Meituan, China’s leading food delivery conglomerate, has recorded its first quarterly loss since the final quarter of 2022. This is due to a fierce pricing battle with competitors Alibaba and JD. Further losses are predicted for the upcoming quarter as these price wars continue to affect profit margins.
Meituan posted an adjusted net loss of 16 billion yuan ($2.26 billion USD) for the quarter concluding September 30. This figure contrasts significantly with the adjusted net profit of 12.8 billion yuan from the previous year. This marks the first occasion of a quarterly loss since December 2022.
CEO Wang Xing has regarded the price competition in the food delivery sector as unsustainable, describing it as a classic case of “bad money driving out good money”. However, he reassured that Meituan continues to hold its leading position for medium to high-priced orders. He stated, “Our market share exceeded two-thirds for recent orders with a payment above 15 yuan, and over 70 per cent for orders valued over 30 yuan.”
Meituan has also cited intense competition as a significant factor affecting its financial performance. It is expected that operational losses will persist into the fourth quarter of 2022 for both the corporation as a whole and its primary local commerce sector. Meituan has invested heavily to protect its nearly 70 per cent market share from Alibaba and JD, who are also spending large sums on customer acquisition.
This intense rivalry has been especially evident in the space of instant retail, a sector where goods are delivered within an hour. Meituan’s venture into JD’s main electronics and smartphone sales resulted in JD launching its own food delivery platform. Similarly, Alibaba, the e-commerce market leader, has increased its efforts in the instant retail sector.
Analysts predict that the price war will begin to soften by next year. As companies start to minimize subsidies and logistics costs decrease, Meituan’s unit economics are expected to become positive by the first or second quarter of next year.
Regulatory bodies have suggested new pricing regulations to safeguard smaller retailers. All three companies have agreed to restrict price wars. Simultaneously, Meituan is fast-tracking the international expansion of its Keeta app into markets such as Hong Kong, the Middle East, and Brazil.
Despite the challenges, Meituan’s quarterly revenue has risen by 2 per cent, surpassing analyst predictions. However, the company’s shares have experienced a drop of over 30 per cent so far this year.
What has caused Meituan’s first quarterly loss since 2022?
Intense price competition with rivals Alibaba and JD has led to Meituan’s first quarterly loss in recent years.
Has the price war affected the food delivery sector overall?
Yes, the price war has been described as unsustainable and appears to have negatively affected the sector overall, with companies experiencing financial losses and reduced profit margins.
What are the future prospects for Meituan according to market analysts?
Analysts predict the price war will ease by next year and Meituan’s unit economics are expected to become positive by the first or second quarter of next year, indicating a potential financial recovery.
