Meituan’s Billion-dollar Plunge: Navigating a Brutal Food Delivery War in China
(Image: VCG via Getty Images – Ideally, a high-quality image depicting a Meituan delivery driver or a bustling food delivery scene in China would be used here.)
The Chinese food delivery market is a battlefield, and Meituan, once the undisputed leader, is feeling the heat. This week, founder Wang Xing saw his wealth drop by $1.1 billion as the company reported a staggering 97% decline in profits. But this isn’t just about one billionaire’s portfolio; it’s a signal of the intense, and likely prolonged, competition reshaping the industry.
As a long-time observer of the Chinese tech landscape, I’ll break down what’s happening, why it matters, and what the future holds for Meituan and its rivals.
The profit Plunge: What Happened?
Meituan’s second-quarter results revealed a dramatic downturn. While sales increased 11.7% too 91.8 billion yuan, net profit plummeted to just 365.3 million yuan ($51.1 million). This isn’t a sign of a failing business, but rather a outcome of a fierce subsidy war.
Here’s the core issue:
Aggressive Competition: E-commerce giants Alibaba and JD.com are pouring resources into food delivery, aiming to attract new users to their broader ecosystems.
Subsidy Warfare: to gain market share, these companies are offering massive discounts and coupons, forcing Meituan to match them – a costly endeavor.
Erosion of Margins: The relentless spending on subsidies is directly impacting Meituan’s profitability.
Why is This Happening Now?
For years, Meituan enjoyed a dominant position. Though, Alibaba and JD.com recognize the strategic importance of food delivery as a gateway to other services. Thay’re willing to sacrifice short-term profits for long-term user acquisition.
Eric Wen, Head of Research at blue Lotus Capital Advisors, succinctly puts it this way: “Investors are very worried that Meituan can’t keep up anymore if Alibaba continues to invest in food delivery.” This concern is valid.Maintaining market share requires significant and ongoing investment.
The Financial toll: Billions Burned
The scale of the spending is significant. Estimates from Blue Lotus Capital Advisors suggest that Alibaba, JD.com, and Meituan collectively burned through approximately 2 billion yuan per quarter on subsidies.
This isn’t a sustainable pace. While Meituan’s CEO,Wang Xing,insists the company has weathered competition before,the current intensity is different. Chief Financial Officer Chen Shaohui acknowledged that the core local commerce business (primarily food delivery) will face “substantial” losses in the current quarter.
Looking Ahead: Will the War Ever End?
The million-dollar question. Opinions diverge.
Optimistic View: Some believe the subsidy war will subside early next year as companies shift focus to emerging technologies like AI.
Pessimistic View: Others, like Ke Yan of DZT Research, predict at least another 12 months of cutthroat competition. He argues Meituan will continue to face pressure from both subsidies and the costs of international expansion.
I lean towards the more pessimistic outlook. The Chinese market is incredibly competitive, and the drive for user acquisition remains paramount.
Meituan’s International Play: A Long-Term Game
Meituan isn’t just fighting on home turf. The company is aggressively expanding internationally with its “Keeta” service.
Hong Kong Success: Keeta quickly displaced Deliveroo, demonstrating its ability to gain traction with aggressive subsidies.
* Saudi Arabia Expansion: Keeta has already established a presence in 20 cities across Saudi Arabia.Though, international expansion is a long-term investment. As Ke Yan points out,”International expansion doesn’t make money in one day. It takes at least a year or two before this business can churn out a profit.” You should expect continued investment and potential losses in these new markets.
What Does this Mean for You?
If your an investor, this situation demands careful consideration. Meituan remains a significant
