After a more than $80 billion market value wipeout since last January, Meituan on Wednesday spent $51 million (HK$399 million) on its first share buyback since it listed in Hong Kong, in a bid to support investor confidence in the company’s resilience amid fierce competition in a local life sector replete with fresh entrants.

Why it matters: Meituan’s first share buyback since going public more than five years ago comes after executives warned of a slowdown in its main takeaway business in the fourth quarter and as Douyin, China’s TikTok sibling, swoops into its business segments. 

Details: The food delivery service provider bought back a total of 5.63 million Class B shares, costing an average of HK$71.07 each, according to its latest filings. Meituan’s stock price responded by rising 5.4% today in Hong Kong.

• Meituan announced in late November that it planned to repurchase shares on the open market beginning Dec. 1, anticipating a total buyback of up to $1 billion in the near future.
• Last year, the firm’s Hong Kong-listed stock slumped by more than half and dropped 82% from its 2021 peak. The trading price is unlikely to return to this peak in the short term as investors worry about ever tighter competition from ByteDance-owned Douyin.
• CEO Wang Xing, however, said in the firm’s latest earnings call that he believed Meituan was “undervalued at the current share price,” expressing confidence about the business he co-founded’s “long-term growth and value.”
• As of Sept. 30, Meituan held cash and cash equivalents of RMB 25.1 billion, its quarterly results showed.
• Meituan has yet to achieve consistent quarterly profitability, but like other Chinese tech companies, it is also seeking to expand business outside of mainland China, an endeavor which is still at the “investment stage,” according to Wang. Meituan’s sister app KeeTa has risen to become the second-largest food delivery platform in Hong Kong since its launch in May.

Context: Besides Meituan, China’s most valuable tech firms including Alibaba and Tencent have exhibited a downward trend in share price that has lost them hundreds of billions of dollars since their peak around 2021. Alibaba and Tencent conducted record buybacks last year, with e-commerce giant Alibaba repurchasing $9.5 billion of ordinary shares, and WeChat owner Tencent spending a total of HK$48.429 billion on buybacks in the same period, meaning the latter topped the Hong Kong stock market’s repurchase list.

Food delivery giant Meituan has shown its ability to defend its moat advantage in local services amid a challenge from ByteDance-owned TikTok sibling Douyin, with the company achieving RMB 2 billion single-month livestreaming sales this October, up from the less than RMB 600 million recorded in July when it officially introduced its in-app livestream feature, local media outlet 36Kr cited multiple sources as saying in a Monday report.

Why it matters: Meituan, a newcomer to the livestreaming domain, is employing a high-subsidy strategy within livestream rooms to attract both customers and merchants. Despite the strong growth momentum indicated by sales figures, the company’s profit margin has seen a decline for two consecutive quarters.

Details: Livestreams conducted by Meituan itself are the main focus of the newly launched function, where hosts are sourced from external multi-channel network (MCN) companies and generate more than 70% of live gross merchandise volume (GMV), according to the 36Kr report. However, this balance is shifting as small- and medium-sized merchants flow in to sell vouchers via independent livestreams. 

• Around 30% to 40% of orders paid for on livestreams are ultimately verified at physical stores and converted into the shop’s sales, one source was cited as saying in the report. Another source, a Meituan service provider, claimed that the overall verification rate is about 60%, nearly double that of Douyin.
• Shen Quan Jie and Shen Qiang Shou are two major official livestream brands within Meituan’s food delivery segment, selling discounted takeout coupons, especially for well-known or chain restaurants. The former is a monthly promotional event occurring on the 18th of each month, while the latter livestreams for 12 hours every day, primarily targeting users in China’s first-tier cities.
• Meituan’s Hong Kong-traded shares have slumped over 50% this year, and the company’s stock experienced its largest single-day decline in over a year last Tuesday after executives warned of a slowdown in revenue growth for its core food delivery business in the fourth quarter.

Context: Meituan has increased its marketing expenses this year in an attempt to resist TikTok sister app Douyin’s push into the local life services sector, spending RMB 16.9 billion in the last quarter, a 62.5% increase from the first quarter. Meanwhile, the operating margin of its core local business has continued to decline over the last two quarters, dropping below 20% in the three months from July to September to 17.5%.

• Short video app Douyin first took a step into the local services space with food delivery trials two years ago. It has now expanded its reach to include everything from sightseeing tickets and leisure events to parent-child activities. Local media outlet LatePost previously reported that these services generated over RMB 100 billion in sales for Douyin in the first half of 2023.

With its peak daily order volume for food deliveries surpassing 60 million last year, Meituan continues to sit pretty at the top of the tree when it comes to China’s local life services sector. The app spans everything from movie tickets and restaurant bookings to medical appointments, and recorded a total of 677.9 million users making transactions in 2022.

Yet Meituan’s dominance is increasingly facing challenges. Major Chinese companies including social media platform Xiaohongshu and ByteDance-owned TikTok sibling Douyin have been making inroads into the local life services market as Covid restrictions have eased. By linking consumers with nearby service providers or merchants and encouraging them to make purchases digitally before going to have the experience offline, these newcomers are looking to such transactions as a way to monetize their huge user bases.

For the moment, Meituan claims to be unperturbed. Meituan CEO Wang Xing described Douyin’s expansion into food delivery as having “a limited impact” on the company during its Q1 earnings call. However, the delivery platform recently made takeout livestreaming a monthly event and has launched group-buy delivery services in what many see as a bid to stay competitive in the face of these new entrants.

The total size of the local life services market is expected to reach RMB 35 trillion in China by 2025, though its online penetration rate was only 12.7% in 2021, according to data from Chinese research firm iResearch and cited by Chinese media outlet 21jingji, meaning there’s still plenty to play for.

Here’s a short introduction to new players in this vibrant market.

Xiaohongshu

Experience-sharing lifestyle platform Xiaohongshu, the latest major entrant to this competitive sector, has over 260 million monthly active users. The platform has maintained a thriving user base and sense of community for years and serves as a lifestyle search engine for many of its users. Now, it is making one of the biggest moves in the local life sector.

Xiaohongshu is currently inviting caterers and service providers to test the sale of group-buying packages on its platform. Participating merchants can sign up without paying a deposit or commission to Xiaohongshu for revenue earned through the service, according to tech media outlet GeekPark. Meanwhile, the platform’s influencers are able to earn commission by posting information about retailers that offer group buy options.

If the Shanghai-based company can leverage its feed algorithms while encouraging users to complete transactions within the app, it may see Xiaohongshu emerge as a serious challenger to Meituan, while also accelerating the company’s monetization quest. In 2020, 80% of Xiaohongshu’s revenue was generated by ads, the Financial Times previously reported, citing research firm LeadLeo, but the company is increasingly looking to diversify its revenue streams.

READ MORE: Xiaohongshu bets on e-commerce livestreaming to accelerate monetization: report

Douyin

Douyin has made significant strides in expanding its presence in the local life market, with its services sector reportedly generating over RMB 77 billion ($11.1 billion) in total sales last year, while advertising revenue amounted to just RMB 8.3 billion.

Growth in the platform’s brightest business continues to be strong. Local media outlet 36Kr reported that the unit generated more than RMB 10 billion in GMV in every single month in the first quarter of this year.

The TikTok sibling app has expanded its offerings to include group-buy delivery, sightseeing tickets, hotel reservations, and manicures in recent months. In mid-2022, Douyin allowed short video viewers to order meals directly on the app through a mini-program operated by Alibaba’s food delivery service Ele.me. In March, the service was introduced to 15 new cities, expanding the service to a total of 18 locations in China.

These efforts reflect the fact that ByteDance, Douyin’s owner, is stepping up its push to monetize users on the widely popular platform.

The head of Douyin’s local life business, Zhu Shiyu, recently stated that life services was a vast market worth more than ten trillion yuan, and that only a small proportion of transactions were currently being conducted online.

Kuaishou

Kuaishou, another leading short video-sharing platform in China with 366 million daily active users, has been expanding its presence in the local life services space in an effort to also capture market share, although it currently has less of a presence than rivals Douyin and Meituan.

Kuaishou had been active in offering lifestyle services in Shanghai, Qingdao, and Harbin, with Hangzhou the next major city to see local services rolled out. Kuaishou aims to provide local life services for different cities through a replicable model developed through experimentation. The short video operator incentivizes local merchants to sign up for the service while supporting local influencers who are willing to promote shops on the app.

Xiaogu, head of Kuaishou’s local life business unit, noted that since it entered the Qingdao market on Feb. 10, it has added over 300 local businesses. Kuaishou reportedly recorded around RMB 5 million in local sales in the seaside city in its first month, and already saw some influencers generate around 200,000 yuan in a single month.

Meituan delivery workers in Shanwei, a city in southern China’s Guangdong province, have entered a sixth day of strikes in protest at Meituan’s diminishing benefits and rewards, according to various Chinese media reports and Shanwei delivery workers’ posts on Chinese social media. 

To ensure regular services, Meituan has brought in workers from neighboring cities to Shanwei. The transferred drivers were offered a reward of RMB 10 ($1.45) per order with RMB 200 per day guaranteed, which is more than two times the pay of local drivers, according to screenshots shared on short video platform Douyin. 

A Douyin user called Tukushuhai commented in a video post on Tuesday that some riders from outside the city were unfamiliar with Shanwei’s road conditions, which resulted in delivery time overruns and user complaints.

Why it matters: Meituan’s problems with its workers comes at a time when other Chinese tech majors such as ByteDance and Alibaba are accelerating their moves into the life services sector. ByteDance began testing delivery services via TikTok sibling app Douyin in selected cities in the first quarter of this year. 

Details: A Meituan delivery worker in Shanwei who participated in the strike and preferred to remain anonymous told TechNode that the company had deleted “hundreds” of strikers’ work accounts, preventing them from logging into Meituan’s worker-specific app and therefore cutting off their income during the strike.

• According to a benefit document shared with TechNode by the Meituan worker, the delivery service used to offer a local worker subsidy for long-distance orders. For example, RMB 7 would be added onto a payment for any order between 3.6 kilometers and 4.5 kilometers (2.8 miles) away; a payment of up to RMB 13 was made for orders over  6.6 km away. The source said that Meituan had recently adjusted its benefits for local workers, so that only RMB 3.7 extra would be offered for trips of more than 5.0 kilometers, a third of the previous sum. 
• Moreover, workers can now be fined RMB 50 if they choose not to work on rainy days, with the fine “repeated every time the system monitors their offline status,” the source said.
• Shanwei saw heavy rainfall last week. The official Shanwei weather channel issued a precautionary notice asking residents to prepare for heavy rainfall from April 18 to April 21.

Context: According to Meituan’s earnings report, the company’s core local commerce unit (which includes food delivery, hotel and travel bookings, and in-store purchases) generated RMB 70.6 billion in delivery service income in 2022, while delivery-related costs reached RMB 80.19 billion, suggesting that the revenue generated from the delivery service was insufficient to cover delivery workers’ costs.

• Revenue from Meituan’s core local commerce sector consists of delivery services, commission, and online marketing, and is the main source of revenue for the company.
• Meituan has been subsidizing delivery workers’ wages with the money it earns from the service fees the platform charges merchants. In 2019, 80% of such income was used to pay rider salaries, according to an announcement made by the company in early 2020.
• Meituan lowered its rates for merchants in May 2022, following Chinese regulators’  request that delivery platforms reduce their service fees to help catering firms lower their operating costs during the pandemic. The Beijing-based firm said at the time that it was aiming for full transparency nationwide when charging commissions by the end of 2022.

Chinese food delivery and life services giant Meituan launched an enterprise edition on Thursday, offering a one-stop shop for companies to manage employees’ meal, work trip, and transport expenses. The service, mainly focused on dining options for corporate clients, plays on one of Meituan’s core strengths.

Why it matters: Meituan’s pivot to business clients brings the Beijing-based firm new areas for revenue growth as it faces greater competition from rivals in the local services sector, including ByteDance’s Douyin, which has been testing food delivery services in some Chinese cities with plans to expand nationwide.

Details: The new app evolved from Meituan Shangqitong, a platform initially designed for Meituan’s own employees, before being opened up to a broader user base from early 2021.

• As of March 2023, nearly 10,000 businesses across 20 industries had used the platform, including banking, new energy, software, and express delivery firms, according to a report by local media outlet 36Kr.
• Meituan said (in Chinese) the enterprise platform can save employees an average of 4.4 hours in filing for reimbursements, and improve finance-related efficiency by 90%.
• Wang Puzhong, senior vice president of Meituan, noted at the launch that the company aims to make business consumption “as easy as using Meituan [consumer app].”
• The enterprise edition team currently has hundreds of members, and is expanding rapidly, 36Kr reported in late March. Kang Kai, head of the unit, is also the general manager of Meituan’s enterprise business department, and will report to Wang Puzhong.

Context: In 2022, Meituan’s annual revenue stood at RMB 220 billion ($32.1 billion), with its core local businesses, which include food delivery and no-demand delivery service Meituan Instashopping, contributing over 70% of total revenue.

• Meituan plans to offer food delivery in Hong Kong later this year under a separate brand, as the Beijing-based company seeks growth beyond its domestic market.
• Ride-hailing platforms Didi and Amap also offer enterprise solutions to simplify the reimbursement process for business travel and rides hailed for business customers in China.

Meituan will stop operating its own ride-hailing fleet and shift towards aggregated rideshare services in a strategy update that will cut costs and, it hopes, develop other growth avenues, local publication LatePost reported on Monday.

Why it matters: The decision marks a significant retreat for the Chinese food delivery titan, which has been competing against dominant ride-hailing company Didi for more than six years and could be a turning point for transport in the country’s evolving services sector.

Details: According to an internal letter obtained by LatePost on Monday, Meituan has decided to cull its proprietary ride-hailing operations in several major cities and will look to expand its aggregated services with third-party providers nationwide.

• The life services platform said in the letter that it would scale back efforts in ride-hailing, with some employees to be consolidated into other business lines.
• The remaining ride-hailing team will be combined into a larger unit, with team lead Rocky Zhang to report to Li Shubin, head of Meituan’s platform operations.
• The backdrop of Meituan’s cost-cutting move is slowing revenue growth due to the macro economic environment, the report said, citing a person close to the company.
• A Meituan spokesperson declined to comment when contacted by TechNode on Tuesday.

Context: Meituan announced its entry into the Chinese ride-hailing market back in early 2017 and operates a proprietary fleet of around 120,000 drivers in cities including Shanghai, Nanjing, and Chengdu as of last December.

• The company has also been offering aggregated rideshare services that connect its users with other service providers since mid-2019 and prioritized the business in a stand-alone unit two years later, when unit leader Zhang began reporting directly to chief executive Wang Xing.
• The tech giant briefly ramped up efforts to subsidize users and drivers in exchange for market share in mid-2021. This came immediately after long-time rival Didi was banned from signing up new users by regulators in connection with its US public listing.
• The platform has a daily order volume of around 1 million rides, of which 40% are fulfilled by Meituan’s own fleet, said the report. Didi remained the dominant ride-hailing player with a market share of more than 60%, providing nearly 17 million rides per day as of February. In comparison, Alibaba’s mobility platform Amap provided 8 million rides.

Chinese local service platform Meituan initiated a new round of layoffs involving core business units after cutting up to 20% of staff in April this year, Chinese media outlet LatePost reported on Thursday.

Why it matters: Meituan faces high losses in its group buying business, leading it to continue laying off staff in related units. Meanwhile, the company also significantly reduced its campus hiring starting in September, with the actual number of hires less than half of the 5,000 planned. Chinese internet companies often replace higher-paid employees with cheaper ones to reduce operating costs.

Details: The redundancies mainly affected people from the Beijing-based company’s group buying unit called “Meituan Select,” according to LatePost’s report. 

• This round of adjustment also involves Meituan Select’s management level. Hua Fang, who is responsible for products on the platform, has notably been on a long leave recently. Hua’s position was taken over by Zhang Peng, who previously led the company’s search and recommendation efforts.
• The group-buy unit has been unable to achieve profitability while losses continue to expand. The operating loss of Meituan’s new initiatives reached 48% in the April-June period. Meituan Select was rebranded to next-day delivery supermarket business in October.
• Laid-off employees will be compensated based on their number of years of service to the company plus one month’s salary.
• Meituan is also saving money on employee-related benefits. For example, the report said that some department leaders recently recommended that their subordinates leave work earlier to reduce commuting costs. (The company reimburses taxi fares after 9:30 p.m.) 

Context: After the massive layoffs in April, Meituan’s marketing expenses in the second quarter decreased by RMB 1.86 billion yuan, down 17.1% year-on-year.

• Meituan’s 2021 annual report shows that employee benefits expenses became the second-largest expense, followed by food delivery-related costs, totaling RMB 34.77 billion ($4.8 billion) in 2021, an increase of 61.4% year-over-year. The increase in the number of employees also led to a jump in sales and marketing expenses, research and development expenses, and general and administrative expenses, which rose 46.4%, 41.0%, and 24.8%, respectively, compared to the previous year.

Meituan is planning to merge its e-commerce business units and the group buying unit known as Meituan Select, Chinese media outlet Caijing reported on Wednesday.

Why it matters: Facing fierce competition in its core business, Meituan is combining two relatively weaker and similar units to concentrate on new growth points. In April, Meituan Select suspended operations in four loss-making western Chinese provinces and Beijing as the community group-buy sector continues to consolidate. 

Details: Meituan Select and Meituan’s e-commerce unit both started operations in 2020. The two units are fighting an uphill battle to compete with more established players — Select competes with Pinduoduo, while the e-commerce unit faces giants like Alibaba and JD. The two businesses share some supply chains, the report said, and the merger could result in better collaboration.

• Meituan’s e-commerce offering is relatively weak compared to the company’s core life services and food delivery offerings. The unit brings in a small number of users, orders, and merchants, and hasn’t made much of a splash in the industry, according to Caijing’s report, citing several unnamed Meituan employees.
• Since 2021, Meituan has been expanding into “new initiatives,” including the group-buy unit Meituan Select, but so far the new units have been losing money. According to the company’s 2021 financial report, its aggregated operating profit of RMB 20.3 billion ($ 3.0 billion) from core businesses like food delivery and in-store, hotel and travel segments was completely offset by a loss of RMB 38.4 billion from these new initiatives.
• The company declined to comment when reached by TechNode on Friday.

Context: Meituan faces heated competition in its core business of offering on-demand life services. Moreover, Meituan’s food delivery business –one of its main income sources, accounting for more than half of total revenue – has a low operating margin, less than one-sixth the size of its in-store, hotel and travel business. 

• In local life services, ByteDance’s Douyin has teamed up with Alibaba’s Ele.me to explore more scenarios, according to a statement released last Thursday. ByteDance has high hopes for its local life services, reportedly setting an annual target of RMB 50 billion for the business this year.

Qcraft, a Chinese autonomous driving startup, said at a Wednesday conference that it is partnering with ride-hailing firm T3 to bring self-driving vehicles onto the latter’s ride-share network in the eastern city of Suzhou. T3 users within the range of those vehicles’ routes will soon be able to select one for a ride.

Why it matters: The partnership is the latest example of driverless tech firms rushing to work with more consumer-facing companies as they aim to commercialize autonomous driving tech. 

Details: Starting from July, Qcraft and T3 will begin offering rides to public passengers using self-driving cars within a restricted area in Suzhou, a neighboring city of Shanghai, where the companies are already testing the vehicles.

• The initial phase of the pilot deployment is expected to allow the companies to fine-tune their robotaxi offering by collecting rider feedback and improving user experience ahead of a commercial launch, according to an announcement (in Chinese). 
• On Wednesday, Qcraft also announced plans to test its self-driving system for consumer cars beginning in the third quarter of this year, collaborating with Chinese chipmaker Horizon Robotics. Backed by leading tech companies Meituan and ByteDance, the three-year-old Qcraft is testing a fleet of more than 100 autonomous mini-buses and sedans in around 10 major Chinese cities.
• T3 has emerged as a significant rival to Didi and is backed by state auto majors FAW, Dongfeng, and Changan. The ride-hailer completes over 3 million rides every day with operations in more than 80 Chinese cities, its vice president Li Jinfeng told reporters at a press briefing on Wednesday. To compare, Didi reportedly provided 20 million trips per day in January.

Context: Other Chinese self-driving car companies are racing to launch commercial autonomous ride-share services either by themselves or with partners.

• Baidu began operating fully autonomous taxis in the suburbs of Beijing in late April, a few months after being allowed to charge customers fares for rides in the capital city. The tech giant said it had offered around 213,000 rides in eight domestic cities in the fourth quarter of 2021.
• Self-driving unicorns Pony.ai and WeRide have turned to ride-hailing service OnTime for a wider group of users, recently participating in its RMB 1 billion ($153 million) Series A, TechCrunch reported on April 27. Operating in the southern Guangdong province, OnTime was launched by state-owned automaker GAC in mid-2019 and backed by Tencent.

On Tuesday, Meituan suspended the Beijing operations of Meituan Select as the Chinese food delivery and local life service giant joins local peers in scaling back community group buying businesses.

Why it matters: Meituan and Pinduoduo led China’s community group-buy craze that took off two years ago. Meituan Select’s withdrawal from Beijing has raised market speculations about the company’s further retreat from the cooling market. 

• The company halted the service despite a recent surge in consumer demand for grocery products, driven by panic buying in the city after finding new coronavirus outbreaks.
• The news came two weeks after a major layoff in Meituan, which reportedly hit grocery delivery services Meituan Select and Meituan Maicai, as well as enterprise-facing food distribution arm Kuailv, the worst.

READ MORE: The Big Sell | Will Shanghai lockdown change the game for community group buying?

Details: Meituan stopped receiving orders for Meituan Select, a community group buying service that offers next-day grocery pickup services, in Beijing from Tuesday. The company has removed Meituan Select from the homepage of its main app and its WeChat mini program, local media outlet Caixin reported.

• Amid a market downturn, Meituan Select planned to shut down operations in loss-making cities a few months ago, according to Caixin’s report, which cited an unnamed employee at the company. Beijing was one of Meituan Select’s loss-making cities due to high delivery and order fulfillment costs and low margins.
• Although Meituan has taken a step back from the community group buying services, the Beijing-based company has joined grocery peers as it has beefed up its support for on-demand grocery delivery service Meituan Maicai to cope with the recent Covid-19 outbreak in Beijing.
• The company declined to comment on the matter when contacted by TechNode on Wednesday morning.

Context: China’s grocery delivery craze is losing momentum as the industry sees withering investment. After witnessing the collapse of a group of smaller players, deep-pocketed companies like Meituan, Didi, and Alibaba are retreating from the market after struggling to find a commercialization path.

• Meituan recorded a net loss of RMB 23.5 billion ($3.6 billion) in 2021,  compared with a net profit of RMB 4.7 billion in 2020. The company’s operating loss from new initiatives such as Meituan Select expanded to RMB 38.4 billion in 2021 from RMB 10.9 billion in 2020.
• Community group buying teams at various Chinese tech giants are among the worst affected by the ongoing layoffs in Chinese tech companies.

Meituan is in the midst of job cuts that will affect nearly every business unit at the food delivery and life services giant, Chinese local media Caixin reported on April 9. Meanwhile, the company is hiring simultaneously for new positions created by “business adjustment,” the story said.

Why it matters: Meituan becomes the latest Chinese tech major to begin large-scale layoffs. Facing the twin headwinds of a cooling economy and regulatory pressures, Chinese tech giants are replacing higher-income veteran employees with cheaper and less-experienced new hands to lower operation costs.

Details: Meituan’s layoff will affect all sectors, including the company’s core food delivery and hotel booking businesses, the report says. Grocery delivery services Meituan Select and Meituan Maicai and enterprise-facing food distribution arm Kuailv face the deepest cuts of up to 20%, Caixin reported, citing unnamed sources with knowledge of the matter.

• Meituan’s current round of layoffs started on April 8. The company aimed to do it in “low-profile and quick,” Meituan’s employee told the Chinese media outlet. Laid-off workers’ lost access to the company’s internal communication tool within hours of their termination, the report cited an unnamed employee. The layoff is expected to last until the end of this month.
• Meanwhile, the company has posted nearly 700 job openings since April 8, mainly for positions in Meituan Select, Meituan Maicai, Instashopping, and its autonomous vehicle delivery department. Since March, the company has posted more than 2,000 positions, equal to the total number of new positions opened at the firm in the past three years.
• The Cyberspace Administration of China (CAC) recently talked to 12  major tech names, including Tencent, Alibaba, Meituan, Pinduoduo, and JD, about workforce levels in response to recent layoff news. Between July 2021 and mid-March this year, 216,800 workers left the 12 companies, while 295,900 new staff joined, representing a net increase of 79,100, the regulator said. Tech majors told the regulator that their staffing is “generally stable” considering the relatively high employee turnover in the tech sector. 
• Meituan has recorded a net increase of 17,000 employees since July last year and has pledged to recruit more fresh graduates this year, according to the CAC’s statement.

Context: Amid increasing tech layoffs, Chinese internet majors created a euphemism for firing workers. Companies such as JD and Bilibili now congratulate employees on losing their jobs by sharing cheery notes titled “graduation notice” from human resources departments, prompting widespread complaints on Chinese social media platforms. 

• Meituan’s expenditure on staffing increased 61.4% year-on-year to RMB 34.8 billion ($5.5 billion) in 2021, representing the company’s second-highest cost after delivery fleet expenses.

From food delivery to travel booking, Meituan earned itself the title of the “Amazon of services” in China by providing a wide range of services that touch nearly every aspect of Chinese people’s lives. Now, the giant service app is expanding to Amazon-like territory, selling physical goods, a sector that will put it in competition with local retail giants like Alibaba, JD, and Pinduoduo.

Operated under a platform model, Meituan already has a footing in physical goods e-commerce: It’s among the most popular choices for on-demand or next-day delivery of fresh produce and groceries. Yet that is a small fraction of China’s trillion-dollar online retail market. Starting by selling food and beverages, the company now aims to become a comprehensive e-commerce platform, selling not only daily services (food deliveries) and groceries, but also tangible goods like consumer electronics, cosmetics, and clothing.

Alibaba, JD, and Pinduoduo, the three largest e-commerce platforms in China, still dominate China’s online retail market. But the space is no longer a three-horse race after the entry of a slew of rivals such as short-video apps Douyin and Kuaishou. Meituan wants to take a bite of the physical goods e-commerce pie too. 

Meituan, a relative latecomer, has quite ambitious plans, based on some aggressive moves over the past month. In early March, the company rolled out direct sales services for physical goods. Meituan’s pilot shopping review feature, initially tested as Zhenxiang, was rebranded as Guangguang and formally launched this month with additional social and entertainment elements. On top of that, the everything app also dipped its toe into the hot cross-border shopping sector by integrating a global retailing section into the e-commerce channel of its main app. 

Taking a leaf out of rivals’ playbooks

Meituan’s earliest foray into e-commerce dates back to 2013, but it closed that business three years later to focus on food delivery. The company revived efforts in late 2020 by setting up a new marketplace, Tuanhaohuo, and then moved on to update the platform to a full-fledged business unit and rename it Meituan E-commerce (our translation) in 2021.

Facing a sophisticated market, Meituan is taking a leaf out of the playbooks of rivals like Alibaba, JD, and Pinduoduo by adopting market-proven models and features. While discussions on the ethics of copying business models and features continue, it’s still common for Chinese internet firms to “borrow” ideas from each other. 

Meituan is known for beating rivals with better executions. After all, Wang Xing, Meituan’s CEO and the master of “copy to China,” started Meituan in 2011 as a clone of the then high-flying Groupon and beat more than 100 other Groupon copycats, becoming the sector’s leader. 

Meituan vs JD: In mid-March, Meituan rolled out a new e-commerce service under the direct sales model to sell products directly to customers in a model similar to JD.com. Through a Beijing-based subsidiary, Meituan launched many “self-operated stores” on its e-commerce platform, selling beverages and snacks for starters, such as the Chinese energy brand Eastroc Beverage, rice and meat seller CR NG Fung, and snack brand Xiaowanxiong. Under the model, Meituan functions as the main operating body for controlling product quality, sourcing, and delivery. Although Meituan’s popular Instashopping service offers on-demand service for non-food deliveries, it is operated through cooperation with third-party offline merchants. Meituan’s direct sales model previously only applied to its grocery group-buy unit Meituan Maicai. Meituan followed Alibaba to become the second Chinese tech major to embrace the direct sales model for physical product e-commerce this year.

Meituan vs Alibaba: Meituan renamed and relaunched its shopping review feature Zhenxiang as Guangguang (“shopping around” in English) to tap into the content-driven e-commerce trend. It’s no coincidence that the new name is the same as Taobao’s Guangguang, a content channel where merchants, influencers, and consumers publish short blog posts to recommend products. Meituan intentionally made its new feature a namesake of Taobao’s Guangguang in the hopes of picking up some of the clouts of its rival, local media reported. Taobao’s Guangguang now claims more than 200 million monthly active users after launching in 2020. 

All e-commerce giants are trying to emulate the Zhongcao model, a marketing strategy first popularized by Instagram-like Xiaohongshu. The term zhongcao (“planting grass”) refers to the idea that favorable and comprehensive reviews of a product can sow the mental seeds that nudge consumers to buy it. 

Meituan intends to increase traffic and improve conversion and repurchase rates with the new review feature, said Esme Pau, senior director at Tonghai Securities. 

Cross-border e-commerce: Meituan this month unveiled a global shopping channel to tap cross-border commerce, a popular vertical that gained momentum during the coronavirus pandemic. The channel sells items sourced from Australia, Japan, the US, and other countries to Chinese shoppers. The most popular categories are skincare products, baby products, apparel, and vitamins. The state considers such platforms part of its efforts to boost exports and imports. 

Meituan is a serious e-commerce contender

E-commerce is too big a pie for any tech company to ignore in China. Meituan, with its vision as a platform company, won’t stop with just a small fraction of the market.

Meituan’s accelerated e-commerce drive aligns with the strategic shift announced last October, when the company upgraded its strategy from “food plus platform” to “retail plus technology” searching for new growth points. 

Meituan CEO Wang Xing sees the direction of e-commerce moving from an “everything store” to “everything now.” On an earnings call for the Hong Kong-listed company’s third-quarter performance of 2021, Wang said, “retail will be our focus and remain the main area where we will do our fundamental capabilities in the future. So please understand ‘retail’ in a broader sense as to sell goods or services to end customers.” 

Analysts told TechNode that they are quite bullish about Meituan’s e-commerce prospects. The company has the right toolkit to push into retail e-commerce, including its existing on-demand delivery network, platform capabilities, user base, and merchant relationships, according to Michael Norris, research and strategy manager at marketing and sales firm AgencyChina. “Going forward, one of the keys will be to build user habits to shop from Meituan in more contexts,” he said.

It’s not a decision propelled by recent market developments. Meituan’s push into wider e-commerce through Instashopping predates China’s regulatory pressure on things like mandatory lowered fees for core food delivery businesses, Norris added.

Zhuang Shuai, founder of Beijing-based consulting firm Bailian, predicts Meituan’s e-commerce business could achieve an annual gross merchandise volume of around RMB 1 trillion ($160 billion) soon. Norris estimated that the goal would be attainable within the next three years. The estimated volume is around the same size as the e-commerce volume from ByteDance’s Douyin.

Zhuang notes that the company is also leveraging its e-commerce business to attract more delivery orders to best use its logistics capacity. Food delivery alone can’t satisfy Meituan’s delivery capacity because of the low-traffic hours between meals. 

During a March 25 earnings call, Meituan managers stressed that they would prioritize allocating resources to the e-commerce business. “The rationale for expanding retail goods e-commerce was to bring value to retailers and customers while increasing job opportunities for [Meituan’s] delivery couriers,” said Pau.

Bad timing for e-commerce?

Meituan is entering a crowded market where incumbents are reeling from slowing growth. In 2021, Alibaba and Pinduoduo reported the slowest revenue growth since their respective IPOs in 2014 and 2018. JD also posted its weakest revenue growth in six quarters. The sluggish revenue growth for the major players comes against a dip across the overall market. Data from China’s National Bureau of Statistics shows that online spending on physical goods, including food, clothing, and cosmetics grew by just 12% year-on-year in 2021. The slowest pace since recording such data started in 2015.

“We believe the timing is good,” said Tonghai analyst Pau. Meituan, like all other Chinese internet players, will need to diversify its revenue stream to be sustainable long-term, she said, referring to tightened regulatory pressures on its core businesses in food delivery, in-store coupons, hotels, and dining. 

Meituan is thus fighting an uphill battle but is nonetheless making an important strategic move, according to Zhuang, the Bailian founder. “The food delivery market has reached its ceiling, but e-commerce is a much larger market with no foreseeable ceiling,” he said. Despite the slowdown, e-commerce is still growing and companies providing good products and services to customers will always stand out from the crowd, he believes. 

Meituan’s advantage in e-commerce, or any other new endeavor, lies in its ability to aggregate all kinds of services and products into a one-stop super app ecosystem, Zhuang said. The company still relies heavily on its more popular food delivery and travel services to attract users. E-commerce is only a supplement function on the main app, for now.

Meituan is testing Zhenxiang, a shopping review feature similar to the one used by lifestyle community platform Xiaohongshu, as the Chinese food delivery and local services giant aims to boost its e-commerce business.

Why it matters: Meituan, known as the “Amazon of services” in China, is testing the feature for its physical goods e-commerce service, while fending off competition from rivals like ByteDance and Alipay in the area of local lifestyle business.

READ MORE: ByteDance is trying to take a bite of Meituan’s cake

Details: Zhenxiang, a shopping review community, is being tested among a group of users, most of whom have already used its e-commerce service Tuanhaohuo.

• The feature is now displayed in the most prominent part of Meituan’s e-commerce interface for pilot users. It was launched in December but was initially only accessible through less conspicuous entry points.
• Zhenxiang allows users to post product evaluations and tips in the form of notes, photos, and short videos for other potential buyers’ reference. Users can also rate products with a five star system, from “bad shopping experience” to “highly recommended.”
• A Meituan spokeswoman confirmed that the company is working on the pilot project, adding that it’s just one of its usual range of experiments aimed at testing new features.
• By integrating the product review feature into the app, Meituan could drive its e-commerce sales under the Zhongcao model, a marketing strategy that was first popularized by Xiaohongshu, local media Lu Lu Finance explained.
• The term Zhongcao (“planting grass”) refers to the idea that favorable and comprehensive reviews of a product can sow the seeds of an urge to buy in consumers. The actual action of purchase is referred to as Bacao (“pulling up grass”) in Chinese. 

Context: Content has emerged as the driver of Chinese e-commerce over the past three years. Chinese tech platforms like Taobao, short video apps Douyin and Kuaishou, and China’s Quora-like site Zhihu have also leveraged the Zhongcao model to boost e-commerce growth.

• Meituan has begun testing an expansion into the sale of physical goods online, entering into partnerships with consumer electronics companies, cosmetics brands, garment brands, and physical bookstores in order to diversify the physical product offerings on the platform.

Chinese short video platform Kuaishou has opened its e-commerce store to local merchants managing online-to-offline services, including everything from food delivery to hospitality.

Why it matters: Continuing its recent focus on e-commerce, the Beijing-based company is expanding into the competitive local services market, which already includes fierce rivals such as Meituan, ByteDance’s Douyin, and Alibaba’s Alipay.

• Kuaishou’s move to extend its homegrown services business comes on the heels of a December partnership with Meituan. Under the deal, Kuaishou users have gained access to Meituan’s services through a Meituan mini-program within the short video app.
• The short video app has begun venturing into e-commerce, along with livestreaming and gaming, to commercialize its user base.

READ MORE: ByteDance is trying to take a bite of Meituan’s cake

Details: In addition to physical products, merchants can now sell various services through Kuaishou’s online store Kwai Shop, according to a Tuesday statement from the company.

• Merchants offering 15 categories of services, including food and drink, hospitality, healthcare, entertainment, film, and transportation ticketing, can apply to set up their own stores on the platform from Jan. 15.
• With their own Kuaishou store, merchants can manage their service listings to drive transactions and potentially convert online customer attention into offline service sales.
• To attract merchants, the platform is offering incentives to business operators. Kuaishou has pledged to encourage new store registrations with a promotion plan that offers individual stores up to RMB 1,000 ($158) and viewership from 50,000 customers.
• American chain KFC, hotpot chain Haidilao, Meituan’s hotel booking service, and healthcare clinic chain iKang are among the earliest brands to launch their stores on the platform.
• “The growth of the traditional in-store group-buying business model is slowing down, and merchants are in urgent need of new service models to attract users and to promote purchasing frequency,” Zhu Yunbo, head of Kuaishou’s local life service unit, said in a statement shared with TechNode on Tuesday. 

Context: Kuaishou, China’s second-largest short video-sharing app, reportedly laid off up to 30% of its workforce in December as Chinese tech giants weather a market downturn.

• Rival ByteDance has been increasing investments in the online services market over the past year with the most recent move being the acquisition of cinema ticketing platform Yingtuobang this week.

Short video app Kuaishou and food delivery giant Meituan announced a strategic partnership to connect their platforms on Monday.

Why it matters: With the deal, Kuaishou and Meituan will work closer to fend off their common rival Douyin, the TikTok’s Chinese version, which is accelerating its foray into Meituan’s home turf of local lifestyle services.

• Tencent, which owns a 21.6% stake in Kuaishou, is also a major investor in Meituan.
• Kuaishou has adopted an open attitude towards external partnerships in driving growth, especially towards companies in Tencent’s portfolio. In 2020, the short video app also signed a cooperation deal with Tencent-backed online retailer JD.com.

READ MORE: ByteDance is trying to take a bite of Meituan’s cake

Details: Kuaishou announced the partnership with Meituan at its Ecological Opening Conference held on Monday. The new deal between the two companies allows Kuaishou users to access Meituan’s lifestyle services, such as ordering food, through a newly launched Meituan mini-program without leaving the short video app.

• Meituan’s mini-program on Kuaishou currently only supports its core food delivery features, allowing users to browse restaurant listings, place orders, and access after-sales services. Users can also redeem vouchers and make reservations through the mini-program.
• In a Monday statement (in Chinese), the food delivery giant said that it plans to expand offerings in the mini-program to include more categories such as booking hotels, homestays, travel attractions, and beauty salons.
• In the tie-up, Kuaishou is giving Meituan access to its large user base (573 million monthly active users in China in Q3 this year). In return, it hopes to gain higher user retention by integrating daily services.  
• The short-video company also launched its “one-stop open platform” at the Monday event. The new platform incorporates a series of features such as mini-programs, service accounts, point of interest interfaces, and various tools that help merchants and service providers to manage their branding, marketing, and supply chains.

Context: Kuaishou is China’s second-largest short video platform by daily active users, behind only ByteDance’s Douyin.

• Listed this February in Hong Kong, the company has seen significant stock price volatility over the past few months due to weaker-than-expected earnings guidance and regulatory concerns.
• Kuaishou reportedly began a new round of layoffs in December, one month after co-founder Su Hua stepped down as CEO.

Update: The article is updated with Kuaishou’s Chinese user number. 

Chinese food delivery giant Meituan has begun to carry out a new business strategy, focusing more on growing its retail business. The company made a few top-down organizational changes to support its new strategy, pivoting from “food plus platform” to “retail plus technology,” Chinese media LatePost reported on Wednesday. 

Why it matters: The Tencent-backed firm is seeking new growth points amid intensifying regulatory pressure. 

Details: Meituan founder and Chief Executive Officer Wang Xing announced in an internal meeting on Wednesday that the company is going to set up a special team to oversee the operation of its retail business, the new business priority for the company, LatePost reported.

• The team includes five members, including CEO Wang Xing, Wang Puzhong and Chen Liang. The latter two are senior vice presidents overseeing the company’s home delivery and grocery delivery arms, respectively. The other two members are Guo Wanhui, the head of restaurant produce delivery platform Kuailv, and the head of Meituan app Li Shubin.
• The company has integrated the business of Meituan Youxuan, a community grocery unit and Kuailv to increase efficiency. Chen will lead the integrated team with assistance from Guo.
• With the move, Meituan is taking a leaf out of Amazon’s book, which created a similar D-team in 2008, a critical transitional phase for the e-commerce giant to shift to a digital giant.
• Guo Qing, a member of the company’s senior executive team called S-team and manager of its transportation unit, is going to leave the company to work on his own startup, according to LatePost. Home delivery president Zhang Chuan reportedly will replace Guo.
• Meituan declined to comment on the story when contacted by TechNode Friday morning.

Context: Meituan and several other Chinese tech giants have been under growing scrutiny from regulators as well as the public. Meituan was fined RMB 3.4 billion ($534 million) for anti-competitive practices earlier this month. 

• Meituan has suffered a brain drain over the past years, with at least eight executives leaving since 2019. Senior vice president and co-founder Wang Huiwen left the company at the end of 2020.

Chinese life services app Meituan has come under fire for data privacy issues ranging from intensive location tracking to account safety loopholes.

Why it matters: Data privacy complaints are yet another blow to the Chinese “super app” Meituan, which was recently fined $534 million for antitrust violations.

Details: A Chinese gadget review vlogger named Xuanningxuan Sir criticized the app for tracking his location even when he’s not using it.

• The Meituan app was reportedly tracking the vlogger’s location every five minutes around the clock on Oct. 8, according to a two-minute screen-shot video he shared in a Weibo post on Sunday. “This is creepy. What on earth do they want to do?” he asked in the post.
• Xuanningxuan’s concerns are shared by many. On microblogging platform Weibo, the hashtag “Meituan app tracks user location all day around” had attracted 100 million views as of Monday morning.  
• Separately, Wang Sicong, the son of China’s one-time richest man Wang Jianlin and a serial tech investor, reported his account on Meituan’s restaurant review app Dianping was stolen. The news also made local headlines on Monday.
• Wang, known for being vocal online, reported the incident in a Sunday Weibo post. Xuanningxuan suggested on Weibo that an account security loophole could be the reason for Wang’s situation. Dianping only requires a phone number and birthdate for users to change the bound phone number of an account, potentially leaving accounts vulnerable to hackers.
• Dianping responded to local media and said they had frozen Wang’s account to prevent further data leakage.

Context: Data privacy issues have drawn increasing attention in China, both from individuals and regulators. In August, the country approved one of the world’s strictest data privacy laws, aiming to curb data collection by technology companies.

• Meituan is not the only company that faces such concerns. WeChat was criticized last week for regularly accessing users’ photo albums even when the app is not used. A statement from parent company Tencent promised to end the practice.

China’s top antitrust regulator on Friday imposed a RMB 3.4 billion ($534 million) fine on Chinese food delivery giant Meituan for antitrust practices. 

Why it matters: The hefty penalty on Meituan is yet another anti-competitive strike from Chinese regulators. In April, regulators slapped a record $2.8 billion fine on Chinese e-commerce giant Alibaba for similar offenses.

READ MORE: Big Sell | Antitrust comes for Meituan

Details: The State Administration for Market Regulation (SAMR), China’s top market watchdog, said in a Friday statement (in Chinese) that it had issued a $534 million fine on Meituan six months after launching an investigation of the food delivery giant. 

• Regulators said the investigation found that Meituan had forced restaurants and other merchants to list exclusively on its platform, a practice commonly known as “forced exclusivity.” 
• Meituan punished merchants who refused to comply by charging higher commission rates, giving them less exposure on the app, and imposing other unfair practices.
• The penalty is equivalent to 3% of Meituan’s RMB 114.7 billion revenue generated in the calendar year of 2020 in China. For comparison, Alibaba’s April fine was about 4% of its annual revenue.
• The regulator also required Meituan to refund exclusive partnership deposits to merchants on the platform, amounting to RMB 1.3 billion.
• The regulator ordered the company to revamp its operations and file self-examination compliance reports to SAMR for the next three years.
• The company said in a Friday response (in Chinese) that it has “accepted the penalty with sincerity and will ensure our compliance with determination.”

Context: China’s antitrust crackdowns this year have punished some of the country’s best-known tech companies, including Tencent and Alibaba.

Philanthropy is shifting from a “nice to have” initiative to a “must have” commitment for Chinese tech giants.

Chinese internet firms ramped up their donations for the public good over the past few months, giving away billions of dollars to causes ranging from technology innovation to bridging income inequality. The move is widely viewed as an effort to placate a state that lately seems to be scrutinizing their every move.

Bottom line: Under intensifying regulatory pressure, Chinese tech companies are scrambling to show their willingness to operate and invest in compliance with the state’s broad goal of “common prosperity.” The change forced these tech titans, many already suffering selloff pressure due to tighter state reins, to seek a balance between shareholder interests and the higher operating costs due to huge donations.

Brief timeline: Tech giants such as Alibaba and Tencent are already active donors through their corporate funds. The companies’ billionaire founders are also writing large checks for charity from their personal foundations. Alibaba’s Jack Ma topped Forbes annual China charity list with nearly $500 million in donations in 2020. Tencent’s Pony Ma came in third with about $402 million, and ByteDance’s Zhang Yiming was fifth with $189 million. Pinduoduo’s Colin Huan topped the Hurun China Philanthropy List 2021 with donations totaling $1.9 billion.

Unlike previous donations that tended to be sporadic initiatives by individual companies, there’s a newfound generosity from nearly every major tech company over the past few months. 

• Tencent invested RMB 50 billion ($7.7 billion) in “sustainable societal innovation” projects in April. The gaming titan later doubled the sum, giving an additional RMB 50 billion to the company’s “common prosperity fund” in August.
• Alibaba announced in August an investment of RMB 100 billion across ten key initiatives to promote common prosperity in China. The company will establish the Alibaba Group Common Prosperity Advancement Working Committee, chaired by chief executive Daniel Zhang, as a permanent mechanism dedicated to delivering on the key initiatives by 2025. The committee will focus on technology innovation, economic development, high-quality employment creation, care for vulnerable groups, and the establishment of a common prosperity development fund.
• Pinduoduo rolled out in mid-August a RMB 10 billion agriculture initiative to address critical needs in the agricultural sector and rural areas such as food security and agricultural technology. In March, Pinduoduo founder Colin Huang stepped down as chairman after giving away 2.37% of his shares, worth $1.85 billion, to charity last year.
• Meituan’s founder and CEO Wang Xing in June donated $2.3 billion worth of Meituan shares; his company is still undergoing an antitrust probe by regulators following his controversial comments hinting of discontent with the government, wiped tens of billions of dollars off Meituan’s market value.
• Xiaomi founder and CEO Lei Jun transferred $2.2 billion worth of shares in the company to the corporate Xiaomi Foundation and the personal Lei Jun Foundation in July. This is in addition to the nearly $1 billion that Lei announced in April he would donate to charity.
• Zhang Yiming, founder of TikTok developer ByteDance, is giving RMB 500 million of his own money to establish an education fund. 

Compared with previous donations, tech firms’ burst of generosity over the past months was mainly directed towards the goal of public welfare and reducing inequality, a goal made explicit in the company’s five-year plan released this March.

The donations are mainly directed to fields like technology innovation, poverty alleviation, welfare of low-income groups, agricultural/rural development, education, basic science/research, healthcare, and small- and medium-sized enterprise (SME) support.

READ MORE: INSIGHTS | Tech in the five-year plan

A change in priorities for economic growth

When former Chinese leader Deng Xiaoping ended the country’s planned economy and embraced a free market in the 1980s, he said allowing some people and regions to get rich first would speed up economic growth and achieve the ultimate goal of common prosperity. Now, the priority seems to be shifting to the latter.

• On Aug. 17, Chinese President Xi Jinping called for the nation to achieve “common prosperity” in a speech, asking to rationally “adjust” excessive incomes and for wealthy individuals and companies to return more to society.
• Xi’s call came as Chinese authorities stepped up regulation of tech companies in multiple areas, including antitrust, data security, and privacy, ending the country’s long-standing laissez-faire regulatory approach towards the tech sector.

The changes also came as income inequality becomes an increasingly pressing problem in Chinese society.

• China’s top 1% own nearly 31% of the nation’s wealth, according to a study by Credit Suisse.
• Chinese Premier Li Keqiang said in May 2020 that 600 million people, or roughly 42.9% of China’s population, have a monthly income of RMB 1,000.
• China received a score of 0.465 on the Gini index of the World Bank, which measures economic inequality. The score ranges from zero to one, with one meaning complete income inequality. A score of 0.4 or above is considered at a “warning level.”
• “Alibaba is a beneficiary of the strong social and economic progress in China over the past 22 years. We firmly believe that if society is doing well and the economy is doing well, then Alibaba will do well,” said Daniel Zhang, chairman and chief executive of Alibaba Group, in a company statement on Sept. 3.
• Resentment toward tech companies is growing in China. Whether restaurant owners on food delivery platforms or startups in crowded verticals, small businesses feel they are squeezed by the digital behemoths.

Investor sentiments

While donating tens of billions of dollars for social initiatives out of their profits, the Chinese tech companies, mostly listed, face the double pressure of convincing investors that they are making the right decision to sacrifice short-term profits for long-term growth prospects.

• Chinese tech stocks have experienced a stunning sell-off since the beginning of this year as Beijing widened its crackdown. Intensified regulations over monopolistic behaviors, overseas listings, and data security, coupled with massive fines, wiped out hundreds of billions of dollars in market value of Chinese tech companies.
• “As platforms grapple with increased regulatory scrutiny inside and outside of China, investors will need to come to grips with the impact of regulatory burden and compliance costs on EPS (earnings per share) and ROIC (return on invested capital),” said Michael Norris, head of research and strategy at AgencyChina.

How effective philanthropic displays will be? 

But the efforts raise other questions: Will these philanthropic displays be enough to ease the wrath of regulators? Norris thinks there’s little chance internet platforms can avoid regulation through their social impact investments. 

• “However, these investments can signal internet platforms are responsible market participants. This hits the right notes with regulators who’ve been tasked with curbing exploitative practices and market irregularities,” Norris said. 
• “Think of it as stakeholder capitalism, with Chinese characteristics,” he added.

New opportunities under the disguise of donation?

The government’s attention to areas like tech innovation, agriculture, education, and basic science means opportunity for tech companies. By entering these strategic areas, they could expect returns from those donations, or investments, if they have aligned their business with the broader strategic goals properly. But the time for such returns may be long.

• Started as a social ecommerce platform, Pinduoduo has become laser-focused on “digitizing agriculture”, an initiative that aligns with the government’s drive to modernize agriculture and boost development for rural areas.
• Pinduoduo said in a statement that the company will be able to “get back” because the users “have placed their trust” in the platform.
• “I observed that both Tencent and Alibaba pledged to support SMEs. This might mean that some of the investment is applied to existing subsidies or retains discounted take rates,” said Norris. 

A lasting change?

China has lagged when it comes to charitable efforts, partly due to China’s tradition of passing fortunes through a family line. Back in 2010 when Microsoft co-founder Bill Gates and billionaire investor Warren Buffett invited Chinese moguls to a dinner to discuss philanthropy, lots of them turned down the invitation for fear of being asked to make a donation.

However, there’s been a significant change in charitable giving, especially since 2008, when donations struck a chord with larger groups due to the Sichuan earthquake. Donations for fighting the COVID-19 outbreak and helping victims of the recent flood in Henan peaked as tech firms tried to fulfill their social responsibilities, a concept specified in the country’s corporate law.

Chinese tech billionaires still have a long way to go to be on track with philanthropic models comparable to western counterparts like Gates.

Meituan, a Chinese life services and food delivery platform, is testing a social feature for food-ordering users, Chinese media Tech Planet reported (in Chinese) Thursday.

