old-Fashioned Food Delivery

(Bloomberg) -- China's fastest-growing online industry segment in the first half was food delivery, as startups backed by Tencent Holdings Ltd. and Alibaba Group Holding Ltd. touted discounts and marshaled armies of people to get restaurant meals to the homes of almost 300 million.

The population of people who rang up meals from phones and computers surged 41.6 percent to 295 million over the first six months, the government's online industry overseers said in a biennial internet snapshot Friday. That's well in excess of other markets, including the 7.7 percent user growth in digital payments and 23.7 percent rise in ride-hailing, both more mature sectors.

Food delivery, which has existed for decades, has been turbocharged in the smartphone era to become one of the country's fiercest online battlefronts. The largest platforms, backed by the country's internet triumvirate of Tencent, Baidu Inc. and Alibaba, have plied diners with coupons and built out extensive networks. That in turn has encouraged patronage from urbanites who demand fast service at the press of a smartphone screen.

The industry has attracted billions of dollars worth of investments and spurred a flurry of deal-making. This week, Bloomberg reported that sector-leader Meituan Dianping, which is backed by Tencent, is in talks to snag as much as $5 billion in a round of funding that could make it the world's fourth largest startup. Baidu, the Chinese online search giant, is said to be negotiating the sale of its loss-making Waimai unit to Alibaba-backed Ele.me. Ele.me had 28 million monthly active users as of May and complements the e-commerce operator's own on-demand services affiliate Koubei. Together, they are vying for supremacy with Meituan.

Over 92 percent of the customers used smartphones to place an order, the China Internet Network Information Center or CNNIC said in its report.

“As the industry matured while profitability remains low, it became an obvious choice for the platforms to explore other related businesses,” the CNNIC said.

There were 751 million internet users in mainland China as of June, almost 20 million more than at the end of 2016, according to the report.

To contact Bloomberg News staff for this story: Gao Yuan in Beijing at ygao199@bloomberg.net.

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan

With assistance from Gao Yuan