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China’s leading food delivery company Meituan said its quarterly profit had been all but wiped out as it fights a punishing domestic price war, sending shares down 10 per cent.
Hong Kong-listed Meituan reported on Wednesday its net income dropped 97 per cent to Rmb365mn ($51mn) in the three months to the end of June, despite revenues rising 12 per cent to Rmb92bn. It blamed “irrational competition” that began in the same quarter and warned of impending losses.
Ecommerce giants Alibaba and JD.com recently launched campaigns to seize market share in China’s food delivery segment, where lightning-fast delivery times have become the norm across major cities.
An ensuing price war, marked by major discounts at a time of soft consumer momentum, is part of a wider frenzy of sectoral competition on the mainland, from coffee to electric vehicles.
Policymakers in China, already grappling with the threat of deflation, have recently sought to counter the impact of so-called neijuan, a term that loosely refers to a sense of relentless, damaging competition.
On an earnings call on Wednesday, chief financial officer Shaohui Chen said the company expected “core local commerce” to incur a “substantial loss” in the third quarter, which he said was driven by “strategic investments”.
“While we expect there will be continued fierce competition in the near term and that will bring negative impact on our financial results, I want to emphasise that resilience of our core local commerce business has been proven across multiple cycles,” he told analysts.
Citi downgraded the stock to “neutral” from “buy”, saying it was cautious on how long the company might take to regain profitability. Its shares were trading 10 per cent lower on Thursday and are down nearly 30 per cent this year.
Goldman Sachs has estimated Meituan, JD.com and Alibaba, which owns delivery platform Ele.me, spent $3bn on their food delivery and “instant retail” services in the second quarter.
Delivery platforms in China are also competing to provide more support for their employees, who use vast fleets of electronic scooters to make deliveries, after a government push for improved working conditions.
“We continued to enhance couriers’ welfare and protection mechanisms,” Meituan said in its filing, adding that it “expanded occupational injury insurance coverage to all couriers in 17 provinces and cities” from July 1.