Why it matters: The social feature is part of Meituan’s effort to find new growth areas. The move comes as the food delivery sector becomes more crowded—social media giant ByteDance has been reportedly testing a food delivery feature through its short-video app Douyin since last month.

Details: Named “Fanxiaoquan,” the new feature allows users to share orders with their contacts on the Meituan app, in a format that is similar to WeChat’s Moments or Facebook’s News Feed. 

• Users can comment and like posts, access merchants’ shops through posts, and place similar orders.
• Users can add friends either through WeChat contacts or phone contacts. The platform also recommends new contacts based on users’ past behavior on the Meituan app, such as the mobile games they have played. 

Context: After years of fast growth, China’s food delivery industry is now growing at a slower pace. The market expanded 15% yearly in 2020, the slowest growth in the past decade, according to market consultancy Zhiyan (in Chinese). 

• Meituan hit a record in the number of transacting users and active merchants using its flagship app in the first quarter of the year, 569.3 million and 7.1 million, respectively, according to its financial statement. The growth is partly driven by the company’s popularity in lower-tier Chinese cities. 
• Meituan is seeking new growth areas in recent months by introducing social and content features, including a Pinduoduo-like group buying feature in its Meituan-Dianping unit and a short video feature in its flagship app.

Inceptio, a China-based robotruck startup, said it has closed a $270 million Series B on Tuesday. JD Logistics, Meituan, and PAG led the investment round. 

Why it matters: It’s unusual for two Chinese tech majors to join the same funding round, signaling that they see Inceptio as a key player.

Details: The funding round is led by JD Logistics, online retailer JD’s delivery arm, life service platform Meituan, and private equity firm PAG. Other investors include express courier Deppon and IDG Capital, Inceptio said in a Tuesday announcement. The investors didn’t provide a valuation for the company. 

• Inceptio has raised more than $490 million since its founding in 2018.
• The Shanghai-based robotruck startup will use the new funds to expand in-house research on self-driving systems and accelerate investments in electric trucks, the announcement said. 

Context: Both JD and Meituan have invested in autonomous driving, but progress on driverless technology has been slower than many expected. JD appears to be behind schedule on its own self-driving truck project.

• JD unveiled a highly autonomous truck model in Beijing in mid-2018 and anticipated its testing fleet would begin commercial operation in 2020, The Paper reported (in Chinese). But the company has yet to announce any updates. A JD spokeswoman did not respond to TechNode’s request about meeting the target.
• Meituan has also been investing in self-driving cars for a few years. The company invested in Haomo.ai, a startup developing automated driving systems for passenger vehicles and electric vehicle startup Li Auto. 
• Inceptio announced in March that the company will mass produce two self-driving truck models by the end of this year. The models will be co-developed with Chinese automakers Dongfeng and Sinotruk, respectively.
• Last November, Inceptio raised $220 million in Series A. Investors include battery giant CATL, logistics firm GLP, and Nio Capital, an investment firm partly formed by electric vehicle maker Nio. 

First it was one Tencent gaming studio. Then it was Kuaishou. Then ByteDance and Meituan’s groceries division in one week. In the last month, we’ve seen three major Chinese tech firms abolish weekend work after years of popular criticism of “996 culture.” (None of these companies had been on the actual 996 schedule of 9 a.m.-9 p.m., six days a week).

The change comes amid a fad for a dropout style known as tangping—“lying down.” At least some young people are looking for alternatives to the corporate rat race.

The last time this column wrote about overwork, our headline was “Why 996 just won’t go away.” Are things turning around? Is it time to imagine that you can work at a Chinese tech major and—just maybe—have a life?

Bottom line: Could be. More Chinese people are dissatisfied with overtime schedules and voting against “996” with their feet. Bytedance and Kuaishou could start a wave of reforms. 

However, many are still willing to work these intense schedules. Tech workers may want to put off that down payment on a timeshare in Sanya—there’s going to be pressure for hard work even if you don’t have to clock in on Sundays.

Some tech majors are moving to make jobs better. In the last month, three tech giants have abolished weekend work. All three previously used the big week/small week schedule, which requires working on alternate Sundays.

• A gaming studio at Tencent appears to have moved first, with a policy ending weekend work and requiring employees to leave the office at 6 p.m. on Wednesday, announced in early June.
• Short video company Kuaishou first eliminated weekend work across the company on July 1. Kuaishou was relatively late to adopt weekend work, adding working Sundays in January during the runup to the company’s IPO.
• ByteDance will follow suit Aug. 1.
• Local services giant Meituan currently requires weekend work only in one division, grocery delivery. It announced plans to end working Sunday this week.
• JD.com promised this week to double bonuses for office staff by 2024, an effective 14% boost to take-home pay. The company also promised to improve pay for some delivery workers.

Plus a signal of state action? Jiemian reported this week that Siemens was given a symbolic fine of about $2,000 for excessive overtime in Shanghai. With a fast-moving crackdown on unpopular parts of big tech, it could be a harbinger of labor law enforcement.

Check out TechNode’s Techlash Tracker for an overview of the crackdown.

How overwork works

Not every extreme schedule is “996”: Overtime work takes different forms in different companies.

• The “996” schedule is the most famous: 9 a.m. to 9 p.m., six days a week.
• Also popular with Chinese internet companies is the “big and small week” schedule, working alternate Sundays.

Butts in seats: 996 means more than a 72-hour work week. Some employers go to Foucaultian extremes to control workers’ time.

• Companies on the schedule often require employees to check in with a GPS-enabled app from the office by 9 a.m., and schedule meetings late into the evening to make sure staff are still on site. 

• Chinese magazine Renwu alleged in November that tech majors limit bathrooms and time trips to them to keep workers at their desks.
• Nikkei Asia reported last month that major firms are using software called “Third Eye” to keep employees from visiting non-work sites during long workdays.

Case study—ByteDance: ByteDance employees describe long hours on the big week/small week system, but relative flexibility and substantial overtime pay. ByteDance will end working Sundays at the start of August, according to a July 7 internal memo.

• Unlike other Chinese companies though, Bytedance does not monitor employees with a “check-in, check-out” system, and allows flexible start and stop times.
• Peter, a former employee, told TechNode that employees were allowed to ask for time off on a working Sunday without spending vacation days, but it was rare in practice. 
• ByteDance paid double time for Sunday—making two Sundays of work a month an approximate 20% boost to base pay.
• So far, the company has not announced plans to raise salaries to compensate employees for lost overtime.
• Former employees say that there are not enough toilets, but no timers.

It’s not just big tech: Overtime is common across the Chinese economy. Official data suggests that the average “information technology and software” worker actually works fewer hours than the average overworked Chinese employee.

• Overtime culture is rooted in the extreme competition faced by skilled labour: if employees are not willing to work overtime, someone else will be. As conservatives say online: “Better 996 than 007.”
• Most Chinese companies do not compensate for overtime.
• Average Chinese working hours are high on a global scale, at 46.8 hours per week, compared to 38.7 in the US.
• According to the China Labour Statistical Yearbook, workers in “information technology and software” do an average of 44.2 hours per week.
• About 15% of workers in the sector report doing more than 48 hours per week.

Are people turning on overtime?

Tune in, turn on, lie down: Former factory worker Luo Huazhong became a celebrity after quitting his job to “chill out.” He wrote a viral blog post about cutting back on consumption to escape work, what he called tangping—“lying down.”

• The principle behind tangping is to get by living frugally and working a minimum amount, rejecting ambition and consumerism. 
• In 2019, the term went mainstream, alongside a Github-based protest against “996” schedules called “996.ICU.” Of course, it was rapidly commercialized by T-shirt manufacturers and other slogan-peddlers.
• Many believe that only those who have rich parents can afford to “lay flat.” A source told TechNode: “they quit their jobs, and go lie in their parents’ Beijing apartments.”
• State broadcaster CCTV published an article attacking the trend (in Chinese). Since then, all products using the slogan have been taken down from e-commerce platforms.
• But other state media have lined up against overwork. People’s Daily-owned glossy magazine Renwu (literally, People Magazine) has been on a tech crusade for much of last year. In addition to the toilet article, other critical coverage included a viral investigation into the pressures on delivery drivers.

More people want jobs—just better ones: While few people have walked away from the workforce entirely, more seem to be looking for work/life balance.

• Eric Tarchoune, founder and CEO of Dragonfly Group, an HR recruiting agency for MNCs in China, says candidates are turning to multinationals because they are tired of “996.” The trend is strongest among workers in their 30s, he says.
• Yet, MNCs competing in the tech industry with Chinese champions, such as Tencent and Alibaba, still struggle: they cannot offer the pay and bonuses, shares, or even the national pride of working for a Chinese champion. Instead, they offer more training and a work-life balance.
• Priscilla Zi, CEO and HR Manager of Chengdu-based education gaming startup Bosijie, has been increasing her team size recently. After noticing increased efficiency when her team rested on the weekend, the startup has a strict “weekends off” policy. Most of her recent interviewees cited leaving the “996” work schedule as a reason for changing jobs.

Some workers agree:

• A young worker surnamed Huang, for example, said he chose an offer from French company Haulotte, rather than a Chinese tech firm, primarily because of the work-life balance offered by the former. 
• Many of Huang’s colleagues across different seniority levels also chose Haulotte for the same reason: in this company even if you frequently work overtime, you are paid for the extra hours.

There’s evidence overtime doesn’t work: A Harvard Business Review article by Sarah Green Carmichael outlines evidence that extreme overtime is counter-productive for companies.

• Output is not necessarily higher—a study by John Pencavel demonstrates that the productivity of work hours beyond 50 hours per week is significantly reduced.
• Stress-induced health problems boost insurance costs. This may be less relevant in China, where there is a social insurance package
• Pressure negatively affects interpersonal communication, making judgements, and keeping sight of the bigger picture.
• The unsustainability of the “996” model is shown by the short time employees spend at these internet companies. At Bytedance, the average tenure is one year, while at Alibaba or Tencent, it is only slightly longer at two to three years. 

Don’t count 996 out yet

Plenty of young people are still applying for jobs at the majors. They still offer workers powerful incentives: prestige, advancement, and high pay.

• Typical entry level salaries of Chinese internet companies range from 300k to 400k a year, with the equivalent of 3-month-salary as a bonus (in Chinese).
• This compares to an average yearly salary of just over 200k for graduates at elite Tsinghua University, the university with the highest average in China (in Chinese). 
• An internal survey conducted by ByteDance showed that a third of employees preferred to keep working Sundays in return for higher pay, according to Chinese media reports.

Abolishing big/small weeks won’t reduce pressure to produce. There are broadly two types of overtime: the first, due to large amounts of work; the second, requirements to be in the office on standby, either for show or in case your boss may need you. Eliminating Sunday attendance rules may reduce the latter type, but not the former.

• For many jobs in China—particularly at entry level, overtime work is a given. At least the internet giants admit, compensate, and recognise it.
• Some also view “996” as a necessary stepping stone in their careers: work hard for some time at a big name, before moving on to a more relaxed job. 

READ MORE: Insights | Why ‘996’ just won’t go away · TechNode

And bosses love 996: Alibaba founder Jack Ma, JD’s Richard Liu, and Pinduoduo’s Colin Huang have all endorsed the intense work schedules, and big China tech companies show a track record of being willing to ignore public pressure. 

It may take state pressure to change: Public pressure or not, tech bosses respect their regulators. This could be coming: the wave of working hour reforms has fed rumors that Chinese regulators have decided to take action on overwork, and Siemens’ fine in Shanghai could be a leading indicator. 

In the past year, Chinese regulators have been on a roll of populist crackdowns on big tech, over issues ranging from privacy, to e-commerce monopolies, to high-interest loans. An effort to win workers’ more balanced lives would fit right in.

Local service superapp Meituan is cutting back on mobile power bank rentals while bringing back a ride-hailing app, as ride-hailing market leader Didi faces a cybersecurity review. Tea drink chain store Heytea secures $500 million in Series D. Amazon expands a crackdown on Chinese sellers.

Meituan adjusts offerings

• Meituan plans to downsize its mobile power bank rental service, Chinese media reported on Wednesday. Donews reports that Meituan is selling its rental service in 33 Chinese cities to local operators. Most of these cities are second-tier ones such as Jinan, Baoding, and Changsha. Gao Cheng, head of the rental service division in Meituan, recently left the company. Many business development staff from the division have transferred to Meituan Youxuan, a community grocery division. [Donews, in Chinese]

• Meituan relaunched a standalone ride-hailing app on Friday, three years after removing Meituan Dache to cut expansion costs. The launch came as market leader Didi’s apps are banned from accepting new users during a cybersecurity review. Meituan’s ride-hailing service continued operating as a mini-program within the Meituan super app during the app’s hiatus. [SCMP]

Heytea raises half a billion

Modern tea drink chain store Heytea completed a $500 million Series D. Investors include Sequoia Capital China, Hillhouse Capital, Tencent Investment, and Temasek. Founded in 2012, Heytea popularized “cheese teas” and runs about 695 stores across China. The brand is popular among young, urban Chinese consumers. [Ebrun, in Chinese]

Amazon widens crackdown on Chinese sellers

Amazon closed 340 online stores operated by one of the largest Chinese retailers on the platform for allegedly violating Amazon’s rules without specification. Shenzhen Youkeshu Technology Co. sells a variety of products, including electronic gadgets, toys, and outdoor equipment. Amazon froze $20 million in payments due to the retailer. The ban may reduce Youkeshu’s first-half sales by 40% to 60%, according to a recent filing by the retailer’s Shenzhen-listed parent Tiza Information Industry Corp. Amazon banned in June three electronics brands under Shenzhen-based electronics company Sunvalley Group for soliciting positive reviews with gifts. [SCMP]

Suning chairman steps down after bailout

Zhang Jindong, the billionaire founder of Suning, resigned as chairman of the Chinese retail conglomerate this Monday. Zhang lost control of the company when the business sold a nearly 17% stake to a government-led consortium. On July 5, the troubled retailer secured a $1.36 billion bailout offer from a group of investors led by the state asset management committees of the Nanjing and Jiangsu governments. Alibaba also joined the funding consortium, alongside Chinese electronics makers Midea Group, Haier Group, Xiaomi, and TCL Technology Group. [Bloomberg]

Louis Hinnant contributed to the reporting. 

Alibaba strengthens its local services to combat Meituan. Troubled retailer Suning gets a $1.36 billion bailout from Alibaba and a provincial government. Chinese regulators to increase penalties for misleading price practices. Nayuki Tea goes public in Hong Kong. Logistics firm Yunquna raises funds to expand overseas network. 

Alibaba gets competitive with Meituan

E-commerce giant Alibaba has reconstructed operations to establish a new life services division. The new division includes mapping platform AutoNavi, online travel agency Fliggy, food delivery app Ele.me, and local services connector Koubei. The move will help Alibaba to compete with Meituan, a local service giant in China. (SCMP)

Suning bailed out

Troubled retailer Suning will receive an RMB 8.8 billion ($1.36 billion) lifeline from an investment group that includes Alibaba, rivals Midea and Haier, and the Jiangsu provincial government. The coalition will hold 16.96% of equity and Suning’s founder Zhang Jindong will lose majority control of the company. (Bloomberg)

No more price manipulation

China’s top market regulator further restricted e-commerce platforms from manipulating prices on their platforms price manipulation . In a July 2 directive, the State Administration for Market Regulation specified that it will increase penalties for price dumping, price hikes, and disregarding government price controls. (Government statement, in Chinese)

Nayuki Tea IPOs

Nayuki Tea, a chain that offers modern tea-based drinks, raised HK$4.84 billion ($623 million) in a Hong Kong IPO on June 30. The tea store, which now also sells coffee-based drinks, competes with rivals like fruity beverage chain HeyTea and coffee chain Luckin. The company’s shares fell more than 10% on the morning of its first trading day. (Yicai, in Chinese)

Yunquna to expand overseas network

Chinese logistics firm Yunquna announced on June 29 that it had raised $150 million in its Series D. Citic Capital led the investment and China Renaissance served as the financial advisor. The company said it will use the funds to expand its overseas destination ports and improve shipping and delivery speed. (Caixin Global)

Luckin discloses fraud details

Chinese chain store Luckin Coffee released an amended 2019 financial statement on June 30, the first filing since it admitted fraud in 2020. The company booked a loss of $454 million in 2019 and inflated revenue by nearly RMB 2.12 billion. (TechNode)

A new commission system for Meituan food delivery has lowered the platform’s cut of short-distance orders, but raised fees for long-distance, merchants told the leading food delivery platform.

Why it matters: Meituan has been criticized for charging excessive commissions to small merchants. The company is trying to ease public frustration and bring more transparency to the company’s operations amid a wider regulatory crackdown on Chinese tech firms.

• Since May, Meituan has moved away from a fixed commission fee to one that charges restaurants different rates based on factors including store exposure, IT services, delivery distance, order price, and delivery time.
• Meituan came under the spotlight of China’s antitrust crackdown in April, shortly after Alibaba was hit with a record-breaking $2.8 billion fine.

Details: Under the new system, merchants say, fees for orders within a three-kilometer delivery distance are lowered, but that they are paying more on longer-distance orders, according to a notice (in Chinese) published by the company after a meeting with merchants held May 20.

• Many merchants asked during the meeting why they have adapt to a new and complicated system rather than take a flat cut on commission rates, according to the notice.
• Meituan argued that the thins margins of food delivery would make lower commissions across the board unsustainable. “Structural adjustments for the fee system can help the entire food delivery ecosystem to develop in a more profitable and healthier direction,” the company wrote.
• Delivery costs represent around 83.1% of commission revenues, and Meituan records a profit of just RMB 0.28 ($0.04) per order, according to data from the company’s 2020 annual financial results.
• The company also wrote that it plans to expand its food delivery business development team by around 30% this year in order to better address the demand of merchants.

Context: In an open letter published April last year, the Guangdong Restaurant Association accused Meituan of exploiting merchants by charging excessive commission rates that “most restaurants can’t endure.”

READ MORE: There are no food delivery winners

Xiao Yu, the owner of a Nanjing sandwich restaurant has a bittersweet feeling about food delivery services, an industry that feeds or creates jobs for millions of Chinese. The longer he uses delivery platforms like Meituan and Eleme, the more bitter his sentiment becomes. 

Yu, who asked to be identified by his nickname, understood that cheap, quick food—sandwiches with chicken, pork, omelets, or salad—would rely mostly on delivery orders, at lower margins than dine-in. But even so, he was surprised how hard it’s been to make ends meet. “The number of food delivery orders is generally three or four times that of dine-in orders, but the profit margin is far lower,” he told TechNode.

As merchants’ dependence on food delivery increases along with the popularity of the service, it has become more and more difficult for vendors like Yu to make a living, despite the ever-increasing number of orders.

A commission fee of around 20% per order, plus logistics fees and other marketing expenses charged by food delivery giants eat up an increasingly large share of the merchant’s profits.

The delivery platforms are drawing complaints from the drivers too. The stressful working conditions endured by two-wheeled food delivery drivers drew public ire after a Beijing official exposed issues involving low wages and impossible delivery deadlines. Wang Lin, a deputy director at Beijing’s Bureau of Human Resources and Social Security, earned merely RMB 41 ($6) on a 12-hour undercover shift last month.

For the past few years, frustration with the platforms has been building among small merchants and delivery drivers, two integral parties involved in the booming industry that brings them relatively little benefits. 

With an announcement from China’s national watchdog last month, we learned that the biggest delivery platform of them all is finally being investigated for monopolistic practices. If the Alibaba investigation is any model, Meituan could end up paying a penalty of billions of dollars. The company’s stock closed Thursday at HK$ 273 ($35) when the Hong Kong market closed, down nearly 40% from its peak.

Meituan under antitrust probe

An offer you can refuse: One focus of the Meituan antitrust probe by China’s State Administration for Market Regulation (SAMR) will be the issue of “choose one of two,” also known as forced exclusivity. The term describes practices that attempt to get merchants like Yu to sign exclusively with one platform. 

The Meituan probe comes shortly after Alibaba was given a record RMB 18.2 billion fine for practices including forced exclusivity. Analysts are looking for parallels between the companies’ competitive practices.

In the case of food delivery, exclusivity is more incentivized than forced. Yu lists his restaurant on both Meituan and Ele.me, which has meant that each app deducted 20% of an order price as a commission fee, with a minimum of RMB 4.5. The commission rate would be 15% if he agreed to list on only a single platform. Representatives of both platforms call Yu and pay visits to his store “all the time,” he said, asking him to drop the other platform. However, with an average order size of RMB 16, he’d still be paying almost a quarter of each order owing to the minimum charge.

In an unscientific survey, TechNode staff checked 30 restaurants they had ordered from recently and found that 27 were listed on both apps. 

READ MORE: What is ‘forced exclusivity’? And why did it get Alibaba fined $2.8 billion?

Monopoly or duopoly? A key factor in any antitrust investigation is to determine who has a monopoly. Chinese law defines any company with more than 50% of a “relevant market” to be a dominant player, subject to more stringent oversight.

Meituan easily meets that definition. Its share of the delivery (in Chinese) market increased to 65.8% in the third quarter of 2019, up from 60.1% during the same period of 2018, according to a report by local research agency TrustData released in February. Over the same period, the share held by rival Ele.me declined from 29.3% to 27%.

As a non-dominant player, Ele.me is unlikely to be fined for forced exclusivity under the anti-monopoly law. However, the practice may also be forbidden under other laws, such as the e-commerce law and price law. We’ve also seen regulators get creative with market definitions to bring smaller companies under the law.

Penalty size: Meituan could face a penalty ranging from RMB 4 billion to RMB 12 billion, according to a report by investment bank Bank of Communication International. Alibaba was fined RMB 18.2 billion, or 4% of its domestic revenue in 2019, although the maximum fine allowable for antitrust violations is up to 10% of domestic revenues. Meituan reported revenue of RMB 114.8 billion in 2020. Bloomberg analysts predict that Meituan will get a smaller fine in keeping with its size. Four percent of the company’s 2020 revenue would be RMB 4.6 billion.

Share movement: Like Alibaba, Meituan’s shares rose slightly after the announcement of the probe, probably because it eliminated a major source of uncertainty for the company. Meituan shares had plunged more than 40% from record highs in February as China’s sweeping antitrust campaign gathered steam and investors anticipated losses from investment in new businesses.

The antitrust probe ultimately will have only a temporary impact on Meituan shares, although the fine could amount to billions of RMB, according to Mark Meng, an analyst from Tiger Brokers. “The goal for the investigation is to strengthen monitoring of the tech market and improve fair competition, rather than shake or dismantle a business,” he said.

Why forced exclusivity?

History of fines: Meituan has already been fined at a local level for forced exclusivity on multiple occasions.

• June 2017: Jinhua city’s market watchdog, in eastern China’s Zhejiang province,  issues RMB 526,000 fine to Meituan for unfair competition.
• February 2021: The Intermediate People’s Court of Jinhua, Zhejiang province, rules (in Chinese) that Meituan should pay Ele.me RMB 1 million for asking merchants to list exclusively on its platform.
• April 2021: Ele.me ordered to pay Meituan RMB 80,000 for unfair competition by a court in Wenzhou, Zhejiang province.
• April 2021: Intermediate People’s Court in Huai’an, Jiangsu province, orders Meituan to pay RMB 352,000 in compensation to Ele.me for forcing vendors to shut their outlets on its Alibaba-backed rival.

“I don’t think these platforms thought too much about regulatory scrutiny before,” a market analyst told TechNode, asking to stay anonymous because the matter is sensitive. “The fines were too small to worry about, and by the time the regulator does anything, you’ve already screwed over a key competitor,” the source said.

Compared with e-commerce, forced exclusivity matters more in food delivery, “as a narrow range of food options can lead users to abandon a particular app,” he said.

Spilled milk? There’s not much competition to protect in food delivery, with 93% of the market taken by Meituan and rival Ele.me, according to TrustData.

There’s little space for small, specialized platforms to find a niche in food delivery, which is a much smaller market compared with e-commerce. There are e-commerce platforms focusing on cross-border business, maternity, fashion, but it’s hard to imagine a food delivery platform that serves only one cuisine.

Michael Norris, research and strategy manager of Agency China, argued that the implications for consumer choice and platform competitiveness are higher for food delivery than e-commerce. “The impact is amplified when you exclusively sign up whole restaurant chains across the country.”

However, Norris says, “I do wonder whether the multiplicity of forced exclusivity fines at a local level will lead to a higher penalty level.”

“Fair competition in food delivery will benefit the consumers and incentivize enthusiasm in merchants. It will also prevent platforms from overdraft their management resources, credibility and values for the society,” said Zhang Yi, consulting CEO and chief analyst at iMedia Research.

Will anything change?

With little competition, an end to forced exclusivity won’t necessarily bring much relief to merchants like Yu. The two dominant platforms face little pressure to lower commissions for restaurants that have no choice but to rely on delivery.

Meituan made a change (in Chinese) to its commission system this month. Instead of a set percentage of order value, it now charges vendors according to distance, order price, and delivery time. Merchants also say there has been less pressure from both Meituan and Ele.me to sign exclusive deals.

“Meituan will separate these fees out. This also helps regulators understand how Meituan charges merchants, and the extent to which those respective fees are increasing,” said Norris.

Meituan CEO Wang Xing argued in the company’s Q4 2020 earnings call that these details will show that the company’s high take rate is “reasonable,” rejecting comparisons to the much lower portion of sales collected by e-commerce platforms like Taobao. “That’s an unfair comparison because we are providing merchants a market-based transaction service. Also, we are fulfilling the actual physical delivery,” Wang said.

Under the new system, the commission rate for Yu’s restaurant orders dropped slightly, but still represents a substantial portion of his sales. 

“We still haven’t seen changes that could bring material benefits to the industry or merchants. The only benefit is that agents of the platforms no longer bug us to sign an exclusive deal. It seems that merchants are the only ones who care about this,” Yu said.

Regulation and fines

• Regulators on Monday slapped Chinese edtech rising stars Zuoyebang and Yuanfudao with RMB 2.5 million ($389,000) penalties each for unfair competition. The startups were found to use misleading marketing tactics, offer nonexistent discounts, and making false claims to lure consumers. Other edtech sector companies were previously dealt smaller penalties. Zuoyebang is considering a US IPO. (TechNode)
• Apps by Alibaba, Baidu, and Tencent were among 84 mobile security and online lending platforms singled out by China’s top internet regulatory body for invasion of privacy and unwarranted collection of user data. Companies mentioned have 15 days to change their practices before further action will be taken. Regulators named in March an earlier batch of 33 apps found to infringe on consumer privacy. (SCMP)

Meituan troubles

• Food delivery giant Meituan’s shares fell by 9.8% in Hong Kong on Monday before closing 7.1% down, wiping $16 billion from its market cap. The sudden drop occurred after Meituan co-founder Wang Xing posted a Tang dynasty poem on the Fanfou social media platform criticizing book burning. The since-deleted post comes at a politically sensitive time, after Chinese regulators opened an investigation into Meituan on April 26 for antitrust violations and torpedoed fintech firm Ant Group’s dual IPO in November following public criticism of the “over-regulated” fintech industry by founder Jack Ma. (Bloomberg)
• Shanghai’s Consumer Council met with Meituan on Monday, criticizing the lifestyle platform for misleading content, refund issues, and its delivery process for perishable foods. According to the Council’s statement, Meituan said that the company will conduct a self-evaluation and promptly submit a rectification report. (Shanghai Consumer Council, in Chinese)

IPOs and funding

• Chengxin Youxuan, the grocery division of ride-hailing leader Didi, intends to spin off and file for an IPO as soon as next year, according to company executives. The platform is one of many recent initiatives by China’s tech giants to claim a share of the rapidly expanding community group-buying market. (TechNode)
• JD Logistics’ latest Hong Kong prospectus showed that its losses in 2020 widened to $620 million from $340 million in 2019. The JD.com affiliate received approval on April 29 from the Hong Kong stock exchange for a public offering, through which it aims to raise $4 billion. (KrAsia)
• Online grocery delivery platform Dingdong Maicai has secured $330 million in a “D-plus round” led by SoftBank Vision Fund, according to its advisor Cygnus Equity. Dingdong Maicai has raised more than $1 billion this year including a $700 million D round it received in April. (TechNode)
• Cloud storage and data analytics platform Qiniu has filed for an IPO on the Nasdaq exchange. Alibaba, by way of Taobao China, is the largest stakeholder with a 17.7% stake. The company is trending towards profitability, showing a 30% increase in revenue since last year. It’s the leader by market share among companies following the platform-as-a-service model, and a key player in China’s flourishing cloud services economy. (Nikkei Asia)

Suning Group

• Chinese retailer Suning Group announced on May 6 that the company had signed an agreement for the creation of a New Retail Development Fund with the state-owned Assets Supervision and Administration Commissions of Jiangsu Province and Nanjing City. According to the statement, the RMB 20 billion public-private fund will be used to invest in Suning’s businesses and assets in new retail. (Suning Blog)

Amazon pulls Chinese products

• At least 11 top Chinese sellers, including gadget brands Aukey and Mpow, have disappeared from the Amazon platform for questionable marketing tactics such as manipulating user reviews, according to e-commerce research film Marketplace Pulse. The suspended accounts contributed over $1 billion to Amazon’s GMV. Chinese merchants account for 75% of new sellers on Amazon in January, seeing it as an opportunity to expand overseas amid domestic competition. (TechCrunch)

China’s top market watchdog said Monday that it has started an investigation into food-delivery giant Meituan, continuing the country’s crackdown on the platform economy.  

Why it matters: Beijing has stepped up antitrust regulations in recent months, prompting tech majors including Tencent, Didi Chuxing, and Alibaba’s grocery unit to pledge compliance with anti-monopoly practices and fair competition rules. 

• The investigation into Meituan follows a record-breaking fine of RMB 18.2 billion ($2.8 billion) levied on Alibaba on April 10 for antitrust violations. Alibaba said in response that it would end the practice of forced exclusivity and spend billions to lower merchant costs. 
• Beijing had issued on March 12 smaller fines of RMB 500,000 ($76,095) on 12 Chinese companies over 10 investment deals in violation of the country’s Anti-Monopoly Law. These include Alibaba, Tencent, Didi Chuxing, Baidu, JD.com, ByteDance, Meituan, and Suning. 

Details: The State Administration for Market Regulation (SAMR), China’s top market watchdog, said in a one-line statement on Monday that it is investigating the Tencent-backed platform for antitrust violations—namely, forced exclusivity. 

• Meituan said in a statement on Weibo that the company would cooperate with the investigation and that business is currently operating normally.
• The Weibo statement reiterated Meituan’s pledge to comply with SAMR rules—along with 33 peers from April 14 to 16—in which it emphasized “protecting consumer rights” and “improving compliance management.”
• Forced exclusivity, or “choose one out of two,” is a practice in which platforms force merchants to use only one company’s platform or services. 

Context: Food delivery platform Meituan has emerged as one of the frontrunners in China’s red hot community group-buy market after launching Meituan Youxuan on July 7. 

• SAMR’s increased regulation of the tech sector includes closer scrutiny of community group buy businesses. The regulator levied fines of RMB 1.5 billion on five companies, including Meituan Youxuan, on March 3. Beijing also summoned Meituan alongside other tech giants including Alibaba, JD.com, Tencent, Pinduoduo, and Didi, for a meeting in December to discuss oversight of the group-buy industry. 
• Community group buying is a platform-based grocery service that employs a network of organizers who coordinate selling products to their neighbors. By combining individual orders into bulk shipments, group-buy companies can offer lower prices to customers. 

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, James and Elliott are joined by frequent CTI guest Michael Norris to cover the 2020 Q4 earnings of Pinduoduo, Kuaishou, and Meituan. The guys also answer some questions posed by listeners of the show on Twitter.

Sorry folks, we had a little trouble with our recording setup and there’s some interference in the audio.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:                   

• Michael Norris – @briefnorris

Editor:

• Peter Isachenko

Podcast information:

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• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

E-commerce responds to Xinjiang cotton boycott

• H&M has been removed from China’s e-commerce platforms including Alibaba’s Taobao, JD.com, and Pinduoduo as well as service apps from ride-hailing platform Didi to map apps from Tencent and Baidu. The Swedish fashion brand is facing a backlash over its decision to stop sourcing materials from the Xinjiang Uyghur autonomous region, a major cotton producer and home to China’s Uyghur minority, against which the country’s government is accused of significant human rights violations. (The Wall Street Journal)
• NetEase Yanxuan, the private-label e-commerce brand of Chinese tech firm NetEase, voiced its support for Xinjiang cotton, pledging to continue its use, help farmers to develop more products, and source more raw materials from within the country. (Ebrun, in Chinese)
• A number of international brands such as Nike, Adidas, and Uniqlo are also losing steam in the country for expressing concern about alleged human rights violations in Xinjiang. (SCMP)

IPOs and funding

• Chinese grocery app Nice Tuan has raised a $750 million round led by Alibaba Group and DST Global to bolster its supply chain and fresh produce offerings. Other participating investors include D.E. Shaw & Co., Anatole Investment, Jeneration Capital, and Dragoneer.(Ebrun, in Chinese)
• Chinese social e-commerce platform Xiaohongshu has hired a former Citigroup executive to oversee its financial management amid reports that it is eyeing a public listing in the US, according to a report by The Information. (TechNode)
• Two Shanghai-based venture capitalists have accused Cai Guangyuan, chief executive of power bank rental company Energy Monster, of reneging on a deal to give them a joint 3% stake in the business. The dispute is poorly timed—the company recently filed a prospectus for a US listing. (Reuters)

Growth in logistics

• Alibaba’s Cainiao Smart Logistics Network announced Monday a partnership with Hong Kong Air Cargo, a subsidiary of Hong Kong Airline, to begin cargo flights to Southeast Asia. In the first phase of the cooperation, Hong Kong Air Cargo will operate flights to hubs Manila, Kuala Lumpur, and Bangkok on behalf of Alibaba’s logistics arm. (Ifeng, in Chinese)
• China’s same-city logistics service provider Shansong Express has received RMB 125 million in funding for a Series D2 from Shunwei Capital, N5 Capital, SIG China, Tiantu Capital, Oceanpine Capital, Alpha Square Group, Axiom Asia Private Capital, Qianshan Capital, and CF Capital. SIG China became the company’s largest institutional investor after the round. The Beijing-based firm had upwards of 100 million users as of 2019. (Tencent News, in Chinese)

Meituan losses

Meituan booked net losses of RMB 2.3 billion ($345 million) in fourth quarter of last year as the Chinese food delivery giant ramped up investment in the community-based grocery business. The company warned that investment in grocery services will continue to weigh on its profitability, although growth in its core food delivery and in-store business earned a better-than-expected RMB 37.9 billion in revenue for the reporting period. (Bloomberg)

A few years ago, ByteDance was a media company. Now it’s moving from e-commerce into restaurant coupons.

ByteDance is on its way to building a business empire encompassing nearly every aspect of Chinese consumers’ daily lives. With core competency in content aggregation, the TikTok parent company has already expanded to entertainment, e-commerce, productivity, gaming, education, competing head-on with big names like Tencent, Baidu, and Alibaba. 

The tech giant recently accelerated its foray into local lifestyle, a RMB 1.3 trillion (around $199.9 billion) market that is dominated by long-standing incumbent Meituan, which operates two of China’s largest local lifestyle apps, Meituan and Dianping. Local lifestyle is a catch-all term for in-person services such as restaurants, movies, entertainment, and beauty care. Tech companies engaged in these areas typically adopt the O2O, or online-to-offline model, which entices online consumers to make purchases of goods or services from bricks-and-mortar stores by leveraging location-based features.

ByteDance is pushing into local lifestyle services in order to diversify and boost its revenue stream to support both the company’s rapid pace of development. With an IPO rumored to be coming soon, the company will also want to show strong revenue figures.

ByteDance recorded around RMB 240 billion of revenue in 2020, according to The Information, which cited people with knowledge of the matter. Revenue from its primary advertising business accounted for RMB 175 billion, or 72.9% of the total. The company has decreased its heavy reliance on ad income, which in 2019 accounted for over 90% of revenue. It may still need to improve that balance in order to fend off risk.

By advancing into lifestyle services, ByteDance is taking on a new rival: O2O giant Meituan. It’s a potentially Freudian moment for ByteDance founder Zhang Yiming, who has close connections to Meituan founder Wang Xing. Both men hail from the same town in rural Fujian, and they have a history. When Wang founded social media platform Fanfou in 2007, Zhang was his tech partner. They haven’t worked together since 2009, but the two CEOs appear to remain fond of each other, speaking highly of each other in public.

Deeper discounts, for now

Douyin’s newly launched local lifestyle section consists of four segments: group deals for restaurants and hotels, top lists for scenic spots, hotel reservations, a gourmet guide populated by reviews from social media influencers, and location-based check-in with prizes. The features have some overlap but are all focused on restaurant and accommodation reservations. Participating businesses are currently only located in top-tier cities including Beijing and Shanghai.

For users, Douyin’s local life offerings are largely a Meituan alternative. 

In addition to easy access to user attention, an obvious edge for the service is pricing. A Sichuan noodle restaurant chain in Shanghai is currently offering up to 60% off through campaigns marketed through Douyin’s new feature, while discounts from the same restaurant are only 30% on Meituan and Dianping. 

It’s hard to say how long the company will maintain its pricing edge, but it is an efficient and time-tested way to draw its first round of customers. 

“Meituan and Dianping are my go-to apps for lifestyle services. But if we can get a better bargain on Douyin for the same service, why not?” Deng Shuang, a Shanghai-based housewife who watches e-commerce livestreams on Douyin, told TechNode.

Merchants are also open to the new option thanks to Douyin’s favorable word-of-mouth reputation as an efficient marketing platform. Sandwich shop owner Xiao Yu spent RMB 500 for one promotional video on Douyin in an attempt to draw users to his restaurant which opened just two months ago. The review video, featuring a Douyin social media influencer visiting his Nanjing-based store, tripled daily sales of the store to RMB 3,000, increasing daily orders to more than 200 from around 70 per day. The traffic boost sustained for over a week. He told TechNode that the store’s initial low traffic may have exaggerated the growth rate, but he was satisfied with the results. Given this experience, he’s keen to try out the new group-buy feature if it launches in Nanjing.

At present, merchants with a Douyin enterprise account can use the service for free, partially lowering merchant marketing expenses. The current zero commission policy may be a big attraction for merchants who generally pay steep commission fees to Meituan of around 10%.

What’s ahead

User enthusiasm alone, however, won’t guarantee success for Douyin’s local lifestyle business. There are two difficulties in using Douyin to promote such destinations, according to Michael Norris, research and strategy manager of Agency China.

“The first is a technical challenge—whether Douyin can support the purchase and redemption of coupons as efficiently as Meituan’s Dianping,” he said.

As it gets started with the business, Douyin both cooperates directly with offline stores and acts as a traffic platform that helps to promote services offered by third-party platforms. A server at a Shanghai noodle restaurant told TechNode that she has seen few customers using Douyin group-buy coupons compared with those from Meituan’s apps. In another test, a meal voucher that a TechNode reporter purchased through Douyin could not be found in the restaurant’s ordering system. Restaurant management eventually noticed that the voucher was issued by another local lifestyle platform, Xiangku, and Douyin was only promoting the service. 

“The second is a user journey and experience challenge—in the case of restaurants, users generally search and redeem a discount coupon as they pay for the meal. How Douyin plans to support this behavior is key to whether it can be a credible threat to transactions in Meituan,” Norris says.

Although the products look similar, Douyin’s product is embedded in a different ecosystem—which probably means a different strategy.  

Meituan is all about convenience. People who are looking to buy food or services use Meituan to search for bargains available near their location to purchase immediately, usually for restaurants nearby while shopping or after finishing a meal at a restaurant. In addition, Meituan’s food delivery services, more frequently-used services although lower in margin, help the platform to accumulate merchants users. Meituan’s model relies on both ads and commission to make money.

Douyin appears to be counting on getting people excited enough that they’ll make a special trip to try a new restaurant. Based on its content and “Point Of Interest” feature, Douyin is trying to create demand using content marketing tactics including livestreams, videos, and other media. When a consumer sees that a friend owns an item, or an internet influencer recommends a restaurant, it plants a mental seed.

Another challenge will be very quickly ramping up and capturing a wide offline merchant network. Unlike e-commerce for physical goods, selling local lifestyle services is rooted in recruiting as many offline merchants as possible. The number of participating merchants is a crucial baseline for luring more customers. It is a difficult market to catch up in since such offline recruitment requires big teams and plentiful resources to support heavy offline operations. As a result, it is unlikely that Meituan will lose its first-mover advantage in the near term.

Broader e-commerce push

It’s no secret that Douyin has big plans for e-commerce, a coveted revenue source for tech firms. After earning RMB 500 billion in gross merchandise volume (GMV) in 2020, Douyin set a RMB 1 trillion (in Chinese) GMV goal for its e-commerce business in 2021. The company has launched a number of initiatives to increase sales transacted through Douyin, including shoppable short videos and livestreams. 

ByteDance is broadening its livestreamed e-commerce business to include online sales of services, or the local lifestyle sector.

READ MORE: Bytedance gaming play doesn’t threaten Tencent—yet

“A subset of these shoppable videos include coupons and group-buying deals for tourist attractions and eateries. The group-buying feature gives merchants, whatever they’re selling, new ways to facilitate purchases,” Norris said.

ByteDance has been adjusting internally, shuttering smaller or less successful ventures and investing further in businesses that are mature or seen as proven business models, in preparation for a public listing, according to a number of media reports. It shut down (in Chinese) paid knowledge-sharing services Haohao Xuexi and closed its smartphone business by integrating the Smartisan team into the education hardware unit. Meanwhile, it acquired the Wikipedia-like Baike.com and built an internet of vehicles team.

ByteDance appears to be willing to try anything and everything to power growth and stay ahead. It has been keeping pace with virtually all the bandwagons with huge market potential. Its leadership doesn’t seem to mind failure, only missing out on the next big thing in China’s cutthroat technology race. 

China on Sunday put into effect new antitrust guidelines targeting internet platforms, subjecting the country’s tech industry to tougher rules on competition.

Why it matters: The guidelines formalize earlier draft rules announced by China’s State Administration for Market Regulation (SAMR), the nation’s top trustbuster.

• Some of the country’s top internet-based services, including Ant Group’s Alipay, food delivery app Meituan, Tencent’s instant-messaging app WeChat, and online marketplace Taobao, will be subject to the new guidelines. 

Details: The new rules forbid internet platforms from forcing merchants into exclusivity deals, offering different prices based on user data, and using algorithms to manipulate the market.

• Pricing products or services differently according to customer purchasing power, consumption history, or user preference is now considered monopolistic behavior, according to the guidelines.
• The guidelines widen the parameters for determining a firm’s “market-dominant position” to include factors such as transaction volume, user base page views, and technological barriers. 
• SAMR, which issued the rules, said the guidelines will provide a legal basis (in Chinese) for the country to tighten antitrust regulation of internet platforms.

Context: In December, SAMR issued fines to Alibaba and affiliates of Tencent and logistics giant SF Express over three separate acquisition deals, a move that legal experts described as the country’s first batch of antitrust enforcements against tech firms.

• SAMR in January 2020 proposed an overhaul of the country’s Anti-Monopoly Law to include internet firms in the scope of antitrust regulations.
• Last week, Douyin, ByteDance’s Chinese version of TikTok, said it had sued Tencent for monopolistic behavior including blocking Douyin’s content on WeChat.

GGV Capital, an investor behind some of China’s most successful tech startups including ByteDance and Didi Chuxing, said Thursday it had closed a $2.5 billion funding round—the largest in its 20-year history.

The US- and China-based venture capital firm’s latest capital raise comes amid an uptick in inflows to VCs from domestic and international limited partners (LPs) looking to profit from China’s tech growth. On Tuesday, Qiming Venture Partners, a Beijing-based VC firm that has invested in food delivery app Meituan and smartphone maker Xiaomi, said it had closed a new RMB 2.9 billion (around $448 million) financing round, following a $1.2 billion capital raise in September.

The two deals are part of a trend: foreign investors are increasingly injecting funds into China’s growing tech sector, as the global economy slows. Investors and analysts have said that foreign LPs are optimistic about China’s tech startups following last year’s initial public offering (IPO) boom. China, meanwhile, is gradually opening its finance market, increasing its appeal to international investors, they said.

Two big fundraising deals

GGV said it had raised in this financing round $1.46 billion for its GGV Capital VIII fund, $366 million for the GGV Capital VIII Plus fund, $610 million for its Discovery III fund, and $80 million for its Entrepreneur VIII fund. The firm said it will focus on investment in sectors such as new retail, cloud-based enterprise services, and social media.

The firm said it also expects to soon close a separate financing round of RMB 3.4 billion, increasing its total assets under management to around $9.2 billion.

The company did not disclose the names of its backers in this round. It has previously raised US dollar funds from North America-based pension funds, family asset management firms, and universities. A GGV representative declined to comment.

Qiming’s latest financing round was backed by two government-led guidance funds in Shanghai and Beijing, as well as several domestic insurance companies, TechNode has learned. The firm’s $1.2 billion financing round closed in September was mainly backed by American university endowments and pension funds.

“Top domestic and international LPs are optimistic about our investment strategy to invest in China’s innovative and developing science and technology, even during the challenging global Covid-19 epidemic as well as changing global environments,” (our translation) Duane Kuang, Qiming’s founding managing partner, said in a company statement on Tuesday.

US dollar funds become more active

In 2020, Chinese US dollar funds raised 12% more money than the previous year, even though total capital flowing into the market dropped nearly 39%, according to data from PE Data, which tracks China’s VC activities.

“US dollar funds into Chinese VC firms increased in 2020 both because the Chinese government had loosened its regulations of foreign investment and because overseas LPs are a lot more confident about the Chinese market,” (our translation) Liu Xiaoqing, research director at Itjuzi, a Chinese VC activity database, told TechNode.

American LPs are finding Chinese tech firms increasingly attractive and the market is rapidly developing after some Chinese tech firms went public in 2020 and offered investors high returns, she added. Some of the largest Chinese tech IPOs last year included electric vehicle maker Xpeng and Li Auto, as well as gaming giant Netease’s dual listing in Hong Kong.

VC-backed Chinese video-sharing app Kuaishou is preparing for what is expected to be the world’s largest public listing since the pandemic. The company is seeking to raise around $5 billion on the Hong Kong stock exchange, implying a market capitalization of as much as $60.9 billion. The firm was valued at $18 billion in a funding round in January 2018, meaning early investors are expected to net returns of nearly 233%.

A clearer picture

US investor interest in Chinese tech firms was hampered last year by two Trump-era policies, but signs from the Biden administration, which has thus far indicated an aversion to over-broad and arbitrary restrictions on Chinese tech firms, are stoking optimism.

In May, the US Labor Department advised US federal pension funds—important backers of Chinese USD VC firms—against investing in Chinese companies. In November, former US President Donald Trump signed an executive order which banned starting Jan. 28 American investment in companies that are deemed related to the Chinese military. Smartphone maker Xiaomi, China’s three biggest telecommunications operators, and Chinese chipmaker SMIC are on the blacklist.

However, in a sign that it is easing Trump’s “tough-on-China” tech policies, the newly inaugurated Biden government said on Wednesday it is delaying the investment ban on certain Chinese firms to May 27.

China’s economy expanded 2.3% in 2020 according to government data (in Chinese) released last week, as economies in the rest of the world grapple with the stranglehold on business brought by the coronavirus pandemic.

China brought in $163 billion in foreign investment in 2020, surpassing the US as the world’s hottest destination of foreign direct investment, according to a report by the United Nations Conference on Trade and Development released on Sunday. In 2019, the US took $251 billion in foreign inflows and China got $140 billion.

“LPs are planning for the longer term,” said Liu of Itjuzi. “They are not only confident about China’s economy in 2021. They are at least confident about China in the next 10 years.”

Mimi Tao walked outside of her residential compound at seven in the morning as usual, but found that the driver had already dropped off the products at the front gate and left. After checking her order list and confirming all the products were accounted for, she hauled them all back to her garage and began the deliveries to residents on her list. There were cherries, apples, imported snacks, rice, and even handmade wontons from a local store in Suzhou. It usually takes Tao about two hours to complete the deliveries. 

Tao is the organizer of the group-buying platform Linxuanhaohuo for her residential development in Zhangjiagang, Suzhou in eastern Jiangsu province. She started the job in August 2018, after a friend’s recommendation. Tao works full time as an accountant as well. She says she usually spends four to five hours every day coordinating the orders and posting products on the WeChat group of 219 people she manages. 

“I am busier on Mondays, Wednesdays, and Fridays because I need to deliver products on these days,” Tao said (our translation). 

Tao is not the only person in the apartment complex who manages a community-buying group. She has a competitor in the compound—Maggie Xu, who works for another platform, the name of which roughly translates to Tongcheng Life. Xu’s group is double the size of Tao’s and the platform offers a wider variety of products. 

Group-buying platforms have their own mini programs on WeChat which customers use to place their orders. Each day, organizers post links in the chat group to products that are popular or are on sale. Xu usually starts putting product links in the group chat around 9 a.m. She first posts links for products on promotion, and then fruits. In the afternoon she posts links for snacks such as yogurt, sweets, and nuts, and then sometimes eggs. As Spring Festival approaches, gift boxes are also popular in the group. 

Resurgence of online fresh groceries

China’s grocery market is large—it is expected to be worth RMB 11 trillion ($1.8 trillion), the world’s largest, in 2023, according to research agency IGD. But it’s complicated—rather than a weekly trip to the supermarket, most Chinese consumers visit a variety of stores and marketplaces to stock their pantries.

Chinese companies from small to large have been trying to figure out how to sell groceries online for years. Venture capitalists fueled the craze by injecting hundreds of billions of yuan in the sector since its first boom around 2013.

The earliest attempts included asset-heavy approaches like Dingdong Maicai, which ran its own warehouses and logistics systems, and marketplace operators like Meituan and JD Daojia that offered delivery support for offline vendors.

However, within the broader online grocery category, selling fresh produce online has proven a hauntingly difficult task. Selling highly perishable goods with significant logistics requirements has driven more than a few fresh produce platforms out of business, from Amazon-backed Yummy77 to Xianpinhui. The most recent example is the collapse of Dailuobo, a grocery upstart that burned $92 billion in five months. 

China’s community-buying trend can be traced back to the early days on platforms like Meituan and Dianping, which offered Groupon-like deals. Community-based group-buying emerged around 2016 within chat groups on ubiquitous messaging app WeChat. The model gained momentum around 2018, especially in second-and lower-tier cities after WeChat launched its mini program ecosystem.

The Covid-19 outbreak changed Chinese consumers’ daily routine of shopping for fresh food and daily necessities offline. Although the behavioral shift boosted all businesses in the grocery delivery sector, community group-buying has taken off. One platform, Xingsheng Youxuan, has attracted investment from a number of tech giants, and was valued at $5 billion as of its latest round of funding led by Tencent. 

The group-buying model addresses the pain points of online grocery deliveries. Many group leaders themselves operate small mom-and-pop stores, which become informal hubs for such platforms. This saves on overhead costs such as running an offline storefront and expensive last-mile deliveries. Pre-ordering and overnight deliveries lower the attrition rate for fresh food compared with storing big piles of inventory at a nearby location to sell. Meanwhile, group leaders, motivated to acquire users through their own social networks for higher commission, help the platform save on user acquisition costs. 

