Chinese food delivery giant Meituan flags volatility as competition heats up
HighlightsMeituan reported a 46% increase in first-quarter net profit but anticipates potential challenges in the second quarter due to heightened competition in the instant retail sector. The company has pledged 100 billion yuan over three years for supply-side innovation as it faces aggressive competition from Alibaba's Ele.me and JD Takeaway, both of which have committed substantial subsidies to attract customers. Meituan is expanding its international presence with a $1 billion investment in Brazil and is also focusing on unmanned drone delivery and artificial intelligence technology.
China's leading
food delivery
group
Meituan
on Monday reported a 46 per cent rise in first-quarter net profit but warned that the second quarter would likely be hit by increased competition in so-called "instant retail".
CEO Wang Xing told analysts on a post-earnings call that it was "impossible" to give accurate financial guidance for the rest of the year as competition is ramping up in the sector, which refers to online purchases delivered within 60 minutes.
"Nobody should be surprised if there is volatility in short-term financial results," he said.
In February, online retailer JD.com responded to Meituan's moves to expand beyond meals by moving aggressively into Meituan's core food delivery business.
Alibaba
, which operates the second-largest food delivery app, Ele.me, has also moved to increase its bets on the instant retail space. Both
JD Takeaway
and Ele.me have pledged 10 billion yuan ($1.39 billion) in subsidies to boost sales.
"Ten billion here, ten billion there, every internet player wants to chip ten billion into this game," Wang said, as he pledged 100 billion yuan over three years for supply side innovation.
Meituan has nearly 70% of the delivery market, Morningstar analysts said. Defending that customer base could prove expensive amid the intensifying competition, squeezing profit margins, they said.
Another challenge could come from regulators, with China's State Administration for Market Regulation recently drafting new guidelines about how platforms such as Meituan, JD.com and Alibaba should charge fees to merchants.
"I believe it's the job of the regulators to stop this irrational and unhealthy subsidy competition, and it's our job to win the fight as long as it goes on and we will do everything we can to win that fight," Wang said.
Meituan reported revenue in the three months to March 31 of 86.6 billion yuan, a slightly larger-than-expected 18.1% rise. Fourteen analysts polled by
LSEG
had expected a 16.5% revenue gain.
This month, Meituan announced a $1 billion investment over the next five years as it enters Brazil with its Keeta app.
As well as expanding its international business - Keeta also operates in Hong Kong and Saudi Arabia - Meituan has been investing in unmanned drone delivery and has joined the AI race, pledging to invest "billions" of dollars in the technology.
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