Food delivery couriers working for Meituan were seen equipped with insulated bags during a morning briefing in Beijing, China. The CEO of Meituan, Wang Xing, delivered a warning about a potential slowdown in food delivery during the upcoming quarter, causing the company’s Hong Kong-listed shares to fall by over 5% on Friday. However, Wang also expressed confidence that the food delivery sector would remain more resilient compared to other consumption-related sectors.
In a recent earnings call, Wang stated, “For our food delivery, we expect the third quarter’s volume to slow down, but it will still fare better than other sectors.” Meituan announced strong second-quarter results, with revenue reaching 67.96 billion Chinese yuan ($9.33 billion) – a 33.4% increase compared to the same period last year. Additionally, the company reported a profit of 4.69 billion Chinese yuan for the second quarter, in contrast to a loss of 1.11 billion Chinese yuan the previous year.
Wang acknowledged that short-term challenges posed by macroeconomic factors and extreme weather conditions have impacted the company’s performance. Heavy rain and flooding in regions like Beijing, Tianjin, Hebei, Shanxi, and Henan, as well as the passage of Typhoon Doksuri, have disrupted food delivery operations.
Wang mentioned, “Extreme weather brings challenges to our business. Many merchants had to suspend their operations, while consumers turned to packaged food instead of fresh food delivery. In some cities, food delivery services were suspended to prioritize safety.”
Meituan holds a dominant market share of nearly 70% in China’s food delivery market, as indicated by a report from 2022. Apart from food delivery, the tech company offers various services including ride-hailing, on-demand delivery, hotel and travel booking, movie ticketing, and entertainment and lifestyle services.
Xiaolin Chen, the head of international at KraneShares, expressed optimism about Meituan’s prospects. The investment firm has set a price target of 205 Hong Kong dollars ($26.14) for Meituan’s stock, representing a 35.2% potential upside from its current value of HK$132.80.
Chen emphasized how Meituan acquired a significant market share during the pandemic period, particularly in lower-tier cities, which is expected to remain stable. Wang believes that as the economy recovers, consumers will prefer dining out more frequently, leading to reduced demand for food delivery.
Wang explained, “So far in the third quarter, offline traffic and travel demand continue to recover rapidly. Consumers’ pent-up demand for offline consumption is being unleashed, which will temporarily squeeze food delivery transactions as people venture out more often.”
Fitch Ratings expects China’s gross domestic product (GDP) to grow by 5.6% in 2023, slightly higher than the Chinese government’s growth target of around 5%. Despite the anticipated temporary slowdown in order volume growth due to external factors, Wang remains confident in the long-term growth potential of Meituan’s food delivery business. The company is actively implementing product and operational strategies to capture demand and stimulate recovery.
Additionally, Meituan is exploring the use of autonomous delivery vehicles to enhance its services. Partnering with Pony.ai, a Chinese self-driving car firm, Meituan plans to build unmanned vehicles specifically for food delivery. Leveraging artificial intelligence and autonomous delivery technologies is crucial in improving costs and client services, according to Chen.
Meituan has expanded its reach beyond mainland China by launching a sister app in Hong Kong in May, expanding into new markets.
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