The community group buy platforms are popular in second- and lower-tier cities in China, often outside of service areas for big-name online platforms such as Alibaba’s Freshippo. Some 85% of group leads for the community-based group-shopping model platforms are based in second-or lower-tier cities, according to a report (in Chinese) from Kaiyuan Securities.

Lower-tier cities and rural areas are also powering the next stage of overall e-commerce growth in China. Its shoppers are viewed as being more inclined toward social shopping experiences, given the quick rise of social e-commerce site Pinduoduo.

Bargain-hunting buyers

Unlike other sectors in China’s tech industry, there’s no big player monopolizing the community group-buy market. It’s more like a collection of stores, where customers place orders on different platforms according to what kind of products they want, such as fruit, seafood, or snacks. Some residents will buy eggs on one platform and cherries on another. 

For most of the buyers, finding a good deal is the main reason to join a community-buying group. Some residents in Zhangjiagang told TechNode that they have joined more than one group-buying platforms to compare prices. Customers aren’t loyal to a platform; what matters is the price of the product and how well the platform handles the order fulfillment.

Partially due to platform competition and partially because of consumer demand, group leaders have started to promote products from multiple platforms (in Chinese) within the WeChat groups they manage, and offline pickup centers serve several platforms.

Xu said her mother-in-law had used Duo Duo Maicai exactly twice to take advantage of the platform’s free gifts for new shoppers. Unlike many group-buying platforms that deliver products to customers’ front doors, Duo Duo Maicai opened offline stores outside of compounds for customers to pick up. 

“She hasn’t bought anything since then because there are fewer products on their platform and they don’t support home delivery service,” she said.

The community aspect

Discussions with neighbors who share the same interests is a reason for shoppers to stay active on one platform. 

Deng Chanling, a stay-at-home mom in Shanghai, became an organizer for group-buying startup MMchong after using the service for a year. When Deng moved to her new neighborhood in October 2019, the part-time job helped her to get to know her neighbors. She now knows most of her 200-member WeChat group from offline promotional events, she told TechNode.

The workload of less than 20 hours a week gives her a comfortable balance between a job and taking care of her son, who is in primary school. Deng earns around RMB 3,000 ($462) a month, and RMB 6,000 during peak holiday seasons, through the 10% commission she earns from her sales in exchange for promoting the products, using her space for product storage, and logistics services.

The income is far from sufficient to support a family in a metropolis like Shanghai, but good enough for the time and energy she invests daily, Deng said.

The company delivers the products to Deng’s home the morning after a group order is placed, every other weekday. “It usually takes me an hour or two to sort out the orders. My neighbors will drop by to pick up their orders in the afternoon.” she said. She only delivers the parcels to a doorstep if the order is higher than RMB 108. 

The part-seller, part-user role of the group leaders help the platform select what products to sell, a crucial factor in differentiating from rivals. MMchong constantly updates its product listings. Deng says she tests samples recommended by suppliers and gives her feedback as a user before the platform determines whether or not to sell it. 

Deng doesn’t rely on the job to make a living, but some co-workers do. There are group heads who earn monthly income of around RMB 15,000 by mobilizing the whole family. “In such cases, they are operating on a larger scale and can afford to rent their own pickup storefronts,” Deng said.

Scorching hot market

As the community group-buying sector grows in size, smaller group-buying platforms are feeling the pressure. Xu said the competitive market has affected her commission rate. When she first started in 2018, she would net around 10% to 11% commission on each product, but now she earns just 6% to 7%.

“Last year there were not so many group-buying platforms so we had a high commission rate,” she said. “Now, more platforms have joined and they give a lot of coupons and discounts to attract customers, so the platform ended up cutting our commission.”

At the onset of the group-buying war last year, tech giants that set their eyes on the model had been poaching staff from existing players like Xingsheng Youxuan and Nice Tuan by promising to double or triple their salaries for similar positions, according to local media. In one case, most of Xingsheng’s employees at a Wuhan delivery center jumped ship to Pinduoduo within two weeks, forcing the downtown center to suspend its business. 

Competition between platforms starts with suppliers, according to Deng, the MMchong group lead. “Our supplier for sweet corn, a top seller on our platform last year, says that they have already sold out this year’s harvest to higher bids,” she said.

A threat to offline markets, maybe

Experts expect group-buy platforms to eclipse grocery stores. “There’s no chance for supermarkets larger than 500 square meters to survive in the next year or two given the increasing adoption of community-based grocery e-commerce,” (our translation) Ye Guofu, founder and CEO of Chinese low-cost retailer and variety store chain Miniso, said in December.

Pinduoduo cited an estimate from Goldman Sachs: By 2025, nearly half of China’s grocery shopping will take place online, up from 20% currently, and reach about $1 trillion in sales.

For Xu, she hasn’t set foot in the neighborhood supermarket for a while. She believes group-buying will replace the offline supermarket one day.

“I can just order online and the products will appear at my door the next day,” she said. “The price is also cheaper, so why not?”

However, there is still a lot of uncertainty in the sector. 

The government summoned tech majors including Alibaba, JD.com, Meituan, Tencent, Pinduoduo, and Didi for a meeting in December. Regulators issued a list of restrictions on group-buying businesses, forbidding predatory pricing to beat out competition as well as falsely advertising discounted prices and posting misleading product information.

The move follows a few months after these companies pushed into the sector with rock-bottom prices for fresh groceries, charging RMB 0.99 (around $0.15) for a box of eggs and RMB 0.01 per 500 grams (around a pound) of cabbage. The state-run People’s Daily ran a commentary telling tech companies to focus on innovation for bigger benefits instead of “thinking about the traffic of a few bundles of cabbage and a few pounds of fruits.”

Using low prices to attract users is reminiscent of the subsidy wars seen in many industries, but particularly tech-related sectors, from ride-hailing to bike rentals. Such an early intervention from state regulators comes against the backdrop of intensifying tech regulation, but could also be a result of the importance of fresh produce and grocery, a sector considered too vital to the masses for hot money to mess up. 

Many people have relied on group-buying platforms for daily groceries, rivals to offline supermarkets that also stock standardized and durable goods such as packaged snacks and detergents.

But there are exceptions, including neighborhood wet markets that consumers in China still depend on for the day’s fresh vegetables. Freshness still outranks convenience for many shoppers, particularly older generations who would rather make the daily trip outside rather than risk allowing a platform employee select food for the family dinner.

Xu stopped posting links for vegetables to the group after many complaints about quality. Tao said one of the advantages of living in second- and third-tier cities is their proximity to the countryside, which means easy access to fresh vegetables and seafood. For Tao and her family, going to the wet market for vegetables is a deeply ingrained habit.

“Usually it’s my mother-in-law who buys the vegetables and she is more picky and wants to see them before buying them,” Tao said.

“You have my number, you should just call me like you did before Meituan existed, that saves us money.”

But as Meituan has gained market share and turned a profit, the small restaurants that rely on the e-commerce platform have found it hard to do the same. 

High commission fees are the first issue. Meituan has said that its commission rates are in the 10%-20% range. But restaurant owners in Xi’an told me they are usually charged 20% for every order delivered through Meituan. 

In April, the Association of Catering Industry in Guangdong Province issued an open letter (in Chinese) to Meituan, saying that many restaurants cannot bear its commissions—and claiming that these can run up to 26%.

Besides a commission for every order placed through the platform, Meituan also charges restaurant owners to advertise their shops on the app. Restaurants can also offer customers discounts to get a more prominent listing on the app. 

Doing business on Meituan has proved costly for many small businesses. In my neighborhood some have started trying to break free, turning away from deliveries or bringing them in house. It’s clearly a minority, but talking to these rebels showed me how hard it is to earn a profit with deliveries—or without it.

In my neighborhood, not many restaurants use Eleme, so I’ve focused on Meituan. But I suspect that if I spoke to Eleme restauranteurs I’d hear similar stories.

Anatomy of a Meituan order

Below is the receipt for an order I placed through Meituan from a local restaurant. The order was originally priced at RMB 44 ($6.8): RMB 38 for the food (same price as dining in), RMB 3 for packaging, and RMB 3 for delivery.

To stay competitive on the platform, the restaurant waived my delivery fee and offered a discount of RMB 6 for orders over RMB 30. Subtracting the total discount, I paid RMB 35 for this order.

For this order, after Meituan takes its cut, the restaurant will receive around RMB 28, far below their asking price of RMB 44, or the dine-in price of RMB 38. 

Traditionally, a restaurant’s major expenses are rent, raw ingredients, and labor; providing food delivery service doesn’t reduce these costs. If this restaurant is paid less for offering a new service, it has to get creative to cover these costs. 

The owner of a reputed Hunan cuisine restaurant in Xi’an, Dai, told me said he’d rather stay away from food delivery services if he has to lower the quality of his food. “We’re not on Meituan or any other platform. We would rather lose that market share than provide the customers with substandard food.”

“A common practice is to compromise on raw ingredients, because rent and labor costs are inflexible,” Dai added. 

At your doorstep 

Unlike Dai’s fine dining, takeaway services are still important for some smaller restaurants. To avoid Meituan’s high commission and delivery fees, they follow a different strategy: steering customers away from Meituan and toward directly operated deliveries.

Many restaurants nearby my university build connections with the customers directly to skimp on delivery costs. 

Popular food chains like McDonald’s, Starbucks, as well as local bubble tea brands Heytea and Yidiandian have already adopted this  strategy.  Although they have different extents of collaboration with food delivery platforms, they encourage customers to use their own mini-programs or apps. In my experience as a customer, they can be cheaper or more expensive than platforms like Meituan, depending on the day and the discounts available.

Small business owners use WeChat direct messages and old-school telephone numbers. Du, who runs one of my go-to affordable Sichuan cuisine restaurants, asked me to call her directly when she found out that I ordered her food from Meituan. She offers the same prices as on the app and free delivery—plus a larger selection of dishes.

Du did not dump Meituan for good. She still takes orders from the app because it is a major customer acquisition channel, but she always delivers the order on her own: “I need to pay at least another RMB 2 to deliver each order via Meituan. The unit price of our food is low [usually RMB 15-25], and most of my customers are regular customers nearby. I can and I have to save these RMB 2, because small restaurants don’t make a lot of money.”

The restaurateurs I spoke to believed that by cutting down on Meituan costs, they are saving money. But they didn’t seem to consider the time and labor they spent on this activity. 

Most of these restaurants are sacrificing some user experience and convenience to save on Meituan’s delivery fees. For the orders Du takes from Meituan and delivers herself, the average delivery time is often twice that of other restaurants in the area.

These restaurants near my university have regular customer bases, as well as long-standing reputations with their clients. But can restaurants that are just starting their business avoid Meituan?

Word of mouth 

Meituan is a popular marketing tool for new businesses. But as its marketing fees raises, some business owners are looking for alternatives. Like luxury brands that have grown skeptical of major e-commerce platforms, many are turning to the relatively free-form environment of WeChat stores and selling through direct messages.

Zoe Liu started a bakery shop in September 2020, relying on delivery to sell bread and pastries. But she refuses to use Meituan as a delivery platform or as a marketing vehicle. Instead, she relies on good old-fashioned word-of-mouth for promotion and delivers products on her own.

Liu uses WeChat instead of Meituan to reach customers. She adds potential customers on the messaging app, posts pictures of her products on her Moments, WeChat’s equivalent of a newsfeed, and receives orders through chats. 

“My decision is based on careful cost accounting,” Liu said. “Startups have to save every penny, and I don’t think Meituan services are cost-effective.”

Liu focuses on the taste of her goods: She is very serious about quality management, so she has to buy expensive raw ingredients and equipment that is high maintenance. That doesn’t leave her much to invest in Meituan services.

“My [products’] prices can’t be too high, so I don’t have the budget for Meituan,” Liu said, “but luckily, I don’t need it. My products are so good that all my customers recommend me to their friends, and this is how I expand my business. It’s slow, it’s laborious, but it’s effective.”

She was not making this up: Once I shared her cinnamon rolls with my co-workers, everyone asked me for her WeChat.

Her shop is located in the center of Xi’an and provides delivery for people within 6 km, which covers most of her target customers. For those who are further, Liu relies on UU Paotui, a courier service, to get her products to her customers. The cost of courier delivery starts at RMB 10 in Xi’an and is covered by the customers.  

“Paotui is expensive, but our customers are happy to pay for it because they think it is worth it. They usually order a lot so the cost is flattened out.”

This word-of-mouth strategy has helped Liu win a stable customer base: “Insisting on providing good stuff within a reasonable price pays off. My products are popular among young moms because they love to share, value food safety, and have purchasing power.”

No way back 

It’s hard to say exactly how many restaurants are moving away from Meituan, because they are struggling to break even. But the treatment might prove worse than the cure: Given that Meituan is only swallowing more consumers, going at it alone could be an unsustainable strategy for small restaurants in the longterm.

The pandemic has driven middle-aged and elderly customers to use takeaway more frequently, and dining in is becoming less popular. This trend worries small business owners like Du.

“Compared with dine-in, food delivery service on Meituan is usually less profitable (in Chinese),” the Sichuan restaurant owner said, “so we usually consider it a way to attract people to come to our restaurant [in person].”

Du worries that the proliferation of delivery services is an ominous sign for his dine-in business: “What if takeaway becomes even more mainstream? I can’t compete with those low-cost employee-free takeaway-only restaurants who make fake food by using packaged pre-cooked meals (in Chinese). It is a completely different business that I will not be good at.”

Du doesn’t realise that those people in those “completely different” businesses are also struggling to turn a profit.

Two days ago, I woke up from hunger at 1:46 a.m. With nothing edible handy, I placed an order on Meituan. At 2:09 a.m., 20 minutes earlier than the expected arrival time, a woman called me to go downstairs and pick my food up. 

The diligent packaging and cheaply-made food told me that this is a restaurant focused on the takeaway business. My delivery driver said she was in fact the owner of the restaurant. She said she delivered the food because there are fewer drivers after midnight. 

She still relies on Meituan to promote her restaurant and find customers:  “Besides the high commission, we also spent handsomely on advertising on Meituan (in Chinese) for better listing.”  

Despite all this spending on advertising, her food delivery-focused shop is scrambling to survive: “We are struggling just to break even.” Still, she tries to make things work with the food delivery platform. She doesn’t see any way for her delivery-first restaurant to survive without being on Meituan.  

Lucky winners of Suzhou’s digital yuan lottery can spend their digital currency on JD.com, Meituan, Bilibili, and Didi, depending on their bank card, a look at the wallet app reveals. TechNode has seen the app in action through screen recordings sent by a user in Suzhou.

TechNode is the first English language outlet to see the digital yuan wallet in action during the Suzhou trial.

The trials are still limited: The winners received only RMB 200—about $30, enough to buy 10 coffees at Luckin or five at Starbucks. There’s no way to load more money on the digital yuan wallet. Users only have access to a few online shopping platforms, with the exact options depending on which bank card they used to register with the app. They can also spend the currency in some offline stores in the city.

The digital yuan also knows a trick that cash doesn’t: It has to be used by Dec. 27 otherwise, it pulls a disappearing act. Poof. It’s gone.

Why it matters: This is the first time consumers can use the digital currency to pay directly on e-commerce apps in the digital yuan’s public trials.

• The Suzhou lottery is only the second time the digital currency has been made available to the public. Another lottery took place in Shenzhen in October.

Connected to bank cards: Users are asked to link their bank cards to the digital wallet to get the digital currency. Only cards from China’s big five banks are eligible: Bank of China (BOC), Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), China Construction Bank (CCB), and Postal Savings Bank.

• The local government said users don’t have to register a bank card to use the digital wallet. If they do register a bank card, it has to be one of the five.

Where to spend it: All bank cards can connect to e-commerce platform JD.com, where users can spend their money. ICBC cards also connect to ride-hailing platform Didi and lifestyle app Meituan. BOC cardholders can connect to streaming platform Bilibili, and users of CCB cards can use the digital yuan on own CCB’s e-commerce platform.

• The city said it will enable nearly 10,000 offline merchants to accept the digital yuan. A list can be queried through the city’s app.
• The app has a button to pay Communist Party dues. But when TechNode tried, the app said that it was not available for the user’s Party branch.

No withdrawals: The digital currency cannot be transferred to other users’ digital wallets. It also cannot be converted to ordinary RMB in the bank account of the owner. If users wind up returning goods they buy with the digital currency, the Suzhou government said, they will be refunded only for regular currency used in the purchase.

Context: In a lottery (in Chinese) announced on Dec. 4, Suzhou distributed RMB 200 million ($30.6 million) of the digital yuan to 100,000 people in digital red envelopes of RMB 200. Only residents of the city who have paid monthly social security at least once in the last three years are eligible to participate in the lottery.

• The results of the lottery were announced today, and winners can spend their winning from 8 p.m. on Dec. 11 to Dec. 27. They money will be taken back from the account if it is not spent within this time window. The Suzhou government said the unspent red envelopes will be “recycled,” but did not clarify how.
• Prior to the Suzhou and Shenzhen lotteries, only a few whitelisted individuals were taking part in the digital currency trials.

READ MORE: INSIGHTS | China’s digital currency has a long way to go

Food technology is gaining traction in China’s VC world. It’s a huge industry—from plant-based meat to agricultural drones, foodtech encompasses everything in the food supply chain that uses technology to improve efficiency and output.

So far, grocery delivery has garnered the most attention. The sector saw a boom thanks to pandemic-induced demand for everyday items on e-commerce platforms. 

This year, tech giants like food delivery platform Meituan and e-commerce firm Pinduoduo have tapped into the market. Meanwhile, venture capitalists have injected billions of dollars into startups to compete with them.

Grocery delivery is just one part of the “downstream” link in the food technology value chain, said Matilda Ho, founder and managing director of Bits x Bites, a Shanghai-based foodtech venture capital firm. Companies in this category deal directly with customers.

China has built a vast digital economy with “impressive e-grocery and food delivery penetration,” which has been driving food and retail investment in the country, said Ho. 

But when it comes to producing food to deliver, the country could still face challenges. “Without investment in upstream innovation, we won’t see meaningful improvement in farm production efficiency to sustain the rapidly growing food demand,” she said.

China was the world’s second-largest market for foodtech investments in the first half of this year, following the US, according to a report by foodtech venture capital firm Agfunder. 

Some 24 startups raised a total of $1.2 billion from VCs during the period, according to the report. More than half of the total investment went to grocery delivery startups Missfresh and Tongcheng Life, which raised $500 million and $200 million in July and June, respectively.

“Since the start of the trade war and the African Swine Fever outbreak in China, self-sufficiency in food production has become a national priority. The Covid-19 pandemic has accelerated the timetable for investment in supply chain efficiency.”

— Matilda Ho, founder and managing director of Bits x Bites.

In the “upstream” link of the foodtech value chain, which includes categories such as farm management technology and farm automation, one of the biggest deals went to Suzhou-based farm drone company Skysys, which raised RMB 10 million (around $1.5 million).

Nevertheless, investment into the upstream link is growing. Funding for companies focused on farm management technology, including internet of things (IoT) equipment and management software for farms, reached $490 million in 2019, up 363.4% from the previous year, according to another Agfunder report. The largest deal last year went to Beijing-based Mcfly, which provides remote sensing, big data, and AI technology to digitize farming in China. The company raised $14 million in March 2019.

READ MORE: How tech is changing agriculture in China

Big deals

• April 29: Suzhou-based farm drone company Skysys raises RMB 10 million.
• June 11: Suzhou-based Tongcheng Life raises $200 million from investors including Legend Capital, Bertelsmann Asia Investment Fund, and Yilian Capital.
• July 23: Missfresh, a grocery delivery startup, raises $495 million from investors including CICC Capital and Tencent, valuing the company at $5 billion.
• Nov. 10: Jianyun Technology, a precision agriculture company, raises RMB 10 million.
• Nov. 12: Yinongyuan, an agriculture supply chain firm, raises RMB 20 million.

Investor talk

Matilda Ho, founder and managing director of Bits x Bites. (The interview has been edited for brevity and clarity.)

TechNode: How do you decide whether to invest in a foodtech startup?

Ho: We invest in companies that are advancing bioscience, data science, and processing technology to tackle challenges in China’s food supply chain, from precision agriculture to crop and animal health to protein alternatives and nutrition. 

I should add that we’re a purpose + profit fund. That means we invest in companies that can demonstrate they have a sustainable business model to achieve meaningful growth and scalable impact. We carefully select founders with purpose in their core and empower them to build great enterprises of the future. With the $30 million first close of our new fund, we look forward to working with more pre-A to B stage companies that are bringing disruptive solutions to our food system.

TN: What are your projections for the foodtech market in China? 

Ho: Since the start of the trade war and the African Swine Fever outbreak in China, self-sufficiency in food production has become a national priority. The Covid-19 pandemic has accelerated the timetable for investment in supply chain efficiency. In the past two years, we have seen tremendous investment from state-owned enterprises and other corporates to consolidate agriculture. 

Without industrial-scale operations, it is very challenging to apply technology and modernize production. So, in agriculture, we are looking at IoT and bioscience solutions that can help producers improve yields while reducing input, address soil degradation, and protect animals, crops, and farmers’ health.

Midstream, only 19% of the Chinese market has access to cold chain logistics, far below other developed countries, which exceed 95% [on average]. We are looking at how automation and data can improve food safety and cut down spoilage in storage, processing, and transportation. 

TN: Why are investors interested in food tech?

In the past few years, there has been a surge in startups that are tackling the challenges in the food system. Many of them are applying proven technology from other industries.

For example, satellites from the aerospace field are now being applied to provide farmers with environmental analytics to make better decisions to improve crop yields. Gene engineering driven by human medicine is now used to improve breeding technology for more resilient and disease-resistant crops and livestock. Automation in industrial manufacturing is now being adopted to address the labor drain in agriculture.

The food industry is the largest sector of the global economy. The World Bank estimates food production to compose 10% of all economic output. This is an opportunity that investors cannot ignore. 

TN: How do you categorize food tech startups? Which category do you think is the most promising?

Ho: One way to dissect food tech startups is by where a solution fits in the food supply chain. Downstream generally refers to innovations directed at the consumer, such as new packaged foods, personalized nutrition apps, and grocery or food delivery platforms that offer convenience. 

Bits x Bites tends to focus more on upstream and midstream opportunities. Upstream examples are farm automation, breeding technology, and crop and animal health solutions that address food security and production efficiency. We also look at midstream applications such as ingredient technology [Editor: techniques that help make new food ingredients], food processing, packaging, and food preservation that can address nutrition and safety challenges. 

TN: Will plant-based meat become the next big thing in the market? What is Bits x Bites’ projection of the market?

Ho: Chinese people consume more plant protein per capita than most countries in the world. Until two decades ago, meat was barely affordable for most consumers. In our view, China’s per capita demand for animal protein is unlikely to come down any time soon in the same way it has started happening in more meat-centric western diets. This leaves little room for plant protein consumption in China to see substantial growth. 

READ MORE: We tried Beyond Meat in China. Did anyone else?

TN: What are the exit options of food tech companies?

Ho: There are numerous initial public offering (IPO) and merger and acquisition (M&A) cases in agrifood. In China, recent acquisitions are primarily driven by the Chinese government’s push for self-sufficiency and food security. We’ll likely see more Chinese acquisitions of very few large, and likely international, targets. Globally, we see a number of multinationals highly active in M&As in the ingredient tech and agtech [agriculture technology] spaces. Most recently, Ingredion gained full ownership of legume protein company Verdient. However, I would still be more positive on IPOs when talking about exit [options] in China rather than M&A. Especially with the STAR market, biotech and data science companies in agrifood have an achievable pathway to raise public funding.

Lowering tech barriers for seniors

China’s State Council rolled out on Thursday a major guideline introducing a set of new measures to help the elderly better adjust to technological innovations. While the measures require relevant parties to preserve non-digital services, they also encourage new tech innovations targeted at seniors.

In particular, the state specifies that accessibility should be evaluated for technologies used in transportation, consumption, healthcare, recreation, and other public services should be addressed.

The plan follows reports of several incidents where seniors were denied access to public services for failing to use the digital options. In one example, an elderly man in central China’s Hubei province tried to pay for his medical insurance in cash, which was rejected because the agency only accepted online payments.

China’s population is increasingly aging. Persons aged 60 or above accounted for 18.1% of the country’s population in 2019, up from 12.5% in 2009, data from the National Bureau of Statistics showed. This segment of the population accounts for 60 million or 6.7% of China’s online users, meaning that there are nearly 200 million Chinese seniors not online, a growth opportunity for online technology companies. (CWW.net, in Chinese)

Earnings season rolls on

• Meituan, China’s food delivery and local lifestyle service, on Monday reported RMB 35.4 billion in revenue for the third quarter, a 29% increase driven by rising demand for takeout meals. The revenue beat the average estimate of RMB 34 billion, according to data cited by Bloomberg. Profits for the quarter reached RMB 6.3 billion. Revenue from the core food delivery business increased by 32.8% year on year to RMB 20.7 billion. The in-store, travel, and hotel unit—another major revenue source —is recovering at a much slower speed from the lingering effects of the pandemic with revenue up a modest 4.8% year on year. (Meituan)

READ MORE: Meituan-Dianping in uncertain times

• Online fashion and lifestyle platform Mogu Inc on Monday reported revenue of RMB 112.5 million ($16.6 million) for the September quarter, falling 43.1% year on year from RMB 197.9 million earned in the same quarter last year. Both commission revenues and marketing services plunged due to a restructuring of the company’s business towards a live video broadcast-focused model. Facing intense competition from local rivals, Mogu doubled its bet on Mogu Live, the livestream unit which earned 74% of the company’s total GMV in the quarter. GMV generated through livestream sessions surged 42% year on year to RMB 2.3 billion in Q3. (Mogu)
• Dada Nexus, the parent company of JD-backed on-demand services platform JD Daojia, announced Tuesday that it intends to offer 9 million American Depositary Shares (ADS). The proceeds will be used for marketing, user acquisition, research and development, as well as general corporate purposes. JD Group, a cornerstone investor of the company that invested $41.6 million in the company’s public listing in June, will subscribe for ADS worth a maximum of $50 million in this offering. The company reported strong top-line growth in Q3 with revenue surging 85.5% year on year to RMB 1.3 billion. (JDDJ statement)

Suning ramps up e-commerce

Suning announced its e-commerce subsidiary, Yunwang Wandian, had received the proceeds from its RMB 6 billion Series A. The subsidiary provides supply chain, cloud, and after-sales services to third-party sellers on its marketplaces. Established in November this year, Yunwang Wandian was valued at RMB 25 billion before the investment. Investors include state-backed Shenzhen Capital Group and Shenzhen Luohu Guidance Fund Investment. (CNR, in Chinese)

China’s market regulator on Tuesday proposed new rules targeting anticompetitive behavior to include internet companies, which have largely fallen outside of the scope of existing antitrust laws.

What’s changed: The new rules widened the reach of certain antitrust terms that previously only applied to the physical economy. One example was the definition of “relative market,” in which players may pose a “dominant position” if they control more than 50% of the market and thus fell under the jurisdiction of China’s Anti-monopoly Law. The law came into effect in 2008. 

• Legal experts have long criticized (in Chinese) the law because it was designed to regulate companies in traditional industries and in most cases did not apply to companies operating on the internet, an increasingly important segment of the country’s economy.
• The new rules expanded the parameters for determining market share to include factors such as transaction volume, user base, and page views.
• The rules will subject some of China’s biggest internet companies, such as e-commerce behemoth Alibaba, social media giant Tencent, food delivery platform Meituan, and ride-hailing app Didi Chuxing, to tougher regulations. China earlier this month halted an initial public offering for fintech giant Ant Group over regulatory concerns.
• The draft (in Chinese), which is under public review until the end of November, also requires the consideration of factors such as network effect as well as market players’ scale and ability to deal with data. A draft revision of the Anti-monopoly Law unveiled in January, announced by China’s State Administration for Market Regulation (SAMR), included similar provisions. The SAMR also drafted the rules announced on Tuesday.
• The draft guidelines say that companies which force merchants to “choose one of two” online marketplaces on which to sell their products are engaging in anti-competitive behavior.
• Platforms that price their products or services differently according to customer purchasing power, consumption history, or user preference is monopolistic behavior, according to the draft rules.

READ MORE: China’s antitrust law doesn’t seem to apply to internet giants

Tech shares tumble: Share prices for Chinese tech companies tumbled Tuesday and Wednesday on news of the guidelines. Companies including Alibaba, Tencent, and Meituan saw their share prices dive at least 8% over the two days. The Hang Seng Tech Index in Hong Kong, where many Chinese tech stocks list, fell by more than 5% on Tuesday.

• Bloomberg estimated that the shares slump wiped out more than $200 billion of value from Chinese tech companies.

Context: Before China’s top antitrust regulator proposed revisions to the antitrust law in January and the draft rules on Tuesday, the SAMR was already working to curb potential antitrust violations from internet companies.

• The agency launched in January 2019 what is known as China’s first “internet antitrust investigation” into Tencent Music Entertainment’s dealings with the world’s three largest record labels after rivals complained that Tencent paid excessive fees for the initial rights and then passed those costs along to competitors.
• However, the SAMR decided to suspend the probe in January, according to Bloomberg. The regulator didn’t disclose how far the investigation went and why it was terminated, but it came after Tencent Music reached a music licensing deal with Bytedance, a Beijing-based startup that runs Tiktok, in late 2019.

The Chinese National Day holiday, known as “Golden Week” for spurring travel and other consumption, ended on Thursday. This year, the holiday was watched particularly closely—as the last major holiday of the year, it was seen as a harbinger of whether China’s battered tourism industry would rebound quickly following the onset of the pandemic early this year.

Shift to domestic travel

Although the virus may be less of a concern for Chinese tourists compared with those in other countries, the government and consumers themselves remained cautious about traveling overseas.

• Golden Week travel this year was primarily driven by domestic travel, when in recent years the holiday has been viewed as a time for Chinese tourists to take overseas trips.
• Last year there were more than 7 million (in Chinese) overseas trips made during the holiday. This year, various restrictions on visa applications and quarantine requirements have made cross-border trips impractical.
• The focus on domestic trips could further slow a full rebound for China’s largest online travel platform, Trip.com, which earned around 35% of its revenue through international travel in the first half of 2019.
• Demand for short journeys increased, giving rise to self-driving tourism as more holiday makers sought to avoid package tours and exposure to crowded public transportation centers.
• The shift boosted car rental businesses during the holiday. The number of car rental days on Trip.com platform climbed 50% compared with a year ago, the company said in a statement sent to TechNode. Average spending per car rental order exceeded RMB 2,000. Southwestern Yunnan province and southern Hainan province were popular tourist destinations for those driving themselves.

Competition among travel platforms

• The shift to domestic tourism has weighed on China’s largest online travel platform, Trip.com. The company has been focused on growing its international travel business amid sharpening competition from Alibaba’s Fliggy and Meituan in domestic travel.
• In 2018, the company said that it was aiming for its global travel business to make up 40% to 50% of its total revenue within five years.
• Trip.com expects its revenue to drop by around 50% year on year in the third quarter after it reported that its second quarter revenue plunged 64% year on year.
• China’s online travel industry is among the worst-hit sectors by the pandemic, which began spreading widely in the country during Spring Festival holiday, the world’s largest human migration event.

Edging toward normalcy

China, where the coronavirus first appeared late last year, had an early start advantage in post-pandemic economic recovery as the government’s measures to control the spread of the virus have largely proved effective. However, the impact of the epidemic is expected to linger as rates of infection worldwide remain stubbornly high. 

• China tourists generated RMB 466.6 billion ($69.7 billion) in revenue from 637 million  domestic trips during the eight-day Golden Week holiday, according (in Chinese) to the Ministry of Culture and Tourism. The holiday was extended by one day thanks to overlap with the Mid-Autumn Festival this year.
• The number of domestic trips was around 80% of last year’s 782 million during the seven-day holiday, which generated nearly RMB 650 billion in tourism revenue.
• Revenue from this year’s Golden Week tourism accounted for around 70% of revenue earned during the same holiday a year ago. This is a significant improvement over tourism revenue earned during this year’s Tomb Sweeping Day in early April, which sank 80% compared with a year ago.
• China’s tourism watchdog expects the country’s tourism revenue as well as the number of tourists to halve in 2020. 
• Official controls have loosened, but remain in place. Scenic spots like Beijing’s Forbidden City required online reservation in advance and operated at 75% capacity during the holiday. Municipal governments including Shanghai recommended that students and their families refrain from travel. Those who traveled out of the city would have to quarantine for 14 days, which effectively eliminated travel plans for many families, even short-distance trips.

New regulations lend pressure

In addition to the travel slowdown brought by the pandemic, China’s tourism industry is also facing new challenges from the government, which is stepping up regulation of the market.

• China’s first laws regulating online travel platforms and agencies took effect on Oct. 1. It includes a raft of rules that ban the abuse of big data and other new technologies used in unfair business practices such as user targeting to boost prices, removing negative user reviews, and more.
• Consumers have accused large Chinese online travel platforms, including Trip.com and Alibaba-backed Fliggy, of charging higher prices to customers who they think will be willing to pay more for the same product or service by analyzing user data. Both companies have denied the allegations.
• Implementation is expected to quash such practices in the online travel market, where price manipulation is common. It may also act as an example for other sectors that are thought to use similar tactics, such as ride-hailing and e-commerce.
• The rules could have short-term cooling effects on revenue while long-term benefits could include better user retention. An industry analyst told Xinhua (in Chinese) that without the rule, there was little reason to do away with the practice, which could grow revenues 20%.

China tech in Africa is nothing new. Telecommunications giant Huawei has built around 70% of the continent’s 4G networks. Smartphone manufacturer Transsion commands 40% of Africa’s smartphone market. 

Over the past few months, TechNode has been mapping Chinese tech giants overseas empires. Initially focused on the US, Chinese companies have since 2018 slowed down investing in the country, as tensions between the two superpowers rise. As we’ve written previously, companies including Alibaba and Tencent have instead sharpened their focus on the developing markets of India and Southeast Asia. 

Africa is no different. Lifestyle services giant Meituan-Dianping, gaming behemoths Tencent and Netease, as well as Transsion have made big bets on African companies. Alibaba has taken a different approach by launching training programs for aspiring African entrepreneurs.

Meanwhile, big-ticket Chinese venture capital firms including IDG Capital, Sequoia China, and Gaorong Capital have sharpened their focus on Africa. Investors expect to see a boom in financial services on the continent as connectivity improves and under-served populations come online. 

Africa is a huge market with massive potential. The continent boasts six of the world’s ten fastest-growing economies. With a diverse mix of 1.3 billion people, its population is expected to surpass China’s by 2025. 

To be sure, China tech’s footprint remains modest in Africa, but the trends point to a major shift. Chinese tech titans see opportunities and conditions similar to those that lifted themselves in China before the internet boom. 

Humble beginnings

Like China in the early 2000s, Africa supports a massive population, an under-served market, and a growing pool of tech talent. As the demand for digital services has increased, dynamic tech hubs have sprung up in Nigeria, Egypt, Kenya, and South Africa. 

In the past decade, some Chinese companies have seen massive success in Africa. While the US has pushed countries around the world to exclude Huawei from their telecommunications networks, African countries have welcomed the firm as they push to improve connectivity. 

Huawei was instrumental in rolling out 4G rollout across Africa and is set to drive 5G adoption on the continent. Alongside Chinese rival ZTE, Huawei received preferential loans from the Chinese government to establish telecom infrastructure throughout Africa, found Iginio Gagliardone, a professor at the University of the Witwatersrand who has written extensively about the influence of China in Africa. The government loans enabled the two companies to expand their influence across the continent with little risk.

A few other firms bet the farm on Africa, like Transsion. Founded in Shenzhen, the phone maker’s primary markets are all in Africa. The company controlled more than 40% of the African smartphone market at the end of last year, according to the International Data Corporation (IDC). Transsion also holds nearly 70% of the feature phone market, IDC data shows. The company, which operates R&D centers in Nigeria and Kenya, went public on the Shanghai Stock Exchange’s Nasdaq-like Star Market last year. 

Driven largely by the Chinese government, Chinese investments in Africa have historically focused on infrastructure projects. Chinese foreign direct investment in Africa reached $5.4 billion in 2018, up 30% from the year before, according to data from the China Africa Research Initiative at John Hopkins University’s School of Advanced International Studies. 

But things began to change that year. At the Forum on China-Africa Cooperation (FOCAC) in September 2018, Chinese President Xi Jinping encouraged Chinese companies to invest $10 billion in Africa over the following three years, pronouncing an important shift from public to private investment in Africa. 

“China has demonstrated its readiness to invest in areas deemed by foreign investors and donors as too risky, not sufficiently profitable, or not high priorities in the aid agenda,” Gagliardone wrote in his book “China, Africa, and the Future of the Internet.” 

Since 2018, Chinese companies have sharpened their focus on the continent, and 2019 saw record amounts of Chinese involvement in the continent’s tech sector. 

Increased presence

Alibaba began its Africa expansion in 2017—the year founder Jack Ma made his first visit. The company believes that its experience in China prepares it to develop Africa. ”I found myself propelled twenty years back in time, to the time when Alibaba was founded,” Ma said after the trip. 

During the visit, Ma launched a $10 million fund for young Africa entrepreneurs to bring their offline businesses online and pledged to take 200 young business people to China to learn from Alibaba. 

He returned a year later when Rwanda became the first country to join Alibaba’s Electronic World Trade Platform (eWTP), which promises to make cross-border trade easier for small to medium enterprises. 

Chilli and coffee farmers in Rwanda have used the platform to sell their products on Tmall, Alibaba’s business-to-consumer marketplace, while Ethiopia became the second African country to sign eWTP agreements late last year. It remains unclear how many companies are benefiting from the initiative.

Meanwhile, other tech giants have also increased their focus on Africa. In early 2019, Chinese smartphone giant Xiaomi set up a business group to grab at sales on the continent in order to offset slowing growth at home. The move put Xiaomi at odds with well-established Chinese rivals rival Transsion and Huawei, which claimed a market share of nearly 10%. 

Transsion had been able to avoid fierce competition from domestic rivals in its home market by focusing on Africa, but those companies were now also looking abroad for new sources of growth. 

In 2015 Transsion launched music-streaming service Boomplay through a joint venture with Chinese gaming giant Netease. The service is primarily focused on the African market: 85% of its users come from Nigeria, Ghana, Kenya, and Tanzania.

The company launched the service to make its phones more attractive to buyers and to boost revenue from non-hardware sales. The initiative has so far been a success. In April last year, Boomplay raised $20 million from Chinese investors including Maison Capital and Seas Capital. 

Fintech focus

Complementing the spread of China tech in Africa, Chinese investors have also increasingly sought out startups across Africa. These investors are looking to place their bets on Africans without bank accounts.

African startups raised a total of $2 billion in 2019, more than 70% than the year before, according to data from global investment firm Partech. While Chinese investments comprised only a small portion of that total, Africa has received a major boost in attention from Chinese investors. 

Fintech services developed early in Africa. Ten years ago, fintech platforms in Africa were more developed than those in China, prior to the launch of Ant Group’s Alipay or Wechat’s Wechat Pay. “Mobile money,” which allows people to make payments, and deposit or withdraw money on even the most basic mobile phones, gained widespread adoption.

In 2017, Chinese-owned, Norway-based software company Opera pledged to invest $100 million in Africa’s digital economy. The company later launched super app Opay in Nigeria, which combined payments, food delivery, and ride-hailing services. 

Opay was a handful of fintech beneficiaries from a boom in Chinese investment in Africa’s tech sector in 2019. The company closed two funding rounds last year, raising $170 million to help its expansion plans. Investors included some of the biggest Chinese names: Meituan, Gaorong Capital, Sequoia China, and IDG Capital. 

“Opay will facilitate the people in Nigeria, Ghana, South Africa, Kenya, and other African countries with the best fintech ecosystem that Africa has ever seen,” Zhou Yahui, CEO of Opay and founder of Kunlun, said in a statement at the time. 

But due to the Covid-19 pandemic, the company announced in July that it was suspending its non-fintech operations, including ride-hailing and food delivery service 

Meanwhile, Africa-focused fintech platform Palmpay launched in Nigeria after a $40 million investment from Transsion and Netease. The investment also included a partnership with Transsion to pre-install the Palmpay app on 20 million of Transsion’s phones this year. 

The focus on investing in fintech is driven by a broad-based effort to bring financial services to Africa’s unbanked. According to the World Bank, nearly two-thirds of sub-Saharan Africans do not have bank accounts. In 2019, fintech received the most venture funding out of any industry in Africa, according to Weetracker. 

Ant Group has taken notice of Africa’s fintech revolution. Last year the company partnered with Silicon Valley- and Lagos-based startup Flutterwave to add Alipay as a payment method for Flutterwave’s 60,000 merchants. 

In July, Ant Group partnered with South Africa mobile operator Vodacom to launch a payments app in the country. The two companies aim to tap the 11 million South Africans who don’t own bank accounts. 

Driving digital services

Africa represents an opportunity that Chinese tech firms caught onto early, and show no signs of paring back. Many of these same Chinese firms thrived after the internet boom in China and stand to leverage their knowledge to help spread digital products across Africa. 

As the digital divide on the continent narrows, more people in Africa will adopt these services, and like in India and Southeast Asia, Chinese companies and investors won’t want to miss out. Their current push onto the continent is likely only the beginning. 

Meituan-Dianping is testing a new Pinduoduo-style group buying feature for its core food delivery services, Chinese media reported.

Why it matters: The Chinese food delivery giant and services platform is taking a leaf out of Pinduoduo’s book by integrating social elements in its platform to boost user engagement for food delivery from restaurants.

• After five years of fast growth, China’s food delivery industry is losing steam as the market saturates. Transaction volume in the sector expanded at 30% year on year in 2019. While still healthy, it was the slowest growth in four years, according to a report from mobile intelligence platform Trustdata.
• Meanwhile, Meituan is seeking new ways to maintain growth momentum in the face of competition from old rival Ele.me, as well as new threats like mobile payments platform Alipay, which is exploring local services—Meituan’s home turf.
• Targeting price-sensitive groups, Meituan’s new group buying feature could help the company consolidate its foothold in lower-tier cities, a major growth engine for the food delivery industry.

Details: Pinhaofan, Meituan’s new social shopping feature for food delivery, is available through its WeChat mini program, National Business Daily reported (in Chinese).

• The feature encourages users to share food links from Meituan’s WeChat mini-program with their friends and family to earn discounts through group buying, according to the report. The model resembles the “social e-commerce” strategy that underpins the tech giant’s phenomenal growth over the past four years.
• Currently under early testing, the feature is only available in Wuhu, a third-tier city in eastern China’s Anhui province, another sign that Meituan is targeting lower-tier markets.
• The company is offering generous subsidies to customers who use the feature and promises free delivery with no packaging fees. Restaurants typically charge customers RMB 1 ($0.14) to RMB 2 per dish for the takeaway packaging.
• Compared with normal buying, there are limitations on orders made through Pinhaofan. Customers who place orders together are required to order from a limited menu at the same store. In addition, each user can initiate or join up to four orders every day, according to the report.
• A Meituan spokeswoman declined to comment when reached by TechNode for further details on Friday.

Context: Meituan previously added a group buying feature covering physical products such as beauty products, household appliances, fruits, and snacks to its WeChat mini program in 2018.

• The company announced an organizational adjustment in early July to launch a premium business division for community group buying services.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts

An episode full of salacious scandals and controversy! In this episode, the guys welcome back Technode’s own Wei Sheng to discuss a recent lawsuit filed against Luckin Coffee in China, and how regulators are cracking down on the company since their admission of fraud. James and Elliott also discuss the controversy brewing between Meituan and their vendors, Pinduoduo’s recent moves, and the scandalous love affair involving some of the biggest names in the Alibaba ecosystem.   

Please note, the hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Links

• Meituan
• Jiang Fan/RUHN scandal
• Pinduoduo

Guest:

• Wei Sheng – @weishengn

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Editor

• Peter Isachenko

Podcast information:

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• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

In 2019, following years of astounding growth, China’s food delivery market was worth $86.2 billion. With their sights set on massive market potential, Chinese tech firms had scrambled to enter the sector in search of what was seen as a surefire road to profits. As always, they adhered to the prevailing model of running a business in China’s tech world—snapping up market share with marketing campaigns and massive user discounts, building the brand, and finally monetizing the business leveraging market dominance.

Merchant pushback

In an open letter published on April 10, the Guangdong Restaurant Association (GRA) accused Meituan of exploiting merchants by charging excessive commission rates that “most of the restaurants can’t endure.” The complaints also pointed to unfair partnership clauses, which require merchants to sign exclusively with the platform.

The allegations further cooled the relationship between Meituan and its merchants, which were already tense following similar allegations from restaurant associations from Chongqing, as well as in Hebei, Yunnan, and Shandong provinces in February.

Discontent among small merchants was already brewing last year after the company announced a major rate hike in January 2019.

Meituan has a different story to tell, however. Wang Puzhong, a Meituan senior vice president responsible for the company’s food delivery business, argued that the company is not aiming for short-term profitability and operates on a very thin margin.

“After the launch of Meituan Waimai, we lost money for five consecutive years. Even in 2019, when we broke even for food-delivery services, the average profit per delivery order was less than RMB 0.2 (about 3 cents) in the fourth quarter, accounting for 2% of revenue,” Wang said.

Wang noted that the company has invested most of its income to help merchants develop professional delivery services, attract orders, and improve digital infrastructure.

Meituan’s share is too high—or is it?

GRA’s main criticism of Meituan is its high commission rate, which can be up to 26% for some new businesses, according to the association. It called on the company to lower its commissions rates by 5% or more.

Meanwhile, Meituan’s annual report showed that the average commission rate for its food-delivery business is 12.6%. In response to the GRA letter, the company said that more than 80% of businesses on its platform pay a commission of between 10% to 20%.

The discrepancy between the figures cited by the two parties is attributed to commission rate differences between merchants of different sizes. The average commission rate for small merchants is generally higher, as they lack bargaining power against the giant platform.

The platform’s low commission rates are usually enjoyed by restaurant chains, like McDonald’s. These are the brands that food-delivery platforms want to include anyway because of their brand value, and will do so for a lower commission.

GRA data shows that none of the 120 merchants in Haifeng County in Guangdong have commission rates lower than 20%.

Gross profit for most of the restaurants stands at around 50% to 60% of their total revenue, the operator of a chain restaurant told local media. The sources in the story said that most of the merchants they know are either breaking even or losing money after spending around 30% of revenue on Meituan for the commission fee and various marketing costs, and 20% to 30% for overhead costs like water and electricity bills.

Hit hard by the Covid-19 pandemic, the restaurants that are maintaining their business post-outbreak are more reliant on online orders than before, when they were able to balance online and more profitable offline orders. Thus, the cost of commission fees has become a bigger concern for those restaurants facing a business downturn as a result of the outbreak.

At the same time, many restaurants need more than one food-delivery platform to attract a sustainable number of sales, leading to more complaints about Meituan’s exclusivity agreements. The GRA said the company may be in violation of China’s anti-monopoly laws since it already accounts for 60% to 90% of Guangdong’s food delivery market.

The two parties reached a consensus, announcing a joint statement where Meituan pledged to return between 3% to 6% of commission fees to “good-quality merchants” as well as to remove the exclusivity requirement.

Both Meituan and GSA made concessions in the agreement. Instead of cutting commission rates as requested by the association, the commission-return pledge means that merchants still have to pay the original commission rate, and will receive the rebates in their Meituan accounts to spend on marketing campaigns and to buy traffic on the platform.

While not exactly the kind of cash the merchants were seeking, it will help merchants looking to boost the number of their online orders. However, the company doesn’t specify what makes a “good-quality merchant.”

The removal of the exclusive partnership policy is a significant move given the competition between Meituan and Ele.me.

Where did profits go?

While the coalition led by the GRA and Meituan has temporarily ended, the problem remains. If both merchants and Meituan say they are not making money from the business, then where have the profits gone?

Meituan’s Q4 report shows food-delivery fleet accounts for a large chunk of the company’s revenues. A total of RMB 41 billion, or more than 80% of commission revenue, went toward paying driver salaries.

However, delivery drivers have complained about pay cuts and some have held labor strikes to voice their grievances. The debate over delivery driver working conditions peaked when a Meituan driver stabbed a shopping assistant to death last October.

Meituan drivers fall into two different categories. Zhongbao delivery workers have no contractual obligation to the company, while delivery drivers contracted through labor-management intermediaries have regular working hours and orders.

Both of the groups have multilayered management teams over them, including the delivery station head, the team running the labor-management intermediaries, as well as a regional and a department manager within Meituan.

The multilayered management structure is partially determined by the nature of the food delivery business, which requires support to manage on-demand and point-to-point delivery. Other costs like extra packaging also add up.

Though food delivery is seen as a low-margin business, industry watchers think RMB 0.2 per order is too low a profit for Meituan. “It needs to better allocate its resources to increase efficiency and lower the costs if the figure is true,” a market watcher said to local media.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys welcome back Michael Zakkour, Founder and Chief Strategist of 5 New Digital. They discuss how the demands of the COVID-19 pandemic have spurred a leap forward in e-commerce and new retail in both China and the US, and which firms are positioned to benefit. James and Elliott also look at Meituan’s earnings, as well as recent short-report allegations of iQiyi.

Please note, the hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Get the PDF of the China Consumer Index.

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Luckin Coffee

Guest:

• Michael Zakkour – @michaelzakkour

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Editor

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

Last week, the food delivery giant released its Q4 earnings results, which came in strong—thanks largely to wider profits in its core food delivery segment. For the first time, the company had managed to turn both its operating profit and operating cash flow positive.

Meituan’s strong profits were largely driven by commission revenue from services including food delivery and travel booking platforms. However, this could mean trouble for Meituan as the revenues from these segments are and will continue to be under pressure for the rest of the year from the aftershocks of the virus outbreak.

Uncertainties loom

The coronavirus outbreak hit China’s food delivery, tourism, and dining industry hard. Despite a strong 2019 performance and an upswing in delivery demand during the lockdown, Meituan has warned of the adverse impacts that may last throughout 2020.

In its Q4 earnings report, the company indicated that its core business segments are all facing “significant challenges” on both the demand side and supply side, predicting that revenue growth will decline and operating losses will widen in the first quarter.

Meituan can no longer depend on commission fees for profits as it did in 2019. In the fourth quarter, commission fees accounted for around 65.2% of the total RMB 28.2 billion (around $4 billion) in revenue.

In 2019, Meituan’s commission revenues had increased 39.4% to RMB 65.5 billion from RMB 47 billion in 2018, mainly driven by growth from food delivery—which accounted for more than 75% of its commission revenue.

With the outbreak, however, the number of orders on its food delivery platform dropped. It will likely be months before the order rate recovers to pre-coronavirus levels.

Banking on commission revenue

After recording losses in 2018, mounting financial pressures to turn a profit had forced Meituan to increase revenue from commissions; squeezing revenue out of workers and merchants can maximize profitability in the short-term is faster than investing in R&D and new business expansion efforts. And when the company went public in late 2018, it created even more urgency to achieve profitability.

Read more: MEITUAN IN FOCUS | A matter of timing

Early last year, the company began intensifying its money-making efforts, which included lowering pay for its delivery fleet and raising its commission rate.

Meituan and other food-delivery platforms have been facing pressure from F&B associations and merchants to keep commission rates low. In February, regional food and beverage associations criticized Meituan for raising commission fees to more than 20% during the Covid-19 outbreak.

