Meituan reports loss in third quarter due to subsidy war in China’s food delivery sector

Meituan, a prominent on-demand delivery service provider in China, experienced a significant shift from profit to loss in the third quarter of the year due to fierce competition in the food delivery sector, resulting in considerable subsidies being issued to maintain a competitive edge. The company reported a net loss of over CNY18.6 billion in the three-month period ending on Sept. 30, a stark contrast from the CNY12.9 billion net profit recorded in the same period the previous year. Despite the revenue increase of 2 percent to CNY95.5 billion, Meituan’s Core Local Commerce segment, inclusive of food delivery, faced an operating loss of CNY14.1 billion with an operating margin of minus 20.9 percent as revenue dipped by 2.8 percent to CNY67.4 billion.

The decline in delivery services revenue was attributed to the escalation of incentives deducted from delivery services revenue in response to heightened competition aimed at attracting new users and enhancing user loyalty, Meituan pointed out. This aggressive pricing strategy was exemplified by the company’s Chairman and CEO, Wang Xing, who denounced the ongoing price war in the food delivery sector as detrimental, lacking in value creation, and ultimately unsustainable. Despite the adverse effects of the price war, subsidies played a crucial role in safeguarding Meituan’s position as a market leader in the food delivery arena. The company boasted a substantial market share in gross transaction value, surpassing two-thirds for orders with a net average order value exceeding CNY15 and over 70 percent for orders with a net AOV exceeding CNY30, as indicated by Wang.

The significant subsidies seemed to have shielded Meituan’s dominance in the food delivery sector, with a notable increase in daily active users and monthly transacting users to record highs during the third quarter. Meanwhile, revenue from the New Initiatives segment, encompassing grocery retail, saw a 16 percent increase to CNY28 billion year-on-year. However, the segment’s operating loss expanded to CNY1.3 billion due to investments in global expansion, particularly in regions such as Hong Kong and the Middle East.

Expenses, particularly selling and marketing expenses, surged by 91 percent in the period, driven by costs associated with promotions, advertising, and user incentives. Research and development expenses also saw a notable uptick of 31 percent, accounting for 7.3 percent of total revenue, largely attributed to increased investments in artificial intelligence at the corporate level. Meituan made strides in the third quarter by releasing its LongCat-Flash series of open-source models and launching the Xiaomei smart assistant.

Looking ahead, Meituan foresees continued overheated market competition, expecting the operating loss trend to persist in the fourth quarter for both the Core Local Commerce segment and the company as a whole. Despite the challenging market dynamics, Meituan remains confident in its ability to enhance core competitiveness through product and service refinements, catering to diverse local service needs and empowering merchants through technological innovation and AI applications to ensure sustainable and healthy industry growth. Wang expressed optimism in regaining solid profitability over the medium to long term once market dynamics stabilize.