Meituan Losses Show Impact of Alibaba’s Deep Pockets

Amid the turkey and mountains of other food you no doubt ingested, you might have missed significant stock moves, which pointed toward Alibaba’s competitive advantage in the landscape of, well … you name it.

But in this case, it’s food.

As reported by Bloomberg, shares in Meituan Dianping, the food delivery company operating in China, skidded by a record 14 percent, the most since its September IPO. After the slump, the stock traded into the low $50 HK range, and has since rebounded a bit. It is still a long way down from the low $70 HK range that had been seen in the immediate wake of the public offering.

And therein, perhaps, lies a cautionary tale.

Last week’s slump, reported the newswire, comes in tandem with evidence that a battle for market share in food delivery – as in Meituan vs. Alibaba – is hitting the former’s margins.

It’s been said in the past: When battling the press, you don’t wage a war of words with folks who buy ink by the barrel. To extend that metaphor a bit, it’s tough to joust with someone who has the deepest pockets, even when you yourself are being funded by deep pockets, too.

The data shows that for Meituan, operating losses have gained traction – tripling in the September quarter to as much as $498 million USD and as measured year on year. The losses widened even as revenues doubled. The stock has slipped roughly 20 percent since its IPO.

Meituan, of course, is backed by Tencent Holdings, and there’s evidence that the foray has seen some success. Consider the fact that gross transaction volume was up 40 percent year on year.

One tell on the competitive landscape is the fact that Meituan said last week that, as Bloomberg stated, “it will be more cautious in the way it devotes resources” to new ventures. The focus will be on restaurant management-related services.

“We are not immune to the macro slowdown because we are already quite sizable,” Bloomberg quoted Wang Xing, CEO of Meituan, as stating.

In perhaps further evidence of the competitive pinch and macro headwind, the South China Morning Post reported that Meituan has been exploring the idea of integrating data stemming from its platform – ranging from the food delivery service to its local listing service and even its bike-sharing app – to gain some leverage in its competitive spheres. Management has stated that it wants to curb expenses in those far-flung operations and will not, for example, broaden its ride-hailing efforts beyond two already existing markets: the cities of Nanjing and Shanghai.

Data may be an effective arrow in its quiver, but in the meantime, cash is a weapon.  As Alibaba said prior to its rival’s September IPO, it has committed to bringing “billions” of yuan to its Ele.me food delivery efforts. In the meantime, Meituan’s results showed that sales stemming from its food delivery business were roughly 60 percent of its top line. The third-quarter growth rate was almost 85 percent, below the 97 percent growth rate seen for the company as a whole.

The battle over food delivery – which, again, is Meituan’s bread and butter for now (no pun intended) – boils down to logistics. Along with the pledge to pour those billions of yuan into Ele.me, Alibaba also will be boosting its logistics system, known as Fengniao, which has thousands of distribution centers across China.

The South China Morning Post reported over the summer that Ele.me’s supply chain will be connected to Tmall, of course known as one of the company’s two retail platforms, and cross-benefits can be realized as the eCommerce firm has a network of roughly 400,000 delivery personnel in place. Using in-place logistics (built-up, of course) means that costs can be shared across the entire spectrum of the business, which makes customer acquisition a bit easier over the long run.

Yes, Meituan raised $4.2 billion in its IPO and has been gaining share in its key market, at 59 percent recently, up from 32 percent a few years ago, Bloomberg reported in July. Alibaba, too, has SoftBank in its corner, and has merged its delivery business Ele.me with the food and lifestyle operation Koubei, backed by both Alibaba and SoftBank.

Tough to predict a winner, perhaps, but the battle is most certainly joined.