The company’s Q4 earnings report, however, indicated that it had waived commission fees for restaurants and other local services nationwide throughout the month of February as part of its relief initiative for businesses coping with the outbreak. The company also said it has returned a portion of commissions to participating merchants nationwide to be used for online promotion and marketing efforts.

Meituan said it plans to put more focus on other fast-growing areas including advertising and online marketing services, which accounted for 17.5% of total revenue or RMB 4.9 billion in Q4. Food delivery remains a low-margin business in which profitability is elusive—even for Meituan, which holds 60% of the Chinese market.

For 2019, commission revenue from food delivery service was RMB 49.6 billion, but food-delivery driver costs alone totaled RMB 41 billion. This means more than 80% of commission revenue went toward paying driver salaries.

In Q4, Meituan did manage to raise the profit margin for its food-delivery segment to 17.7%, up 13.4% from the same period in the previous year, but not without significant pushback from restaurants and drivers.

As its largest revenue component faces uncertainties, Meituan’s money-making unit—travel and hotel booking—has been among the hardest hit as a result of travel restrictions within the country and abroad.

Meituan’s in-store, travel, and hotel segment saw impressive growth last year, and contributed the most to Meituan’s overall gross profits. The segment grew by 25.6% year-on-year in 2019 to RMB 222.1 billion. Its profit margin was 88.8%, up from 86.8% in the previous year.

But it’s far too early to say that China’s travel industry has recovered.

Trip.com, Meituan’s travel booking rival, used its own Q4 earnings results to warn that its revenue in the first quarter could fall by as much as half.

Read more: Meituan faces challenge from Alipay on its home turf

The company’s efforts to push into other new business segments and R&D seem half-hearted, and are unlikely to cushion it from expected revenue losses in the upcoming months.

Last month, Meituan announced its decision to abandon its cloud business—an area seen as a top business priority for rival tech giants including Alibaba and Tencent. Meituan’s investment in R&D projects also dropped last year, with expenses declining to 8.7% from 10.8% in terms of percentage of revenues—the lowest since the company went public.

Despite recording strong growth in 2019, Meituan will face significant challenges as the economy slowly recovers—as well as from rising competition in the coming months, which may force it to rethink its profit strategy.

Although it’s difficult to gauge the impact of the pandemic on Meituan’s businesses, the lifestyle services landscape will almost certainly look different in 2020.

Chinese food delivery giant Meituan is drastically increasing the number of physical products for sale on its platform to tens of thousands of items, including mobile phones and cosmetics, in an expansion beyond its core service businesses.

Why it matters: Meituan, China’s biggest online seller of services, is pushing onto the home turf of longtime rival Alibaba as it expands into online sales of physical goods.

• Meituan’s expansion comes one month after Alibaba’s Alipay intensified its offerings in local lifestyle services, a move to compete with Meituan’s all-purpose app.
• Expansion to more product categories will also help offset a slowdown in sales brought by the Covid-19 outbreak.
• The move may put Meituan in competition with other e-commerce majors like JD.com.
• While strong demand for grocery deliveries were one of Meituan’s bright spots during the lockdown, the firm warned of Q1 losses due to the broader impact of the coronavirus pandemic after posting profits for three consecutive quarters.

Read more: Meituan faces challenge from Alipay on its home turf

Details: Consumers can now order Huawei products like smartphones and tablets on Meituan for delivery in Beijing, Shanghai, and Wuxi, according to an advertisement posted on the company’s official account on messaging platform WeChat. Flagship Huawei stores in the capital city promise that smartphone orders will arrive within an hour.

• Users can also buy cosmetics and beauty products from Sephora outlets in 16 cities, including Beijing and Shanghai.
• A wider selection of everyday goods are available through chain stores such as Miniso and Watson.
• Ordering goods from physical stores on Meituan means that products arrive on a rapid timeline, similar to food deliveries on the platform.
• Meituan could not immediately reached for comment.

Context: Meituan began testing an expansion into selling physical goods online two years ago.

• Since 2018, the company has listed Hailan Home, a menswear fashion brand, on its platform.
• It recently entered an agreement with 72 physical bookstores, allowing users within 10 kilometers to place orders and have books delivered within 30 minutes.

A pickup in lifestyle services shows that life is returning to normal in China as cases of Covid-19 level off, and that consumption is increasingly digital, according to data from Chinese payment giant Alipay.

Why it matters: China, once the center of the Covid-19 outbreak, is showing signs of recovering from widespread economic fallout from the Covid-19 across sectors including search queries, offline retail, travel, restaurants to manufacturing.

• Alipay accelerated an expansion into digital lifestyle services this March, renewing its rivalry with Meituan’s all-purpose app. 

Read more: Meituan faces challenge from Alipay on its home turf

Details: An increasing number of businesses are trying to digitalize their operations following the Covid-19 outbreak, pushing Chinese consumers online.

• Food and entertainment companies, such as groceries, bubble tea shops, and movie theaters, saw different degrees of business recovery.
• Almost 72% of small-to-medium-sized enterprises have resumed work as of March 24, according to China’s Ministry of Industry and Information. 
• Residents in major cities across China have been spending more on health and beauty services after citywide lockdowns were lifted, according to the report. Online sales for dental and cosmetic medical services rocketed 3,000% from March 18 to 27 compared with the previous 10 days, it said.
• Local governments in eastern Chinese cities including Hangzhou, Nanjing, and Qingdao are distributing coupons via platforms such as Alipay and Tencent’s WeChat in a move to stimulate domestic consumption and help consumers and businesses in need. 

Context: Alipay noted that consumer demand for digitalized services on its platform was expanding rapidly even before the epidemic. In 2019 alone, the number of searches for lifestyle services within the Alipay app increased 300% compared with 2018.

• Meituan also signaled that business was picking up during a call with analysts for its fourth quarter earnings report.

In 2010, after several failed projects that included Facebook-clone Xiaonei and the Twitter-like Fanfou, serial entrepreneur Wang Xing launched a new startup, Meituan. With his eyes set on e-commerce, Wang focused on online sales of services—a less saturated segment of e-commerce which avoided head-on competition with Alibaba, the undisputed e-commerce giant.

However, Alibaba never lost sight of its goal to build an empire spanning all e-commerce sectors. The subsidy-fueled food delivery war between Meituan and Alibaba-backed Ele.me has only recently leveled off. Alibaba has reinvigorated its bet by expanding its offensive to the broader local lifestyle services market, with popular payment app Alipay at the center.

Alipay: from payment tool to lifestyle multi-purpose app

In what Alipay CEO Simon Hu dubbed the “most important development in Alipay’s 15-year history,” the payment app has upgraded local lifestyle services such as food and grocery delivery, featuring the channels more prominently in an app update released on March 10.

With its slogan changed from “Pay with Alipay” to “Live @ Alipay,” the app is transforming from a fintech and payment tool to a Meituan-like all-services app featuring third-party service providers that offer all kinds of lifestyle conveniences for its users.

Alongside the update, the company announced a three-year plan to support the digital transformation of 40 million service providers across China. Alipay says it is responding to rising demand for local lifestyle services on its platform, which has seen the number of searches for lifestyle services jump 300% in 2019 compared with 2018.

Although both Ele.me and Koubei have their own apps, they rely heavily on Alipay—which has 1.2 billion users globally—to acquire new customers. Eleme acquired 48% of its new customers from Alipay in the quarter ending Dec. 31, according to the company.

On March 16, Alibaba’s local lifestyle arm (a unit that merged Ele.me and Koubei in 2018) set a series of goals to support the transition. Through the Alipay tie-up, the unit pledged to:

• Bring more than 100 million visitors to merchants every day.
• Offer a commission fee 3% to 5% lower than other platforms for food delivery services. (Meituan has been criticized by regional catering associations for raising commission fees to more than 20% during the Covid-19 outbreak.)
• Help 5,000 local lifestyle service providers open flagship stores on its business-to-customer marketplace, Tmall.
• Provide free services for mini-program operators who use the catering management solutions Keruyun, a platform Alibaba acquired in 2019.
• Help 1 million merchants to upgrade their operational and management platforms.
• Establish Alibaba Local Lifestyle Service University, offering 1,000 online courses within three years to train 10 million people in catering, logistics, and retail.

The company has been gearing up for the transformation since November with the launch of its “New Services” strategy (link in Chinese), an initiative designed to increase services merchant efficiencies by digitizing their operations. In addition, the firm has rolled out operating systems for merchants and supermarkets.

Meanwhile, personnel changes were made to prepare for the shift. Alibaba’s local lifestyle services have reportedly been taken over by Ant Financial CEO Simon Hu, who helms Alipay’s offerings—including its lifestyle services. Instead of just attracting users with food-delivery services, a combination of the two businesses could help Alibaba increase and retain users by directing them to Alipay, a place that offers all kinds of convenience, e-commerce industry watcher Li Chendong told local media.

Coronavirus accelerates local lifestyle services boom

China’s local lifestyle service market is expected to reach the RMB 1 trillion mark soon, according to a report released by Iimedia Research in September 2019. Some segments of the market have grown faster than others. Food delivery—mainly restaurant takeout and delivery—is the biggest chunk, with a market size of RMB 284.5 billion in 2019, Iimedia’s data showed. The fresh produce e-commerce market is expected to be worth RMB 162 billion; the community services market, ranging from housekeeping to laundry, will reach RMB 231.61 billion in 2019.

Although food-delivery growth is slowing, user demand for fresh produce, groceries, medicines, and others surged during the Covid-19 epidemic as millions remained isolated at home.

Meituan has been riding the wave with its sales from fresh produce—vegetables, seafood, and meats—jumping more than 200% year-on-year between Feb. 1 and Feb. 20.

“Amid the ongoing coronavirus outbreak, we have also seen how digital technology can be used to help service providers become more agile and respond effectively to the fast-changing market environment,” the Ant Financial CEO said in a statement. 

According to the company, more than 1,200 developers answered its call to create mini-programs aimed at providing support during the outbreak for grocery delivery, legal and medical advice, and other public services.

The ride-hailing firm Didi Chuxing also introduced home delivery options to its app in two major cities during the Covid-19 outbreak. Previously, Didi had changed lanes by entering the food-delivery market to counter Meituan’s expansion into ride-hailing in 2018, but that business quickly failed.

What it means for Meituan

With the prominent positioning of the food delivery, restaurant reviews, and travel and ticketing channels, the app landing pages for Meituan and Alipay look increasingly similar.

This head-to-head competition is reminiscent of China’s recent food-delivery war. With most users in major metropoles well-acquainted with on-demand delivery, lower tier-cities are where service platforms are fighting most fiercely for users.

In this regard, Meituan has been taking the lead; 73.7% of users rated Meituan as their first choice for food delivery, while Ele.me and Koubei accounted for 24%, according to a report from mobile data service provider Jiguang.

Meanwhile, Alibaba is also shifting focus to the lower-tier markets. The company said the gross merchandise volume from local lifestyle businesses in less-developed areas grew about 40% year-on-year in the last three months of 2019.

User acquisition is just one part of the story, however. The push for the digitalization of offline services is in large part a competition to attract merchants to join their platform. Here, Alipay has an edge—because  Alibaba launched a series of support measures for small- and medium-sized enterprises in its 2B shift.

The practice of subsidizing discounts for users may still happen, but there are indications that neither of the companies, nor the investors backing them, have much appetite to offer irrational cash-burning rebates after seeing unimpressive results from spending millions of RMB. Ele.me CEO Wang Lei, who pledged to offer RMB 1 billion subsidies in July and August 2018, said a year later that the food-delivery market isn’t “healthy” and that there will be no more crazy subsidy wars.

In the meantime, Meituan is also testing an expansion into the selling of physical goods online. Since 2018, the company has listed Hailan Home, a menswear fashion brand, on its platform. It recently entered an agreement with 72 physical bookstores, allowing users within 10 kilometers to place orders and have books delivered within 30 minutes.

With both platforms expanding beyond their core businesses, the competition between China’s largest and third-largest tech firms is escalating to another level.

Meituan Dianping reported strong fourth quarter revenue, exceeding analyst consensus expectations, and booked profits for a third consecutive quarter but warned that adverse effects from the Covid-19 outbreak could last the entire year.

Why it matters: Impact to the Chinese local services super app from the Covid-19 outbreak will be “significant” because of the heavily offline nature of most of its business units.

• Like other Chinese tech companies including Alibaba and Tencent, Meituan categorized the Covid-19 hit as “short-term” and expects “long-term” growth as Chinese consumers increasingly shift to online transactions for the service industry.
• Grocery delivery remained one of the bright spots for Meituan during the outbreak.
• The Chinese O2O giant is facing intense competition from rival Alibaba which is reshaping its local lifestyle business around its popular payment app Alipay.

“We welcome the other players to join us to accelerate the digitization and development of this industry which will benefit all participants in the ecosystem.”

—Chen Shaohui, Meituan’s chief financial officer

Details: Meituan’s revenue for Q4 2019 reached RMB 28.2 billion ($3.9 billion), up 42.2% from the same period a year ago, beating the average estimate of RMB 26.7 billion for 12 analysts in a Refinitiv I/B/E/S poll, according to data cited by Reuters. The company reported profits of RMB 1.46 billion in Q4, its third consecutive quarter.

• The company warned that it was expecting negative year-over-year revenue growth and operating losses for the first quarter of 2020 as a result of the pandemic.
• The cost of revenues increased by 20.3% year over year to RMB 18.4 billion for Q4 from RMB15.3 billion in the same period of 2018, primarily due to an increase in food delivery rider costs resulted from rising orders.
• Share prices traded up 6.7% at HK$93.85 as of publication thanks to strong Q4 results and signs of a gradual food delivery recovery in March as indicated by the company in the earnings call.
• The company’s annual transacting user base reached 450.5 million as of end-2019, while the number of annual active merchants increased to 6.2 million. 
• Despite a gradual recovery for its food delivery unit, Meituan’s in-store, hotel, and travel businesses, which together accounted for 22.6% of the company’s revenue in Q4, has been harder hit. Active merchants for in-store services, nearly all of which were shut down in February, are still at a “very low” level as of late March and the company expects consumers will take more time to return to normal, said Chen Shaohui, Meituan’s chief financial officer, during the earnings call.
• When commenting on Alipay’s recent expansion to the local lifestyle market, Chen said the local service digitization market is big and still at a very early stage.

It’s a pretty typical afternoon here at TechNode headquarters in Shanghai. I walked down the street around noon, skipped my favorite sesame noodle joint since it was full, and wound up finding a new spot for Cantonese-style rice noodle rolls. On the way back, I picked up an iced lemon tea from hip milk tea chain 1 Diandian after waiting in a long, somewhat socially distant line. But back at my desk, I found a pile of draft opinion columns about the salad days ahead for e-commerce grocery delivery, now that the coronavirus epidemic has killed off brick-and-mortar once and for all. 

I say, prove it.

There are analysts telling us the epidemic has been a big win for online food delivery—and meanwhile, here I am waiting in lines in Shanghai. Something doesn’t add up. Nobody’s told the lunch crowd that it’s the beginning of the end for physical stores.

Nobody’s told the Shanghai lunch crowd that grocery delivery has taken over the world.

Filling a bucket in a storm

What do the numbers say? If you read them naively, it does look like online groceries have won out: groceries and household goods deliveries have gone up by huge figures over the virus period, topping out around Meituan’s 200% for fresh produce. So offline grocery shopping must be reeling from the blow, right?

Almost certainly not. TechNode has visited busy vegetable markets across China—and even in the epicenter of Hubei, we’ve seen markets arrange deliveries without relying on apps like Meituan. Grocery shopping has held up just fine, and it’s fed a lot more people than Meituan and Eleme. 

What delivery triumphalists are forgetting is that the market for online grocery shopping isn’t a fixed number of people who want groceries—it’s part of a much bigger market for meals. Every time you eat a meal, you choose between cooking it yourself or getting it from a restaurant, and just about every restaurant in China was closed for all of February and a lot of March. 

China is a country with a lot of restaurants. Eating out is cheap, tasty, and popular, and ordering delivery is nearly as cheap and also popular. When people got locked in their homes, that meant nearly every meal they would normally have bought from a restaurant instead had to be cooked at home. This is, simply put, a lot of meals, probably running into many billions. 

App-based grocery delivery certainly got a piece of this action—but these apps were filling buckets in a storm, and offline groceries were right there alongside them. In my efforts to compare app-based groceries to offline vegetable markets, I’ve seen the markets hold up at least as well. Even in Hubei, when people couldn’t go to the markets, local authorities arranged deliveries. Keeping offline groceries stocked was no easy task, and the Wall Street Journal has done a great look at the challenges involved.

As China edges back to normalcy, it looks like pre-outbreak food habits are returning: every week, people are willing to sit closer to each other to get a favorite bowl of noodles, and restaurants grow more crowded. 

Doubting tech triumphalism

It’s been particularly obvious to me that stories about the death of food outlets are detached from reality because I’ve been eating all through the last few months. But there’s a moral to this story: tech has got to prove its worth in the data, just like anything else. 

I expect what’s really at the root of the ill-founded stories I keep reading isn’t bad statistics—it’s the fact the story is so damn plausible to the kind of people who write market analysis. They tend to be young, urban, and not very fond of grocery shopping. A lot of them don’t know how to buy a potato in their Shanghai neighborhood without using an app.

But the fact that you’d rather have a man in a yellow helmet bring you your food isn’t a solid basis for predicting the behavior of a billion people. No matter how much sense a tech story makes, it ain’t true til it can be proved.

Chinese food delivery and services platform Meituan Dianping is shutting down its public cloud service in order to retain focus on its core businesses.

Why it matters: Halting its cloud computing services is a major pullback in Meituan’s expansion into enterprise tech, a trend which has formed the basis of many recent moves by competitors including Alibaba and Tencent. 

• The draw-down comes as Meituan braces for accelerated competition in its core business. Earlier this month, Alibaba-backed payment tool Alipay beefed up its push onto Meituan’s turf in local life services with plans to support millions of other service providers.
• The news follows just three months after the company drastically increased  registered capital for its cloud computing subsidiary in December to RMB 870 million (around $123 million) from RMB 10 million, which prompted local media reports that the local lifestyle giant was ramping up its enterprise tech push.
• The company has been criticized in the past for over-expansion into a number of business fronts such as ride-hailing, bike rentals from its Mobike acquisition, new retail, and others. After its share prices plunged in 2018, Meituan tightened up its operations and posted profits for two consecutive quarters in the second and third quarters of 2019.

Details: Meituan Open Services (MOS), the company’s public cloud platform, announced on March 12 that it will halt its services and user support starting May 31. 

• The company warned that all the data hosted by the platform will be purged and not recoverable after that date. MOS recommended that users either back up data themselves or transfer it to other platforms.
• MOS will continue to operate the service for internal use and for business partners such as merchants on its service platform, but will cease running the unit as a for-profit business, according to a person with knowledge of the matter.
• Users can apply for a refund by providing an order number, according to the statement.
• A Meituan spokeswoman did not disclose the number of users that would be affected by the shutdown when contacted by TechNode on Monday.

Context: First launched in 2013 a unit for internal support, MOS opened up to startup and enterprise customers in 2015 to deliver cloud and big data solutions.

• It has been supporting Meituan’s daily business operations, serving users across industries including food and dining, travel, O2O, mobility, and others. 
• China’s public cloud services market hit $5.42 billion in the first half of 2019, driven by non-internet sectors which are increasingly adopting cloud services as part of a mass push toward digital transformation, according to a report from IDC. 
• The report points out that the market is highly consolidated among the industry’s top 10 vendors, including Alibaba, Tencent, and Huawei which now claim more than 90% of the market, leaving little room for small players. MOS was not among the top 10.

In 2018, Chinese tourists made 150 million international trips, and four years later, China became the world’s largest outbound travel market. Within China, billions of domestic trips are made each year. But in 2020, those figures will look a lot different.

The coronavirus outbreak began spreading across the country during Chunyun, the Spring Festival rush, when hundreds of millions of people travel home or abroad for family reunions. Recognizing that the peak travel season was the perfect storm for a rapidly spreading infection, the government quickly locked down a number of cities and implemented strict travel restrictions, paralyzing most of the country.

Since then, China’s online travel agency platforms, along with airlines and railways, have scrambled to accommodate millions of ticket and reservation cancellation requests by drastically expanding favorable cancellation policies and offering full refunds to frustrated customers.

Meituan’s core on-demand delivery service unit, which accounts for nearly 60% of total revenue, was one of the few spared by the epidemic. However, Meituan’s “in-store, hotel, and travel” segment, which accounts for a quarter of its revenue, has seen great disruption.

Coping with Covid-19

In January, China’s aviation and railway authorities requested that online ticketing agents grant free cancellations and ticket changes to passengers who needed to alter their travel plans. The policy applied to train, plane, and bus tickets purchased before Jan. 24.

Most of the major travel booking platforms revised cancellation policies for air, rail, hotel, and attraction bookings in compliance with the request. For example, according to Meituan’s revised policy, tickets for visits before Feb. 8 to domestic scenic spots and attractions could be fully refunded. Plane and train tickets purchased before Jan. 24 were also eligible for a full refund. The company said it would help customers negotiate with hotels for free cancellation or reservation changes. 

Other travel booking platforms, including Ctrip, Qunar, Mafengwo, and Fliggy, took similar measures.

Naturally, paying out all these refunds to travelers has strained the cash flow of these online travel platforms. Trip.com, the owner of Meituan’s online travel booking rival Ctrip, is reportedly planning to take out a $1.2 billion loan for refinancing and working capital. In the days following the epidemic’s peak in China, Ctrip processed (link in Chinese) millions of bookings, including countless canceled orders and requests for date changes.

Fliggy, the ticket-booking site owned by Alibaba, estimated that domestic bookings had dropped by 70% to 80%, and international bookings had declined by 40% to 50%.

The impact goes beyond the financial. Deploying the manpower capable of processing millions of cancellations and change requests in a matter of days proved to be another challenge for the travel platforms. Many disgruntled customers went online to vent their dissatisfaction about the cancellation process.

Many online booking platforms have attempted to alleviate the situation by providing special funds for partners in the travel industry who have struggled with the tidal wave of cancellations.

Meituan launched a RMB 100 million (about $14 million) fund to support businesses in the travel and hotel industry. Airbnb China established a $1 million fund to help respond to the crisis. Ctrip has set aside RMB 1 billion to stimulate tourism-related consumption and RMB 1 billion financial support for partners.

Far-reaching, long-lasting impact

China Tourism Academy expects revenue from tourism in 2020 to drop by RMB 1.18 trillion (around $167.72 billion)—a 21% decline.

A downturn of one-fifth for the world’s largest outbound tourism market does not bode well for the global tourism industry. In 2002, before the SARS outbreak, China’s contribution to the global travel industry was 5%. It has since grown to around 18%.

The impact of the Covid-19 outbreak is by no means limited to China’s domestic travel. Many international carriers suspended or restricted routes to Wuhan, the epicenter of the outbreak, as well as to major cities including Beijing, Hong Kong, and Shanghai.

Chinese and foreign airlines have processed more than 20 million refund requests, totaling over RMB 20 billion, according to Chinese media reports.

According to the International Air Transport Association (IATA), the industry stands to lose around $29 billion in global passenger revenues this year.

The demand for travel is plummeting and will likely remain low as the viral epidemic continues to spread to other countries.

Still, the Chinese authorities are putting on a brave face, urging tourism businesses in China to reopen.

More than 300 scenic spots and tourist attractions in the provinces of Zhejiang, Jiangsu, Jiangxi, Sichuan, Anhui, Henan, Guangxi, and Hainan have reopened.

The Ministry of Culture and Tourism issued a set of guidelines for the reopening of tourist attractions, including requiring tourists to register with real names, contact, and transportation information. Online booking platforms including Meituan and Ctrip have implemented the real-name ticketing system.

“Based on our estimation, we’re relatively optimistic about China’s tourism economy for 2020. It’s highly likely that tourism consumption in China will rebound. Many subjects of our recent surveys said when the epidemic ends, they will take a tour,” said Dai Bin, the head of China Tourism Academy.

Chinese consumers seem eager to step out for some fresh air. According to the Blue Book of China’s Tourism Economy 2020, 71.5% of Chinese said they would travel after the epidemic but planned to wait until the situation settles, while 20.7% said they would travel as soon as the outbreak is over.

Optimistic experts in China expect the tourism market to rebound in a “retaliatory” manner about three to six months after the outbreak is eliminated, according to the state-owned CGTN media outlet.

However, this optimism is not shared by experts outside of China. Some believe the global travel industry may not recover for years.

What it means for Meituan

Meituan started offering hotel booking services as early as 2013, and began to consolidate its travel unit in 2015 with the launch of air ticketing and the acquisition of Kuxun from TripAdvisor.

In 2018, Meituan Hotels was ranked first in China by volume and nights booked, exceeding the combined room nights booked on Ctrip, Qunar, and Tongcheng-Elong, according to market research firm Trustdata. Meituan continued to lead hotel bookings in terms of room nights reserved, accounting for more than 47% of the market.

Compared to other online booking platforms that are solely travel-oriented, Meituan has a much more diversified business portfolio.

Citibank estimates that Meituan’s total annual net income will drop 21% due to the impact of the Covid-19 outbreak on its travel and delivery businesses; nevertheless, their overall forecast of the company’s 2020 outlook was optimistic.

Ticket-booking giant Ctrip, on the other hand, seems to have taken a harder hit. On Monday, CEO Sun Jie announced in an internal email that he and co-founder Liang Jianzhan will stop drawing a salary from March onwards. Some management-level staff have also agreed to slash their salary by as much as half.

Whether the impact of the Covid-19 outbreak lasts for months or years, Meituan will likely survive it. The epidemic certainly presents the biggest hurdles that Meituan’s travel arm has faced to date. However, compared with other online ticket booking platforms, Meituan is positioned more strategically with its diversified businesses that range from on-demand delivery to travel booking to bike rental. The negative impact on its travel and hotel booking business can be offset by its other services—such as online grocery delivery, which has seen growing demand during the outbreak.

China’s massive ride-hailing platform Didi Chuxing has introduced home delivery options to its app in two major cities amid the Covid-19 outbreak which has weighed heavily on its core mobility businesses.

Why it matters: As many Chinese citizens remain home-bound, Didi’s push into home delivery could expand the company’s existing revenue streams and offset the impact of the pandemic on its disrupted ride-hailing business.

• Didi’s daily active user base shrank 54% during the Spring Festival holiday from more than 15 million early January, recent figures from Chinese research firm Aurora Mobile showed.
• The number of daily rides on Didi Express, the company’s standard-level ride-hailing service, sank by more than four-fifths sequentially in some major Chinese second-tier cities in February, Chinese media reported citing company insiders.

Details: Didi has quietly launched earlier this week a home delivery service, “Paotui,” a word which means running errands. The service is active for dwellers in the southwestern Chinese city of Chengdu as well as Hangzhou, capital city of eastern Hangzhou province, Chinese media LatePost reported.

• Unlike food delivery services, Didi users can request couriers to run errands for more general door-to-door tasks from picking up laundry to delivering groceries, according to a TechNode reporter’s observations on Wednesday.
• Didi will typically charge users between RMB 12 and RMB 20 (around $1.70 to $2.90) within a distance of 10 kilometers (around six miles). An errand request which exceeds 10 kilometers will cost more than RMB 30.
• The company on Wednesday confirmed to TechNode that professional chauffeurs from its Designated Driver business are currently offering the service and it plans to roll out the trial business nationwide, though it did not reveal further details.
• The company’s Designated Driving service which offers chauffeurs to safely bring users home in their own vehicles, is reportedly one of the company’s few profit-making businesses other than its struggling carpool service. The Designated Driving service has a daily order volume of 380,000 on average, although it has been hit hard due to the coronavirus outbreak.
• A designated driver could earn around RMB 4,000 a month offering home delivery services, according to the LatePost report, which may help offset lost income from Didi’s ride-hailing services, and help the platform with driver retention rates.

Context: Didi made its first foray into the lifestyle services market with the launch of its food delivery service in a number of Chinese cities in March, 2018, partly a preemptive measure against Meituan which began trial operations of its ride-hailing services in early 2017.

• Didi put a halt to the business in China a year later, after two female passengers were killed by drivers on its platform in separate incidents in mid-2018. The company reportedly incurred an annual loss of RMB 11 billion for the year, and announced a 2,000 job cuts early last year.
• The Toyota and Soft Bank-backed ride-hailing platform is on track to launch food delivery service in Japan starting April, Reuters reported citing a representative.

Ant Financial wants its Alipay mobile payment app to support millions of other service providers in a bid to compete with Meituan and WeChat in digital lifestyle services.

Why it matters: The competition to build mini app ecosystems is heating up. This marks Ant Financial’s bid to rival Meituan’s all-purpose app and WeChat’s mini programs in being a one-stop-shop for “contactless services.”

• This would mean users don’t have to leave the app to access many other conveniences.
• Meituan launched a credit payment feature in January, marking its efforts to gain more fintech turf, competing head-on with Alipay, Tencent, and JD.com.

Details: At the Alipay Partner Conference on Mar. 10, Ant Financial announced a plan spanning the next three years to create a digital ecosystem. It will upgrade the Alipay app and tailor it to a multiple service platform.

• Ant Financial wants to expand beyond financial services into a platform featuring third-party service providers which provide other lifestyle conveniences for its users, and reward them for it.
• It will offer merchants growth assistance programs which include loan services.
• “The service sector in China is still in the nascent stages of digital transformation, and that means it has huge untapped potential,” said Ant Financial CEO Hu Xiaoming.
• The payment app said 1,200 developers answered its call to create mini programs that countered the impact from Covid-19, resulting in grocery delivery, legal and medical advice, and other public services.
• A mini program launched by Beijing-based startup Meicai links farmers with consumers and restaurants, and had more than 800,000 users, which its CEO attributed to exposure on Alipay.
• The homepage will use algorithms to recommend services to users, so that each user’s app is tailored to their requirements.

Context: In 2019, the number of searches for lifestyle services within the Alipay app has increased 300% compared with 2018.

• Covid-19 has consumers relying on online food delivery, medical consultations, and remote learning while they are stuck at home.
• Hu said that 80% of China’s service industry is not yet digitized.
• WeChat was a first-mover on mini programs in 2017, and Alipay followed suit in 2018.
• Mini-programs have become strategically important to the payment platform, amassing 500 million monthly active users last year.

China’s lifestyle super app Meituan Dianping has made a sizable investment to move up the value chain, leading a RMB 600 million ($87 million) Series B into a food service distribution giant, Wangjiahuan.

Why it matters: Meituan, now the third-largest internet firm in China, is beefing up its investments in an attempt to build a business empire surrounding its core food delivery business.

• China’s food industry earned revenue of RMB 4.67 trillion (around $672.65 billion) in 2019, growing 9.4% year on year, data (in Chinese) from China Hospitality Association showed. Foodservice for noncommercial businesses such as school and company canteens accounted for RMB 1.2 trillion of the total.
• A supplier to restaurants and produce stores, Wangjiahuan competes with several enterprise-facing food service apps including Meicai, Songxiaocai, and FarmLink.
• Meituan’s expansion to B2B food suppliers comes amid a surge in China’s consumer grocery delivery service driven by the Covid-19 outbreak.

Details: Shenzhen-based agricultural product distribution group Wangjiahuan has secured RMB 600 million Series B led by Meituan and followed by existing investor Hidden Hill Capital, Chinese media reported.

• Meituan confirmed the investment to TechNode but declined to specify its investment total.
• “The non-commercial food supply chain is one of the few sectors that characterize market scale, growth potential, and profitability,” (our translation) a Meituan spokeswoman said in an emailed statement. Meituan expects Wangjiahuan has a wider presence countrywide thanks to its “first-mover advantages in bidding, supply chain, and funding,” she said.
• The proceeds will be used for the implementation of its partnership system, construction of distribution centers, and agriculture product traceability solution, according to the report.
• Gao Jun, board chairman of Wangjiahuan, said that the partnership will facilitate cooperation through shared resources in clients, delivery centers, and delivery fleets, among others.

Context: Founded in 1995, Wangjiahuan focuses on distribution of food products to restaurants, hotels, and other hospitality businesses.

• In January, Meituan invested tens of millions of dollars in the first funding round for Guangdong Meat Union Fresh Holdings Co. Ltd, a food retail chain with about 500 locations in southern and eastern China.
• Meituan operates its own B2B food distribution arm, Kuailv Jinhuo, which delivers fresh food to restaurants.

Shanghai will become the latest city to roll out real-name registration for commuters taking the subway, following a slew of other metropolises implementing identity checks on public transport.

Why it matters: China has turned to apps to track and prevent the spread of Covid-19, a new flu-like virus that has killed nearly 2,750 people.

• However, such systems allow the government to keep a closer eye on people’s movements, prompting concern that the measures could continue once the epidemic has ended.

Details: Starting on Friday, commuters in Shanghai will be encouraged to scan a QR code in their subway car after boarding. Passengers will then be prompted to confirm their mobile phone numbers, according to Shanghai Metro’s official WeChat account.

• Unlike other cities that have rolled out the system, Shanghai commuters do not need to enter their name and ID numbers, and registration is not currently mandatory.
• However, mobile phone numbers are tied to individual IDs in China, allowing authorities to determine riders’ identities using their contact details.
• Commuters in Shanghai can use Alipay, WeChat, or map app Autonavi to scan the QR codes and register.
• Passengers will need to rescan if they change subway cars or transfer to a different subway line.
• Authorities will contact anyone who they suspect came in close contact with an individual thought to be infected.

Context: The southern city of Shenzhen and eastern China’s Ningbo rolled out similar systems last week, which in some cases apply to buses and taxis. The system in these cities is developed by gaming and social media giant Tencent.

• Meanwhile, Shenyang, capital of northeastern China’s Liaoning province, has enlisted lifestyle services platform Meituan-Dianping to develop real-name registration services for commuters in the city.
• Other cities, including Nanjing in eastern China, have also rolled out such systems.

This article has been corrected to reflect that registration in Shanghai is currently not mandatory. 

An increasing number of cities around China are requiring commuters to register their identities when using public transport, as the country ramps up efforts to contain the spread of a deadly new flu-like virus.

Why it matters: Real-name registration was previously used for transport between cities. Its expansion to intracity transport is an attempt to track the possible spread of the virus.

• Nevertheless, such systems enable the government to keep a closer eye on the movements of the country’s citizens, with people voicing concerns that such measures could become permanent.
• The virus, dubbed Covid-19, was first reported in the central Chinese city of Wuhan in late December and has subsequently spread across the country, killing more than 2,200 people.

Details: Commuters in the southern city of Shenzhen and east China’s Ningbo are required to log their identities by scanning a QR code before boarding various kinds of public transport.

• The system employed in both cities is developed by Tencent and is available through popular messaging app WeChat.
• Lifestyle services company Meituan-Dianping has developed a similar platform for transport authorities in Shenyang, capital of northeastern China’s Liaoning province, TechNode reported earlier this month.
• In Shenzhen, commuters taking a bus or hailing a taxi will need to scan a QR code on the vehicle in order to log their trip.
• Meanwhile, in Ningbo, commuters will be required to use the platform when taking the subway.
• The first time a user scans one of the codes they will be prompted to confirm their identification details before continuing with their trip.
• The system also provides warning messages via SMS and WeChat to people who have traveled with someone suspected of being infected.
• If a passenger is not carrying a mobile phone they will need to complete the process manually by contacting transportation staff or their taxi driver.
• Collected data are minimal and kept encrypted, Tencent said.

Context: Cities around China have taken stringent measures to curb the spread of the virus while still allowing public transport to run. Transportation in the worst-affected areas has been shut down.

• Subways around the country have been checking passengers’ body temperatures to stop the spread of the disease.

Why it matters: “Contactless biking” appears to closely resemble normal, full-contact bike riding.

Details: Meituan Bike, formerly Mobike, laid out four golden rules for its no-contact riding program.

• Users are advised to wear a mask and gloves while using Meituan bikes to reduce unnecessary contact with any surface.
• Secondly, users should keep a safe riding distance from others while on the road.
• Meituan encourages users to sanitize the handles, seat, and other parts of its bikes using disinfectant they bring themselves.
• Lastly, users are urged to park bikes in designated areas after use. The company did not specify whether parking in a designated zone could decrease chances of infection.
• Meituan said it has been blasting disinfectant on all bikes, including those belonging to other bike rental companies.

Chinese bike rental firm Meituan Bike announced Thursday a new “contactless biking” initiative, urging riders to don protective gear and bring disinfectant to sanitize bikes for “safe and healthy” rides.

Food delivery disrupted as China stays home

Context: Meituan Dianping is one of many Chinese tech companies feeling the impact of the deadly epidemic which has forced offices and stores to close and factories to idle. The lifestyle service giant’s businesses across the board, including on-demand deliveries and hotel and travel bookings, are hurting. Its bike rental operation already suffers from hefty losses and cash flow problems.

• As the virus spreads through close contact ranging from three to six feet, netizens are now wary of physical contact as well as exposure to the virus in public places.
• Although the epicenter of the outbreak is located in Hubei province, most cities in China are on high alert. Normally busy commercial areas and streets are left mostly empty.
• The company has rolled out a series of measures in an effort to assure users while using its services. For example, the company has been promoting its new contactless food delivery across the country.
• Meituan was said to be among the 300 Chinese companies seeking bank loans totaling at least RMB 57.4 billion ($8.2 billion) to help battle with the Covid-19 outbreak, Reuters reported earlier this week. The company is reportedly looking to borrow RMB 4 billion to, in part, finance its philanthropic efforts in Wuhan.

Chinese consumers have made few e-commerce purchases during the first three weeks of China’s battle with Covid-19, Alibaba officials said during its quarterly earnings call on Feb. 13, during which it forecasted slower or negative growth in its China retail and local services businesses during the current quarter as a result. With takeout food orders also affected, the only exception is grocery deliveries.

Alibaba was the first major e-commerce platform to describe trends in online consumption during the virus period. Rivals JD and Pinduoduo are likely facing similar challenges. Their difficulties, however, pale compared to much brick and mortar retail. Nearly all non-essential physical stores are closed indefinitely. 

Millions of people confined to their homes might seem like a golden opportunity for online platforms to make sales. But in fact, the crisis has upended the momentum of China’s digital economy, depressing sales and sending many consumers back to local markets.

Supply-side difficulties

Alibaba said that supply-side disruptions accounted for much of the decline, as many merchants on its online marketplaces were not able to do business under quarantine conditions. Disruptions to logistics further affected business, the company said, observing that “significant numbers of packages were not able to be delivered on time.” Company executives added, “The demand is there, but the means of production have been affected.”

However, customers were not interested in buying nonessentials such as clothing and electronics during the height of the epidemic, the company said, normally among the top-selling categories on its marketplaces. It predicted a slow return to normal business, noting that many workers across China are still in their hometowns and face difficulty returning. 

E-commerce marketplaces have been dysfunctional during the quarantine period. Many listed products warn halfway through a product description that the seller will not ship orders for weeks, while orders that are shipped can get stuck in logistics company warehouses. A bag of coffee bought on Tmall on Feb. 6 has spent eight days in two Hangzhou warehouses, according to the app’s tracking information. 

Deliveries have had to contend not only with short-staffed companies, but a patchwork of quarantine regulations and checkpoints which greatly limit inter-city travel. Many cities, towns, and villages have declared themselves closed to outsiders. E-commerce platform Pinduoduo allowed merchants to delay delivery of goods ordered as early as Jan. 17 until Feb. 12, a three-week wait that reflects the limits of China’s logistics sector during this crisis.

In a statement, Alibaba competitor JD claimed that its in-house logistics network gave it a competitive advantage in fulfilling orders, but conceded that “delays are expected.” 

Consumers stock up on basics

What people have been buying are household necessities. Both data and on the ground observations suggest that consumers stuck at home have been doing a lot more cooking, and buying weeks’ worth of vegetables and other household supplies at once. Online services appear to have won some of this traffic, but brick and mortar vegetable markets have also played a major role. 

Both Alibaba and JD described robust growth in orders for groceries and other essentials compared with the same holiday period last year. JD said that orders for food products on its platform grew 154% compared with a similar period following last Chinese New Year (which follows the lunar calendar), with rice and wheat products selling a respective 5.4 and 4.7 times more. 

Alibaba CEO Daniel Zhang said on the call that the crisis is bringing in new customers for food and household supplies. “We’re seeing this epidemic cause many newly-online users in lower-tier cities and less-developed cities to begin to purchase daily necessities, which is a very good sign for the future,” he said.

Zhang described “fairly rapid growth” in these categories, noting that part of the growth was driven by deliveries from nearby shops. New retail grocery market Hema, also known as Freshippo, he said, saw increases in orders but also had difficulty making deliveries because of staffing issues. 

However, the crisis has also demonstrated the resilience and popularity of local vegetable markets. TechNode reporters in smaller cities saw people rush to these markets during the early days of quarantine to stock up. Even as quarantine measures intensified and people avoided, or were banned from, leaving their homes, they continued to buy vegetables from these markets. 

In Zhangjiagang, a modestly sized city of 1.3 million in eastern Jiangsu province, local merchants organized deliveries using WeChat groups populated by residents of neighborhoods and housing compounds. A vegetable seller at the Zhangjiagang East Wet Market told TechNode that her retail business was better than usual, although the gains were offset by the loss of restaurant trade. “I think now is the time we can really serve the people,” said another. While Shanghai has ordered most stores to remain closed, vegetable markets and supermarkets are exempt, along with pharmacies and other medical services. 

In a small city in eastern Zhejiang province where local authorities banned residents from leaving their homes, they made an exception for visits to the vegetable markets. Initially, the system relied on paper ration tickets, but on Feb. 13 these were replaced with a WeChat mini app. Residents are required to apply for approval to go outside based on a risk factors survey and to scan a QR code to report each trip to the market.

A Meituan delivery driver in the Zhangjiagang market told TechNode that he was seeing fewer overall orders than usual during the period despite the uptick in grocery deliveries.

Perfect storm

E-commerce platforms face a larger challenge than getting parcels through: keeping their merchants in business.

The timing of the quarantine measures maximized their effect on the economy: beginning as China celebrated its most important annual holiday, they caught many businesses while they were closed for a long holiday. In US terms, it’s as though Christmas Day lasted through the middle of January—only the bare minimum of businesses are open.

While e-commerce platforms have experienced disruptions, many of the merchants who populate online marketplaces have been completely closed for weeks. Without revenue, many small merchants are struggling to survive. In the face of merchant mass extinction, e-commerce marketplaces will not be able to recover supply for a long time.

They appear to be prioritizing medium-term measures to help merchants stay afloat, including subsidized loans.

E-commerce has taken a big hit from the crisis, but it could still be a long-term winner. The operational difficulties of the past few weeks give them a head start over brick and mortar rivals, who are in most cases still closed. If e-commerce can recover faster—or if an extended crisis drives alternatives into bankruptcy—they could have a clear field for rapid growth ahead.

This article was co-authored by Emma Lee.

Over the past month, China has been battling the spread of a lethal strain of novel Covid-19. As of this writing, the outbreak has claimed more than 1,000 lives in China and infected over 37,000 individuals—rendering it more deadly than the 2003 SARS (severe acute respiratory syndrome) outbreak, according to the latest figures released by Chinese officials.

The epidemic has severely affected almost all businesses in China, and the food delivery sector is no exception.

Now Meituan and Ele.me, the two food-delivery platforms that hold more than 90% combined share of the market in China, are scrambling to address the many concerns spurred by the outbreak and to minimize the impact on their operations.

The rising death toll has put everyone in China on high alert, as people have become increasingly wary of coming into close contact with strangers. Because food delivery couriers necessarily are required to interact with restaurant staff and customers, these workers are struggling with the dilemma of trying to limit their own risk of exposure to the virus. 

A Beijing-based delivery driver who requested to be identified only as Liu told TechNode he has not been taking delivery orders and has mostly stayed indoors over the past month. There are confirmed Covid-19 cases in popular residential areas located in the heart of the Chinese capital, he added. 

Earlier this week, Chinese authorities escalated measures against the spread of Covid-19 as millions of workers returned from an extended Spring Festival holiday. Officials announced the implementation of “closed community management” to restrict access for outside visitors, such as delivery couriers.

Some delivery drivers did remain at their posts over the holiday, hoping to earn extra cash. However, others noted that during the extended holiday, the number of delivery orders declined as many restaurants remained closed and customers shifted toward cooking at home instead of ordering takeout. 

Instead of going back to his hometown as he usually does, Ele.me deliveryman Xiaoyue had stayed in Beijing, planning to earn extra income over the Spring Festival holiday, which began on January 24. However, his plan was interrupted by the covid-19 outbreak. “There are fewer orders and my daily income now just covers my basic living costs in Beijing,” he told TechNode.

The restaurant and dining sector has been among the hardest-hit by the drop in consumer spending. Some major restaurant chains have temporarily closed their locations across China. Beijing News reported (in Chinese) that only 13% of the city’s 87,000 restaurants kept their doors open during the holiday.

Many consumers have become hesitant about ordering takeout because they are afraid of coming into contact with delivery drivers. Some turned to preparing home-cooked meals because they had extra free time during the holiday and did not want to worry about food safety.

Although meal delivery orders seem to have dropped in the wake of the epidemic, people are still relying on delivery services for buying daily necessities and groceries. Ele.me claimed that Beijing fresh produce delivery grew ninefold (in Chinese) compared with last year. The number of orders received by grocery stores doubled over the holiday.

To reassure consumers, Meituan rolled out a “contactless delivery” service in 184 cities nationwide, which allows drivers and customers to avoid meeting face-to-face.

The company updated its app, allowing users to request that the courier to drop off the meal at an agreed-upon location. Ele.me and other delivery apps have launched a similar feature.

Despite these protective measures, Xiaoyue is still concerned about the risks of becoming infected. Making his living from food delivery has made him feel pretty helpless about the current situation. “Who cares about the safety of those who live at the bottom of the society?” he asked.

Beijing native Li Sen is another Ele.me deliveryman who noticed a decline in orders during the Spring Festival holiday. The virus also affected the return of his coworkers; Li says that his delivery fleet is currently only half its usual size.

Nevertheless, the food delivery industry is seeing one of the highest return-to-work rates after the Spring Festival holiday. A survey (in Chinese) from 58.com published on February 5 showed that 84% of China’s workforce had not returned to their posts after the official start date, though it did not specify whether employees working remotely had been taken into account. In comparison, around half of the food-delivery workforce was already back to work—the highest of all categories, along with drivers and house cleaners.

There are additional challenges. Many Chinese cities are currently under lockdown. Traffic restrictions make delivering meals increasingly difficult. In urban areas, many gated apartment complexes are forbidding delivery couriers to enter, requiring residents to pick up their orders at the front gate of the complex.

Both Meituan and Ele.me declined to comment on questions regarding the outbreak.

Offering support and resources

An outpouring of support and donations have flooded into coronavirus-ravaged regions. Many tech companies have stepped up their efforts to help those in need.

During this crisis, Meituan has been handing out free meals every day to medical staff in Wuhan. Its business-to-business arm Kuailv, which normally delivers fresh food to restaurants, is now delivering fresh produce to hospitals. The company has installed lockers at hospitals around Wuhan where delivery drivers can deposit food for medical staff. Some delivery drivers are helping out with essentials like facemasks in lockdown areas.

Meituan has also donated RMB 200 million to help supply food for medical staff in Hubei.

Alibaba, Ele.me’s parent company, is donating RMB 1 billion for hospitals in Wuhan and Hubei province to buy medical supplies. Ele.me is also helping with food deliveries for hospital staff as well as offering financial support to delivery workers. The company said it has arranged a special health relief fund of up to RMB 300,000 yuan ($43,250) for its delivery workers. 

Both Meituan and Ele.me have also said that they are cracking down on all products considered wild game, which is said to be the source of the Covid-19 outbreak. Wild animals like civet cats and badgers have reportedly been removed from popular Chinese e-commerce and food delivery platforms. In a statement last month, Meituan said it would respond to the government’s crackdown efforts by removing listings for all wild game products from its platform.

Although the Covid-19 epidemic has caused major disruption in Meituan’s food delivery as well as its travel and hotel booking businesses, there may be a possible upside. Even though the extended holiday has come to an end, many companies are encouraging employees to work remotely; meanwhile, many schools remain closed. The continued confinement of consumers could potentially spur a spike in demand for delivery services in China.

Correction: A previous version of this article, appearing in the In focus/Meituan newsletter, wrote that “Ele.me claimed that its fresh produce delivery grew ninefold (in Chinese) compared with last year.” In fact, Ele.me claimed only that its Beijing fresh produce delivery grew ninefold.

Editor’s note: This post on life inside Wuhan originally appeared in our members’ only weekly newsletter. Sign up so you don’t miss the next one. 

As most people stay inside, delivery drivers are on the front lines of the battle against coronavirus in Wuhan. This week, TechNode’s translation column brings you a gripping article profiling the volunteers, translated in full by courtesy of GQ Reports. This article was co-authored by Jordan Schneider.

The 2019 novel coronavirus exposed the fragility of various Chinese institutions. Local government and Wuhan hospitals have found themselves overwhelmed and unable to rise to the occasion.

Private logistics firms, on the other hand, have proven themselves essential. In a state of lockdown, the state has largely turned to the private sector to provide life’s necessities for those under order to stay inside. 

A team effort, this article published by GQ Reports profiles the experience and sacrifice of those individuals delivering food, opening their hotels to medical staff people. It describes at a human level the heroism and trauma of those caught in Wuhan. Given the strength and importance of this article, we’re running it at full length.  

On the ninth day of the city’s lockdown, food delivery workers, taxi drivers, express delivery workers, and volunteers maintain Wuhan’s lifeblood

Liu Chuchu, Ouyang Shilei, Zhang Jiajing, Luo Fangdan, Ge Shurun, Chen Rubing

GQ Reports, Feb. 3, 2020

At the request of interviewees, some of the names in this article are pseudonyms.

The people who move supplies

Since the city was sealed off, Wuhan has been like a movie playing on mute. Most delivery companies have stopped operation, and a large number of goods from other regions are languishing in warehouses. A small number of Tmall Express, emergency medical services, and Shun Feng delivery workers [Tmall is an ecommerce platform and Shun Feng is a delivery service] are still active. Sometimes one delivery worker has to deliver to two different districts, thus the mountains of accumulated goods are slow to be disseminated from the warehouses.

On Jan. 26, a volunteer named Zhang Che called Xiao Wang, a deliveryman, to help him find a box of surgical masks from Cangzhou, Hebei that had arrived four days prior. Zhang Che promised to give Xiao Wang a bag of face masks in exchange for helping him find the package.

Upon receiving the face masks, Zhang immediately rushed to the hospital. As an individual volunteer, the amount of supplies he is able to get his hands on is limited. From Jan. 25 to 26, he only found 200 sets of protective clothing, 100 masks, and 100 goggles. The limited supply must be divided for a hospital with more than five different departments. No matter how much they get, doctors and hospital staff are very grateful. Each additional item is a lifesaver.

Almost all of the shops in the formerly bustling streets have closed. In the supermarket, most vegetables are gone. Only one convenience store in Wuhan’s main shopping street is open. The doorframe is filled with instant hot pot kits, instant noodles, and other easy-to-cook foods. Many blue-helmeted delivery drivers were at the door, waiting to grab a meal [Trans: Blue helmets are the uniform of delivery service Eleme]. A number of people are not brave enough, or even able, to go out. They rely completely on the delivery workers shuttling throughout the city. 

