By Casey Hall
SHANGHAI (Reuters) -China’s leading food delivery group Meituan posted an 89% drop in second-quarter adjusted net profit on Wednesday, hit by rising competition in the so-called instant retail sector, which delivers goods within the hour.
Meituan has nearly 70% of China’s delivery market, Morningstar analyst estimates show, but the company warned that the defence of its customer base will prove expensive in the face of intensifying competition and profit margins will be under pressure in the near term.
Shares in the company have fallen more than 20% this year.
“China’s food delivery sector has entered a full-scale delivery war … this is a battle Meituan cannot afford to lose,” said ThirdBridge analyst Jamie Chen.
“Subsidy intensity is expected to ease gradually after the third quarter before platforms shift their focus to unit economic discipline next year.”
Meituan also offers services ranging from bike-sharing and ticket-booking to maps.
“In the second quarter, the industry entered a new phase of intense competition,” Chief Executive Wang Xing told analysts. “(But) no matter what happens in the market we will focus on doing the right things, going back to basics … selection, price, service and delivery.”
Online retailer JD.com responded this year to Meituan’s effort to expand beyond meals by moving aggressively into the latter’s core food delivery business.
Alibaba, which runs the second-largest food delivery app, Ele.me, also moved to increase its bets on instant retail. Both companies have pledged billions of yuan in subsidies to boost sales.
Another challenge could come from regulators, with Chinese authorities planning new rules for pricing after merchants and consumers complained of unfair or misleading pricing by big internet platforms.
Meituan, Alibaba and JD.com all released statements last month pledging to curb price wars.
“The regulators have made it very clear this is not something they want to see in the market, (but) as the competition becomes even more fierce we will do our part to defend our market position,” Wang Xing said.
As competition intensifies at home, Meituan has accelerated overseas expansion for its Keeta app in Hong Kong, Qatar and Saudi Arabia as well as a $1 billion investment in Brazil.
($1=7.1529 Chinese yuan renminbi)
(Reporting by Casey HallEditing by Louise Heavens, Clarence Fernandez and David Goodman)