Since becoming a delivery driver, this is the first time deliveryman Wu Bang has been asked by a customer to be added on WeChat. Every few days the customer sent Wu a list of dishes and daily necessities, paying him RMB 20 (about $2.87) for the errands. Wu walks slowly, with a crutch, because of a previous knee fracture. On Jan. 28, Wu Bang spends two hours in the Zhongbai supermarket to buy all the goods the customer needs. That night after returning home Wu Bang is so tired he “couldn’t even keep his eyes open”.  

While the city is sealed off, Wu’s errand-running fee does not change. The money he earns in a day is no more than normal. However, different platforms have different policies. According to a report by inSight, a young delivery rider said that delivery fees have risen by at least RMB 12 since Jan. 21. He calculated that he could earn RMB 3,000 to 5,000 in three days. However, many delivery drivers are still afraid to go out, and when the delivery workers who do continue working receive an order to a hospital, few are willing to accept it.

When delivery worker Liu Gang delivered abalone rice to Wuhan University’s Zhongnan hospital, he was surprised at how lonely the hospital was. Remembering a Weibo post stating that New Year’s dinner in the hospital was only instant noodles, Liu decided to make more deliveries to the hospital. Liu felt that to those still working during the lockdown, the motivation to help people others outweighs fear of infection. On Jan. 29, Liu photographed a sanitation worker in orange overalls he encounters on the road, a traffic policeman in a fluorescent green vest under an overpass, a rider eating a meal on the side of the road in a yellow hazmat suit, and a pharmacy still open. “They are superheroes,” he says. 

Express delivery within the city is still running. Li Zaigui, a delivery worker with Dada Zhongbao [a crowdsourcing-based delivery company] has been working around the clock for the last few days.  Of the original nine delivery workers at his site, three returned home for the New Year holiday, but none of the remaining workers left because of the outbreak. On the third or fourth day of the city being sealed, several unscheduled local colleagues felt bored staying at home and also came out to run deliveries.

Currently, Li delivers goods for Jingdong, daily necessities such as masks, rice, noodles, oil, instant noodles, and mineral water. The platform specifically asked the delivery workers to not come in contact with customers when delivering goods, but instead to let the customers come down and pick them up themselves or place the goods in delivery cabinets. 

Every day, Li receives a mask from Jingdong. Sometimes it is an N95 mask [Note: an N95 mask is one that blocks at least 95% of very small test particles], sometimes it is a surgical mask. This is considered very good in the industry. In fact, many of these service workers who are carrying people their life necessities and medical supplies have very little protection of their own. Lin Chen, a video blogger who has been shooting outside for several days, said that most delivery drivers on streets were not wearing masks. Wu Bang, mentioned above, wears a face mask and changes it daily, but doesn’t disinfect his clothes when he gets home even though he often delivers to the hospital.

Some lack access to and screening for the latest outbreak information. On the fourth day of Wuhan’s lockdown, volunteer Zhang Che added a RMB 10 tip to get a driver to accept his request for a rideshare. When he got in the taxi, he found that the driver was wearing no mask but a scarf looped twice around her face. He quickly gave her the mask in his bag. Seeing him so nervous, the driver asked, “Is the current situation dangerous? I heard two hundred people were infected?”

The dark cloud of inadequate supplies hangs over everyone in the city. Every time Zhang went to the hospital to give doctors and nurses supplies, he communicated with the doctors for a very short time, left physical space between them, and repeated one agreement over and over—an agreement he had made with more than 30 doctors: “We will come out to eat together after we are well!” No one dares to think about whether those agreements can be fulfilled. Among Zhang ‘s doctor friends, there have been a lot of people infected.

The people who help spontaneously

“The medical staff are fighting for their lives and I want to help them with logistics as much as possible,” said hotel volunteer Wang Hongyun.

When they began to seal off Wuhan’s, so did the battle of logistics to support frontline medical staff. On the second day of the new year, when the city was closed, the hotel industry in Wuhan organized the “Wuhan Medical Hotel Support Group” to provide free accommodation for medical staff.

Wang Huan is one of the leaders in the group, working as the hotel’s “clinical inspector.” In recent days, she felt more and more frustrated. At the same time, bills are piling up, disinfection and protection materials are increasingly scarce, and there is a service personnel shortage. Businesses wanted to help medical workers struggling to get home in the event of a traffic shutdown, but only for a few days. They hoped that a government or charity would take over after that.

It turns out that civilian-originated support will last longer than anticipated. More and more medical staff are checking into these hotels.

Wang Hongyun is the only hotel staff staying at the Aisikai Fine Hotel in Wuchang district. Now employees can’t be found even for three times the pay. He simultaneously serves as receptionist, cleaner, store manager, and manager. Every day, he disinfects public areas every three hours. The rooms are furnished and the sheets are changed by the medical staff themselves—as is the case at most of the hotels in the cluster.

This raises the question: How to disinfect? Lack of sufficient protective equipment for cleaning has become the most serious problem that these hotels face. Wang only wears a mask. He doesn’t have professional disinfection required isolation clothing, isolation shoes, or spray instrument, not to mention an ultraviolet lamp, or an air sterilizer. The medical staff sent him two pairs of disposable gloves, which he still refuses to use.

How the frontline medical staff travel has also become one of the most concerned issues. Zhou Xianwang, the mayor of Wuhan, said the government initially tried to provide three to five taxis for each community to pick up medical workers, but this effort failed.

Currently, some medical workers have solved the commuting problem by staying in hotels near the hospital, while others drive themselves to work. The rest of the medical workers mainly solve the commuting problem through a volunteer team organized by Didi Express and a private volunteer fleet.

After the city sealed-off, Wuhan-based vlog blogger Zhi Zhu Hou Mian Bao joined the volunteer group. He also recorded an instructional video about getting out of a car which describes disinfection processes.

The people who protect their jobs

After the lockdown, the number of people going out dropped. For the Wuhan police, the people calling 110 [Note: This is the police emergency number] also dropped. On Jan. 27, the Wuhan public security bureau received 165 calls to the 110 number, down 67.8% from normal. 

“There’s no one who wants to start with those trivial issues.” Wang Xing, a Hankou police officer said that in the past the police often had to solve fights that broke out due to trifles. But under the epidemic, there are fewer thieves. On the second day of sealing off, Hankou had zero police alerts. Even accidental deaths are declining, as there are no traffic accidents that used to happen daily.

The police are still on duty. As the epidemic situation took a downward turn, the police took on the responsibility of picking up and dropping off patients. 

There are still many problems to be solved in the community. Chronically ill and the elderly are worried about how to go to the doctor on time and how to buy food and supplies. At present, the voluntary fleet of municipal taxis does some of the supporting work for such situations. Yu Huahui, a taxi driver, is one of those who has volunteered to join the 6,000 taxis in the community scheme. 

The night before, Yu told his family “If I don’t do this, I’ll regret it for the rest of my life.” His wife and daughter finally showed their support and told him to take precautions.

Every day, the community committee investigates the purpose of travel, location and test results of its residents and informs the drivers. Before getting on the cars, temperatures are checked. Passengers with fevers cannot get on.

A portion of the vehicles go to the hospital, taking pregnant women for physical examinations, dialysis patients to get dialysis, and the elderly for physical examinations. The other portion goes to help old people who have no children to buy things for them. On a regular basis, community workers keep a list of the food and supplies they need and go out with drivers to do their shopping. Sometimes Yu Huahui and his colleagues have to run a few supermarkets and pharmacies to buy what residents need.

The taxi company provided only surgical masks and 84-brand disinfectant for the drivers, while Yu added gloves, disposable raincoats and plenty of Chinese medicine. Mr. Yu felt that the company should do more to keep drivers safe. He suggested to the company that he “can provide as many N95 professional masks as the company needs,” and tried to convince the leader that he “has at least a few hundred in stock that can be used by everyone for the time being.” But the leader ignored him.

The people who defend the city

Zhang Che decided to have a rest. While volunteering at hospitals to deliver supplies, he thought he had developed symptoms of PTSD. Sometimes when he closed his eyes, he saw thousands of hands looking for a mask, and he had only one bag.

The road used to transport supplies is blocked. Zhang ’s friends from Fuyang, Anhui Province sent more than 1,000 sets of protective clothing and some face masks over. In the middle of the night the car drove to Wuhan entrance gate, but wasn’t allowed to enter as the road was broken with a several meters wide deep hole, the goods could only be sent back to the factory. Zhang didn’t tell anyone close to him he was a volunteer and had to deal with his personal anxieties himself. 

This only made Zhang more anxious. A doctor friend at People’s Hospital has been diagnosed with a strong positive infection and is being quarantined. Another doctor friend decided to go back to work when he should have been quarantined because of a shortage of staff.

Zhang never expected to become a volunteer. On New Year’s Eve, he was chatting with a doctor friend who casually said the hospital did not have food for New Year’s Eve. Zhang went to send them food. On Jan. 24, at the height of the panic, huge crowds rushed to hospitals to be tested for infection. Zhang was in the hospital hall and saw all the elderly, some people close to the body, some people not wearing masks, some people wearing cloth masks. Zhang was about to make a detour to leave when a pair of hands seized him, a scarf wrapped around the mouth and nose of a middle-aged woman almost kneeling: “Please sell me the mask.” Then another pair of hands caught him. Soon, Zhang ’s bag of masks was finished.

People getting the masks were ecstatic, and Zhang’s heart clenched as he saw red-faced patients interspersed throughout the hospital. Before leaving, the doctor advised him not to deliver things. He nodded, turned, and drove back up the road, calling contacts to let them know he’d deliver things. 

“We want to live, too.” Said Zhou Qinghui, owner of the Yishang Garden Hotel. The cost of rent, water and electricity is about RMB 6,500 a day. “Our current situation cannot maintain long-term free service. It’s not clear how long we can last.” Zhou said. All the hotel staff in Wuhan that Wang Hongyun knew were not comfortable. “Most of the owners are not fully invested, and many of them are simultaneously paying off their loans while operating their stores. They are paying off that money each month.”

In the early morning of Jan. 29, the fifth day after its establishment, the “Wuhan 123 Rescue Convoy” published a “Letter to Drivers,” announcing that due to a shortage of protective resources such as protective clothing and masks, it would suspend order collection. In the past five days, the 123 aid convoy faced the risk of infection to pick up nearly 1,000 medical staff and deliver more than 100 supplies. 

On Jan. 30, Wuhan Union Hospital made a post on Weibo asking for help. “We defend Wuhan, we ask you to support us! We just got the news that we’re running out of supplies!” Seeing this message, Zhang decided not to rest and soon set out to find supplies.

They keep rushing around, they keep waiting, waiting for the Huoshen Shan and Leishen Shan hospitals to be built, waiting for the turning point in the epidemic, waiting for the lockdown of the city to end, waiting for the moment this city grows brightly and comes back to life. 

[Translator: As of Feb. 8, both of the hospitals mentioned above have been completed. Wuhan is still battling the epidemic.]

China’s largest technology companies are contributing to efforts to battle the deadly coronavirus which has immobilized the country, donating millions in the form of cash, relief supplies, logistical support, and medical research.

Why it matters: Corporate social responsibility (CSR) is a relatively recent concept in China, where the country’s corporate law first included mention of social responsibility in 2006. As Chinese tech giants like Alibaba, Tencent, and Baidu look to compete globally, they are embracing social and environmental practices in alignment with international CSR standards.

Chinese tech firms brace for impact from coronavirus

Details: As of Feb. 1, nearly 150 Chinese tech firms have donated a combined total of more than RMB 4 billion ($570 million) for efforts to treat those affected by the outbreak, according to Chinese media reports. The funds were raised in addition to other forms of support from medical goods to telecommunications and logistics.

• Alibaba established an RMB 1 billion public health fund to purchase medical products and ensure hospital food supplies. Baidu and Tencent set up RMB 300 million funds each, while Meituan and Bytedance offered RMB 200 million each in aid.
• Alibaba-backed Cainiao Logistics announced on Sunday that it will provide free logistical support to relief materials delivered from more than 38 countries and regions.
• Starting Feb. 2, Ant Financial’s online commercial lender Mybank reduced interest rates for business loans by 10% for 1.8 million small business owners in Hubei, where the outbreak was first reported, including 1.5 million mom-and-pop-type store owners and 300,000 medical supply dealers.
• As of Jan. 28, JD Logistics had transported nearly 70 tons of medical supplies from cities including Shanghai and Guangzhou to Wuhan via rail.
• Pinduoduo, which set up a RMB 100 million fund on Jan. 29, shipped on Jan. 31 100 tons of fruits and vegetables to Wuhan hospitals.
• Bytedance has offered for all the features on its enterprise messaging and productivity app Lark for free to support efforts to work remotely.

Context: The current novel coronavirus has infected 14,557 people as of Feb. 2 , according to the World Health Organization. Infections have been identified in more than 20 countries.

• The catastrophic Sichuan earthquake of 2008, which claimed 70,000 lives, appeared to be a turning point for Chinese CSR efforts. Donation to the victims of the earthquake reached an unprecedented $1.5 billion.
• A growing number of Chinese tech billionaires are doubling their philanthropic efforts, similar to their western counterparts such as Bill Gates and Mark Zuckerberg, the Facebook founder who committed 99% of his company shares to charity initiatives.
• Alibaba’s Jack Ma pledged RMB 100 million to “support the development of a coronavirus vaccine.” Pony Ma, the founder and CEO of Tencent, donated 100 million of Tencent’s shares to the firm’s charity foundation in 2016.

This article originally appeared on TechNode’s Chinese-language sister site, cn.TechNode.com. It was translated by Heather Mowbray.

The story of Meituan is the story of two Wangs: founder Wang Xing, and his old college mate Wang Huiwen. They used the nicknames Brother Xing and Old Wang in the office to avoid confusion. But from December 2020, according to an internal letter to Meituan’s S-team (the senior leadership group), Senior VP Old Wang won’t be confusing his colleagues any more, having decided to quit active management “for a better work-life balance.” (The full text of this announcement appears at the end of this article).

Wang Huiwen will stay on as an honorary consultant on the board, lecturer at Meituan’s “Internet+ University” internal training program, and strategist focused on talent and organizational transition. He said he was determined to “go all out in my work at Meituan, while ensuring an orderly handover.” Meituan is believed to be reshuffling senior talent in preparation for the next ten years.

According to Wang Xing, they had been working on Wang Huiwen’s retirement for a while already, and the company is fully prepared. The CEO said, “I understand Wang’s move, and thank him for all his hard work. He will continue to help in strategic planning, organizational transfer, and talent development, and we wish him well in an exciting new chapter in life.”

Meituan announced a number of new appointments. Guo Qing and Li Shubin were promoted to the S-team. Guo Qing joined Meituan in 2014, responsible for the Meituan accommodation division. Li Shubin joined in 2019 as head of the Meituan platform.

Classmates, business partners… and best friends

Old Wang was at the heart of Meituan, not just as the man behind Wang Xing, but also as his roommate from university days.

On his first day at Tsinghua University in 1997, Wang Huiwen bumped into Wang Xing, a boy from the southern city of Longyan, who had been sent to study radio engineering. The two became roommates. They became friends while resolutely staying at the bottom of the class. With a computer they saved up to buy together, Wang Haiwen got hooked on gaming. Wang Xing got hooked on business. After graduating in 2001, Wang Xing began a PhD at the University of Delaware but his friend didn’t have the grades to take his studies further.

In the US for two years, the future Meituan founder felt the reverberations of the first internet boom. Facebook was online. Dropping out of his PhD at the end of 2003, Wang Xing started his own business, with two trusted friends, Lai Binqiang—from high school—and Wang Huiwen.

The three of them worked on around 10 projects over two years, from social network sites to input methods, finally deciding to focus on campus social media. The Chinese internet was a barren land, just waiting to be connected to a world of treasures. Put in a bit of hard work and all this new territory would be theirs.

On Dec 8, 2005, the team launched the Xiaonei campus intranet, China’s answer to Facebook, later renamed Renren.com. It took three months for the student startup to secure 30,000 users, many at on-campus events where recruiters handed out chicken drumsticks to new users. But with no money for servers and extra bandwidth, the company was sold. Entrepreneur Chen Yizhou bought it for $2 million.

Wang Huiwen bought a house in Beijing, a house in Dalian, and traveled around Europe and Southeast Asia with Lai Binqiang for a year. Returning to Beijing, they brought on Chen Liang, another secondary school classmate of Wang Xing who would later become a senior Meituan executive.

The team set up Taofang.com, a site that offered second-hand real estate sales and rentals. The site offered space for comments on agents, an innovation at the time. A forerunner of Taobao in a number of ways, the Taofang venture did not go perfectly. During its life, Wang Xing stayed in China, hiring his wife Guo Wanhuai, and more school and Tsinghua friends: Yang Jun, Fu Dongping, Mu Rongjun. With their help, he built two more copy-to-China social media platforms: Twitter-like Fanfo and and Facebook-like Hainei. Fanfo soon closed, so to make work for the newly expanded team, they set up Meituan.com.

Wang Xing gave Wang Huiwen a call in December 2010. “We’re growing fast and I need people. You should come back.” So Wang Huiwen and his group joined Meituan.

He joined during a storm. Group buying fever was at its fiercest. Wang Huiwen led the strategy of “cutting losses while pursuing growth,” using the classic guerrilla tactic of “encircling the cities.” This was crucial to Meituan’s later success.

Meituan broke even at the end of 2012, and went looking for new growth points. It was Wang Huiwen who led the way into the takeaway food market. Competition was no less fierce than in group buying, however. Wang Huiwen put a tight rein on investment, dropping loss-making locations, including Wang Xing’s hometown Longyan, as well as several other fifth tier cities like Yulin and Chifeng. When Baidu Takeaway was bought out by Eleme, the scene was set for a duel.

A key player in expansion

After Meituan and Dazhong merged they began to integrate structurally. In July 2016, Meituan Dianping established a catering platform for restaurants, takeaway distributers, and catering professionals. Wang Huiwen was instrumental in bringing them all under one wing.

In December 2017, Meituan shook up its structure again. Wang Huiwen would lead retail building a team to coordinate fresh food, takeaway, distribution, catering B2B and related sectors. He was also made responsible for travel, bringing Meituan into direct competition with Didi.

Just two months later, Meituan Dianping announced a third structural shift, creating a new “food and beverage (F&B) platform.” The original F&B group, takeaway distribution group, and catering professionals platform were melded into one. Meituan Dianping would have three core businesses: F&B, general (local services other than F&B), and hotels and travel. Wang Huiwen was made president of the F&B platform, and Meituan COO Gan Jiawei, who had led the platform, was put in charge of the newly established “internet plus” online university, gradually leaving the frame.

In October 2018, Meituan made another round of organizational upgrades. The company’s strategy would now focus on catering platform, with “eating” center place, and its user platform would have two business directions, to restaurant and to home. On the new business side, Kuailu and Xiaoxiang continued to conduct business exploration, establishing a location-based services (LBS) platform. Wang Huiwen was in charge of both the user platform and the LBS platform.

Where next for Meituan?

In hindsight, we can see the signs that Wang Huiwen might leave. On Dec 20, 2018, Wang Huiwen stepped down as legal representative, executive director, and manager of Mobike. Earlier, he had stepped down as legal representative of a number of Meituan companies, including ride hailing firm Shanghai Lutuan Technology Co., Ltd. and Shanghai Sankuai Technology Co., Ltd.

The departure of Old Wang will have a significant impact on the Meituan group, but founder Wang Xing is not unprepared. From his statement in the e-mail and rapid personnel changes, it can be seen that this is a long-planned change.

A veteran of e-commerce, Li Shubin, is taking over from Wang Huiwen. Li founded the well-known vertical e-commerce company Hale Buy and served as its CEO.

In the second half of 2019, Meituan achieved two single quarter profits, but a growth ceiling has already appeared. According to the third quarter 2019 financial report released by Meituan GMV growth (total platform transactions), users and merchants has slowed. In the third quarter of 2019, total transaction volume on Meituan Dianping was RMB 194.6 billion (about $28 billion), an increase of 33.6 percent year-on-year, lower than the 40 percent growth of 2018. For the 12 months ending on Sept 30, a total of 5.9 million active merchants were using Meituan, an increase of 8.8 percent year-on-year.

Food delivery, which accounts for 57 percent of Meituan’s quarterly revenue, is the company’s mainstay, and Meituan and Eleme’s rivalry is now entrenched. According to current market data, Meituan still has the advantage, just. For Meituan, hotel-to-shop business is second only to food delivery. Taobao has crowded the market, and the BAT giants have their fingers in many pies, directly or indirectly. In vertical travel, Ctrip and Tongcheng-Elong occupy their own positions. Tongcheng-Elong’s second-quarter revenue grew 21 percent, and net profit grew 60 percent year-on-year. Ctrip’s Q3 financial report shows revenue of RMB 10.5 billion, an increase of 12 percent year-on-year. Of this, international travel achieved a 50 percent year-on-year growth. Other businesses such as Mobike, Xiaoxiang Fresh Food, and online car rental are still at the exploration and development stage. They are not yet of a big help to Meituan.

While exhausting the demographic dividend and weathering a tough climate, Meituan Dianping is riding a slowing train. How to gather traffic and discover a new growth trajectory is the big question for Wang Xing and Wang Huiwen’s successors. Having launched an ambitious plan for the next ten years of the company, we wait expectantly to see what fruits will be borne.

Full text: the email announcing Wang Haiwen’s retirement:

Dear Colleagues,

We are about to celebrate the tenth birthday of Meituan. More importantly, we will usher in a new decade for the company. People are the most important asset of Meituan. In the next ten years, we must continue to fulfill the mission of “helping everyone eat and live well,” and grow our management team. To this end, the company has decided to launch a “Leadership Training Program” to promote talent inventory, rotation, and succession planning, to provide organizational and institutional guarantees for talent training, and to create more opportunities for everyone and good conditions for company growth. 

After careful consideration, the company has decided to add Vice President Guo Qing and Vice President Li Shubin to the S-team. In the future, we will continue to strengthen the S-team to satisfy long-term development needs. 

At the same time, co-founder, S-team member, and senior vice president Wang Huiwen (Old Wang) will withdraw from specific management affairs in December this year and start a new chapter in life. This year, Wang will continue to make every effort to promote the company’s business development, improve organizational capabilities, and will devote more energy to the cultivation of the talent team. Post 2020, he will continue to serve as a company director, and serve as a lifetime honorary consultant for Meituan, a lecturer at the “Internet+ University,” assist in strategic planning, organizational inheritance and talent development.

Elaine Liu, S-team member and senior vice president, will become a senior consultant for personal and family reasons. Elaine Liu will continue to invest time and energy to help the company’s development, especially the construction of human resources system. 

The more ambitious the team, the longer it takes to make a contribution and pass on the energy. Ten years on, the S-team is driving this change. Thanks to Wang Huiwen and Elaine Liu for their outstanding contributions in the development of the company. I look forward to investing more in the “Leadership Training Program” in the coming period. I look forward to working with Guo Qing and Li Shubin for many years. The S-team will make an ever-greater contribution to the company’s development, and I look forward to seeing more managers growing into future leadership roles!

 To the next ten years!

Wang Xing 2020.1.20

Meituan Senior Vice-President and co-founder Wang Huiwen will retire from management duties at the end of 2020, the food delivery giant said in a staff letter shared with TechNode.

Why it matters: The move highlights the ongoing management adjustments among Chinese tech heavyweights towards younger leaders to keep up with the consumption patterns among youthful generations.

• As one of Meituan’s three co-founders, Wang set up the early structure for marketing and branding strategies and was integral to the planning and launching of food delivery services in 2013. 

“Over the past few years, Wang [Huiwen] and I have talked about his retirement plan, and the company has been preparing for when the day comes. Today, I’m officially announcing his decision to you [the staff]. I understand his reasons but am also reluctant to let him go. Even more so, however, are my gratitude and blessings for him.” (our translation)

—Wang Xing, chief executive of Meituan in the internal letter

Details: Meituan CEO Wang Xing (no relation) said in a letter to staff that the company is launching a new program to foster the next generation of managers, and the shift starts from the company’s senior team referred to as the “S-Team.”

• Wang Huiwen, a senior team member, will retire from his management duties in December but will retain his role as executive director. Meituan named Wang as a lifetime honorary consultant and he will continue his involvement in strategic planning and talent development. 
• Vice-Presidents Guo Qing and Li Shubing will receive promotions to the senior team. Guo joined Meituan in 2014 and is responsible for hotel and ticketing services as well as short-term rentals. Li joined at the end of last year and will take charge of Meituan’s platforms division.
• Elaine Liu, another S-Team member, will leave her position as senior vice president to take on a senior consultant role focused on human resource development.

Context: Meituan made important external hirings in December to boost future growth. Li Shubin, the former CEO of Chinese e-commerce site OkBuy, was named vice president for app Meituan. Other giants in the space are also making adjustments.

• JD has promoted over 6,720 employees born after 1990 in its latest changes. Many will be gradually be selected for management positions, said company founder and CEO Richard Liu in an open letter released today. 
• Tencent announced a series of upheavals to its existing employee ranking system last June to promote younger workers as it courts more youthful users. 
• Alibaba promoted several young executives in the months leading up to Jack Ma’s retirement.

Meituan shares hit historical high after Golden Week surge

With additional reporting from Emma Lee

Chinese food delivery-to-ticketing platform Meituan Dianping increased the registered capital of its cloud computing subsidiary by 8,600% on December 25, according to corporate intelligence information platform Tianyancha.com (in Chinese).

Why it matters: The change underlines Meituan’s push into the cloud computing market. Chinese tech giants previously focused on consumer-facing businesses are moving quickly to enterprise-facing services. Cloud computing is a major component of this.

• Meituan’s push to cloud computing business is reminiscent of Alibaba and Tencent’s shift to enterprise-faced services.
• The lifestyle services unicorn announced in January that it would invest RMB 11 billion (around $1.7 billion) this year to help merchants upgrade their operations and drive the growth of China’s “Delivery Economy,” a term that refers to the country’s on-demand services boom.

Easy digital growth drying up as China market matures

Details: The company’s commercial and business registration change shows that its registered capital increased 8,600% to RMB 870 million from RMB 10 million.

• Meituan founder Wang Xing was replaced by Liu Minjuan as supervisor of the subsidiary.
• Mu Rongjun, Meituan’s co-founder who owns 2.5% of the parent company, remains as executive chairman and manager of the cloud arm.
• Mu Rongjun holds a dominating 95% stake in the subsidiary, while Wang Xing, who holds a minority 5% stake, is the ultimate beneficial owner of the firm.
• A Meituan spokeswoman declined to comment on the change.

Meituan to invest $1.7 billion in push to digitize merchant partners

Context: Founded in June 2015, Meituan’s Beijing-based cloud computing arm is mainly engaged in data processing, technology consulting, infrastructure software services, application software services, software and equipment sales, and telecommunication.

• The Hong Kong-listed parent group recorded a huge turnaround in 2019. It recorded a second quarterly profit with revenues increasing by 44.1% to RMB 27.5 billion from RMB 19.1 billion for the same period of 2018.
• Alibaba rolled out in January the “A100” program. The program is designed to help companies embrace digital transformation as more tech giants are shifting to enterprise-facing services.
• Tencent upgraded its organizational structure to focus on enterprise services and cloud computing last year.

The transaction volume of China’s online food delivery market for 2019 is set to expand at its lowest rate in four years, according a report from mobile intelligence platform Trustdata.

Why it matters: After booming in 2015, China’s food delivery market has experienced rapid growth with the rise of tech giants Meituan and Ele.me. As the market matures, however, growth is gradually slowing.

• The annual expansion rate of around 30% for this year is still healthy but much slower than 55.4% in 2018 and 65.7% in 2017.
• As food delivery continues to grow, calls are increasing for the industry to focus on food safety as well as environmental issues arising from the use of disposable packaging materials.

Food delivery: Drivers take the risks. Platforms reap the rewards.

Details: The sector’s transaction volume is expected to expand 30.8% year on year to hit RMB 603.5 billion ($86.2 billion) in 2019, according to the report.

• The sector’s transaction volume reached RMB 120 billion in Q1, RMB 143 billion in Q2, and RMB 179 billion in Q3 this year.
• The penetration rate of online food delivery services is forecast to reach 14.2% in 2019, up from 10.8% in 2018, according to the report citing research from mobile data intelligence service Trustdata.
• China’s online food delivery users are overwhelmingly young with nearly two-thirds coming from the post-80s and post-90s generations.
• Food still accounts for most online deliveries, followed by desserts and drinks, a segment which rose 88% year on year in Q3.
• Male users tend to order more meals, while female users order across different categories, the report said.

Context: After years of cash-burning to gain market share, China’s online food delivery market has two clear winners.

• Meituan dominates with 65.1% share of the market, and Ele.me has 32.8% share while the others combined account for 2.1%, according to report from research institute Analysys.

Correction: an earlier version of this story cited Meituan as the author of the report, not Trustdata.

With additional reporting from Nicole Jao and Coco Gao. 

Food delivery drivers whizzing around on scooters have become commonplace in the streets and alleys of China’s sprawling cities.

Around half of the country’s internet users, typically located in urban areas, ordered takeout online in the first half of 2019 (in Chinese). As user growth slows, the two main players are focusing on profitability and order growth, while the drivers receive the short end of the stick.

The market is effectively a duopoly—Chinese tech giant Meituan Dianping and Alibaba’s food delivery arm Ele.me have outdone smaller players, and boast a combined six million registered couriers.

Ele.me told TechNode in an email that they have 3 million registered drivers, while Meituan said it employed 2.7 million drivers in a 2018 report.

Meituan advertises the positions using images of happy, proud drivers and slogans emphasizing the potential for high pay. But the ads omit some crucial details to the job—insurance 

In reality, fierce market competition and a lack of labor regulation have birthed algorithms that rule over drivers’ livelihoods and working conditions.

The overwhelming majority of food delivery drivers work under one of two labor regimes. Zhongbao, crowdsourced, delivery workers simply sign up to the platform and pick orders at will. With no contractual obligation to the company, they enjoy a more flexible schedule but receive no work injury insurance or social security. 

The platforms also contract companies around China to act as labor-management intermediaries, which formally employ drivers. These workers adhere to fixed contracts with a single delivery service, and get regular working hours and orders via contractors. 

“Even though they have a labor contract, many of them don’t have social security,” and often face “unpaid wages,” said Aiden Chau, a researcher at Hong Kong-based NGO China Labour Bulletin (CLB). The organization uses media reports and social media posts to maps strikes across different industries and locations in China.  

Low wages, falling further

The most common reasons for strikes are unpaid or diminishing wages, according to CLB’s strike map. The NGO gathers data on strikes and accidents from Chinese social media and local press reports. Many of the posts TechNode reviewed in October have since disappeared from Weibo.

Drivers have little to no legal right to demand higher compensation. After Chinese New Year in 2019, drivers noticed that their wages had fallen, said Chau. 

With lower pay per order, zhongbao drivers have to work longer hours to make ends meet. A driver who requested only to be identified as Liu told TechNode, “The pay is now too low. I can’t stand it anymore.” 

As a free agent, Beijing-based driver Ding works a 12-hour shift every day from 7.00 a.m. to as late as 11.00 p.m. Like many diligent delivery workers in China, Ding works weekends and holidays but considers his workload to be in the mid-range. “There are drivers who work from 5.00 a.m. to 11.00 a.m.,” he said. 

A Chinese University of Hong Kong survey of 45 drivers in 2018 found they worked 12.4 hours on average. 

Drivers have also noted that contractors are sometimes late or miss paying salaries. On Sept. 12, some 24 Ele.me couriers in northern Hebei province protested after they didn’t receive pay between May and August. 

Ding completes 30 to 40 orders per day, earning RMB 11,000 to 13,000 per month, decent by the industry standard. Food couriers earn RMB 7,000 to 8,000 on average per month, TechNode found in an informal street survey. 

Unlike other countries, these gig economy workers make the same or more than their white-collar counterparts, Michael Norris, research and strategy lead at AgencyChina, a Shanghai-based marketing and e-commerce consultancy, told TechNode. In 2017, the average salary in Shanghai and Beijing was around RMB 8,000, according to official data.

But drivers spend much of that money on remittances to support their families back home. The six million-strong food delivery workforce mostly comprises migrant employees from agricultural areas, born in the ‘80s or ‘90s. For many, a job in food delivery is far more attractive than hard labor in the fields and factories. 

Ele.me has started an initiative to provide “strict and regular assessments of our logistics vendors to protect couriers’ rights and a service hotline (10105757) through which couriers can share their feedback to help us better supervise the vendors,” a company spokesperson told TechNode. 

Drivers such as Ding work across multiple platforms, including Meituan, Ele.me, and parcel courier SF Express. But Meituan is trying to change that by locking workers in. The company has started a “loyalty program,” said CLB’s Chau. “If you do not join this loyalty program, your orders will be fluctuating or decreasing,” he continued. 

Meituan Dianping declined TechNode’s request to comment on this article. 

Speed over safety

The two leading platforms often promise deliveries within 30 minutes and pay couriers more for hitting this target. Fulfilling orders late can incur a penalty for drivers and they may receive fewer orders over time. 

Drivers have complained that the algorithm for calculating distances has changed, giving them impossibly short windows to make deliveries, Chau said. Ele.me’s use of as-the-crow-flies distancing to work out times spurred zhongbao workers to strike on July 9, a Weibo user said.

Short on time, drivers often break traffic rules. They ride the sidewalks, drive the wrong direction down streets, and run red lights. 

Tough deadlines and lower wages push China’s delivery drivers to take risks

“You know how the way delivery men ride their scooters like they had no care for their lives,” an Ele.me driver said. “It’s not like we don’t care about our own safety. We have to make a living, so we have to rush to get the meal delivered.”

Shanghai police reported a spike in road accidents in the first half of 2019, and food delivery workers were involved in more than 80% of them.

Ding doesn’t take days off, even in adverse weather conditions. “We have to work and earn a living. I work every day, even in snow and in heavy rain,” he said. 

During an August typhoon, a Shanghai driver died of electrocution (in Chinese) when driving through rainwater. Ele.me drivers said the platform threatened them with penalties if they didn’t work during the extreme weather event for an additional RMB 0.80 per order. 

Ding has been involved in just one car accident during his four years as a courier. He collided with an inattentive driver’s car door. Ding ended up in the hospital though he said it was minor. Fortunately, the driver at fault covered the damage and medical bills for Ding.

Not all drivers are so lucky. Because of the lack of formal contracts, they are “seen as providing services to the company, so when they have an accident, it is not seen as a work injury,” Chau said. Their injuries are not covered by work insurance, and they have to pay for treatment themselves, he added.

Ele.me has set up an initiative to provide insurance to all registered drivers, a spokesperson told TechNode. The plan “covers the main risks the couriers may face in their daily work, along with low-interest loans and other benefits,” he said.

Striking back

Drivers are fighting back with industrial action and protests. Their chief complaints, according to Weibo posts, are wage cuts, unpaid wages, and changes in the algorithms that administrate their work (all in Chinese).

The number of such strikes hit 56 in 2018, up from 10 in 2016 and 2017 combined, states CLB data. So far this year, CLB has reported 45 strikes across the country, and food delivery drivers made up 12% of all industrial action during July.

The strikes usually involve less than 100 food delivery drivers, though some involve larger numbers.

“Maybe not all protests are effective, but they definitely learn something, how to organize, how to deal with the government,” said CLB’s Chau. Often, drivers protest by staking out local company offices, waiting for management to hear them out.

“In the past, the customer service will tell them that it’s just the computer calculations,” Chau said. “When they talk to management, management will say that this is the policy of the company. They will know that it is not some neutral maths, but a decision made by management affecting their lives,” he continued.

Drivers sometimes go to great lengths to convince peers to participate. Chau said there had been cases of strikers slashing others’ tires to prevent them from working.

The workforce is also joining forces in more agreeable ways. Drivers set up a network in Shanghai’s Putuo district in February 2017 to connect five delivery driver trade unions from across the country. Local media reported at the time that there were 400 unionists nationally—a fraction of the total labor force. 

In China, only the National Federation of Trade Unions is recognized as legal. All trade unions are required to be affiliated with the national-level body. 

The union aims to protect workers’ rights and provide tangible services. “When we encounter grievances, face difficulties, and seek help, the trade union is our strong supporter,” said Yi Wu, a unionist driver, in January 2018. The Putuo union organizes welfare activities, including traffic education seminars, according to local media reports. 

“Because drivers are employed as independent contractors, they think it is very difficult to change the algorithm,” Chau said. 

But unionizing has done little in the way of protecting labor rights against China’s food delivery giants. They are just “paper unions,” Chau said, meaning that they haven’t achieved any reparations or policy changes for the drivers’ grievances.

Shares of Meituan Dianping, the Chinese food delivery and lifestyle platform, surged more than 8% on Friday after the company posted a second consecutive quarterly profit on Thursday.

Why it matters: The profits further boosted market confidence in the Chinese super app, which has unseated Baidu as the third-largest publicly held Chinese internet company after Alibaba and Tencent.

“With our ‘Food + Platform’ strategy, we will continue to leverage our insights on the consumers and merchants to further boost innovation and improve efficiency. As always, we will keep investing in our long-term growth and focusing on business opportunities that will generate value for both consumers and merchants in the long run.”

–Xing Wang, Meituan chairman and CEO, in a statement

Details: The company’s total revenues increased 44.1% year over year to RMB 27.5 billion (around $3.91 billion) in Q3 this year from RMB 19.1 billion for the same period of 2018. Revenues increased across all business segments, according to the company.

• Revenue from food delivery, which accounts for 56.7% of the total, increased 39.4% to RMB 15.6 billion in Q3 from RMB 11.2 billion for the same period in 2018, primarily driven by higher average purchase frequency and increase in average value per order.
• The company reported RMB 1.33 billion in profit during the period against analyst estimates of RMB 502 million in losses, according to data cited by Bloomberg.
• Selling and marketing expenses as a percentage of total revenues decreased to 20.4% from 24.2% for the same period of 2018, and increased from 18.3% for Q2 2019.
• Revenue contribution from newer businesses such as bike rental and on-demand grocery delivery service Meituan Instashopping increased to 20.8% in Q3 from 18.1% in the same period a year ago.

Context: Meituan went public on the Hong Kong stock exchange in September 2018, raising $4.2 billion.

• The company’s market cap hit a historical high in October of HK$500 billion ($71 billion), boosted by consumption demands during the seven-day national holiday.

Meituan shares hit historical high after Golden Week surge

China’s food delivery and lifestyle service giant Meituan has introduced mini programs, allowing users to access various services without leaving the app, Chinese media reported Tuesday.

Why it matters: Meituan’s adoption of mini programs, lightweight applications with a diverse range of functions accessible from within its app, is relatively late in the game. However, mini-programs and similar applications are a key, must-have feature for mainstream apps.

• Native mini-programs will help Meituan keep its 422 million users and 5.9 million merchants on its platform rather than navigating to other apps, such as WeChat, for certain tasks.
• First pioneered by WeChat in 2017, mini-programs have been adopted by leading Chinese super apps, including Tencent’s QQ, Baidu, Alibaba’s Alipay, and Taobao, as well as Bytedance’s Jinri Toutiao and Douyin.
• WeChat mini-programs have become a major source of traffic for many services in China with more than 2.3 million apps servicing upwards of 681 million active users in April this year, QuestMobile data showed.

Details: Meituan is piloting its mini-program feature with popular service categories, including tools like weather service Moji Weather and games.

• Meituan has placed its mini-programs in a less obvious place in the app, differing from WeChat, which features them prominently.
• Meituan mini-programs can be shared externally only to WeChat at present.
• With only a few mini-programs launched, functionality is relatively limited.

Context: Tech companies are attaching more strategic importance to mini-programs as the features become popular among users.

• Ant Financial fully integrated Alipay’s mini-program feature with microblogging platform Sina Weibo in September.
• The number of WeChat mini-programs with more than 1 million active users doubled annually to 883 in the first half of this year, according to a report from QuestMobile.
• The country’s more than 800 million netizens and the move toward digitalization are fueling the rise of mini-programs.

Shares in Meituan continued to rise during China’s national holiday last week, consolidating the Tencent-backed lifestyle service platform’s position as the country’s third-largest internet firm.

The company’s market cap hit a historical high of HK$ 516 billion ($72 billion) on Monday with shares trading at HK$ 89 apiece, up from HK$80 per share on September 30. Meituan’s share price has more than doubled this year after trading at a little above HK$ 40 in January.

The personal wealth of Meituan’s billionaire founder and chairman Wang Xing also jumped to a high of more than HK$ 58 billion. He owns around 11% of the company.

Meituan shares remained in the doldrums during the first few months after a $4.2 billion initial public offering in September last year. The firm went public at HK$69 a share and spent most of the following months below that level due to market concerns over intense competition in its core food delivery unit, along with profitability issues and cash-fueled expansion efforts in different businesses such as ride-hailing and bike rental.

Market sentiment has gradually shifted over the past few months. The Hong Kong-listed firm overtook search giant Baidu and e-commerce platform JD in terms of market cap to become the third-largest publicly traded Chinese tech firm in May. Meituan is still behind Alibaba and Tencent, which remain in a different league, with market caps each above $400 billion.

Meituan, together with Bytedance’s news app Toutiao and ride-hailing service Didi Chuxing make up a new group known by the acronym TMD. They are seen as the new generation of tech contenders to challenge China’s BAT, short for Baidu, Alibaba, and Tencent. Toutiao and Didi are still private companies.

Maintaining scale over profit

There are multiple reasons for the change in investor sentiment. Firstly, Meituan is gaining market confidence after it posted its first profit of RMB 875.8 million in the second quarter.

Although the company claims the profit is seasonal and emphasized that it will continue to prioritize scale for its highly subsidized food delivery business, Meituan showed investors its potential to make money.

“They are probably not going to push too much further here and going to just operate around the breakeven line for a long time to come so that they can keep growing and expanding their boundaries, while keeping investors not-so-concerned,” private investor ZQ Ong told TechNode. “This is important since Meituan needs capital to grow and keeping investors happy means a higher stock price and thus a lower cost of capital,” Ong added. 

Meanwhile, market analysts believe that changing competition dynamics between Meituan and its rivals in food delivery as well as in the online travel sector are key drivers of Meituan’s holiday share rise.

“What I think has driven the most recent share spike was Alibaba’s Investor Day (held on September 24th),” said Michael Norris, research and strategy manager at marketing and sales firm AgencyChina.  “One of the presentations showed the Ele.me and Koubei tie-up perhaps wasn’t as strong as the investors suspected. Improvements to order volume, take rate, and cost efficiency were soft.”

“This, in turn, highlights how strong Meituan is in the food delivery space,” he added.

Overtaking Ctrip

Meituan’s travel business, an important revenue driver, is also gaining momentum. The company has supplanted Ctrip to become the largest platform for hotel reservations in terms of nights booked and this has “dented” Ctrip’s position and its stock price, Norris pointed out. A stronger hold on hotel bookings, a very high margin business, is excellent news for Meituan and its shareholders, according to Norris.

Baidu announced in late September plans to offload around one-third of its stake in Ctrip, equivalent to about $1 billion, as the company as it looks to tap new revenue streams.

China’s “Golden Week” break, which spans from National Day on October 1 to October 7, is another driver of Meituan’s share rise. China’s holiday consumer spending mainly goes into tourism, entertainment, and food, which are Meituan’s core service areas. Overall revenue from retail and dining during the period hit RMB 1.52 trillion this year. During the period, Meituan took bookings equivalent to more than three million one-night stays in domestic hotels on October 1 and sold 3.6 million tickets to tourist attractions on October 3, company data showed.

All segments performed strongly for Meituan, with the volume of food delivery orders rise 43% year on year. Orders on Meituan Instashopping, an on-demand grocery delivery service, grew by close to two-thirds on the year, and its hotel bookings reached a historical high. “From a fund flow perspective, investors are investing in domestic consumption names and avoiding names exposed to trade tensions and political uncertainties,” said Esme Pau, an analyst from Tonghai Securities.

Pau believes Meituan will likely continue to consolidate its leading market share and improve its financial results. “On the back of its turnaround in Q2 2019, the market is expecting Meituan to be a success story in achieving breakeven after listing, ramp-up of a sticky local services ecosystem, successful execution of its new initiatives and sensible capital allocation for its product and service portfolio,” she noted.

Of course, Meituan is not the only online platform that benefits from the Golden Week economy. Recorded holiday traffic was reported on online travel platforms like Ctrip and Alibaba’s Fliggy, as well as Airbnb-style platforms such as Tujia, Xiaozhu, and mobile payment tools like Alipay and WeChat. These services are increasingly driven by the country’s younger generations. China’s post-80s and post-90s generations represented a combined 87% of Meituan consumers during the holiday, according to the company.

Chinese online-to-offline mega app Meituan Dianping is reviving its power bank rental business two years after discontinuing a pilot launch in 2017, according to a report by Chinese media LatePost.

Why it matters: The potential business expansion signals a shift in strategy for Meituan. The company had pledged a more conservative approach to new businesses at the beginning of the year due to financial pressures.

• Power bank rentals first boomed in 2017 and was expected to be the next rental economy super sector after bike rentals. While the hype surrounding bike rentals quickly faded, rental power banks—now a common sight in restaurants and bars—have managed to survive market fluctuations.
• He Shun, chief operating officer of power bank rental firm Ankerbox, told Chinese media in March that all the major players in the sector are booking profits.
• Meituan will challenge market leaders Ankerbox and Xiaodian. However, the food delivery and restaurant recommendation app is thought to stand a good chance at solid market penetration.

Details: Meituan first trialed the power bank rental market in August 2017 by placing a few devices for testing in Qingdao and Shijiazhuang, but it soon called off the project due to “unsatisfactory” testing results, the LatePost report said.

• Power bank rentals were a lower priority for the company, which was juggling multiple other projects at the time.

Context: China’s power bank rental users numbered 196 million in 2018 and is expected to exceed 300 million in 2019, according to data from research institute iiMedia Research.

• Shenzhen-based Ankerbox amassed 107 million users, representing 40.5% of the market share in the first half of this year. Xiaodian and Energy Monster took the second and third place with 23.6% and 20.9% market share in the industry, according to the iiMedia report.
• The rental power bank sector will be worth RMB 330 million in 2020, according to an estimate from research firm Qianzhan Industry Research Institute.
• Meituan Dianping swung into the black during the second quarter, recording RMB 875.8 million ($123.7 million) in profits boosted by the summer high season for food delivery.

Online retailer JD.Com ranked highest among tech firms at 17th in the latest edition of Fortune’s top 500 Chinese companies released on Wednesday. Alibaba Group came in at 24th and Tencent at 33rd. Baidu was way off the pace in 92nd. The list compares financial performance of listed companies in the country.

Why it matters: The ranking demonstrates how far JD.Com has come and how Baidu has failed to keep up with its peers. Baidu was one of three leading companies in China’s dot-com era along with Alibaba and Tencent, known collectively as BAT. The company reported a quarterly net loss this year for the first time since listing in 2005.

• Revenue at JD.Com rose over one quarter last year to hit RMB 462 billion ($67.2 billion), while that of Baidu was RMB 101 billion.

“Influenced by the economic cycle, traditional property and financial industry performed weakly in the past year. New economic sector including electronics, internet services and computer-related industries keep a high-speed growth.”
— Fortune announcement

Details: Although state-owned firms continue to dominate the list, some 37 companies from electronics, internet services and computing are also included.

• JD.Com rose one place to 17th while Alibaba and Tencent improved nine and six places respectively to 24th and 33rd. JD failed to make a profit, losing RMB 2.5 billion.
• Online retailer Suning, Xiaomi and electronics giant TCL all outperformed Baidu last year, while Meituan lost the most money among the entrants.
• Aside from commercial banks, insurers, and China mobile, Tencent and Alibaba were also among the 10 most profitable companies.
• The edition marks the first time on the list for Meituan, which posted a RMB 115.5 billion net loss.
• Bytedance and Huawei are not on the list as they are yet to go public
  

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“From a pile of dead men, he pushed himself forward,” said an anonymous investor.

Serial entrepreneur Wang Xing had over a dozen failed projects under his belt before striking it rich by founding Meituan. In a longform profile, author He Jiayan details Wang Xing’s failures in first imitating Twitter, then Facebook, and then finally finding success adapting the Groupon model to China. He is also known for picking fights with half of China’s internet companies. It remains to be seen just how far his ambition can take him. What follows is an extended paraphrase of the piece.

Meituan’s Wang Xing at 40, Without Doubts

He Jiayan, The House of Startups (Chuanye Jia), May 25, 2019

Wang Xing’s family suffered greatly after the PRC took power. His grandfather was driven to suicide during the Cultural Revolution, and his father spent years forced to work in the countryside and unable to attend college on account of his family background. After China’s reform and opening-up, however, his dad made a fortune in construction.

Admitted to China’s prestigious Tsinghua University in 1997, Wang left an impression. For instance, during hot pot with classmates one night, the upperclassmen gave all the freshmen an opportunity to ask a question all the seniors would have to answer. They expected Wang to ask about secret crushes, but instead he said, “What do you think is the meaning of life?”

Wang Xing headed to the University of Delaware for his PhD, but got bored when his advisor went on sabbatical. After fumbling around with clones of Google Maps and Evite, he stumbled on success with a pixel-for-pixel Facebook copy called Xiaonei. But he suffered from a lack of investment—he lost his one-page business plan on the way to his meeting with Sequoia China, and tried to hand-write a proposal on the cab ride over—and was eventually forced to sell to a competitor for a paltry $2 million.

Wang Xing’s next idea was yet another “Copy to China” endeavor. In April 2008, he launched a Twitter clone and quickly amassed over a million users. Out of the blue, the government blocked his site for nearly two years.

He writes, “The concrete reason for the ban is hard to pinpoint. But the root cause lies in the fact that during the site’s development, Wang Xing failed to realize that at a certain size, it takes on the attributes of media. Improper handling of certain information caused the site’s doom.”

Most of the employees from that time stuck around through the dark days of censorship purgatory. One of the few who did not was Zhang Yiming, who would go on to found Bytedance.

For his next move, Wang Xing drew yet again from American startups for inspiration. Meituan was one of over five thousand Groupon clones he launched it around 2011. So how did Wang pull ahead of the pack?

He decided to only launch one product a day, ensuring that the merchants really felt the benefits of working with him. Also, Meituan was the first to guarantee automatic refunds for customers whose purchases expired before they used them. Lastly, Wang also saved money on advertising, reckoning that other firms’ ad spend at the time would help educate the customer but not necessarily lead to loyalty. Winning the trust of major investors, he was able to raise a huge round, brag about it on social media, and in doing so scare off competitors—and spread the word about Meituan’s refund guarantee.

Starting in 2013, Meituan took on Baidu and Ele.me (now aligned with Alibaba) on food delivery, investing a cool RMB 1 billion (about $145 million) in an operation to “storm a beachhead.” Meituan has since grown to control over 60% of the market.

Since 2015, after Meituan’s merger with Dazhong Dianping (closest Western analogy: Yelp), Meituan has been engaged in “borderless competition.” It has picked fights with Ctrip on travel, adopting the Maoist strategy of “encircling the cities from the rural areas” by starting in lower-tier cities. By last year, Meituan had started to book more hotel rooms per night than the former industry leader.

Wang Xing met future Didi CEO Cheng Wei back in 2011, just as he was getting his firm up and running. For years, they maintained a friendship—Wang even gave him some tips on his app. In 2017, they had dinner together; later that night, Wang Xing launched his own ride-hailing service pilot in Nanjing. “That night, Cheng Wei certainly understood how Xi Jinping felt when during the day he was laughing with Trump at his private estate, but at night Trump was mulling over sanctions.” As Didi invested in bike ride-sharing startups Ofo and “Little Blue Bike,” Meituan bought out rival Mobike. Just this month, Meituan launched an API to bring all of Didi’s smaller competitors onto one platform.

He summarizes:

Wang Xing’s path as a founder is at once filled with thorns and flowers. His strengths are inseparable from his weaknesses. He has low EQ, he often offends, and he doesn’t have any partner to make up for this deficiency.

When he made a social network, the product was solid, but he couldn’t find an investor and was forced to sell.

Because he accepted Tencent’s investment, he and Jack Ma have had a falling out. In contrast, Cheng Wei was able to make it work and have both Tencent and Alibaba on his board of directors. 

In public, Wang Xing has called out Jack Ma at least three times. First he said that Alibaba would stoop to any low, that Jack was a liar, and that Taobao started out by selling fake and shoddy products.

He despises people who don’t do the hard work of thinking through strategy. He once said, “Most people are willing to do anything in order to avoid having to really think.”

He believes Meituan has three main weaknesses. First, having made so many enemies, Wang Xing may grow distracted from his core customers and get consumed with border fights. Second, Meituan has yet to really bring innovation to the market. Finally, although out-executing others has served Meituan well so far, it remains to be seen how this conservative strategy will fare during a period of dramatic technological change.

Meituan, the Tencent-backed food delivery and lifestyle services platform, is testing a fully automated warehouse for order fulfillment service, it said on Monday.

The initiative will help the company optimize delivery times as retailers push forward into smart warehousing, an area of technological development poised for growth in the world’s second-largest economy. Backed by big data, the system optimizes inventory according to consumer preference in a certain region, prioritizes order packing, and assigns tasks to deliverymen.

A company spokesman told TechNode that Meituan is planning to connect the unmanned warehouse with autonomous delivery vehicles which will send the parcels directly to the users for a fully automated system, but the technologies had not yet reached maturity.

Meituan joined China’s grocery delivery vertical with Meituan Maicai in March. Its foray into intelligent warehousing further intensifies competition with e-commerce giants Alibaba and JD.com to control the logistics sector.  Both of Alibaba and JD have already launched their smart warehouse solutions which feature autonomous guided vehicles (AGV) and various internet of things (IoT) technologies.

The company plans to roll out the service to sellers on Meituan Instashopping, an on-demand grocery delivery service that promises 30-minute delivery. A company spokesman said that the project will be tested in Meituan’s headquarters “very soon” but declined to offer further details about when it will be open for merchants. No price or cost of the services was disclosed.

The initiative is being tested in a simulated environment. The test space is 40 square meters which accommodates 400 product categories with up to 10 items in each, the spokesman told TechNode. The warehouse can handle around 150 orders at peak.

For Meituan’s Instashopping, automatic arms will pick up items from inventory shelves after receiving the orders, and then hand the commodities to AGVs for automatic packing. The automated picking and packing process, which can run 24 hours a day, is seven times more efficient compared with the traditional process that uses manpower, according to the company. Unmanned operations also means that space is used four times more efficiently thanks to higher shelves which can be positioned more closely together.

China’s booming e-commerce industry has spawned lightening-fast express deliveries and, consequently, customers with high expectations. Many Chinese online consumers dislike deliveries that take longer than overnight, even if it involves crossing the country.

As Chinese tech giants expand into groceries, consumers expect speedy deliveries for categories such as fresh produce, which can arrive in a matter of minutes. One user in southern China’s Foshan City received his package 13 minutes after placing the order.

Meituan’s investment in the smart warehouse project will mainly focus on research and development, and the company says it will consider cooperating with the traditional retailers in the future.

E-commerce companies are ramping up efforts to automate the supply chain and logistics sector. Meituan rolled out an autonomous delivery platform for its core food delivery service in 2018.

Alibaba’s Cainiao Logistics showcased its first Cainiao Future Park, featuring a warehouse system designed for a large number of robots to work collaboratively, and sensors automate water, electricity, temperature, and humidity monitoring.

JD built last year a new Shanghai fulfillment center that can organize, pack, and ship 200,000 orders a day with only four employees to assist robots.

Meituan says that its autonomous warehouse solution differs from those of competitors like JD, where orders are picked and processed by a human, while Meituan’s service is fully automated from picking up to packing, according to the company.

王兴欲向理想汽车投资3亿美元 – LatePost

What happened: Meituan’s billionaire co-founder and CEO Wang Xing is planning to invest $300 million in Chinese electric vehicle (EV) maker Chehejia, also known as CHJ. The company is known for its smart electric car brand Leading Ideal. Wang will lead Chehejia’s more than $500 million round which values the company at nearly $2.9 billion. Company founder Li Xiang will contribute around $100 million and existing investors including Matrix Partners, Shougang Fund, and Bluerun Ventures will also participate in the round. A Meituan spokesman declined to comment when contacted by TechNode on Monday.

Why it’s important: News of a potential entry by mega-app Meituan into another hot and capital-fueled industry was a popular topic on Monday, first reported by respected former Caixin reporter Song Wei on her self-published news account on WeChat. Founded in July 2015 as one of the many startups joining China’s EV boom, Chehejia has received lots of industry attention thanks to its legendary founder Li Xiang, a seasoned entrepreneur who has two successful startups, Pcpop.com, and US-listed auto site Autohome.com. Li also co-founded NextEV, the electric car maker looking to take on Tesla. China’s electric car makers are now facing a critical maturity period with more pressure to mass produce and a reduction in government subsidies.

即时配送市场新变革来临 饿了么蜂鸟即配全面开放 – Xinhua.net

What happened: Alibaba-backed Ele.me is opening up its short-distance logistics capabilities to more customers and industries. The company rebranded its Fengniao Delivery logistics arm to Fengniao Logistics and added a number of new service offerings, including inter-city express deliveries for groceries, flowers, and medication. More than 20,000 digital “instant delivery” warehousing and delivery centers will be established across the country in three years, according to Wang Lei, president of the life services platform. It will also establish an intelligent delivery system using artificial intelligence and big data technologies, he added.

Why it’s important: Ele.me’s delivery network expansion followed shortly after its major rival Meituan extended its logistics service beyond its core food delivery sector in May. Mounting salary costs for delivery fleets imposed a huge financial burden for the restaurant delivery giants which are entangled in an escalating rivalry. Diversifying businesses adds a revenue stream and makes better use of delivery driver downtime. In a similar move to improve the efficiency of its logistics capabilities, Chinese online retailer JD.com also widened its logistics services to more customers and industries in April.

A more “disciplined” Chinese food delivery and services platform Meituan is seeing the effects of its belt-tightening pay off as shown in its first quarter earnings results released Thursday.

Meituan’s adjusted net loss narrowed to RMB 1.04 billion (around $150.5 million) in Q1 compared with RMB 1.86 billion in the quarter ended December 31, 2018.

Improvement in the operating margin of core businesses and ongoing efforts to streamline new initiative operations were primary drivers for the smaller loss, the company said.

The company’s Q1 revenue surged 70.1% year over year to RMB 19.2 billion from RMB 11.3 billion the same period a year earlier, benefiting from strong revenue growth in major business segments like food delivery and hotel and travel services.

In an aggressive expansion initiative, Meituan entered multiple crowded industries like new retail, ride-hailing, and bike rentals last year. But new businesses weighted on profits, most notably the Mobike acquisition which contributed RMB 4.6 billion in losses for 2018 from the April transaction. The surging operating losses, which surged around six-fold in Q4 last year, sparked investor concern.

The company stated that bike rental Mobike weighed on its Q1 profit margin without disclosing specific financials. Research from equity firm China Tonghai Securities predicted that Mobike will continue to be a drag on overall profitability until 2021.

Meituan said following the release of its full year 2018 earnings that its significant investment in new initiatives in 2018 tempered its growth, and it promised that it would exercise more prudence in business strategy for businesses such as new retail and non-food delivery in 2019.

In a series of moves to wind down its expansion to non-core services, Meituan closed its Ella supermarkets, a rival to Alibaba’s new retail store Hema, in lower-tier cities, downsized Mobike’s overseas operations, and cut back subsidies for its ride-hailing business.

Meituan’s food delivery service comprises 64.6% of China’s online food delivery market, while Alibaba’s Ele.me and Star.Ele, formerly Baidu Waimai which Ele.me acquired in 2017, has 25.5% and 8.4% respective share in Q1 this year, according to data from research institute Data Center of China Internet.

Lifestyle services super app Meituan has expanded its aggregated ride-hailing services to an additional 15 cities around China, intensifying competition in the sector and taking direct aim at Didi.

The company initially launched the service, which allows users to access vehicles from several ride-hailing platforms within Meituan’s app, in Nanjing and Shanghai in late April. Users are given the choice of hailing rides using Shouqi Limousine & Chauffeur, Caocao Chuxing, and Shenzhou, as well as its own Meituan Dache. Market leader Didi has not been included in the service.

Meituan has now expanded the scope of the platform to an additional 15 cities, including the eastern cities of Suzhou, Hangzhou, and Ningbo, as well as Xi’an, Chengdu, Wuhan, and Shenzhen.

Meituan isn’t the first platform that allows users to book trips from multiple ride-hailing companies. The firm joins Chinese map apps Autonavi and Baidu Map in offering the service.

Meituan is taking a more cautious approach to improving its customer experience amid increased regulation of the ride-hailing sector and a 57% increase in its operating losses in the fourth quarter of 2018. Aggregating rides allows the company to offer additional functionality without a significant increase in costs.

Teaming up with the likes of Shouqi and Shenzhou also allows Meituan to take on Didi, which currently commands the ride-hailing market in China. Didi has seen increased scrutiny over the past year following two high profile murders of passengers by their drivers using the company’s carpooling service Hitch.

Since then, several smaller players have set up shop, hoping to take a share of the market. Most recently, electric vehicle (EV) maker Xpeng, also known as Xiaopeng, began operating a ride-hailing pilot in the southern Chinese city of Guangzhou. Unlike other companies, the EV manufacturer will employ all of its drivers.

Several automakers are looking to offer similar services. In December Mercedes Benz and Volkswagen partnered on a high-end ride-hailing service in Shanghai, while Daimler and Geely set up a joint venture in the eastern Chinese city of Hangzhou last week, focusing on ride-hailing and car rental services. Tech giants Tencent and Alibaba also seek to gain a share of the market, setting up a RMB 10 billion (around $1.5 billion) mobility venture with state-owned automaker Changan in Nanjing.

Following controversial comments by the CEO of Meituan about Alibaba founder Jack Ma for “an integrity problem,” the two Chinese internet giants are engaging once again in a public spat, with Alibaba leaders accusing the Meituan executive of defamation.

Meituan CEO Wang Xing told Bloomberg in an interview released Thursday that he still thinks Ma “has an integrity problem,” referring to the spinoff of Alibaba financial payment subsidiary Alipay without board approval in 2011. With that move, Wang added, Ma inflicted lasting damage to the global reputation of China’s business leaders.

Wang was referring to Ma’s separation of the Alipay unit from Alibaba Group in June 2011, which was then transferred to a Chinese company in his control. This immediately prompted fury from major shareholders including Yahoo and Softbank, who complained they were blindsided by the transfer.

The Chinese e-commerce giant, technically a foreign-invested entity, later responded by saying it was necessary to restructure Alipay as a domestic Chinese company, and therefore to be eligible for the payment license application required by the central government. At the time, Chinese regulators required that any payment company without a license had to cease operation by September 2011, WSJ cited Alibaba as saying.

“They tried to lie about that. They even tried to say the Chinese government forced them to do that. That was wrong,” Wang said in the Bloomberg interview. “I think the impact of that incident is still underestimated.”

“Petty and potentially libelous comments from a disgruntled rival neither hurts Alibaba nor alleviates the competition its rival faces,” Wang Shuai, Alibaba’s head of PR said Thursday on microblogging platform Weibo in response to Wang’s remarks.

Meituan has battled Alibaba in its core food delivery business for years, following a short-lived friendship when the Hong Kong-listed life services platform received $50 million in a Series B led by Alibaba and Sequoia in July 2011.  However, Wang has retained control over the company and refused Alibaba’s attempts at acquisition. Alibaba later backed Shanghai-based Ele.me in 2015, after which Meituan received $4 billion in a fundraising round led by Tencent in October 2017.

“Without approval from two major shareholders, Ma transferred Alibaba’s core asset to a company with his own name at a very low price,” Hu Shuli, founder of China’s top business magazine Caixin, said in June 2011 (our translation). “Ma undermined the spirit of a contract, which is the cornerstone of a market economy.”

For the past six years, the lives of Chi Hongwei and her husband have revolved around their 30-square-meter franchise restaurant that sells wontons, a type of traditional soup dumpling.

Located in Songjiang University Town, a suburban district of Shanghai that is home to tens of thousands of university students, they know their business model works: feeding hungry tech-savvy students, who usually use food-takeout apps to order the meals delivered to their dorms. In peak months such as December, the small restaurant is filled with the nonstop sound of notification messages emanating from the cash register, reminding Chi and her husband of incoming orders.

“Sometimes it turns out to be a little too overwhelming for us to handle,” Chi recalls, adding that the restaurant could receive as many as 500 orders in a single day.

The past five years could be considered a golden age for many such small restaurants. Many managed to amass a small fortune by piggybacking on the enormous popularity of the food-delivery apps. Not only did these digital platforms offer a new and more efficient channel to market meals, but their operators were also willing to provide them bonuses in the form of promotional subsidies.

Now it seems those days may be numbered. As Tencent-backed Meituan and Alibaba-backed Ele.me have snatched up most of the market, the idea of partnering with online delivery platforms is not as attractive as it used to be. Some small restaurant owners are turning their backs on food-delivery apps, creating their own WeChat mini-programs to take orders or reverting to distributing paper menus to gain customers.

By abandoning online channels, they can shift their focus back to higher-yield in-store guests, they say.

When Chi and her husband opened a small sushi restaurant in September, just 50 meters away from their wonton shop, they decided not to list it on Meituan or Ele.me. That decision appears to have paid off. “So far, the offline traffic is not bad,” says Chi.

Power shift

In the past, China’s food-delivery market involved several players, but it has since undergone major consolidation. It’s now effectively a duopoly made up of Meituan and Ele.me—combined, the two hold 90% of the market share, according to a report from China Tonghai Securities citing data from research firm Analysys. Meituan led the sector with a market share of around 60%, followed by Ele.me, which had around 35%, according to the report.

With the rise of smartphone penetration in China, ordering food online became popular in the early 2010s as a string of startup platforms like Ele.me, Dianwoba, and Waimai Chaoren raced into the emerging sector. Access to almost unlimited capital played a big role in helping those firms to gain early supremacy in the food-delivery market. Hefty subsidies were distributed to entice both merchants and consumers.

Early on, the merchants had leverage. To gain an edge on their competitors, food-delivery apps spent freely to enlist more restaurants, which was a crucial baseline for luring more customers. Merchants enjoyed the freedom to choose among platforms, opting for whichever service offered the most preferential policies or largest subsidies. Moreover, shops that were reluctant to adopt new technologies did not feel they were losing out because app usage rates were low.

That’s no longer the case. Usage rates are through the roof and nearly everyone in the food and beverage industry now offers a delivery option.

The dynamics between platforms and merchants took a gradual turn as market consolidation allowed the tech giants to dominate the booming sector. As subsidy-powered competition weeded out smaller competitors, the battle soon became a proxy war between Baidu, Alibaba, and Tencent.

Between 2015 to 2017, Alibaba-backed Ele.me, Tencent-backed Meituan and Baidu Waimai emerged as the largest players in the sector. The three-way battle ended when Baidu walked away from food delivery to focus on artificial intelligence. Ele.me acquired Baidu Waimai in 2017.

In 2018, a series of events solidified the dominance of Meituan and Ele.me. Alibaba took over Ele.me and merged it with the company’s local services unit Koubei in October. Tencent-backed Meituan raised $4.2 billion in its Hong Kong IPO last September.

With the landscape settling into a duopoly, the food-delivery platforms became the rule-setters, leaving merchants in a weaker bargaining position.

At the same time, the proliferation of subsidies worked to cement new food-ordering practices among consumers, offering discounts to reward them for ordering via apps.

The effect on China’s dining scene has been profound, especially on smaller venues. Restaurants now rely so heavily on takeout orders that many have effectively pivoted from sit-in dining rooms to delivery-only kitchens, or restaurants with little or no seating. Sometimes waitstaff run around filling large orders for delivery, paying scant attention to or even ignoring on-site guests.

“Food delivery is a ‘winner takes most’ market, which is why these companies invest so much in subsidies to buy market share,” said Lucas Englehardt, founder and CEO of the now-defunct food-delivery platform Waimai Chaoren. “Being the dominant player allows them to charge restaurants more, with fees that get passed along to customers.”

Such an arrangement isn’t healthy for the market, says Shanghai-based Englehardt, who is now CEO of Xixilab, a teeth whitening and aligning kits developer. He expects the trend to continue, now that the two leading platforms have gone public. “I don’t see the battle finishing anytime soon, as both have money to spend and different strengths to leverage,” he told TechNode in a recent interview.

Englehardt said that in other countries, it’s less common for companies to rely on subsidies to push out smaller players. But because neither Ele.me nor Meituan is profitable yet and neither player fully dominates the market, the government won’t limit their aggressive behavior, he added.

Commission hikes hit merchants

Chi, the wonton shop owner, said that as recently as 2018, merchants could still find a way to collaborate profitably with the food-delivery platforms. However, the last straw came this January when Meituan and Ele.me hiked the fees they charge restaurants by three percentage points, pushing commission rates to more than 20% in some cases. This means that for every RMB 100 ($15) that a restaurant brings in per order, they may pay up to RMB 20 in commission to the platforms.

For owners of small restaurants in Shanghai, commission rates in mid-February have risen from 16% to 18%—and that applies to vendors who are willing to list their restaurant exclusively on one delivery platform. If they opt to be listed on multiple platforms, it’s common practice for them to be charged higher commissions, usually around 20%.

An Ele.me spokesperson denied that the company is raising commissions, although she acknowledged that the commissions for some restaurants in Songjiang University Town might rise when certain preferential policies expire this year.

“We aren’t raising our commissions,” said the Ele.me spokesperson. “We’re actually reducing them materially in many regions in China, like Guangdong, Chongqing, Jiangxi, Sichuan and Fujian, to support merchants.”

Meituan declined to comment.

From an international perspective, 20% is quite high, according to Englehardt. Overseas commissions range from 5% to around 15%, he said. The platforms in China often provide the delivery as opposed to those abroad where typically the restaurant does its own deliveries, he noted.

Commission fees vary depending on the size and location of the business. Larger restaurants have more bargaining power when dealing with the delivery platforms, according to Zhu Congyang, a hot pot chain restaurant operator in Shanghai.

In Chi’s experience, those commission fees can make the difference between profit and loss. A bowl of wontons sells for RMB 20, but around 45% of that revenue goes into the pocket of the wonton-chain parent company for franchise fees and food supplies, while 15% goes to the online food-ordering platforms as commission. Out of the remaining 40%, they must account for other overhead costs: utilities, the salaries of their three employees, and shop rental of more than RMB 6,000 a month.

Another burden for restaurant owners is the expense associated with discounts. In order to attract customers, online platforms ask merchants to offer discounts to consumers. For instance, if the customer’s total order exceeds RMB 20, they qualify for a discount of RMB 3.5. Those discounts are subsidized by the merchants.

After all costs have been deducted, the final profit from that RMB 20 bowl of wontons is less than RMB 1.5 for Chi and her husband.

On top of that, some merchants choose to pay the delivery platforms more than RMB 10,000 per month to secure an attention-grabbing placement on the delivery app. If the customer’s home or office is far from the restaurant, Chi must pay an additional RMB 2 per order to cover the distance beyond the standard delivery range. Often, this can wipe out any potential profit from the food order.

“Who would have thought that we might end up losing money because of online orders?” Chi said. “Many of us don’t want to provide discounts, and maybe don’t want to take online orders at all, but we have no other choice.”

Franchisees like Chi are urged to participate in the discount programs; otherwise, they will be punished for not fulfilling sales targets. Even restaurant owners not bound by franchise arrangements say they’re not willing to take the risk of losing customers to competitors. This is especially true for restaurants with an out-of-the-way location.

Zhan Chufeng, founder of the Let’s Soup Party restaurant chain, which operates over 70 outlets in southern China’s Guangdong province, said online orders are an important part of his company’s operations, representing around 70% of total orders.

The commission rates they pay to Meituan and Ele.me vary between 15% and 18%, which is much lower than what the majority of merchants pay. “We got lower fees because we are a premium brand,” said Zhan. “With subsidies provided, the commission fee is still bearable for us. But the ideal rate is around 13%,” he added.

Back to basics

Given the circumstances, merchants who find themselves dependent on delivery orders are left with few options. The simplest way to maintain their current margin is to pass the cost increases on to consumers, either by raising the price or lowering the quality of food. But such tactics can jeopardize the long-term success of the business.

Some shop owners are turning their attention back to the customers who show up in person to the restaurant to consume food on the premises. “We prefer the in-house orders where possible,” says Xiao Hua, owner of a dumpling restaurant in suburban Shanghai. For an order priced RMB 16, dine-in guests pay the full price. However, if that order were being delivered as takeout, he would only get around RMB 12 after the deduction of current commission fees, he said.

Zhuang Shuai, the founder of Beijing-based consulting firm Bailian, said that boosting offline store operations to increase the proportion of in-store consumption, and strengthening the development of new dishes and new brands, could also help small- and medium-sized merchants achieve higher returns.

To be sure, while some smaller merchants are feeling the heat as a result of commission hikes, other factors are also weighing down restaurant owners. Increasing competition or rising market costs could also be at play, said Michael Norris, strategy and research manager at AgencyChina in Shanghai.

And it’s not as if the platforms are rolling in cash as a result of their commission income. Meituan’s operating losses surged 57% year-on-year to RMB 3.7 billion in the fourth quarter of 2018. Revenues from the food-delivery segment increased by 66.1% to RMB 11 billion in the same period from RMB 6.6 billion a year earlier. Meanwhile, the company’s food-delivery costs increased 53.6% year-on-year during the reporting period, which management attributed to mounting salary costs for its delivery fleet.

Ele.me’s revenue, which primarily represents income from platform commissions, provision of food-delivery services and other services, totaled RMB 5.15 billion, according to Alibaba’s fourth quarter 2018 financial report.

Friction between on-demand platforms and delivery workers has also been on the rise. Meituan, Ele.me, and Didi—which is scaling back its food-delivery service after launching last year—have all faced disputes with their delivery fleet workers. “In contrast to parcel delivery, food delivery is more time-sensitive and order demand varies hugely during peak and valley hours,” said Zhan of Let’s Soup Party.

The subsidy-fueled growth “spoiled” both users and merchants, according to Esme Pau, an analyst from Tonghai Securities. But ultimately, the core issue facing the industry is its hotly contested nature. “The only way to overcome competition is for Meituan and Ele.me to reach a consensus in setting prices,” she says. “However, we do not expect this to happen in the near term,” adds Pau.

For Chi, mixing technology with food preparation has been a frustrating experience. “The platforms failed to make it easier to do business,” she says. “Instead, I feel more stressed out than ever before.”

Additional reporting by Yu Dingzhang. 

美团买菜在京推测试服务站 定位“手机菜篮子 – Huanqiu

What happened: Chinese on-demand service Meituan-Dianping is testing a new grocery delivery feature in Beijing. Two service centers were set up in residential districts of the capital city, providing 30-minute delivery times to residents living within 1.5 miles of the station. Around 1,500 items in the categories of vegetables, seafood, meat, dairy, and snacks are available through the Meituan app.

Why it’s important: Restaurant delivery is still Meituan’s core business, but the Tencent-backed tech giant aims to become an all-encompassing platform for local life services, of which grocery shopping is an important part. Entry to the new business would put the company in direct competition with incumbents in the fresh food e-commerce segment like JD’s online grocery and delivery platform JD Daojia and smaller players such as FreshMarket and Dingdong. Like restaurant delivery, grocery delivery is yet another subsidy-fueled battle for the company which posted operating losses of RMB 3.7 billion (around $557 million) in the fourth quarter of 2018 due to rising costs in its delivery and bike-rental businesses.

Mobike, the bike-rental arm of Chinese food delivery and services platform Meituan-Dianping, will continue to be loss-making through to 2021 and be a drag on overall company profitability, a recent research report from equity firm China Tonghai Securities said.

The bike rental-subsidiary, which the company acquired for RMB 18.1 billion ($2.7 billion) in April 2018, contributed RMB 4.6 billion, or over half of the company’s adjusted net losses in 2018.

In addition to these persistent bike-rental related losses, mounting competitive pressures in its core food delivery segment, as well as tightening margins caused by cost overruns, mean it will take longer for Meituan to turn its fortunes around, the report added.

Fiercer competition from Ele.me is going to worsen Meituan’s position, analyst Esme Pau, who co-authored the report, told TechNode in an emailed interview. Ele.me CEO Wang Lei announced in 2018 the company’s strategy to raise its market share to 50% from 35% in 2018.

Meituan is essentially a price-taker in its core food delivery business, given that merchants and users are price-sensitive, the March 19 report said.

Meituan relies on subsidies and incentives to retain users and merchants. The turning point would be when Meituan acquires price-setting power in a monopoly or duopoly market, which in Pau’s view, would not occur this year given Ele.me’s determination to grab market share.

Around 85% of food delivery users have a habit of comparing price on different platforms before placing an order, according to a 2018 survey by consultancy ZPartners.

In its 2018 financial report, Meituan promised to take a more prudent approach in the exploration of new opportunities in 2019.

Given the circumstances, Pau said Meituan’s best short-term strategy would be to direct the user traffic on the company’s apps to other profit-making business such as its online hotel and travel-booking services in order to break even at the company level.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

Can’t see the player? Check us out on iTunes or Spotify!

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss live streaming, Pinduoduo’s results and cash flow conundrum and Meituan’s 2018 performance.

Michael Norris joins to share his insights on the companies we follow and his article “Growing in a mature market: Six directions for China’s tech giants”. Michael Norris is research and strategy manager at Agency China and a Technode contributor.  This is first of two parts of the interview.

The discussion should not be construed as investment advice or a solicitation of services. Please note, the hosts may have positions in the companies discussed.

Links

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Watchlist:

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• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan

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• Michael Norris – LinkedIn

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• Elliott Zaagman – @elliottzaagman
• James Hull – @jameshullx

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Latest mobile app rankings show that WeChat, Alipay, and QQ were the most used apps in February, according to Chinese mobile internet research firm Trustdata’s latest release (in Chinese). The company posted its February figures for China’s top 200 mobile app rankings on its official WeChat account Thursday.

China’s super app, WeChat, maintained its top spot, with monthly active users (MAU) growing 2.25% month-on-month in February to 1.01 billion. Alipay, the most used non-social app, ranked second with 608 million MAU. Tencent’s social networking app crossed the 600 million mark during the month, ranking third overall.

Taobao and Jinri Toutiao were the only two apps in the top 10 that declined in February. Taobao ranked fourth overall, but active user count softened 2.8% compared with the previous month. Bytedance’s top app Jinri Toutiao user activity weakened modestly in February, declining 1.5% month-on-month to 227 million.

February figures reflected increased user leisure time during the week-long Spring Festival holiday, with social, video-streaming and entertainment, gaming, photo-editing apps the most popular categories among Chinese smartphone users.

Within the top 50, Tencent’s hit title, “PlayerUnknown’s Battlegrounds Mobile” (PUBG Mobile), saw the fastest growth in February, surging more than 20% month-on-month. The hit game has been banned in several cities in India, leading to arrests.

Short video app active user size grew significantly during February. Bytedance’s Douyin (known internationally as TikTok) led with 303.6 million MAU, Tencent-backed short video app Kuaishou surged 10.7% month-on-month to 218.1 million, and Bytedance’s Huoshan ranked third in the category with 102.0 million MAU. Duoshan, Bytedance’s new video-based social app which launched January 15, made it into the category’s top-10 with 10.0 million MAU.

Active user count for food delivery platforms retracted in February. Meituan Waimai maintained its top spot as the biggest online food delivery platform with MAU of more than 15.6 million, however, it declined 7.3% month-on-month. Alibaba’s Ele.me ranked second with 10.7 million MAU, though February figures fell around 15% compared with January.

In cross-border e-commerce, Xiaohongshu MAU rose 16.3% month-on-month to 49.8 million; NetEase Kaola came in a distant second with 2.9 million MAU.

Beijing government agencies rebuked five Chinese online food delivery players for allowing unlicensed restaurants on their platforms, a move it says is aimed at protecting local customers from food safety issues, reported state-owned media entity People.cn on Wednesday.

Loose registration standards from local food delivery services, including Meituan Dianping, Alibaba’s Ele.me, and JD.com-backed Daojia,  allowed around 35,000 Beijing-area restaurants without proper licenses to sell to users, according to figures from the Beijing branch of the State Administration for Market Regulation. Non-compliant food sellers were shut down in a recent government crackdown.

Beijing authorities urged online food delivery platforms to be “more self-disciplined,” and to proactively cooperate with market regulators for better food safety.

“Meituan Waimai will strictly comply with all the management rules raised by Beijing authorities,” Lu Weijia, head of Meituan’s food safety management, said in a statement provided by the company. Food insurance, she added, will also be promoted on a large scale, beginning with special customer service windows to handle complaints.

The crackdown comes as World Consumer Rights Day nears.  The Mar. 15 day for raising consumer rights awareness in China translates into heavier media coverage of the issue and tightened government control. State-owned broadcaster CGTN runs the annual “315” TV special which uses hidden cameras to capture unfair practices.

A number of established global brands, including Apple, McDonald’s, and Nike, had been named and shamed in previous episodes. Online food delivery platforms faced prior scrutiny, with Ele.me revealed in 2016 for unlicensed restaurants available on its platform, according to Tencent Tech (in Chinese).

Operating losses at Chinese food delivery and services platform Meituan-Dianping surged 57% year-on-year to RMB 3.7 billion (around $557 million) in the fourth quarter of last year, amid rising costs for its core food delivery business and as a foray into shared bikes via Mobike took its toll.

While the company’s overall revenues almost doubled compared with the same period in 2017, food delivery revenue slumped in the fourth quarter, declining 1.5% quarter-on-quarter due to broader macroeconomic pressure and growing competition, according to the financial statement from Meituan.

The cost of food delivery in the December quarter increased 53.6% year-on-year to RMB 9.5 billion, which management attributed to the mounting salary costs for its delivery fleet.

In February, Meituan delivery drivers went on strike in several major cities across the country, with Chinese media reporting that conflicts become violent at times. The company denied any link between narrowing profits and striking delivery staff.

Tencent-backed Meituan expanded its services in 2018 to include ride-hailing and bike-sharing, boosting annual active users 29.3% to more than 400 million in 2018 compared with 2017. But the new businesses weighed on profits: Bike-rental subsidiary Mobike contributed RMB 4.6 billion in losses for the year since its acquisition in April.

“We can conclude fairly safely that Mobike has been a disaster for [Meituan] in every sense of the word,” said Michael Norris, strategy and research manager of AgencyChina and TechNode contributor. “Sooner or later, someone at Meituan will have to make the call as to whether or not the company should persist with its transportation play.”

On Friday, 15 full-time employees in Singapore, Malaysia, Thailand, India and Australia were given notice, while many more contract and third-party workers were reportedly affected by the layoffs. Meituan later denied that the closures are part of a broader move to withdraw from international markets.

Revenue from Meituan’s hotel booking and travel business—another key pillar for the company—increased to RMB 15.8 billion in 2018 from RMB 10.9 billion in 2017, pushing Meituan to describe itself as the leading provider in China for domestic room night bookings, thus overtaking Ctrip, China’s biggest online travel agent.

Ctrip does not segment out its room night booking volume for domestic hotels.

In the explanation of its financials, the company stressed more than once that it would exercise prudence in certain aspects of its business strategy in 2019, including new retail opportunities for non-food delivery.

Norris, the consultant, said such sentiment is testament to a profound change in the company’s approach in just 12 months. “Last year it seemed that there was no end to the expansion opportunities for a super app such as Meituan,” he said. “Turns out there are limits. The mobility-induced blot on Meituan’s balance sheet has taught it a valuable lesson.”

With additional reporting from Colum Murphy.

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The party is over for China’s second-generation tech giants. Fueled by easy money, new markets, and lower transaction friction, they have fought for their market share, burning money as they went. Now it’s time to pay the piper. While economists are still undecided about the exact figures, it is clear that the Chinese economy isn’t doing very well. In 2018, according to official data, China’s GDP (gross domestic product, a measure of the market value of goods and services in a country) grew by a sluggish 6.6%, the lowest since 1990.

When first encountering the Chinese tech ecosystem, many people are surprised by the scale and speed. Amazed by the work ethic, pragmatism, and ambition, their attention is drawn away from the risks that such scale and speed entail. Too much, too fast has been the downfall of many a Chinese tech entrepreneur. From Ofo to LeEco, China’s tech is littered with the bodies of the fallen, both big and small. China tech entrepreneurs, as Kaifu Lee has put it, are best compared to gladiators: locked in a life-or-death battle for survival. Growing up in a scarce but rapidly developing environment, they’ve learned not only to move fast and be aggressive, but also to build their moats by any means necessary.

At TechNode, we’ve written quite a bit about the “2VC” model, the many restructurings, and the existential challenges that established players are currently facing. There’s a lot going on and I recommend you read those pieces to get a full understanding.

Meituan is experiencing its own contraction pains, but like many who came up in the mobile and O2O (online-to-offline) revolution, it’s the offline component that is causing it the most headaches. However, it’s the latest in technology that could solve most of their growing pains.

Meituan’s moat

CEO Wang Xing is perhaps the most representative example of China’s “fake it until you make it” copycat culture. All of his companies (except perhaps ticketing platform Maoyan) were directly copied from already established Valley darlings, including Facebook and Twitter. It wasn’t until Groupon took off that Wang finally found a model that worked. Backed by Tencent, Meituan was the only survivor of the 2010’s group-buying boom-bust cycle. Groupon’s Achilles heel, however, turned out to be Meituan’s greatest strength.

In the pre-mobile internet era, merchant information online was extremely unreliable. Many Chinese friends would ask me, naive American that I was, why I trusted the information on websites. If I wanted to actually get reliable information, I had to talk with a real human on the phone (quite difficult, given my Chinese language ability at the time). Nowadays, Dianping may be a rich repository of merchant information, but back then—long before it was bought by Meituan in 2015—it was still merely a platform for user-generated reviews. Investors in the Valley and in China saw group-buying as a chance to finally collect all that “last mile” data about local businesses. However, the difference between the markets and business models ultimately came down to one of China’s greatest discoveries: monetizing a network through shopping. By leveraging an aggressive but relatively cheap workforce, they were able to lock in merchants, offer competitive discounts, and continually improve the benefit to both consumers and businesses. Since then, it has become the “Alibaba” of O2O, connecting users with a plethora of services ranging from food delivery, travel, entertainment, car maintenance, and even furniture. Now, you can also access cab and private car rides as well as some of the best bike rentals in China.

The deliveryman in the room

O2O and the “sharing” economy have been great for Chinese consumers and workers. Not only have consumers gotten increased convenience at very bearable prices, but the boom has also encouraged small business growth in the form of contractors and novel business models as well as providing well-paid jobs in the service sector. However, people just aren’t scalable or sustainable in the same way as software.

In order to build their moats, the two delivery giants, Meituan and Ele.me, have spent incredible amounts of money. Last year, Ele.me promised to spend up to $400 million to increase its market share. As of June 2018, Meituan Dianping reported in its IPO prospectus that they spent almost RMB 7 billion on sales and marketing, around 54% more than in the same period in 2017. As of the third quarter of 2018, the last financial report Meituan Dianping has published, it spent a little under RMB 5 billion on the same, putting it on track to exceed the 2017 total of almost RMB 11 billion. According to the IPO prospectus, sales and marketing costs were mostly attributed to user incentives, promotion, advertising, and employee benefits expenses tied to sales and marketing staff involved in expanding its delivery network. According to the prospectus, it costs around RMB 7 per order to pay the delivery driver. However, as large cities like Beijing and Shanghai aim to curb migration, that labor force will soon start to dry up, creating a lot of room for doubt around the cost of labor in the future.

Under the hood

O2O champions Didi and Meituan are experiencing similar problems with scalability, and given China’s AI boom, they also have a similar solution. Both companies have invested significant amounts in order to apply the latest technology to their scaling problem and it seems to be working. While overall costs are high, Meituan reports sales and marketing expenses as declining as a percentage of revenue “driven by improving economies of scale.” Much of this derives from the application of AI to its logistics, efficiently matching drivers with orders. I’ve seen this firsthand. I once placed two separate orders for merchants located not far from each other. Meituan’s system automatically assigned the same delivery person for both orders and I still got them within the promised time. Didi, for their part, made a lot of noise in early 2018 about their “AI Brain,” which was designed to use its big data stores to help the government solve traffic problems. Given its larger challenges, it’s not clear how many problems it has actually solved to date, but I can say anecdotally that its driver assignment and navigation systems have improved dramatically.

Didi, Meituan Dianping, Ele.me, and the myriad other O2O niche services will probably never be known as AI companies, at least not like Baidu or Bytedance. However, these are indisputably the companies at the forefront of applying AI to real operational problems. As the Chinese economy slows, this approach may not be a choice for them. Their dominance, and their very survival, depends on whether they can create effective AI algorithms to optimize how they use the increasingly expensive and scarce offline resources.

Meituan responded to TechNode’s Monday story about delivery fleet strikes, saying that the reduction in pay was a normal cyclical event for part-time staff that enjoy incentivizing seasonal subsidies during peak periods. The pay reduction was not connected to the company’s financials and Meituan’s delivery service is operating normally after the company communicated the wage fluctuation to the striking workers, said a company spokesman on Tuesday.

However, when TechNode contacted the company Monday for comment, the company spokesman stated that he was not aware of any labor strikes.

The company’s financial pressures, however, are unambiguous after recording a net loss of RMB 4.2 billion ($626 million) during the first half of 2018. Margin pressures are a common thread across delivery platforms that have used cash-burning discounts and coupons in the ongoing market share battle, resulting in increased commission rates as recently as mid-January.

Meituan’s monetization rate for its food delivery business remained about flat at 13% in the first half of 2018 vs. 13.4% for the same period a year earlier, according to company financial statements. Monetization rates are commission the platform charges sellers for each transaction.

The company declined to comment on its monetization strategy, citing the quiet period before earnings season.

Delivery workers for rival Ele.me’s courier network, Fengniao Delivery, also protested lower wages in Shenzhen on Friday. In a public letter addressing the delivery team dated the same day, the company asked for employees to remain rational about the adjustment.

Chinese food delivery giant Meituan Dianping faces pushback as its delivery fleet staged a series of strikes in several major cities across the country this past week in protest of recently lowered wages.

A picture featuring a row of scooters bearing signs reading “Stop taking orders” parked on a university campus in Jinan, the capital of eastern Shandong province, was posted Sunday by Weibo user, Zhenhua Youshiceping. At least two other strikes by delivery fleets contracted to Meituan have taken place since last week – one in Linyi, a city in the southern part of Shandong province, and another in Dongguan, a manufacturing hub in southern Guangdong province, according to CLB’s Strike Map.

The conflict has become physical at times, according to local media, with confrontations breaking out between striking workers and merchants who continue to use the platform as well as striking workers sabotaging deliveries for peers that continue to take orders from the platform.

Meituan Dianping deliverymen complain that rates for single journeys have been lowered and delivery times are shorter than transit times calculated on popular map apps. These differences leave little profit once overhead costs like gas, scooter repairs, and phone bills are accounted for.

Financial pressures have been mounting for Meituan Dianping to turn a profit after recording a net loss of RMB 4.2 billion ($626 million) during the first half of 2018, and the company appears to be redoubling money-making efforts. In addition to lowering pay for its delivery fleet, the company hiked its commission fees earlier this year, resulting in complaints from many small and mid-sized merchants in particular.

Rising commission rates add pressure on smaller merchants that are already struggling amid a cooling economy, said Zhu Congyang, a manager of a hotpot restaurant in Shanghai.

Friction between on-demand platforms and delivery workers have been a recurring issue in the industry. The majority of the protests have been directed against Meituan Dianping, which has seen the majority of delivery fleet protests beginning last year. However, competitors Ele.me and Didi, which is scaling back its food delivery service after launching last year, are not immune to the problem.

Help may be on the way, however, as the government begins introducing regulations to protect working conditions for deliverymen. Beijing’s municipal government released a set of policies on Wednesday prodding companies to provide formal employment contracts for gig employees that include health insurance, housing, and better job security.

Following rumors of a restructuring at the end of October in which Dianping, which merged with Meituan in 2015, was portrayed as losing a power struggle between the two, the company  stated that the restructuring was merely an “internal upgrade of its User Platform,” not a sign of internal discord or financial woes.

As I wrote previously, China’s digital economy has reached a turning point.

Before, new user growth could offset digital businesses’ strategic and commercial missteps. Double-digit or triple-digit MAU growth could mute criticism of flimsy unit economics, absent strategy, dodgy investments, or lackluster monetization efforts.

Now, internet user saturation within China’s consumer class makes it harder to avoid scrutiny with eye-popping user growth. Companies like Meitu, JD, and Zhihu are facing tough questions: shareholders and investors want to whether these platforms can turn their impressive scale into profits.

Weaker players might have a hard time meeting impatient investors’ demands for return on investment, but China’s digital giants are adapting. They are repositioning themselves to adjust to new market dynamics, developing strategies to take advantage of enduring opportunities as mature businesses.

Previously, China’s internet companies grew by latching onto investment frenzies in a particular product or industry vertical, known as fengkou (literally “a gap where a strong wind blows”) in Chinese startup lingo. These rapid influxes of capital and speculative behavior are so notorious that leading Chinese executives have joked that investors could pump in enough money to make pigs fly.

Investment frenzies have reshaped markets, delivered exponential growth, and minted some of China’s internet success stories. Meituan, Didi, and VIPKID were built off all the back of them. These companies identified white space, shaped user behavior, and benefited from oodles of capital to achieve scale and outlast a slew of competitors to win winner-take-all or winner-take-most positions. However, as the mobile internet’s white space shrinks, these investment frenzies are more volatile and less conducive to value-creation.

The recent struggles of live-streaming, bike sharing, and automated convenience stores illustrate the danger of relying on speculative investment flows. My own analysis estimates 80% of live-streaming players with Series-A funding didn’t last two years. ofo, a bike-sharing firm, has gone from a $2 billion valuation to the verge of bankruptcy. There are now serious doubts that Bingo Box, the automated convenience store darling backed by GGV Capital, can survive long enough (Chinese link) to make a meaningful dent in China’s retail landscape.

Six durable white spaces

China’s digital giants—Baidu, Alibaba, Tencent, Bytedance, Meituan, Didi, Pinduoduo, and JD—are looking for something more durable than spaghetti-against-the-wall investment flows.

When they first burst onto the scene, today’s digital giants were a thin, interfacing layer between consumers, products, services, and attention. Now, being a thin, interfacing layer isn’t enough. The giants are making themselves thicker in a way that adds new users, gives depth to existing offerings, deepens competitive advantage, and creates new revenue streams.

The giants are pursuing six avenues to growth:

New Tech R&D: China’s digital giants can develop or apply technology to existing or new operations. Leading players, such as Baidu, Tencent and Alibaba are developing leading capabilities in artificial intelligence, big data, and cloud computing.

Industry digital transformation: They can also offer new products and services to industry. Having shaped consumers’ digital behavior, China’s digital giants are lining up to lead the digital transformation of traditional industries such as retail, hospitality, tourism, and agriculture, packaging software and platforms as services.

Overseas expansion: They can seek growth overseas. China’s digital giants consider themselves well-placed to service mobile-first emerging markets, such as India and South-East Asia. These markets also have the growth prospects associated with relatively low existing internet user penetration.

Lower-tier cities: They can develop products, services and experiences for consumers in lower-tier cities. The stunning rise of Pinduoduo, Qutoutiao, and Kuaishou have shown that existing e-commerce, news, and entertainment apps don’t always meet the needs of users in China’s populous third, fourth, and fifth-tier cities.

Local services: They can further penetrate and digitize food, accommodation, shopping, and transportation markets. The size of the local services market and its potential for further digitalisation means the competition between “super-apps” like Meituan, Ele.me, Didi, and Alipay is just getting started.

New mediums: They can also explore new ways to search, connect, shop, and get informed. Innovations in newsfeeds, multimedia messaging, gamified reading and social commerce present opportunities to unseat incumbents in search, social media, and e-commerce.

Who’s playing where

Each of China’s digital giants has restructured in the last two years. That’s no coincidence. China’s digital giants are re-orienting themselves for future growth. If you cross-reference each restructure’s relationship to the above growth directions, you get a pretty good sense of who’s playing where for future growth.

Alibaba and Tencent’s investments, products and proxies will fight for market share across all six growth avenues.

Baidu continues its push to be relevant beyond search through artificial intelligence investments and applications.

Bytedance plans to take its content creation and recommendation products into lower-tier and overseas markets. At the same time, its recent tinkering with e-commerce integration and social messaging shows that it’s thinking about next-generation video commerce and social media.

Meituan hasn’t abandoned its ambition to be a super-app but has doubled down on services to restaurants and retailers on its platforms, with new features like order-management systems.

JD will strengthen its core business through investments in smart logistics, expand its offline retail partnerships and open up its logistics network to third parties.

Didi’s quest to become the world’s largest transport platform in 10 years continues unabated with overseas expansion, investments in developing markets’ ride-hailing services and autonomous driving tests.

Pinduoduo, China’s newest force in e-commerce, will improve merchant quality and test the upper limits of user growth.

As China’s digital economy has reached a turning point, China’s digital giants haven’t stood still. They’re seeking out durable sources of future growth. In so doing, they’ve set the stage for a new wave of intense competition.

Chinese lifestyle services giant Meituan announced this week that it would invest RMB 11 billion (around $1.7 billion) this year to help merchants upgrade their operations and drive the growth of China’s “Delivery Economy,” a term that refers to the country’s on-demand services boom.

The proceeds will be used to support merchants in their marketing efforts, digital upgrades, and supply chain services. The company will also provide awards and incentives for innovation, according to a statement provided to TechNode on Thursday.

“Ecosystem development is more important than market competition. As a delivery service platform, Meituan is willing to invest more resources to support the ecosystem growth, especially the merchants,” Wang Puzhong, senior vice president of Meituan, said in the statement.

The move is reminiscent of Alibaba’s recently launched “A100” program, which aims to help companies embrace digital transformation as more tech giants are shifting to enterprise-faced services. Alibaba rival Tencent upgraded its organizational structure to focus on enterprise services and cloud computing last year.

Meituan said it would provide comprehensive services for merchants, including marketing, delivery, IT, supply chain, operations, and finance, to meet merchants’ business upgrade needs, and to help improve the efficiency of its delivery ecosystem.

Similarly, Alibaba CEO Daniel Zhang is also looking to digitalize the industrial chain. Recently, he named 11 key elements for enterprises to realize transformation in the digital era, including product development, sales, marketing, channel management, manufacturing, customer services, finance, logistics, and supply chain.

The projects could be seen as an extension of the race among tech giants to lock business partners in their ecosystems. However, each of the companies is starting from their core business and want to pioneer by leveraging their current resources—Alibaba from e-commerce and new retail by powering their retail partners and Meituan from food delivery by supporting their online-to-offline merchants.

Chinese bike-rental company Mobike will rebrand as Meituan Bike as it abandons its standalone app to be included in internet giant Meituan’s platform as an in-app feature.

The Chinese bike-rental firm will also become a distinct business group within the lifestyle services company. Wang Huiwen, Meituan’s senior vice president and co-founder, made the announcement in an internal memo to employees on Wednesday morning. A company spokesperson later confirmed the news to TechNode.

Chinese internet services giant Meituan Dianping bought Mobike in April 2018 for $2.7 billion. Since then, most of the members of the founding team have left the company. Most recently, founder Hu Weiwei stepped down as the company CEO, declaring that her mission had been “fulfilled.”

Meituan’s app will be “the only access” to Mobike’s bike-sharing services in China. The company gave no indication when the change would take place.

Wang said in the letter that he would lead the new group. Meituan upgraded its app on Jan. 16 to include a “Ride a bike” button to access Mobike’s services as an in-app feature, an apparent first step toward full integration.

Earlier this month, WeChat removed Mobike’s services from within its app following “the expiry of a partnership” between Mobike and Tencent, a Mobike spokesperson told TechNode at the time.

The bike-rental unit will also be part of Meituan’s location-based services platform, its cross-business unit technology-infrastructure service set up to improve its capabilities in providing location-based services. Also included are ride-hailing and unmanned delivery, according to a restructuring plan released by the company in October.

The organizational upgrade came following Meituan Dianping’s listing publicly in Hong Kong in September. The company seeks to build a one-stop super platform, which covers multiple on-demand life services including food delivery, hotel reservations, and public mobility.

The chief technology officer (CTO) of food delivery platform Meituan Dianping, Luo Daofeng, has reportedly left his post for a position at live-streaming company Kuaishou.

Luo began working for the new company on Jan. 14, but won’t become Kuaishou’s CTO, a source told 36kr (in Chinese). An employee said that Luo is currently a part-time consultant, and will direct technical work in the future.

Live-streaming and short-video platform Kuaishou has gained popularity among users in lower-tier cities and rural areas. With the rise of the platform’s e-commerce features, China’s impoverished farming communities have found new ways to expand their income by selling fresh produce or through ecotourism.

A Kuaishou representative declined to comment when contacted by TechNode.

Although Luo’s new job hasn’t been confirmed by Kuaishou, Meituan acknowledged in a statement to TechNode that its former CTO and senior vice president “recently” left the company due to family reasons. Another senior vice president, co-founder Wang Huiwen, will take over his duties and report to CEO Wang Xing. Luo is no longer listed on the management team page on Meituan Dianping’s official website.

According to an internal email sent by Wang Xing in December 2017, Luo was responsible for a platform that provided support for the process of research and development. He was also placed in charge of one of two committees meant to “enhance data system construction and data application ability for the entire group.”

Luo joined the Dianping team as CTO in 2015, having previously held an executive role at Tencent. After the company’s merge with Meituan in 2015, he continued to be in charge of technical aspects of the app.

Meituan-Dianping made a splash last May with its debut on the Hong Kong Stock Exchange, but its fortunes flagged afterward with a RMB 2.5 billion (around $370 million) loss in the third quarter of 2018. Over time, the lifestyle app expanded from food and drink delivery to a variety of other services including, most recently, gaming—a possible attempt to grow its revenue, given the strength of the industry in China.

Chinese O2O giant Meituan-Dianping has begun posting job listings for game developers, prompting speculation that it is looking to integrate gaming into its existing services.

The food-delivery titan posted the ads on China’s top online recruitment platforms. It seeks to employ Beijing-based personnel for a variety of positions including game engineers, game planners, visual designers, and test engineers, according to listings on recruitment platform Lagou.

Differing from its high-profile entry into the ride-hailing market, Meituan has attempted to downplay its foray into gaming. Wang Huiwen, senior vice president of Meituan, responded to queries from a Chinese tech reporter on WeChat’s News Feed-like feature, Moments, saying he just wants to give the gaming industry a try. “Don’t overthink it,” he added.

Meituan declined TechNode’s request for comment.

Development and maintenance of game servers for Meituan app are listed as a major responsibility for several positions. The firm is building a team that includes both senior and junior positions, with salaries ranging from RMB 15, 000 (around $2,200) to RMB 60,000 per month.

Meituan’s recruiting plan, which bucks the on-going lay-off trend in China’s tech circles, has raised questions about how the company will use gaming to enhance its products and services.

Gamification of online experiences could increase the user stickiness of Meituan’s services. More importantly, however, integration of gaming elements could increase the revenue of the Hong Kong-listed firm, which reported a net loss of around RMB 2.5 billion in the third quarter of 2018. China’s gaming revenue jumped 5% year-on-year to RMB 214 billion in 2018, accounting for nearly 35% of the global market, according to data from the 2018 China Gaming Industry Report.

Super messaging app WeChat has removed bike-rental firm Mobike from its in-app wallet feature, a significant source of users for the mobility firm, reports Chinese media.

“Riders can still access to Mobike’s services using WeChat’s QR code scanning function or by searching for the mini-program within the messaging platform,” a Mobike spokesperson told TechNode. The company said the removal is due to the expiry of a partnership between the two firms. The move increases barriers for WeChat users who want to access the mobility platform’s services.

The Chinese bike-rental startup signed a partnership with Tencent in March 2017, allowing riders to access its platform in WeChat’s wallet feature, known as WeChat Pay, our sister site TechNode Chinese reported at the time. Mobike was added to WeChat Pay’s interface as a third-party service. Still included are e-commerce giant JD’s marketplace and Didi’s ride-hailing platform, among others.

At the time, WeChat’s 900 million-strong monthly active users (MAUs) were a boon for the bike-rental company. With the massive volume of traffic coming from WeChat, Mobike said it saw a quarter-on-quarter MAU increase of over 200% in May 2017.

In the same month, the company’s executives also claimed that 50% of newly-registered users originated from WeChat.

Mobike was one of the first companies to adopt mini-programs, which allow users to access services from different companies on WeChat without having to download a separate application. According to data service provider QuestMobile, in September 2018, Mobike had more than 55 million MAUs on its mini-program, double that of its own app.

Tencent used to be one of Mobike’s principal shareholders until April 2018, when the bike-rental firm was fully acquired by Meituan-Dianping, the company behind the mega lifestyle app of the same name, according to Chinese media reports. Mobike co-founder and former CEO Hu Weiwei announced her departure from the company for “personal reasons” last month.

Meituan Dianping Gets Green Light for Ride-Hailing Service in Beijing – Caixin Global

What happened: Meituan Dianping, a Chinese group-buying website for consumer products and retail services, received a permit to provide ride-hailing services in Beijing. Licenses were also given to two other businesses, namely Sogood and SH-ABC. This will add to the eight already operating ride-hailing platforms in the city. Meituan launched its mobility service in Nanjing late last year and later expanded to Shanghai.

Why it is important: Dominated by Didi, the ride-hailing industry has become increasingly saturated. Yet, Meituan’s expansion could mark a change in the power dynamic of the industry. As the company ventures to take on Didi in Beijing, there may be a renewed subsidy war between the established firms and the incoming company, resulting in a potential shift in users, whether it be temporary or permanent. Beijing’s attitude is welcoming of a competitive market, particularly given the Chinese government’s investigation into Didi over alleged monopoly allegations.

Meituan to team up with China Starbucks challenger Luckin Coffee on delivery services – SCMP

What happened: Starbucks’ Chinese rival Luckin Coffee is rumored to partner with lifestyle giant Meituan Dianping for on-demand drink and food delivery. Sources say after the launch of the service, consumers can order Luckin Coffee’s products on Meituan’s delivery app in over 20 Chinese cities. Currently, Luckin Coffee supports in-store pick-ups and SF Express-backed delivery. All orders have to be made in Luckin Coffee’s app.

Why it’s important: The rumored tie-up is seen as a response to Starbucks’ delivery agreement with Alibaba-backed Ele.me. As one of China’s biggest food and drink delivery platforms, Meituan’s power, boosted by huge user traffic across China, will allow Luckin to reach more consumers with Meituan’s mature online and offline operations. The company’s mass-scale delivery forces will also optimize Luckin’s related costs. Luckin doubled its valuation to US$2 billion by raising a new round of financing of US$200 million last week.

Baidu Waimai, China’s third-largest takeaway service, announced today that it’s rebranded as Star.Ele, more than one year after being acquired by its major rival Ele.me, our sister site TechNode Chinese is reporting.

Retaining a former red color scheme for its new logo, Star.Ele will run as a sub-brand of Ele.me to offer premium food and local services from selected vendors. Wang Jingfeng, vice president of Ele.me, will be appointed as CEO of the new unit.

For over a year after the acquisition, Baidu Waimai has been operating under its old brand. But rumors about its rebranding prevails while Ele.me promised to continue operating the two brands separately during the takeover.

The merger between Baidu Waimai and Ele.me, two of China’s top food delivery platforms, wasn’t a smooth one with the former has seen both internal and external turmoil during the transitional period.

The rebrand comes among a series of structural adjustment of Ele.me, which itself has been taken over by Alibaba which bought the remaining shares in the company in April this year. Following the new retail trend, Alibaba announced that it has merged two of its food delivery services Ele.me and Koubei to a newly consolidated unit of Alibaba Local Service Company. In August, the company announced it has raised $3 billion for the unit alongside SoftBank.

Baidu Waimai’s rebranding represents a footnote for the changing landscape of China’s online food delivery industry, which shifts from tripartite confrontation among Tencent-backed Meituan, Alibaba-backed Ele.me and Baidu Waimai to head-on battle between the first two.

In terms of positioning, going after a higher-end market to diversify user base is a wise strategy in China, where food safety is a rising concern. As a leading player in the market, Ele.me has come under scrutiny in 2016 for allowing unqualified works to delivery potentially unsanitary food to customers. Meituan faces similar problems. In May this year, the three online food delivery platforms have launched their own investigation against unqualified food vendors, blacklisting thousands of vendors each.

滴滴美团称在南京已清退近20万辆违规网约车 – Xinhua

What happened: According to figures provided to the Nanjing authorities, Didi Chuxing and Meituan Dianping reportedly have removed 161,151 and 38,000 vehicles, respectively, from their fleets. The two ride-hailing platforms combined have removed nearly 200,000 vehicles that fail to meet standards.

The Nanjing authorities have increased supervision of 7 ride-hailing firms operating in the city earlier this month. Both companies have agreed to remove all non-compliant vehicles in Nanjing before October 18.

Why it’s important: China’s ride-hailing industry has been under great pressure to revamp its operations after the deaths of two Didi Hitch passengers. In an effort to ensure safety, the transport ministry announced early September that it would conduct checks on ride-hailing companies and work with the police to remove vehicles and drivers that fail to meet standards by the end of the year. Meituan Dianping started piloting its ride-hailing service in Nanjing earlier this year but announced last month that it would halt its expansion into ride-hailing due to the ongoing passenger safety crisis.

Meituan Dianping, China’s online food delivery and O2O giant, made a robust debut on the Hong Kong Stock Exchange on Thursday (September 20). The company’s shares closed at HK$ 72.65, 5.29% above the initial offering price, according to Xinhua Net.

After Hong Kong’s second-biggest tech listing of the year, Meituan’s market value surged to HK$398.94 billion ($50.9 billion), making it worth more than the Nasdaq-listed Chinese e-commerce giant JD.com and the Hong Kong-listed smartphone maker Xiaomi. This means Meituan is now the fourth largest internet company in China by market value, behind only the BAT (Baidu, Alibaba, and Tencent).

The IPO also bumped the net worth of Meituan’s 39-year-old founder, Wang Xing, to $5.3 billion. “We often say: we need ‘long-term patience’. The more faith you have for the future, the more patience you have for the present,” Wang said in an internal letter to employees (in Chinese) after the debut.

Wang said going public is a milestone for Meituan, although that has never been the company’s goal. “The capital market will have fluctuations, we don’t need to pay too much attention to the short-term highs and lows of stock prices,” Wang urged his employees to focus on creating value for their customers. He believes that “in the long-term, the value [the company] creates will eventually be reflected by the stock prices.”

Tencent-backed Meituan started out as a Groupon-type service but has evolved into a super platform whose services span from food reviews and ride-hailing to on-demand delivery.

The IPO debut reflects investor confidence that the loss-making Meituan will eventually come out on top in the race against Alibaba-backed Ele.me and other on-demand delivery services. Big players in China’s food delivery market still rely on cash-burning tactics such as heavy discounts to win new customers and gain market share. Meituan said it plans to use money from the IPO to prepare itself against fierce competition in food delivery.

Meituan Dianping to halt ride-hailing expansion in China amid crisis at industry leader Didi – SCMP

What happened: China’s on-demand service platform Meituan-Dianping said it would halt further expansion into China’s ride-hailing market as Didi Chuxing has been deeply strained over the murder of a passenger in late August. Meituan said the decision was made after evaluating “the synergistic value” of car-hailing services and the current market dynamics.

Why it’s important: Meituan started pilot ride-hailing operations in Shanghai and Nanjing earlier this year and had expected to expand to at least five cities. Meituan is seeking initial public offering in Hong Kong, and the further regulation and possible risks of running the ride-hailing business made Meituan shy away. According to analysts, Meituan’s retreat from the market will not affect Didi much since Meituan only operates in two cities.

China’s Meituan Dianping sets HK IPO valuation at up to $55 billion: sources —Reuters

What happened: Meituan Dianping has set an indicative price range of $7.64-$9.17 per share for its Hong Kong IPO, valuing itself at $46-$55 billion, according to Reuters’ sources. The company is planning to secure a total of $1.5 billion from five cornerstone investors including its previous backer Tencent which aims to give $400 million and OppenheimerFunds which will invest $500 million.

Why it’s important: Meituan is the second multibillion-dollar tech float coming out of Beijing this year after Xiaomi’s $5.4 billion IPO. Expectations were high during Xiaomi’s listing but in the end the company faced several setbacks that lowered its expected $100 billion valuation to half of that. Like Xiaomi, Meituan is filing with a dual-class share structure listing made by Hong Kong to attract tech companies.

Alibaba merging China food delivery units to counter Tencent-backed Meituan – Reuters

What happened: Alibaba intends to merge its food delivery units, namely Ele.me and Koubei, and raise funds for the new mega-entity. Alibaba is reportedly looking to raise between $3 billion and $5 billion for the combined business while SoftBank’s Vision Fund is expected to take the lead. The fundraising could value the new unit up to $25 billion.

Why it’s important: Combining existing businesses would put Alibaba in a better position to dominate China’s fiercely competitive on-demand services market, which is brimming with startups offering everything from food delivery to massage services. Ele.me and Tencent-backed Meituan are the biggest food delivery service providers in China and the rivalry between the two intensified after Baidu dropped out of the race last year and Alibaba acquired Ele.me in April.

Chinese food delivery and life services platform Meituan Dianping filed for an initial public offering (IPO) in Hong Kong on June 25. The IPO is jointly sponsored by three Wall Street banks, including Goldman Sachs, Morgan Stanley, and Bank of America Merrill Lynch.

The company is reportedly seeking over $4 billion in the IPO, although the figure wasn’t disclosed in its filing.

Meituan Dianping operates Meituan and Dianping. Meituan is one of China’s biggest online marketplace for daily-life services while Dianping publishes crowd-sourced reviews about local businesses and also sells coupons. The company also operates Meituan Waimai, which provides delivery services ranging from food delivery to running errands on customers’ demands.

Meituan Dianping bought bike sharing company Mobike for $2.7 billion in early April this year to draw more customers and “enhance the portfolio of services” the company offers to consumers, according to the filing.

According to Meituan Dianping, over 5.8 billion transactions were generated on its platform in 2017, totaling RMB 357 billion in gross transaction volume. The number of listed merchants of the platform increased to 5.5 million in 2017 from 3 million in 2015. The company’s revenues grew to RMB 33.9 billion in 2017 from RMB 13 billion two years ago. Despite rising revenues and an increasing customer base, the company reported a RMB 19 billion loss in 2017, and RMB 2.9 billion in adjusted net losses, in the filing.

Meituan Dianping is backed by Chinese tech giant Tencent. According to the filing, it is primarily competing with Alibaba Group and its portfolio companies for food delivery and in-store services, and with Ctrip.com, a Chinese traveling service provider.

In its first major statement since being acquired by Meituan, bike rental giant Mobike is to stop adding new bikes to cities considered to be already saturated with bikes, will share its big data with the government for improved city planning, and put RMB100 million into improving its user credit system, the company announced at a press conference held in Beijing on Earth Day, April 22. The company is changing its focus from rapid to responsible growth.

Despite being awarded a Champions of the Earth award by the UN in Nairobi last December for its advancement of low carbon transport, Mobike acknowledges that its rapid growth has not been without issue, creating some particularly visible “side effects.” Speaking at the event, Mobike’s founder and president Hu Weiwei said the company recognizes the problems caused by their bikes being parked in the wrong places or simply being abandoned by users. The bikes get in people’s way, lead to traffic congestion and even spoil how cities look.

New bike freeze

No new bikes will be added to cities which are considered to already have enough bikes. No list of cities has been provided yet. Bikes will be replaced and upgraded, but no additional ones will be left on the streets of these cities.

Local governments had already imposed bans on hire bike companies adding more bikes to the streets. Back in August 2017 Shanghai banned any more hire bikes (and by November 2017 ofo was reported to be deliberately making new bikes look dirty and old to sneak them onto the streets).

Big data share

The data generated by Mobike’s operations will be shared with the government on the proviso that user data is secure. Mobike generates over 30 TB of data globally per day from its 8 million bikes. The data share is intended to help the government ensure safer cycling by planning better cycle lanes and parking areas.

Many major roads already have separate cycle lanes, though cars also use them and park in them. Mobike’s data is also used for predicting demand which helps them relocate bicycles in advance.

We know from previous data releases just how detailed Mobike’s data can be. Its Magic Cube AI system can track how users cycle differently on different days and even who they’re cycling with.

Updated user credit scheme

The third measure is to tighten their credit system with an RMB 100 million overhaul. The system is intended to reward good users and penalize those who misuse the bikes by leaving the bikes in off-limits areas such as inside buildings. Mobike recently brought in new changes to its user credit system which would hike rental rates to RMB 100 for half an hour for persistent offenders and dock points for “riding bikes in an unsafe manner and ignoring traffic rules”. Details of the changes are yet to emerge but will focus on safer cycling and better parking.

After the announcement, co-founder Hu Wei put out her own more heartfelt message on her LinkedIn profile:

“I was ecstatic to see how popular we had become; but noticed that for some in the public, our brand did not represent the sense of environmental and social responsibility that we hoped it would. I was proud of our growing team and company culture, but at times felt we did not practice what we preached. As our expansion intensified and our priorities multiplied, it was not always easy to distinguish the most import ones from those that were simply ‘urgent’.”

The changes to the credit system could be global, hinted Hu: “We must also continue to engage local communities and institutions, both in China and abroad, to create meaningful systems which reward responsible ridership while disincentivizing negative behavior.”

This week, John and Matt talk about recent developments in China’s mobility and the O2O market as Meituan acquires Mobike and joins others encroaching into Didi territory.

Links

• Didi recruits food delivery riders in Wuxi to challenge Meituan
• Meituan acquisition of Mobike seems a done deal
• Fresh and driver-friendly: Meituan Dache’s first day in Shanghai
• AutoNavi enters ride-hailing market

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @MattyBGoooner, ChinaChannel

• iTunes
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• China Tech Talk.com
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

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Chinese mapping company AutoNavi (高德地图) has launched a ride-hailing service in Chengdu and Wuhan and is hiring drivers in Beijing, Guangzhou, Shenzhen, and Hangzhou, with plans to launch in these cities, local media is reporting.

The company, owned by Alibaba, will not collect commissions from its drivers, allowing them to earn the full amount a passenger pays for the trip. Other operators, including Meituan and Didi, charge their drivers up to 10% the total cost of the trip. However, AutoNavi doesn’t provide its drivers with subsidies like other ride-hailing companies.

Alibaba could make use of the data it collects to enhance its location-based services capabilities. In 2015, AutoNavi announced the launch of LBS+, a platform that provides location-based service solutions to businesses in car rental, O2O, and smart devices.

It previously highlighted that it planned to monetize its platform through third-parties that use its data and trading user data.

The company is entering an already competitive space, with Didi and Meituan battling for their piece of the market. Most recently, Meituan launched its ride-hailing service in Shanghai, hoping to further challenge Didi.

Editor’s note: Rumors are rife in China, especially so in a hotly contested area like transportation and O2O services. This news is unconfirmed and the veracity of Mobike’s financial and operational situation as outlined is unclear.

Update 10:02 04 Apr 2018: The purchase has been confirmed by multiple sources. Follow our coverage here.

Rumors of Chinese e-commerce and ride-hailing company Meituan-Dianping’s plan to acquire bike rental firm Mobike are circulating on Chinese social media.

Sina Weibo CEO Wang Gaofei, under the moniker Laiquzhijian (来去之间, lái qù zhī jiān), forwarded the news on microblogging platform Weibo, lending it credibility among local pundits. There has been no official statement from either company so far.

He claimed that Meituan plans to buy the bike rental company for $3.7 billion, including US$1.2 billion in cash, US$1.5 billion in equity, and US$1 billion in debt.  Local media have reported unconfirmed details of Mobike’s internal financial statements that show the company owes up to RMB 6 billion in user deposits and another RMB 1 billion to suppliers, totaling more than $1 billion.

According to local media reports, the company has supposedly seen its number of daily rides decline over the past few months resulting in the need for operating expense and asset investment of up to RMB 810 million a year. In January the company’s total rides fell to less than 10 million per day while its daily trips per bike have decreased to one, say local media.

“Mobike reaffirms our smart bike sharing platform has over 200 million registered users, supports over 30 million rides every day, and operates over 9 million Mobikes connected through IoT technology,” a spokesperson for Mobike told

Mobike was thought to be merging with competitor ofo, speculation that was later denied by company CEO Davis Wang, saying that a “merger is not an option for the company.” Rumors also spread suggesting it was entering a round of funding led by Meituan. However, this was later repudiated by both parties.

Meituan is seeking a Hong Kong IPO with a valuation of US$60 billion. It recently launched its ride-hailing service in Shanghai after a trial in Nanjing. However, shortly after operations began, the company was summoned by city authorities for failing to link the data of vehicles and staff to the city’s supervision platform.

Update 04 April 7:05: Now includes official statement from Mobike.

Update 03 April 18:25: Caixin is reporting that Meituan is in talks with Mobike to buy a large part of the bike-rental business. A source has said that the final figure has not been agreed upon and the deal is being brokered by Pony Ma, CEO of Tencent. 

Didi regional director Sun Shu has thanked Meituan for the competition it has brought to the ride-hailing market in a message on his WeChat moments (in Chinese), but his message is a vehicle for pointing out safety concerns of Meituan Dache’s new operations.

Didi Chuxing has become the leader for ride-hailing across China with around 95% market share. Food recommendation and takeaway delivery company Meituan recently entered the fray in Nanjing and Shanghai, where Didi operates more than 1.5 million rides per day. As an example of competition and diversification in China, Didi is also starting to deliver takeaways. Media reports are stating that the average subsidy for Meituan Dache rides in Shanghais is RMB 40 (in Chinese).

In his message entitled “The efficiency of implementing safety measures determines the winner of every round of ride-hailing competition”, Sun Shu seemed to welcome the competition the entry of Meituan Dache represents:

“In more than five years since its founding, Didi has already experienced competition with Kuaide, Yidao, Shenzhou and Uber. Didi employees are all aware that without competition there would be no Didi so we are thankful of such competition.”

Yet it is the effects of offering subsidies that is Sun’s main message. “Since the outset of ride hailing platforms, every round of competition has begun with a subsidy war, and is finally won by safety [literally ‘safety experience efficiency’].” wrote Sun,

“We would like to thank Meituan for subsidizing its users and growing the market alongside Didi… But the subsidy is abnormally high (200% of what the customer pays) which will lead to unofficial usage [黑产] and fake orders, which will cause great harm to the entire industry. At the same time, it will cause the influx of many vehicles from outside and without undergoing safety inspections, this could lead to catastrophic risks.”

Sun is referring to the fact that high driver remuneration will attract drivers and car owners whose vehicles are not registered in Shanghai to enter the city. Although one country, various aspects of life in China are locally controlled such as where one can live and where a car is registered. Ride hailing platforms have been through various waves of regulation in different cities regarding what plates a car must have and even where the driver’s household registration is. Both Shanghai and Beijing require that both the ride-hailing car and driver be of those cities, as with taxi drivers. Meituan was called in by the authorities on its very first day of operations in Shanghai.

“Therefore, we welcome the competition, but we hope that new players can bring vitality and sustainable development to the industry, and do no simply leave the problems of a brief spell of excess, which will cause fundamental damage to the industry,” said Sun.

Merchants are accusing food delivery startup Ele.me of forcing to deduct RMB 3 per order for promotion fee for a bid ranking, Tencent News is reporting. 

When food & beverage businesses and Ele.me cooperate, Ele.me deducts 6% of every single order. Adding the RMB 3 to original 6% deduction, it will become money-losing deals for businesses.

“After verification, the problem was about Alipay’s promotion. Our local market managers have put business owner online for the increase his personal performance without confirming the business owner’s decision. With this feedback, we have arranged people to communicate with the involved merchants to communicate and pay for the corresponding losses,” Ele.me’s spokesperson told TechNode.

According to DCCI’s 2017 food delivery startup report, Meituan Waimai was dominating the market with 53.9% market share, followed by Ele.me (29.8%) and Baidu Waimai (13.7%). Despite Ele.me’s merger with Baidu, Meituan still ranks the first in the food takeaway turf war.

According to media reports, the RMB 3 promotion fee is a “promotional bidding” activity for Ele.me. It is used to increase the rankings of merchants on the list of Ele.me app, thereby increasing user traffic and bringing more customers. Ordinary merchants’ rankings are based on several factors such as the merchant’s popularity and sales volume. After paying for the promotion fee, the merchant’s ranking will be higher and ensure more exposure.

“Deducting the promotion fee is against the ethics of the industry. The ultimate victim of the promotion fee is still the consumer. The merchant will also lose trust in the platform in such events. The reputation of the company will be damaged and will lose both customers and merchants,” Chen Liteng, an assistant analyst with the O2O Department of Life Services at the China Electronic Commerce Research Center said

Meituan, China’s group-buying website and e-commerce giant, rolled out ride-hailing service in Shanghai on Wednesday but was soon summoned by Shanghai city authorities (in Chinese) on the same day and warned to adhere to local regulations.

To further take on Didi, the dominant ride-hailing player, Meituan has employed low pricing policies and advertisements as it prepares to enter the sector by triggering a pricing war. It has placed advertisements with wordings like “hail a ride for only one yuan.”

Shanghai city authorities, however, are not so tolerant regarding the matter. The city’s public transport, police, and pricing supervision authorities warned Meituan on Wednesday that the firm failed to link the data of vehicles and staff to the city’s supervision platform of online ride-hailing businesses, as reported by local media. Also, local regulations require all registered vehicles and staff to obtain relevant licenses issued by Shanghai city authorities.

On top of that, the authorities also warned Meituan to employ a proper pricing strategy and must specify the pricing. The firm must not operate with lower-than-cost pricing, and advertisements must not include wordings like “hail a ride for one yuan” or “hail a ride at a low price.” Meituan was also prohibited from adding “thank you fees,” tips that add onto the regular charges.

TechNode reached out to Meituan but they declined to comment. Currently, Meituan’s ride-hailing service is still in operation.

Shanghai is the second city for the company to launch its ride-hailing service after rolling out in Nanjing last December. Other cities that Meituan are potentially launching include Beijing, Hangzhou, and Chengdu.

It’s worth noting that Didi, Meituan’s major rival in the ride-hailing sector, has been planning a foray into Meituan’s home turf—food delivery services—as early as last December. It has reportedly been engaged in the R&D of food delivery service.

Chinese O2O and e-commerce giant Meituan is going to launch its long-rumored ride-hailing service tomorrow (21 March 2018) in Shanghai, Chinese media iFeng is reporting. The report says they have confirmed the news with Meituan’s customer service staff.

As a latecomer in a highly consolidated sector, Meituan is diving in with huge subsidy plans. In a previous marketing campaign, Meituan said they would launch ride-hailing service once a city gets 200k votes on its online poll. Under the rule, the first 200k passengers to register can get ride coupons.

The customer service staff confirmed with iFeng that first 20k Meituan drivers in Shanghai can enjoy commission free service. For the rest of drivers who have made their votes, Meituan would collect an 8% commission fee and an information fee of RMB 0.5 for each ride.

Drivers who worked over 10 hours from 6:00 to 24:00 and processed 10 orders or more could get a basic income of RMB 600. If the daily turnover exceeds RMB 600, drivers will get an extra bonus of RMB 200.

Shanghai will be the second city for the company to launch this service after rolling out in Nanjing last year. Other cities that Meituan are launching Beijing, Hangzhou, and Chengdu.

While Meituan is spearheading forays into a sector that’s dominated by Didi, the ride-hailing giant is also working toward the launch of a food delivery service—one of Meituan’s core businesses, with aggressive food delivery rider recruitment plans. It’s a no-brainer that this would be a cash-burning battle between two of China’s most heavily-loaded tech titans. Meituan raised a $4 billion C round last October and Didi just announced its plans to raise $1.5 billion in funding using asset-backed securities (ABS).

Chinese ride hailing company DiDi announced on March 19th that the company will raise $1.5 billion in funding using asset-backed securities (ABS), after getting approval from the Shanghai Stock Exchange. ABS is a financial security collateralized by a pool of assets such as loans, leases, credit card debt, royalties or receivables.

This enables DiDi to help partner leasing enterprises raise funds through securitizing their stock assets. Upon completion of the issuance, DiDi’s partner leasing companies will acquire new funding channels and help strengthen general transportation capacities.

Based on DiDi’s business verticals, the program is collateralized by the leasing claims by car leasing enterprises when leasing cars to drivers. DiDi acts as a proxy of the originators, responsible for the coordination of leasing companies, and issues bonds through bundling the underlying assets to the capital market.

The scale of the planned initial issuing is RMB 300 million. The raised funds will be used for new vehicle procurement by the leasing enterprises in order to expand the transportation capacity of DiDi’s platform.

Didi said that its program for an RMB 10 billion ($1.5 billion) shelf offering of a supply chain finance asset-backed security product received a no-objection letter from the Shanghai Stock Exchange (SSE).

DiDi currently has more than 21 million drivers, 450 million passengers, car leasing companies and automobile dealers, delivering more than 25 million rides on a daily basis.

“Using financial tools to serve the physical economy and incorporating modern finance into the industrial system are the general trend of the economic development,” said SSE in a statement, adding, “the issuing of the new transportation supply chain ABS is a key step by the SSE to urge the supply chain finance to serve the physical economy under the leadership of the China Securities Regulatory Commission.”

China’s ride-hailing giant Didi Chuxing is recruiting deliverymen in Wuxi, a city in southern Jiangsu province, for its new food delivery arm “Didi Waimai” (滴滴外卖 in Chinese), meaning that it’s probably rolling out take-out delivery service soon.

A job post of Didi Waimai has been circulating online since yesterday and a customer service line has been made available with regards to the recruitment. TechNode has reached out to Didi but they declined to comment.

TechNode Chinese, our sister publication, has talked with a customer service representative on the customer service line, and was told that “Didi Waimai will be available soon, but please refer to Didi’s future announcement on which cities specifically the service will be available in.”

TechNode, however, played around with the hiring page, and found that the only option for city choice is Wuxi, where Didi Waimai may first land. According to the job post, Didi is hiring “loyal deliverymen,” basically full-time delivery riders, to work at least 48 hours a week with a minimum monthly salary of RMB 10,000 (roughly $1,576). Other openings include part-time riders for those who can take orders freely and earn double compensations per order, says the job advertisement.

Didi has been looking to enter the food delivery sector as early as last December, and sources have pointed out that Didi had been engaged in the R&D of food delivery service. Now the recruitment message has again proved Didi’s ambition to take on Meituan on home turf—food delivery business. Meituan, known as the Chinese Yelp, owns businesses spanning from food delivery, restaurant reviews to booking tickets and hotels. Meituan was also rumored to roll out ride-hailing services soon in seven cities, including Beijing, Shanghai, Chengdu, Hangzhou, Wenzhou, Fuzhou and Xiamen. It seems that the war of “food delivery + ride hailing” has just gotten started and is expected to get even more heated.

Meituan’s ambition to reignite the ride-hailing war is getting serious. The Chinese O2O and e-commerce giant is rumored to launch on-demand car service in seven cities on 16 March, Chinese media TechWeb is reporting (in Chinese). Major cities of Beijing, Shanghai, Chengdu, Hangzhou, Wenzhou, Fuzhou and Xiamen are included in the list.

After launching ride-hailing service in Nanjing last year, the company announced plans to enter more cities like Beijing and Shanghai. Shortly after its announcement, however, the company was beset with setbacks for its legal status in running ride-hailing services in these cities, where separate permits from different local municipalities are needed.

Meituan Dache announced that it would roll out in Beijing on January 12, but order from Beijing authorities has forced the firm to postpone its launch. The company announced in January that it has obtained local permission in Nanjing and Shanghai.

A company spokesperson denied the rumor without giving any details.

Even though there are still uncertainties, Meituan has been successful in piling up anticipations for the new feature. Last December, the firm has rolled out a registration page where users can vote for their cities. At the time, Meituan said they would launch the service once a city gets 200k votes.

On top of that, Meituan also leveraged subsidies, the most effective way to secure users in a field where Didi Chuxing dominates. Under its rule, the first 200k passenger registers can get ride coupons and first the 50k (Beijing) or 20k (Shanghai) drivers can enjoy commission free service.

Chinese upstart tech firms may boom from a certain vertical, but there’s a general trend for them expand into an all-inclusive platform. This trend inevitably results in business overlap between major companies, especially in red-hot verticals like ride-hailing. Similarly, Didi is reportedly working toward the launch of a food delivery service—one of Meituan’s core businesses.

Spring Festival is approaching and the annual hongbao war is on. Alibaba’s lifestyle app Koubei invested 100 million yuan on the “shout red envelopes” (in Chinese) game.

From 11:00 pm on the 13th to the first day of the New Year, users can login on the Koubei app, and search for “shout red envelopes (喊红包)” to enter the event page to participate. These red envelopes work like Siri, and users need to say certain things or make certain sounds to get a hongbao, like “You are my New Year’s wish (你就是我的新年愿望)” or bark like a dog (since its the Year of the Dog). Users can also say tongue twisters like “Egg mochi cake I also eat mochi cake eggs I Also eat (鸡蛋糍粑我也吃糍粑鸡蛋我也吃).” Koubei invested RMB 100 million ($15.7 million) on the “shout red envelopes” game.

Koubei’s competitor, Meituan Dianping also launched the “grab a red envelope for the Spring Festival” event a few days ago. If the user can gather a team of six, they can get red envelopes, the same is 100 million red envelopes limit. From February 9 to 21, the user can invite five friends to participate in this event, you can get a random amount of red envelope.

Caocao Zhuanche(曹操专车) an electric vehicle sharing company backed by Chinese automaker Geely, has completed a RMB 1 billion ($156 million) series A round from various investors, at a valuation of over RMB 10 billion ($1.6 billion), Sina Technology is reporting. Investors in the round were not disclosed. With the new funding, the company plans to expand in cities such as Shenzhen and Chongqing.

While Didi Chuxing still dominates China’s ride-sharing market after the acquisition of Uber’s China operations, there is still room for other players to grow. In last December, Didi Chuxing’s market penetration rate was 11.4%, followed by Yidao Yongche (0.9%) and Shenzhou Zhuanche (0.7%), according to Jiguang Data. Caocao Zhuanche, taking the 7th place in the list, showed an explosive growth rate 512.7% in December.

Three things seemed to have contributed to Caocao’s high valuation. Firstly, Caocao Zhuanche uses only electric vehicles from Chinese automotive manufacturing company Geely, who is also a strategic investor to the company. Unlike other ride-sharing companies, Caocao Zhuanche owns all the vehicles used in its service and trains their drivers and gives certificates to them. On top of taxi hailing services, the company also offers car rental services and private car hailing services which user can also have a tour guide option.

Launched in 2015, Hangzhou-based company claims that it now operates in 17 cities with over 12,000 drivers, and fills roughly 150,000 daily orders. It is named after Caocao(曹操), one of the central figures of the Three Kingdoms period.

Expanding to car-hailing business seems like a new movement for Chinese companies. Chinese O2O ecommerce company Meituan-Dianping set up its ride-sharing unit, and chauffeured car service provider Yidao Yongche also launched its taxi-hailing service. The two companies are currently having a subsidy war to attract more users to their services to win over Didi’s market dominance. Earlier this month, bike rental startup Mobike also expanded to car hailing service by partnering with Shouqi Limousine & Chauffer (首汽约车) to battle its arch rival having their bike rental service on Didi Chuxing.

A week after China’s leading O2O and e-commerce platform Meituan announced that “Meituan Dache (美团打车)” will be launching in Beijing on January 12, Municipal Commission of Transportation said “Meituan Dache” is not yet in accordance with the municipal law to apply for ride-hailing business, and has not obtained related business qualification yet, Chinese media Tencent News is reporting. 

According to the “Opinions from the General Office of the State Council on Deepening Reform and Promoting the Healthy Development of Taxi Industry” (our translation, 国务院办公厅关于深化改革推进出租汽车行业健康发展的指导意见), ride hailing business services should go through relevant permit procedures in the city. The municipal department in charge of transportation spoke to Meituan’s relevant person in charge and claimed that the company should operate the following service in accordance with laws and regulations in Beijing.

Meituan Dache’s official Weibo account has not responded to the matter yet. Meituan Dache Weibo account, established on July 2017, was used as a platform to push the subsidies to its over 11,000 followers.

This comes just two days before launch. Meituan, who was busy pushing subsidies to its users to battle Didi, would have to make sure their service abides by the rule. Didi has been dominating the taxi hailing market, since it acquired Uber’s China operations in August 2016.

With bigger ambition to find next revenue source, TMD (Toutiao, Meituan, and Didi Chuxing), the new BAT, are now crossing the boundary of their proprietary businesses. While O2O service Meituan is getting into taxi-hailing, ride-hailing company Didi is getting into bike rental service after Bluegogo tie-up, and AI-powered news aggregation app Jinri Toutiao is getting into payment service after acquiring online payment license.

Meituan, China’s leading O2O and e-commerce platform, is triggering a subsidy war as it is making a foray into the ride-hailing sector, offering users an average RMB 20 ($3) subsidy per order, local media reports.

Offering subsidies may be the easiest and the most effective way for Meituan to secure a larger user base as it expands in the field where Didi Chuxing pretty much dominates the market. Meituan has already started its subsidy policy. In December 2017, users who had completed eight orders could be rewarded RMB 60 ($9.22), and those completing 13 orders could receive RMB 100 ($15.37). Meituan also offers some other subsidies during peak hours.

Meituan is ambitiously expanding and has announced in December 2017 that the firm had a team of over 200 employees to run its ride-hailing business. After its first testing in Nanjing that began in February last year, Meituan plans to roll out the service in seven other cities, including Beijing, Shanghai, Chengdu, Hangzhou, Fuzhou, Wenzhou, and Xiamen.

On top of that, in order to recruit more drivers, Meituan will give a three-month fee waiver for the first 50,000 drivers in Beijing, saying that the platform will not draw a portion from the drivers’ earnings.

All of these moves from Meituan reflect its determination to take on Didi. The war in the ride-hailing industry was assumably settled after Didi acquired Uber’s China operations in August 2016. Now with Meituan entering the battlefield, Didi’s position might be shaken. In October 2017, Meituan landed a $4 billion Series C round of financing led by Tencent and was valued at $30 billion.

Didi Chuxing, China’s dominating ride-hailing giant, today announced that it has raised over $4 billion in a new equity funding round. Now having $12 billion in cash reserves, Didi has a valuation of more than $50 billion, making it one of Asia’s largest startups.

The new funding will be used to support Didi’s AI capacity-building, international expansion, and new business initiatives, including the development of new energy vehicle service networks, according the company’s statement.

Meituan, China’s leading food delivery platform, is determined to take on Didi, as Meituan is planning to expand its ride hailing service to seven major cities in China (in Chinese).

After testing the car-hailing business in Nanjing since February, Meituan is taking a step forward to challenge Didi’s dominant position in the sector by planning to roll out the ride-hailing service in seven cities, including Beijing, Shanghai, Chengdu, Hangzhou, Fuzhou, Wenzhou, and Xiamen, as reported by local media Caijing.

The war in the ride-hailing industry was assumably settled after Didi acquired Uber’s China operations last August, making Didi the dominator in the sector. However, with Meituan entering the battlefield, Didi’s position might be shaken. In October, Meituan landed a $4 billion Series C round of financing led by Tencent, and was valued at $30 billion.

It’s worth noting that Didi is reportedly working toward the launch of a food delivery service—one of Meituan’s core businesses. Meituan has a large scale of offerings, including food delivery, group buying, hotel booking, and even movie ticket sale, while Didi’s business has mainly been revolving around ride-hailing service.

Chinese ride-hailing giant Didi has a group of employees who are secretly working toward the launch of a food delivery service, local media reports, citing people familiar with matter.

The source pointed out that Didi has been engaged in the R&D of food delivery service for quite a while. Product development and technical staff on the project have been relocated to a new office and their details have been removed from Didi’s internal communication contacts, the source added.

Didi has not provided any comment in response to our inquiry into the matter. But a previous conversation with CEO Cheng Wei shows that the firm is at least open to such areas. “Everything is possible. The most important issue is whether it will create value for our users,” said Cheng when asked by Tencent News about the possibilities of entering catering and local life sectors.

Also, there are earlier signs of Didi’s interest in the sector. As early as 2015, the firm partnered with Ele.me for a program similar to ‘UberEATs’, the food delivery service run by Uber. The partnership has potential synergy given that both companies exist within Tencent’s strategic investment ecosystem.

Didi’s new food delivery service will put it in direct competition with Meituan, China’s top O2O titan that itself added a car-hailing function to its app in February this year.

As Chinese internet giants are increasingly blurring the boundaries between sectors, it’s getting harder and harder to define them by a single industry. Alibaba is no longer just an e-commerce giant and search engine has long ceased to be Baidu’s only pillar of business. Such business expansions will cause business overlap between top tech firms, and thus intensify competition in these verticals.

E-commerce in China has seen such rapid growth in 2017 that even something as mundane as selling vegetables is starting to sound sexy. During the first six months of 2017, China’s online retail sales of goods and services recorded a 33.4% year-on-year growth amounting to RMB 3.1 trillion ($470 billion).

The success has drawn China’s largest e-commerce companies to new frontiers: Alibaba, JD, Tencent and even Meituan have been heavily investing in fresh food e-commerce, offline stores, as well as tapping into rural areas with drones. The expansion into offline is part of China’s “new retail” trend which aims to erase the distinction between online and offline shopping.

Alibaba and Boston Consulting Group have published a series of articles titled “The New Retail: Lessons from China for the West” which explores how differently China’s digital marketplace has evolved from western ones and what is driving their success. Here are some of their key insights.

1. Personalized discovery

Unlike western consumers which mostly search for desired items on websites such as Amazon or directly on retailer websites, Chinese do their online shopping as if they are browsing through a mall with friends and family. Brands prefer to set up stores on well-established platforms instead of running their own websites. This gives them an opportunity to be a part of a shopper’s journey of discovery – Chinese consumers log into their favorite shopping platform to see the hottest new trends and receive real-time customized recommendations.

Personalization is key in leading the discovery. Although online merchants in the west offer suggestions based on searches and buying history, China’s largest e-commerce company Alibaba goes deeper than that: it gathers social interaction and location data boosted by with data analytics and AI. A good example is this week’s Chinese Valentine’s Day when Alibaba published maps of where singles live in Chinese cities and where people go on dates.

2. Seamless sales

Imagine you are watching a video tutorial, browsing through social media or reading news. Some shiny new thing catches your eye. Unlike Western consumers who would typically have to exit their Pinterest/Facebook/Whatsapp to search for the item, Chinese consumers can get the object of their desire in one click.

Thanks to platform integrations, shoppers in China discover brands and products through an increasingly diverse set of channels. Gaming, news, social media, and the ever popular live streaming phenomenon in which internet celebrities (网红, wǎnghóng in Chinese) market themselves and products are all connected to e-commerce websites. One example is JD’s recent partnerships with Qihoo360 and Baidu which will allow the e-commerce giant to  seamlessly target consumers where they spend their time on the internet, be it social, search, maps, news or security.

Another example is Taobao and WeChat which have turned into super apps by absorbing more and more features that allow users to shop, entertain themselves and communicate in just one app. This allows the path from discovery to purchase to become seamless.

3. Content is king

The recent rise of live streaming is just one channel that marketers use to capture consumers’ attention. Innovative ways which help drive sales are being developed every day in China. Some companies choose to partner up with key opinion leaders (KOLs) like celebrities or experts and market through WeChat. Others live stream their products directly from Taobao, Tmall or JD.com, like these farmers who used live streaming to sell their kumquats during Chinese New Year.

Experimentation is the force driving the shopping boom and some of these experiments are highly technologically advanced. Tmall has made a mirror app that allows users to apply up to 2,000 makeup shades from brands such as L’Oreal and Bobbi Brown. Users can share photos with friends and buy products from the app. Alibaba is experimenting with virtual reality with Buy+ events which transport shoppers into virtual malls. Grocery retailer Wumart has launched its own mobile wallet that gathers user data to give discounts and recommendations.

4. C2B innovation

Unlike the classical Business-to-Consumer (B2C) relationship which goes only one way, Consumer-to-Business (C2B) innovation allows customers to add value to the company by harnessing their insights. China’s is currently leading the way in this new approach. By using data insight and following trends, social media, and events, Chinese companies can give shoppers exactly what they want at the right time. This allows more experimentation: if the product fails, it can be withdrawn fast, and if it works, it can scale up.

Again, the abundance of data makes it easier to predict trends. But the C2B approach requires more than that—the entire process of creating and launching a product takes only a few weeks instead of a few months. This is why speed and agility are crucial.

5. Agility, flexibility, and speed

When Alibaba was first founded in 1999, China’s consumer companies were less developed than their western competitors. However, the initial hindrance soon proved to be a boon. New companies, less burdened by physical retail operations and bureaucracy, used agile decision making to develop a vibrant and highly competitive market. This has also been transferred to agile product development.

Agility is also required from factories. Fast fashion has made manufacturers more flexible than ever, offering smaller volumes and frequent changes to production lines. Fast-react suppliers allow companies to sell products before they are even manufactured, and not just in the fashion industry. Thanks to the abundance of manufacturing sites and geographical proximity, Chinese companies are in the best position to profit from this.

Western companies, on the other hand, often have to make their order far in advance and wait for their shipment.

Finally, access to speedy distribution through e-commerce platforms has solved a big headache for many companies. The miniature “kuaidi” electric tricycles can now be seen throughout the country making their deliveries to shoppers eager to open their packages.

Baidu is currently in negotiations to sell its delivery service Waimai to its competitor Ele.me backed by Alibaba and Ant Financial, according to financial magazine Caijing (in Chinese). Neither Baidu or Ele.me has confirmed the news so far, but Weibo users have already renamed the new company “eduzi”(饿度子), a pun on the two company’s names.

The merger is set to be announced in two to three weeks. According to reports, the two company would merge with Baidu acquiring shares in the new firm. The news comes two months after failed negotiations between Baidu Waimai with China’s leading delivery company SF Express.

The possible merger could be another step in the ongoing battle between Alibaba and Tencent which is backing another major food delivery company Meituan-Dianping. According to Caijing, Alibaba is in negotiations to take full control of Ele.me. If Alibaba succeeds in taking both Ele.me and Baidu Waimai, this would leave only two major players in China’s food delivery industry–Meituan-Dianping and Ele.me.

Another interesting twist is that Meituan-Dianping has been recently rumored to receive a $3-5 billion in funding. If the reports are true, we may be in for a serious food fight.

Meituan-Dianping’s CEO Wang Xing responded to negative comments on the recent controversy about food delivery app Meituan Waimai (美团外卖, Meituan Takeaway) using separate boxes for halal food, our sister site TechNode Chinese is reporting.

This week, a picture of Meituan Waimai using a separate food box for halal food was widely circulated on the Chinese internet, stirring up controversy with many netizens claiming discrimination against non-Muslims. The Meituan Waimai app was flooded with one-star comments of angry Chinese netizens claiming that Meituan users should delete the app. Initially, Meituan did not respond to this. And then one user called “Meituan city manager Zhang Wei,” published the user’s comment on knowledge sharing platform Zhihu, which once again led to strong condemnation from the public.

After a long silence, Meituan responded to the issue on its official Weibo account on the evening of July 19th:

After our investigation and verification, we found that Meituan Takeaway agents in Gansu Linxia Hui Autonomous Prefecture area privately produced unofficial distribution boxes and fans, and currently it can be found in only in a small place in the Gansu Linxia area. We will strengthen the supervision of agents and food materials, and keep strict requirements of agents and businesses to only use official materials.

In addition, the Meituan-Dianping CEO Wang Xing said through his account on Fanfou, a 140-words micro-blogging platform, that the company did not have such a staff named “Meituan city manager Zhang Wei”, and said someone deliberately posted the comment to discredit Meituan.

Wang Xing said, “We have checked internally, and there is no such low, pig-like person on our team. Basically, it can be judged that someone deliberately posing as the Meituan staff published disgusting remarks to discredit us. This was an organized attack.”

Then, Wang Xing again said, “These days, we had the opportunity to see how the domestic business competition has no bottom line. Anything can be used to incite, provoke, and discredit.”

China’s largest restaurant food delivery platform has released a report on the country’s dining delivery trends, providing not only information on the technology and stats behind the platform but crucial data-led insight into changing Chinese dining habits and the catering industry as a whole.

Meituan-Dianping has revealed that it now processes 13 million orders a day, but despite the ubiquitous delivery bikes plying the streets of China’s cities large and small, only 4% of restaurant food is delivered.

Meituan-Dianping offers apps that let users order food to their homes or desk with a few simple taps and pay through their phones. The company has 6.5 million restaurants in its database and 260 million active users; it has recently broken the 13 million orders a day mark, coming to RMB 555 million daily in gross merchandise value.

Their data shows that the dining market grew 11.3% in 2016 against the overall economic growth backdrop of 6.7%, and they predict double-digit growth for a few more years to come.

Although food delivery revenues tripled in 2016 to RMB 130 billion, delivery orders only made up 4% of total dining revenue. Growth is expected to grow to reach RMB 300 billion per year in 2018 when on-demand deliveries are expected to make up 10% of dining expenditure.

Data decisions

The report found that 100 restaurants a day are opened in China’s first-tier cities alone—and that 70% will shut up shop within a year. However, analytics from the platform can help prospective restaurateurs and investors devise what type of cuisine to offer in what location.

At present, the top five categories for new openings are fast food, bakeries, hot pot, Sichuanese, and barbecue.

For diners, the apps are allowing them to dine from a wider range of establishments. The data shows that on-demand delivery allows restaurants to cover customers within 3-5km while typically people only travel up to 1km to eat in.

Tech for better safety and changing habits

China has long been plagued by both safety and environmental scandals, many of which have involved the food industry from tainted baby formula to restaurants buying gutter oil. The food ordering platforms’ rating systems allow customers to police restaurants, driving up standards for food safety and environmental awareness.

The software is allowing restaurants to offer more services to customers such as reservations, digital menus, and in-restaurant queuing systems, but beyond that, it is also changing diners’ habits.

Lunchtime in China is sacrosanct. From around 11.55am to 1.05pm, the whole country is on its way to, eating or on its way back from lunch. Or so it seemed. Data from Meituan-Dianping now shows that ordering online is bringing lunchtime forwards and the peak is 10 am to 12 pm.

People are spending more and more frequently: the average order size is now over RMB 40 and 79% of users order more than once a week and 47% order more than three times a week.

The data collected also shows that it is millennials who are driving the growth and development of the dining industry. The relatively wealthy younger generations born in the 1980s and 1990s contributed to more than 70% of dining consumption. According to the report, this socioeconomic group will pay more for food perceived to be better quality, healthier and safer. They will also respond well to good design and new social experiences when dining.

Editor’s note: This originally appeared in our weekly newsletter. Sign up here to get our updates straight to your inbox.

SF Express, one of China’s largest and most valuable courier companies, is claiming that Cainiao, an Alibaba logistics affiliate, has removed them as a shipping option. From South China Morning Post:

At issue is access to data about the merchants that sell their products, and the shoppers that placed those orders. SF Express claimed in a Shenzhen stock exchange filing that Cainiao had removed it as a shipping option, and blocked access to data. Cainiao – controlled by Alibaba, which owns the South China Morning Post – responded by saying it was the courier that first walled off vital information.

Bloomberg has more detail on Cainiao’s response:

“We are surprised and disappointed by SF’s abrupt action to stop providing the information that is necessary for the smooth completion of parcel deliveries,” Cainiao said in an emailed statement. “To protect more than a million of consumers and merchants from potential parcel losses, we have no option but to remove SF as a delivery option on Cainiao’s network.”

Logistics has been one the biggest pain points for the growth of e-commerce in China. Unlike the US where the USPS was robust enough for Amazon to build their business, China Post was another typical example of what happens under a bureaucracy: it was slow and unreliable. Out of this came a myriad of courier and delivery companies: SF Express, YTO Express, ZTO Express, and many more. However, in order to ensure that Taobao and Tmall customers and merchants could not only better manage their deliveries but also deliver them faster, Alibaba created Cainiao in 2013.

Cainiao acts as a one-stop place for customers and merchants to easily track and manage deliveries (Alibaba has bigger plans for it, saying they will build delivery hubs around the country). Conspicuously absent from the Cainiao platform are any and all deliveries from JD (京东) who have their own in-house courier service.

A web of alliances

Much of this conflict is about data and, more importantly, who has access to that data. Tencent owns a 15% stake in JD and, as you can imagine, is loathe to share potentially valuable customer data with its arch-rival Alibaba. Indeed, just after the spat between SF Express and Cainiao went public, Jingdong, Meituan-Dianping (of which Tencent owns a large stake), NetEase, and Tencent all announced partnerships with or support of SF Express(in Chinese).

This type of back and forth, he-said-she-said is not new to the Chinese tech industry and, at this point, it doesn’t really matter who shut out who first. What does matter is that SF Express has clearly taken a side. Indeed, from what I and others have gathered, much of this kerfuffle started because SF Express was using Tencent’s cloud services and didn’t want to migrate to a service operated by Alibaba.

A web of data

Data is what makes the internet go ‘round. More and more the data generated by any given company can actually be worth more than the actual service or product they provide.

Both Alibaba and Tencent are savvy companies who both clearly understand what it will take to succeed as the internet economy is evolving. While Baidu has, perhaps for the time being, faded into the background, the battle for dominance has fallen to Tencent and Alibaba. While their backgrounds are quite different (social and gaming for Tencent and e-commerce for Alibaba), they continue to find points of friction in their own products (Tencent Pay vs Alipay) and in their investments into the same verticals with logistics being the most recent battleground.

Chinese O2O giant Meituan-Dianping has denied a recent media report that its major shareholder Tencent has withdrawn from its new round of financing which is said to be underway, claiming that the statement is erroneous and that the company as a whole has broken even.

Meituan Senior Vice President Chen Shaohui said that the company has not initiated a new financing round so far, nor has it had a listing plan, and the “Tencent withdrawal” statement is thus made without any factual basis.

Lin Haifeng, the General Manager of Tencent’s Merger and Acquisitions Department, also viewed the withdrawal statement as a pure rumor, and said that Tencent is bullish on future prospects of localized consumer services and Meituan’s continuous business layout in this space; and that Tencent and Meituan have been deepening their strategic cooperation.

Tencent was rumored to decline to lead a new financing round recently launched by Meituan, while other domestic investors were also holding back their money. This was speculated force Meituan to seek overseas financing to satisfy its huge appetite for funds.

Meituan reportedly received the cold shoulder largely due to its poor performance, which has made its investors view the continued investment into the O2O service as an unprofitable undertaking. In addition, Meituan’s expansion into the payment sector was said to be the other reason for Tencent pulling away from the rumored new financing.

Meituan gained a third-party payment license after it bought a third-party payment provider Qiandaibao (钱袋宝) last September, a move seen as part of its efforts to seek some independence from its major shareholder, and also one that may have infuriated Tencent, whose mobile payment service Tenpay was the runner-up player in the market with a 37% share. The parties may have had a rift since then, although Meituan ultimately returned to Tencent’s WeChat Pay as its payment service failed to gather steam.

Meituan, which started out as a group-buying website, has expanded into myriads of other verticals including food delivery, hotel booking, ride-hailing and short rental, backed by its roughly US$4.5 billion war chest built up from six funding rounds. Yet, it has also been confronted with cut-throat competition in each field it forayed into and failed to gain traction as a whole.

With all the lackluster business performance that comes with frequent reshuffles on its management team and corporate structure, it was reported that seven out of the company’s eight core members have left for one reason or another.

It’s worth mentioning that Tencent CEO Pony Ma publicly expressed confidence in news reading app Toutiao and car-hailing giant Didi, in which Tencent has made hefty investments as well, yet he never mentioned Meituan in such case.

To restore confidence, Meituan also released today its latest performance, claiming that the company saw over 18 million orders placed on a daily basis, with more than US$3 billion in cash reserves. And it has gathered 240 million active buyers and 3 million active merchants on an annual basis.

China’s hit anti-corruption TV drama In the Name of the People has just come to an end, but the cleanup campaigns for Chinese internet giants is continuing.

Meituan-Dianping, the acknowledged O2O giant in China, revealed ten graft cases in the group in an internal email, local media is reporting. A dozen employees and merchants were involved in charges of receiving bribes from merchants, deceiving merchants, stealing personal information of clients, and order scalping, whereby merchants inflate their sales through fake orders to cheat for platform subsidies. The suspected criminals have been handed over to the judiciary authorities for further investigation and trial.

The company says it will adopt a zero tolerance approach for those who make fake orders or conduct online frauds no matter they are company employees or merchants.

This is not the first time Meituan has taken action against illegal behavior. According to the internal statement, the company transferred 30 employees and nearly 200 illegal merchants in 2016 to relevant authorities.

The cases Meituan revealed this time include specific examples from employees soliciting kickbacks from merchants to deliveryman making a profit by asking customers to scan fake QR codes. While it is unclear how long this has been happening, what is clear is that corruption has infected all the core businesses of the company from hotel booking to food delivery.

Meituan’s food delivery business is where the corruption is most severe. This is partly caused by the highly subsidized business model of this sector. Similarly, subsidy fraud is also affecting ride-hailing, another subsidy boosted industry in the country.

Meituan’s announcement has brought the phenomenon of internal corruption in internet companies to the spotlight, but as far as Meituan’s cases are concerned, this kind of practice is something commonplace in the days of click farming, rampant selling of personal information, and empty product scalping, among others.

The severity of the problem has encouraged many companies to publicly disclose corruption cases before they were found out by investigators.

After revealing ten graft cases in November last year, JD launched a second anti-corruption campaign with the announcement of six corruption cases this week, firing eight people who have been taking bribes. Alibaba, Tencent, and Baidu have all made their moves through setting up dedicated departments for the clean up internal corruptions. Baidu’s former vice president Li Mingyuan has resigned amid a reported scandal of undisclosed transactions and ethical violations.

Although only bigwigs are involved in this battle now, the joint efforts and determination would foster a healthier industrial environment.

Cleaning up corruption with iron fist measures are sure an important component for an anti-corruption drive. However, like in China’s governmental anti-graft movements, the key problem for these tech behemoths lies in how to establish effective prevention mechanisms to make sure this doesn’t happen in the first place.

China’s O2O giant Meituan announced yesterday the launch of its homestay business – Zhenguo Homestay (榛果民宿 in Chinese), taking another step to branch out into more O2O verticals, local media is reporting (in Chinese).

The homestay service has listed some properties in tier-one cities as well as some popular travel destinations on its app and plans to increase its housing supply to 150,000 properties by the end of this year.

Zhenguo Homestay is attracting individual landlords to share their vacant apartments on its platform, noted Feng Weihe, head of the home-rental service. Most of these will be whole-apartment rentals rather than renting out individual rooms in order to better address possible trust issues, Feng added.

The introduction of the homestay service is the latest expansion effort by Meituan after the O2O giant added a car-hailing feature into its app in February, going head-to-head with car-hailing giant Didi.

As a late entrant to the short-term home rental market, where early birds Airbnb, Xiaozhu (小猪in Chinese) and Tujia (途家in Chinese) have been pitting against each other, Meituan is facing more intensive competition in terms of operation and housing resources.

On the flip side, there remain abundant opportunities for Meituan to tap the budding market as its foray is coinciding with a good timing when the homestay culture is just gradually taking root among Chinese users.

And the addition of the new vertical is bound to attract more traffic to the Chinese O2O titan’s platform which boasts troves of new features from food delivery and ticket-booking to hotel reservation and thus helps enhance its engagement with more users.

Currently, PE and VC firms have begun to give Chinese O2O firms cold shoulders, as these firms have not yet to come up with a viable profitable business model.  Meituan is not immune either.

The firm has been thwarted in its repeated efforts to turn its core businesses around, namely group buying, food delivery and hotel reservation. Dogged by skepticism about its profitability, the firm saw its valuation fall one-third to US$ 12.5 billion this year. The company seems to be hoping that the homestay service could breathe life back into its ailing business.

Didi and Uber’s billion-dollar merger completed last August was assumed to have finally settled the ride-hailing war with Didi as the sole dominator in the Middle Kingdom. However, the peace brought by the truce between world’s two largest ride-summoning services is short lived as well-grounded local rival Meituan has announced they are entering the battlefield.

On Tuesday, China’s top O2O titan Meituan added a car-hailing function into its app, which now features a wide variety of services from food delivery, film tickets, hotel reservation and flight/train tickets.

After finding the ride-hailing service in Meituan’s home page, users in Nanjing can book their trips in an interface and operation process very similar to Didi’s. Payments can be made with bank cards, WeChat or QQ Wallet.

Meituan’s entrance into the ride-hailing industry is quite unexpected given that the internet giant is mainly focused on local lifestyle services. The company has kept a low profile when talking about the new service, only explaining to local media that the feature was added to fulfill rising demand from users.

Meituan has plans to spread the service to more cities, but hasn’t released a timetable for the expansion.

Meituan, now more commonly known as Meituan-Dianping after its merger with once competitor Dianping, has some tricks up its sleeves in competing with the already established players led by Didi.

Meituan-Dianping now claimes to be the third largest e-commerce platform in China, next only to Alibaba and JD. The company has registered over 600 million users with monthly active mobile users hitting 180 million, a company rep told TechNode. This huge user base is expected to bring traffic to the service.

Additionally, nearly all the services that Meituan provides is directly related to intercity transportation services. This could enable an easy transition from one service to another within the app.

Last year, Meituan’s legendary CEO and Chinese internet opinion leader Wang Xing, put forward a proposition that Chinese internet is entering the “Second Half”, believing that “. . . only deep integration can lead to full transition [from the first to the second half].”

Integrating ride-hailing services could be considered in line with the proposition to penetrate other related services. In addition, the company has acquired Qiandai, a third-party payment startup, to make inroads into online payment sector.

This post is updated on 13:48 February 15th to change some of the operation metrics of Meituan-Dianping.

This is the first post in our series: Discover China’s Next BAT, where we will go over the potential tech giants that are leading China’s IT industry. Stay tuned over the coming month to keep updated on the next ‘BAT.’ 

Anyone who is interested in IT industry in China would probably be familiar with what ‘BAT’ stands for: Baidu, Alibaba, and Tencent, the three tech giants in China. However, they are all quite mature and old. Indeed, it is time for a new acronym that represents three significant companies, following the success of BAT.

Now, we’d like to introduce a new acronym, TMD: Toutiao, Meituan, and Didi Chuxing.

Toutiao （头条)

Toutiao, meaning “headlines” in Chinese, is an insanely popular Chinese news aggregation app. Toutiao boasts some 700 million users in China, with more than 68 million active daily users.

It is important to note that Toutiao is not a mere news reading service but rather a curation platform with highly sophisticated machine learning technology. With the database of readers’ taste and preference, Touiao precisely tailors its offerings accordingly to get more clicks.

Recently, Toutiao acquired Flipagram, a popular video app in the US. The company plans to integrate Flipagram videos in those recommendations, so that should improve Flipagram’s reach.

Meituan–Dianping (新美大)

Meituan and Dianping, two of the dominant group deals e-commerce platforms, merged in October 2015, forming a joint company called Meituan-Dianping or Xinmeida in Chinese.

By joining forces, it claimed RMB 170 billion (US$ 25.84 billion) in gross merchandise volume (or the value of merchandise sold online) last year and currently serves about 150 million monthly active users who place about 10 million orders each day.

Just last month, Meituan-Dianping announced the launch of their own online financial services, following Alibaba and Tencent.

Didi Chuxing 

After a bruising two-year battle in mainland China, Uber sold its China operations to Didi Chuxing which in turn gives Uber a one-fifth stake in Didi.

The Didi deal is the latest sign that global Internet and technology companies are struggling to break into China’s cut-throat market, where local entrepreneurs have built formidable businesses, partly helped by a supportive government.

The year of 2016 has witnessed the most dramatic changes of China’s food delivery industry with the continuous influx of hefty capital pitted against food security scandals.

However, as the country’s food delivery industry begins to wind down, the market is becoming more consolidated with a few leading players controlling a dominant share, with an expected worth of 165.29 billion RMB ($24.71 billion USD) in 2016, according to analytics institute iiMedia Research.

Ele.me, Meituan Waimai and Baidu Waimai, three leading companies of China’s food delivery industry, represent 37.5%, 30.5% and 15.0% respectively of the total market as of May this year, the report pointed out.

As one of the earliest entrants, Ele.me is still the largest player in the industry, but its advantage over Meituan Waimai and Baidu Waimai is narrowing. According to data from Quest Mobile, Ele.me’s monthly active users climbed 124% to 17.46 million in May this year, a slower growth rate compared to Baidu Waimai’s 531% (16.62 million MAU in total) and Meituan Waimai’s 293% (14.94 million MAU in total).

Although the services the three companies provide are quite similar, they do have differences in the target clients and markets.

In terms of regional distribution, Quest Mobile’s data shows Baidu Waimai and Ele.me take the lead in first and second-tier city coverage respectively, while Meituan Waimai has a stronger presence in third and fourth-tier cities.

The white collar market is the competitive focus of all companies thanks to higher purchase frequency, user loyalty and price per order. Ele.me and Baidu Waimai are similar in terms of white-collar user coverage. Meituan’s user demographic leans more toward grassroots consumers.

The three companies take a combined 83% of the market. A wide range of quirky food delivery options emerged like home style cuisine (Home Cook), chef on-demand services (Haochushi, Jinshisong, Idachu) and food delivery services that focus on a special food ingredient (Call A Duck, Call A Chicken).

The Chinese box office has soared in recent years and the growth is projected to continue. The movie ticket sector is a hot target for tech companies who’ve been sniffing around conventional industries for business opportunities.

China’s online movie ticket sales as a percentage of total sales reached 75% in July 2015, according to market research firm Eguan and the market data service under Chinese authorities. Mostly were through mobile apps.

The online movie ticket booking market is highly consolidated, and the new entity resulting from the Meituan-Dianping merger holds a dominant position in the market. Tencent-backed WePiao recently merged with Gewala, one of the first online movie ticket booking services in China. Tencent is also an investor in Meituan-Dianping.

The rest of the market is mainly divided between Alibaba and Nuomi, the group-buying service Baidu acquired from Renren.

Like the food delivery and ride-hailing sectors movie ticket booking in China is highly subsidized. Some ticket booking apps take a few yuan for each ticket sold in commission, but no player will turn a significant profit in the near future given their massive subsidy campaigns.

For movie publishers and distributors, those popular movie ticketing apps have become a good place for online marketing campaigns. Tech companies are willing to conduct experiments with them to see what online marketing and promotions stick and which ones flop.

Unsurprisingly these movie ticketing apps are expanding to other categories such as music, arts and sports events. It’s no secret the tech giants behind them are aiming to disrupt the whole entertainment industry, not just bookings.

Group-Buying Helped Meituan Take The Lead

In 2012 Meituan, then only significant player in the group-buying sector, decided to develop a separate app for their movie ticket service.

Deals helped the app, called ‘Maoyan’ (‘Cat Eye’), quickly gain traction and surpass the existing movie ticket booking services such as Mtime. Group-buying discounts also helped Baidu’s Nuomi take a nice market share in movie ticket booking early on.

Maoyan generated some 5 billion yuan ($806 million USD) in gross merchandize volume in 2014 and 6 billion yuan ($970 million USD) in the first half of 2015.

Meituan claims that sales through their platform represent some 30% of China’s total box office as of the first half of 2015. The company has now begun working with directors and producers to help publish and promote their movies.

WePiao: The tencent-Backed Dark Horse

With Tencent behind them, two-year-old startup WePiao quickly become a major player in China’s movie and events ticketing market.

The startup is now running movie and event ticket booking services on the highly-popular Tencent social services WeChat and Mobile QQ, both of which boast more than 600 million monthly active users. Users are able to select seats and pay with the built-in mobile payment service provided by Tencent without leaving WeChat or Mobile QQ.

WePiao has also been granted exclusive rights to operate the WeChat display advertising program for the entertainment businesses. The ad solution provided by WePiao enables audience targeting and tickets to be purchased directly inside the WeChat application.

It’s one of the few cases where Tencent has allowed a startup to build a major service for its social networking platforms. Lin Ning, founder and CEO of WePiao, said it was Pony Ma, CEO of Tencent, who invited him to build the event ticket booking service for Tencent. Lin became the CEO of Gaopeng, the joint venture between Groupon and Tencent, in 2012 and his own group-buying startup would be merged into Gaopeng later.

WePiao has raised an almost US$350 million total funding through three rounds, according to the company. Tencent participated all three rounds and now they are the company’s second-largest shareholder. Wanda Group, the real estate and entertainment conglomerate, also participated in the series B and C rounds.

WePiao has signed up some 4500 movie theaters in over 500 cities, claiming to cover 80% of cinemas across China. It has added a few foreign counties including the U.S. and Spain.

Daily ticket sales and pre-orders reached 400,000 as of May 2015, according to Lin Ning. The merger with Gewala would bring WePiao an online fans community of more than 40 million users.

WePiao is now trying to be more involved in movie publishing, distribution and production. The company has started working with some movie theaters on scheduling.

Wealth management services provider NOAH, its subsidiary Gopher Asset Management, and WePiao jointly established a 2 billion yuan ($320 million USD) investment fund for movies or movie-related content and services in 2015. WePiao has invested in a dozen domestic movies.

Tencent wants to (and is able to) go even further. The company unveiled two production companies, Tencent Pictures and Penguin Pictures, in 2015. Tencent Pictures owns movie studios that will produce movies adapted from online games, and Penguin Pictures will produce online shows and make investments in movies. Pony Ma, co-founder and CEO of Tencent, is a long time shareholder in Huayi Brothers, one of the largest movie production companies in China.

Alibaba: “Smart Cinema” is the New Cool.

For Alibaba, movie ticketing is just a small part of their intended entertainment empire.

Taobao Dianying, which sells movie tickets and merchandize online, and Yulebao, an online crowdfunding platform that allows small investors to invest in movies, have recently been merged into Alibaba Pictures Group.

Alibaba bought a controlling stake in ChinaVision Media Group, a television and movie production company, in March 2014 and then rebranded it as Alibaba Pictures Group.

In March 2015 the company made a RMB2.4 billion (US$39mn) investment in Enlight Media, a leading television and movie production company, for an 8.8% stake. Alibaba’s Jack Ma is also a shareholder in Huayi Brothers.

After pulling those leading movie content producers under their entertainment umbrella, Alibaba formed a “smart cinema” initiative. The acquisition of YKSE, the cinema management software and ticketing app developer whose services are used by most of online movie ticketing services in China, is building a cloud-based analytics and business intelligence platform.

Image credits: Meituan, WePiao

Meituan-Dianping, the top provider of on-demand services in China, has sealed a record-breaking $3.3 billion USD funding round, valuing the company at more than $18 billion USD. The funds will be used to consolidate their market share as competing powerhouses Alibaba and Baidu seek to boost their own services.

Investors in the latest round include Chinese tech giant Tencent Holdings Ltd., VC firm DST Global and Singapore state investment firm Temasek Holdings Pte Ltd, said the company on Tuesday.

The investment marks the biggest single private fundraising round ever snagged by a VC-backed startup. Last year China’s leading ride-hailing service Didi Kuaidi raised $3 billion USD, spurring speculation that a bubble was forming in the country’s booming offline-to-online sector.

Meituan and Dianping merged in October last year ending a savage industry rivalry propped up my massive subsidies from both companies. Meituan’s shareholders took on approximately 60 percent of the company following the match-up.

Meituan Dianping’s first major fundraising event since the merger also highlights the complex investment relationship between tech giants Alibaba Group Holding Ltd. and Tencent, both of whom held a stake in the newly joined company.

In November last year the Wall Street Journal cited unnamed sources who said that Tencent was planning to invest $1 billion in the new company’s latest round. At the same time, Alibaba – an early investor in Meituan, sought to sell their $1 billion USD stake and refocus efforts on their own on-demand service platform, Koubei.

Meanwhile Chinese search engine giant Baidu has also doubled down on their own on demand service, Nuomi. Last year Baidu committed to spending $3.2 billion on the service over three years. Both Nuomi and Meituan-Dianping are now scrambling for market share, spending heavily on subsidies to become the dominant platform in an increasingly competitive market.

Meituan and Dianping, the two leading group-buying providers, often dubbed the respective Groupon and Yelp of China, have agreed to form a joint venture with equal shares valued between $15 billion and $17 billion USD, according to statements from both companies and their investors.

The match-up marks the end of another O2O service war in China, once again bringing together the country’s two biggest tech powerhouses and investors, Tencent and Alibaba.

The deal between Ali-backed Meituan and Tencent-backed Dianping is the second landmark merger between the tech giants this year, with their respective car-hailing apps Kuiadi Dache and Didi Dache joining forces in February.

While the merger will bring together two of the largest O2O providers in the market, it won’t quite form the same monopoly as the Didi Kuaidi deal. Both Alibaba and Tencent have invested separately in other companies that are still competing successfully in the market, including Ali-backed O2O hub Koubei and Tencent-backed food and grocery delivery startup Ele.me.

Tencent and Alibaba aren’t the only companies that have sought to merge their investments this year. As China’s tech services market becomes increasingly crowded, large players are looking to consolidate their stake fast, hoping to cash in on early adoption. Big-name match-ups include that of 58.com and Ganji.com, the long-time rivals in the online classified ads market, that announced their merger just two months after Didi Kuaidi.

Though Dianping started off with a Yelp-like ratings and reviews service in 2003 and Meituan from group-buying in 2010, the two have evolved to become direct competitors in on-demand local services, movie and event ticketing, and hotel and attraction ticket booking.

The two companies has a combined more than 80% of China’s group-buying market as of the first quarter of 2015, according to Eguan, a Chinese market research firm.

Meituan estimated it had about 50% of food delivery market as of the first half of this year, and some 70% share in China’s online movie ticketing market as of April. (source in Chinese) The company has recently acquired travel search engine Kuxun from TripAdvisor, and its hotel booking revenues are also growing rapidly.

Meituan’s gross merchandise volume (GMV) was RMB47 billion (about US$7.6b), a 190% year-over-year growth, in the first half of 2015, with 95% from mobile, according to the company. Hotel booking contributed 15% of the total GMV and Maoyan (“Cat’s Eye”), contributed 13% (source in Chinese).

Dianping became the only group-buying service on WeChat, the most popular messaging app in China, after the latter’s parent Tencent acquired a 20% stake in it in early 2014. Tencent and Dianping also participated in the US$350 million funding round in Ele.me in early this year (source in Chinese).

After the merger the new company’s major competitors will be Baidu’s Nuomi in group-buying, movie ticketing services including Gewala, and hotel booking services including Ctrip and Qunar. 58.com, Baidu and Koubei, the new initiative by Alibaba’s finance arm Ant Financial, are determined to also get a piece from the online-to-offline service market.

Both Meituan and Dianping have raised hundreds of millions dollars from Chinese tech giants and top venture capital firms. Besides Alibaba, Meituan’s investors include Sequoia Capital, who also invested in Dianping along with Tencent, Xiaomi and real estate conglomerate Wanda.

The new Meituan-Dianping matchup will be co-run by the respective management teams of each company. Both CEOs will take on dual roles of co-CEO and co-Chairman of the new company.

Ending The Vicious Cycle Of Operation Costs

Meituan has survived thousands of Chinese group-buying sites to emerge on top, fighting of a spate of entrants that began in 2010. Despite its popularity, group-buying and online advertising for local merchants is low-margin business in China, meaning that services have to act fast to take market share.

It’s common in China that hundreds of similar services will appear to follow up the hype of popular players. Apart from charging merchants relatively low commissions, venture-backed tech startups subsidize users for the sake of market share in the O2O field. But subsidies don’t necessarily cultivate sticky users. A startup without venture money to fuel growth or keep users will be shed from the arena very quickly.

The merger between Dianping and Meituan will not only help consolidate their market share, but stem the massive spend both companies invest in subsidizing their services.

Taking A Leaf Out Of The Didi-Kuaidi Merger

After the merger Didi -Kuaidi moved even faster and more aggressively. It now offers almost all ride-sharing services existing on the market, and has become more attractive to venture capitalists raising some US$3 billion from investors in China and aboard.

Didi Kuaidi believed its taxi-hailing apps, which were logging in 3 million daily rides, had 99% market share and its private car hailing service had an 80% share as of June this year, according to an e-mail from CEO Cheng Wei to the company’s investors (source in Chinese). Its only major competitor in China now is Uber which currently operates private car hailing and car pooling services, outside of Didi-Kuiadi’s core taxi-hailing service.

Now Didi-Kuaidi has turned eyes to the global market. It recently made a massive investment in Lyft, Uber’s rival in the U.S.. Didi Kuaidi and Lyft will enable visitors to hail rides in each other’s country. The company has also participated in the latest funding round in Indian ride-sharing service Ola.

Obviously the Didi-Kuaidi merger has inspired the Chinese internet companies who are competing fiercely for market share. The combination of 58.com and Ganji.com is estimated to have a share of over 70% in China’s classified ad market. The only other player in this space is Baixing.com.

In May there were rumors that Youku-Tudou and iQiyi, major players in China’s online video space, were also in talks of a merger. Youku-Tudou was the result of the combination of Youku and Tudou, the then largest online video sites. Commenting on the rumors, Victor Koo, CEO of Youku-Tudou, said he believed video industry consolidation would continue (source in Chinese). Gong Yu, CEO of the Baidu-backed iQiyi, later said that they would still push for an IPO regardless (source in Chinese).

China’s appetite for e-retail and O2O has made them insatiable group buyers, as the market sees steep growth for another year. In just one month this June, 17% of Chinese people used a group buying site including top player Meituan, Nuomi and Dianping, a sharp increase on last year in the same period.

According to 88Tuan, a group-buying aggregator that publishes market analysis, the gross merchandise volume for the first half of 2015 totaled 77 billion RMB (about $12 billion USD), exceeding the entire volume for 2014.

In June alone, China spent 16.7 billion RMB ($2.7 billion USD) on group deals, up 1.4 billion RMB ($230 million USD) from last year. 250 million people used group buying services over the same 30 days, an astounding 17% of the entire population. 

The boost in sales can be attributed to growth of substations in third tier cities and increased product quality, according to Tuan800. 

Food and beverage group-buying and delivery accounted for 60% of the total market, bringing in 48.3 billion RMB ($7.76 billion USD) a 31.6 billion RMB ($5.07 billion USD) increased from last year. 

Group buyers sites have also embarked on a mission to differentiate themselves in an increasingly competitive market of giants attempting to edge each other out of the market. Meituan vigorously expanded to movie and food takeout services, while Chinese ratings and review service Dianping launched new payment platform Shanhui to offer real-time discounts to shoppers. Baidu is now expanding on Nuomi’s O2O platform under the ‘Membership Plus’ strategy. The membership system of Nuomi will be integrated into the point-of-sale systems of the merchants, which allow users to pay products using prepaid cards linked to the app. 

Shanghai was the biggest shopper over the June period, spending 1.5 billion RMB, while Beijing totaled 1.11 billion RMB ($ 179 million USD). Each of the 26 third tier cities made a 100 million RMB ($16.07 million USD) break through over the same time frame. Third tier markets accounted for almost 30% this six months, and are the focus of most company’s next expansion.

According to industry reports released last year, Meituan currently has more than 50% of China’s group buying market share in terms of gross merchandise volume (GMV). They are backed by internet giant Alibaba, and raised a $700 million USD in funding from Sequioa Capital China, at a $7 billion USD valuation earlier this year.

Baidu bought 59% of Renren’s group-buying service Nuomi in 2013, then acquired the remaining stake the following year. The search giant committed a 20 billion RMB ($3.21 billion USD) investment to O2O expansion which will focus almost exclusively on Nuomi, as they try to win out against Meituan. Tencent took a 20% stake in Dianping one month after Baidu’s initial investment in Nuomi, integrating its group buying service into WeChat. 

Tuan800 estimates that sales will continue to rise across group buying platforms in the next six months as Chinese shoppers are expected to observe “Red July”, a period of increased sales.

Image Credit: ShutterStock

Rumors began swirling last month that Meituan, the leading group-buying service in China, had raised US$700 million in new funding. Wang Xing, Meituan founder and CEO, confirmed this yesterday, saying that the round, led by Sequoia Capital China, valued the company at US$7 billion.

It has also been reported that both Meituan and Dianping were planning on US IPO. Another Chinese group-buying site Wowo recently filed for US IPO. Wang hinted yesterday that his company wouldn’t go public in the next few years.

Before this round, Meituan had raised three rounds of funding: US$12 million from Sequoia Capital China in 2010, US$50 million led by Alibaba Group in 2011, and US$300 million in 2014, according to the company and media reports.

The company claimed it had had more than 60% of China’s group-buying market as of the end of 2014. It saw a 180% year-on-year growth in gross merchandize volume, 90% sales volume through mobile and more than 200 million registered users during 2014.

Both Meituan and Wowo have been expanding beyond group-buying. Wowo wants to be a Taobao-like marketplace for offline merchants. Meituan has developed separate apps for movie tickets, meal delivery and hotel booking. Movie ticket sales through Meituan’s CatEye (our translation) accounted for 16.89% of China’s box office in 2014, and the hotel booking app has become the second biggest after Ctrip in terms of the number of nights booked, Mr. Wang said yesterday.

Editing by Mike Cormack (@bucketoftongues)

Wowo Ltd. (or 55Tuan), one of the first group-buying services in China, recently filed for US IPO as a local lifestyle e-commerce platform. The company plans to raise just US$40 million from the IPO, so the offering doesn’t look like it is intended to raise funding. It’s likely to do with rumors that Meituan and Dianping, currently the leading Chinese group-buying services, are planning for US IPO too.

March 2010 marked the beginning of China’s group-buying market, with a wave of Groupon clones launched that month, including 55Tuan, Meituan and LaShou. Some other Chinese online services such as Dianping, the leading ratings and reviews site, would add group-buying to their existing offerings.

55Tuan and LaShou were the most aggressive over the next few years in terms of fundraising, headcount and marketing. Each had raised about US$150million in funding by 2012.

LaShou claimed it was the biggest group-buying service when filling for US IPO in October 2011. 55Tuan claimed it was the biggest in March 2012, Xu Maodong, CEO of 55Tuan, has said in a recent interview (report in Chinese).

Thousands of group-buying sites launched after 2010 would be eliminated by 2014. LaShou suspended its IPO and, together with 55Tuan, was surpassed by rivals Meituan, Dianping and Nuomi.

Meituan is believed the current market leader with over 50% of the market in terms of gross merchandise volume, with Dianping coming second. Meituan claims its share exceeds 60% at the end of 2014. Dianping has an around a 20% market share, which is expected to continue to grow following its integration with WeChat, the most popular messaging app in China. Nuomi, acquired from Renren by Baidu, is thought to be the third largest.

LaShou, 55Tuan and the other surviving platforms have a single digit market share percentage combined.

Local Lifestyle E-commerce Platforms: Sounds Better?

Chinese group-buying services charge about 5% commission and earn minor revenue from advertising, which is hardly able to generate profits.

Meituan’s business strategy is to lower costs through technology and economies of scale. Meituan’s CEO Wang Xing argues that group-buying would ultimately be concerned with, instead of total sales, online marketing for offline businesses, just as Google has become to physical good sellers. The company claimed it turned a profit by the end of 2013, though not releasing its results at the end of  2014.

55Tuan management’s strategy was creating “a local lifestyle e-commerce platform” where they could charge higher commission. The company began another approach with the launch of Wowo Mall, an online distributor of products and services for offline businesses, in October 2011. Wowo Mall’s layout, however, is no different from that of a group-buying site.

Mr. Xu said (in the interview mentioned above) that the commission rate from offline businesses could be 7-8%. The performance of WoWo Mall so far hasn’t be quite so successful. In the first nine months of 2014, 35% of 55Tuan’s total revenue, US$7.3 million, was from Wowo Mall.

Editing by Mike Cormack (@bucketoftongues)

Meituan, a leading Chinese group-buying service, generated RMB46 billion (around US$7.4 bn) in gross merchandise volume in 2014, a 180% year-on-year increase.

More than 90% of the total volume was from mobile devices, up from around 50% in the previous year.

The company claims its market share now exceeds 60%, up from around 50% in 2013. The number of cities Meituan covers has reached 1000. It claims to be the largest group-buying service in 778 cities.

Registered users have reached 200 million.

The company says its goal for this year is to reach RMB100 billion in gross merchandise volume.

Meituan and Dianping, another major player in China’s group-buying market, are both reportedly planning for US IPO. There were rumors last month that both companies had raised massive new rounds of funding.

While Meituan has been developing separate local lifestyle apps, such as CatEye (our translation) for movie ticket booking and a food delivery app, Dianping has been strengthening its existing platform. It invested in four restaurant management software developers and the public WiFi provider Wiwide in 2014. The company also recently launched a mobile advertising program, hoping that advertising and marketing rather than transaction commissions will become its major revenue source  (source in Chinese).

As of the third quarter of 2014, Dianping, including rating and reviews and group-buying, had 170 million monthly active users, 10 million merchants, and 42 million ratings & reviews.

Editing by Mike Cormack (@bucketoftongues)

Meituan has over 50% of China’s group-buying market in terms of gross merchandise volume (GMV), according to multiple industry reports.

At the company’s third annual event earlier this year, Wang Xing, founder and CEO, disclosed that as of 2013 Meituan had 70 million users and 400,000 customers in over 200 Chinese cities.

At the end of the 2012 the company claimed it broke even. ( Update: The profit margin is 5ish% as of October 2014, Yang Jun, vice president of Meituan, disclosed it at an event in Beijing on October 26th, 2014.)

Starting off as a Groupon clone, Meituan is now on its way to becoming the Taobao marketplace of local services.

Not only does it have the largest market share, Meituan is also the only independent group-buy service in today’s top players. Dianping, “China’s Yelp” began offering group-buy deals a few months after Meituan’s launch, and has funding and an senior executive from Tencent; Nuomi, the group-buy program initiated by social network Renren, has been sold to Baidu. Juhuasuan is the homegrown group-buy service of Alibaba Group for online retailers on its marketplaces.

According to a report by Eguan, a Chinese research firm focusing on e-commerce, as of the first half of this year, Meituan, Dianping and Nuomi had 56%, 21% and 13% of China’s group-buying market, respectively. Meituan’s early competitors, LaShou and 55Tuan, only have a single digit percent share combined.

Standing out in a huge crowd

Thousands of group-buying sites emerged in China not long after Groupon got traction in the U.S. Meituan was among the earliest, launching in March 2010. Its first competitors, LaShou, 55Tuan and 24quan were launched in the same month.

Eighteen months later, LaShou filed for IPO in the U.S., claiming it was the largest social commerce site in China in terms of unique visitors. But winter would come soon. LaShou suspended its IPO and then its founder left. The majority of Chinese group-buy sites burned out while Meituan kept on going.

Back in 2010 and 2011 group-buying sites seemed one of the very few gold mines to tech investors in China. LaShou raised three rounds of funding from July 2010 to March 2011, totalling around US$146 million, according to its SEC filing. 55Tuan raised, according to media reports, more than US$100 million as of September 2011. Dianping announced a new round of funding in April 2011 for its group-buy program which was launched in June 2010. It was reported that the amount was more than US$100 million.

Hugely funded sites began to burn money on advertising and expansion across China in early 2011. LaShou and 55Tuan were among the most aggressive. LaShou spent US$50.5 million in advertising in the first six months of 2011 (increasing by 168 times their year-on-year spend). It had 184 sales offices in over 500 Chinese cities as of October 2011. 

According to the recently published book on the Meituan founder and CEO Wang Xing by Chinese reporter Li Zhigang, Meituan took a very different way in marketing: (1) it bought online marketing instead of offline ad space; (2) it didn’t spend venture money on marketing, at least by July 2012. The Meituan team consulted Guan Mingsheng, former president of Alibaba, who told them offline advertising had little impact on merchants, according to the book. When it came to consumers, Meituan had found that online advertising was more effective than offline.

As to why Meituan didn’t spend venture capital on marketing, that was a result of its founder’s experience. Wang had had to sell his first startup for failing to raise the funding they needed. At a press conference in July 2011, Meituan showed attending reporters that US$62 million raised in two funding rounds were sitting on its bank account, with US$12 million received from Sequoia China in 2010, and US$50 million in Series B that had just been completed.

In the second half of 2011, aggressive sites such as LaShou and 55Tuan would burn through venture funding and found it hard to raise more to support their expansion. The massive advertising campaign wars between them wasn’t entirely useless, at least informing Chinese consumers about group-buy.

Apart from advertising strategy, another major difference between Meituan and its failed competitors is positioning. Most sites were focusing on some categories of physical products, such as cosmetics and apparel, while Meituan has been positioned as a “local life service provider”, targeting the service sector, restaurants, movie theaters, barber shops, karaoke bars, and so on. The gross margins from the service sector are usually lower than physical product deals.

Meituan felt there was no way to beat Taobao when selling physical goods online, at discounts or not. Unsurprisingly, Taobao launched Juhuasuan (“aggregating deals”), the group-buying platform for online retailers, in late 2010. To compete with Juhuasuan in physical items, Meituan concluded, you would have to have your own warehousing and delivery operations to guarantee a good user experience.

However, 10% of Meituan’s offerings are still physical goods, since it wants users in places where it doesn’t yet offer local service deals to know about the brand.

Meituan stood out as one of the leading providers of local service deals. The copycat sites which sprang up across China would become another of Meituan’s advantages. Meituan would find it better to acquire or merge with those sites instead of building teams from scratch in smaller cities.

In the meantime, the company built strong management and sales teams. Apart from the charismatic and experienced founder and CEO Wang Xing, Meituan has Gan Jiawei, former vice president of Alibaba, as COO, and Shen Li, former head of Baidu’s maps and location-based services. Several members of the core team are the employees of Wang’s first startup.

Some moves of Meituan’s helped build a strong brand; for instance, at the company’s first anniversary, its CEO announced a refund policy where users could get a full refund of unused services after their use-by dates had passed.

Different from Groupon

According to the aforementioned book, Meituan think their business is better executed than Groupon.

1. Groupon’s operating costs are too high. Meituan has been pursuing a low-cost, high-efficiency approach. “Out of quality, speed and cost, you have to comprise one when (your business) is growing very fast. Groupon compromised cost.”…”It’d be hard to cut costs later on”, said its CEO.

2. Groupon enjoys high gross margins with comparatively high prices; Meituan, on the contrary, sticks with low-pricing strategy. Good value for money attracts consumers.

A Pioneer in Copying-to-China

Wang Xing is a serial entrepreneur, famous for leading one of the first China’s Facebooks, China’s Twitters, and, more recently, China’s Groupons. Yes, the copycats. But Wang is widely respected in China for he always picked the right one to follow.

Xiaonei.com, the pixel-to-pixel Facebook copy founded by Wang, was sold to Oak Pacific Interactive in 2006 (as mentioned above, the team failed to raise more venture money to keep up), and then rebranded Renren.com, which would go public in the U.S. in 2011.

Fanfou, one of the first Twitter copies in China, got much traction in the early days but was shut down in 2009 due to interference from Chinese authorities which had found offensive messages circulating on the site. Fanfou would be restored after reaching a settlement with the authorities, by which time Sina Weibo had surpassed it in popularity and influence.

Wang thinks group-buy is a new online marketing channel that benefits businesses even more than search engines like Google. Before search engines, only a small number of big brands could afford impression-based banner ads; but as search marketing is more affordable and more effective, smaller businesses who previously couldn’t afford ads on online portals could now advertise effectively. Wang concluded that group-buying is even more effective (as a transaction-based form of advertising) and could benefit more businesses, since search marketing is less effective for local services than for online good/service sellers, he said so at the company’s first anniversary event.

Meituan is so far the most successful startup Wang has founded. In 2003, he left his PhD program at a U.S. school and returned to China to pursue entrepreneurship. It is expected Meituan will go public in the U.S. in the near future.

Meituan, now one of the largest group-buying services in China, has reportedly raised US$300 million in new funding earlier this year and has poached Shen Li, former head of Baidu’s location-based services, as reported by Tencent’s QQ.com.

Ms. Shen is now senior vice president at Meituan, according to the report. Meituan’s current COO, Gan Jiawei, was vice president at Chinese e-commerce giant Alibaba Group before joining Meituan.

Meituan’s major competitors in group-buying are Tencent-backed Dianping and Baidu-backed Nuomi (Nuomi is part of Baidu’d location-based services Ms. Shen Li previously oversaw). In early this year Meituan announced monthly GMV (gross merchandise volume) on its platform had reached US$260 million, estimating the company had 56%-57% of the China market. A report by Eguan, a Chinese research firm on e-commerce, estimates that, as of the first half of this year, Meituan, Dianping and Nuomi had 56%, 21% and 13% in market share, respectively.

Apart from the group-buying app, Meituan also operates a movie ticketing app, a food delivery app and enterprise-facing WiFi router program. The company is aiming to be the largest player in online-to-offline (O2O) in China.

Meituan announced the last round of US$50 million funding, from Alibaba Group, Northern Light Venture Capital and its first round investor Sequoia Capital, in July 2011. Prior to that Sequoia Capital invested US$10 million in it in the second half of 2010, according to reports in Chinese media.

Chinese local e-commerce marketplace Meituan disclosed that the gross merchandise volume in the first half of 2014 surpassed RMB16 billion (roughly US$260 million) which is the volume for the whole of last year. Over 70% transactions were through mobile.

Meituan estimates it has 56% -57% a market share, Gan Jiawei, COO of the company, said so in an interview with local media.(report in Chinese) Currently it’s major competitors are Tencent-backed Dianping and Baidu-backed Nuomi. Meituan itself is funded by Alibaba Group. Mr. Gan said in the aforementioned interview that Meituan’s competitive advantages include the salesforce, more than 3000 sales representatives (Grougpon had a team of more than 3500 when before it launched IPO in 2011), the company has built.

CatEye (not official translation), the movie ticketing app by Meituan launched in 2012, has had approximately 20 million installs and become a major player in China’s movie ticketing market. Meituan expects CatEye to account for 20% of the total movie ticket sales and 70% of online movie ticketing in China by year end. The service was recently introduced onto Wandoujia (aka SnapPea), a mobile app & in-app search service, that users are able to buy tickets directly after CatEye entries are returned as search results.

Meituan launched a separate app for food delivery in early this year. The company is also working on an enterprise WiFi router program hoping to have offline merchants adopt its solution so that Meituan and merchants can interact, pushing deals or ads, with every customer that visits any stores. It is believed that Meituan is in preparation for US IPO.

Alipay, the Internet payments service provider of Alibaba Group, announced today it has reached partnership with WiTown, a Chinese business-facing WiFi hotspot solution provider, to offer free products and services to bricks-and-mortar stores to enable Chinese consumers to enjoy free Internet connection over WiFi anywhere.

WiTown provides, by partnering with Chinese carriers such as China Telecom and China Mobile, businesses with a solution with which they are able to push ads to customers, collect and manage data generated from customers, among others. The company also developed a set of APIs for clients to customize their apps. Since 2012, WiTown claimed it had had tens of thousands of clients in some 200 cities across China as of early 2014. That Alipay works with WiTown must have something to do with the fact that the startup was founded by Alibaba alumni.

Alipay has made it clear that the move is for online-to-offline business expansion. Alipay Wallet, the mobile app that not only allows for mobile payments but also provides a variety of mobile services, from loyalty programs to CRM service for businesses, has been actively expanding to the offline business world since last year.

Users with Alipay Wallet app in their smartphones will receive a notification whenever they enter into an area covered by WiTown solution, and will be able to get connected by clicking on the message. Businesses can join the WiFi coverage plan through two ways, joining the program Alipay will launch later or simply buy routers made by WiTown. The first batch of businesses Alipay is in talks with, restaurants, cinemas, KTV clubs, hotels, attractions, airports and buses, will start offering free WiFi service next month (June).

Alibaba isn’t the first that hopes to have access to all the consumers visiting all kinds of bricks-and-mortar stores and push services to them through WiFi hotspot solution. Chinese tech companies have been implementing a similar strategy targeting at Chinese families through smart WiFi routers.

And they think the strategy must work for offline business world too. Meituan, now the leading group-buying and online booking service in China, has started offering a similar solution to offline stores. As Meituan operates a group-buying app, a movie ticket booking app and a food delivery app, it’s a typical online-to-offline business. Its WiFi program makes perfect sense that it helps merchants on its platform and the company itself to manage and interact with their users.

An accompanying mobile app, Meituan WiFi, has been launched for consumers to connect to the Internet wherever Meituan solution is available. It’s for free and takes only one step to get connected — unlike other existing services with which users have to fill out forms or take some verification steps. The company reportedly has confirmed they are developing a WiFi router for business (report in Chinese).

It is reported that a team under Tencent and Chinese search giant Baidu are working on WiFi routers similar to Meituan’s.

Focus Media, a veteran in digital marketing in China market, began adding WiFi solution to the LCD advertising screens in buildings the company had been operating in mid-2013. By connecting to Focusmedia WiFi, users waiting at an elevator are able to receive the same content, video, audio, game or e-coupon, featured on the ad screen in front of them or redeem coupons or buy goods in those ads, Jiang Nanchun, CEO of Focus Media, said in an interview in last June.

Xiaomi, the rising star in smart device and mobile service, has invested in WiWide, a business WiFi solution provider that was founded as early as in 2007. Telecom service provider Dr. Peng acquired Yihexun last year.

Gaopeng, the joint venture by Groupon and Chinese Internet giant Tencent, has launched YeahWiFi that takes advantage of WeChat, the most popular messaging app in China. By clicking on the “One-click Connection” button in YeahWiFi’s official WeChat account, a user in a store can get his or her smartphone connected if the store has joined YeahWiFi program.

Besides WiTown and WiWide, there are a few similar WiFi solution providers in China, such as JooMe, WifiSong and Shanlink. It is estimated that big tech companies such as Alibaba, Tencent and Meituan will be major players before long, for they have mobile services which are eager to reach consumers at offline stores.

Wang Xing, founder and CEO of group-buying service Meituan, said today the service has had a 50% market share in China at SYNC 2013 Beijing. The total transactions on Meituan will triple year-over-year, reaching 15 billion yuan (about $2.4 billion), by year end.

Earlier this year, Meituan launched two separate mobile apps, CatEye Movies for movie tickets and Meituan Hotels for hotel booking. A three apps, including Meituan Group-buy, have combined 60 million downloads. The tickets sold through CatEye Movie now account for 9% of the total domestic box office grosses, with a monthly growth rate of 30%.

As group-buying finally cooled down in China, the few that survived, besides Meituan, include Renren’s Nuomi which managed to have Baidu buy 59% of it.

Well it’s nearly the end of 2011 and this year has been a tumultuous year for group buying in China to say the least. This year, the number of group-buying sites reached a ridiculous 6,000+ sites but by the second half of this year, 1,800+ sites evaporated due to intense competition and low margins.

Gaopeng (Groupon China) has had a bumpy ride. First expanding at hyper speed and wildly hiring people and opening offices, burning through its treasure chest of venture capital and then eventually closed offices and laid off thousands of employees. They have even been accused of selling counterfeit watches, which damaged their credibility.

The general consensus this year was that group-buying market was over-heated and would just take time to stabilize. E-commerce experts believed the market would only sustain the top 3-5 players and the rest would either die or get eaten up through consolidation. The other path to avoid being stuck in a valley of competition was to take the vertical route and specialize in a product category like cosmetics.

According to the latest report released by group-buying aggregator and analytics tool, Dataotuan.com, Meituan will end the year on top in terms of revenue and total number of deals sold. It was also number 1 back in October with sales over USD$27 million. Meituan was founded by serial entrepreneur Wang Xing, who also founded Facebook clone, RenRen.com and Twitter clone, Fanfou.com.

Dataotuan on their blog said “As one of the first Group-buying sites in China, Meituan has always been focused on local service deals. We used our Deal Website Analytics Tool to look deeper into what made Meituan get to their current position.

Besides being the new number 1 in revenue, each month Meituan has been taken a bigger percentage of the top deals. It has the most top deals since Oct. 2011, which is sign of their deal quality. And it doesn’t stop there. Meituan’s average revenue per deal is much higher than the overall average revenue per deal. While in general the average revenue (per deal) keeps dropping, Meituan’s average revenue continues growing since August.

Looking into their pricing strategy, the interesting findings are that the average price of Meituan deals is significantly lower than the total level, meanwhile Meituan is lowering the average discount slowly but steadily.”

Meituan accounts for 12.5% market share by revenue, followed by Lashou (9.7%), 55tuan (9.6%) and 58tuan (7.6%).  Unsurprisingly Gaopeng has dropped to 14^th position with 2.9%.

If you want to know how much money you can actually save from deal sites, Dataotuan calculated the average discount is 64%.

In a sign that the deal market is stabilizing, November is the first month that the average revenue per deal stopped dropping and the average number sold per deal also stablized.

It will be interesting to see what the landscape looks like for the group-buying/deal site market next year. I suspect many more sites will close or change to a different business.

To get more insight into the group-buying market over the past month, check out the whole slide deck below.

When Groupon officially steps into China, all the leading local group buying sites recently announced their marketing budge in 2011, which gave us some amazing figures: ~$200millions are planned to be burned for advertising by 5 leading group buying service in 2001.

• Groupon.cn said that in 2011 they will  spend rmb 550millions (~$83.7millions) on the advertisement. (Who is its investor?)

• It’s said that Lashou‘s $50millions capital, most of them will be spent on the advertisement;

• Nuomi (RenRen’s company) said their budget is rmb 200millions (~$30.4millions);

• It’s rmb 130millions (~$19.8millions) for Meituan and Manzuo is rmb 100millions (~$15.2millions)

It sounds like a joke, but it seems a serious one, as you can actually see more and more advertisement about Group buying on TV, outdoor display, LED screen etc. Thanks to Group buying, 2011 must be a happy year for Chinese ads market.

Groupon is pretty funny. I am not going to criticize it here because its business model is very fascinating indeed, but the global group purchase market it triggered has gone far too crazy. Groupon is reported to acquire uBuyiBuy, Beeconomic and Atlaspost to enter Asia, on the other hand, the rumor also says Google is willing to spend $6 billions to acquire Groupon.

We used to report that Groupon is in talk with its five Chinese clones, but till now there is no sign of any deal. Is valuation for these companies too high? or Groupon itself is still not clear about Chinese industry? We don’t have any clue yet. But today, two top Groupon clones, Lashou and Meituan, both officially said they have raised several millions dollar venture capital.

Lashou just closed its second round of funding, $10millions which is led by Tenaya Venture and Norwest Venture, together with GSR Venture and Rebate Network. Report says that the valuation for Lashou is now several hundreds millions dollars.

Wang Xin, founder of Meituan also told the public, probably for the first time, he has raised some funding from the famous Sequaia Capital. He did not tell the figure, but I heard that it’s $5millions.

Don’t tell me it’s kinda of coincidence. What message these Groupon want to deliver to the Chinese public or even to the global market? You may tell me.

According to this news (Chinese), early this afternoon, ex-founder of Citydeal which was acquired by Groupon early this year and now Groupon’s business development director have held several meetings with five popular Chinese Groupon clones, Meituan, FTuan, Lashou, Aibang and QQTuan. (you may also read our previous article Comments and Reviews on Chinese Groupon services)

The news says Groupon met these clones one by one and the detail of each meeting can not be disclosed due to the NDA. But according to Lin Ning, CEO of FTuan who attended the meeting,  he said he could confirm that Groupon has not signed any deal with any Chinese clones.

An insider said Groupon’s visit to China this time had two purposes, firstly to understand the local market and local regulation; secondly to look for the right local partner. He said, likely Groupon will follow the same strategy when it entered Japanese market, i.e. acquiring one local clone.

Sarah Lacy of TechCrunch used to question about Groupon’ slow response to Chinese market and suggested Rob Solomon of Groupon not to underestimate the Chinese speed. And Rob said, “Over time, we will figure out China..” Now it seems that Groupon finally took one step further to China.

So what would be the next? And which one will eventually be the super lucky guy being acquired by Groupon? Probably no one knows it yet. But what’s for sure is that Chinese market could be much more costy and risky than Japanese one as the market already goes crazy.

Enjoy the following two cases:

Case One – 200 Smart cars were sold on Taobao’s group-buy site within only 3.5 hours! Every buyer saved rmb41,000 (~$6,190). Note that one resource said that the total number of Smart sold in China in 2009 was only around 4,000.

Case Two – Lashou is running a campaign right now to attract more attention. The biggest winner of this luck-draw promotion campaign will be given a Flat which worths rmb200,000 (~$30,198).  Only two days, 258,484 users have registered to join the draw, and still 8 days to go.

Twitter hits $1 billion valuation within 3 years. Facebook reached equal valuation with 2 years. Groupon, however, broke the record, it only takes a year and a half. On April 19th of this year, a consortium, led by DST (a Russian investment company), invested $135 million on Groupon, making the valuation of Groupon shoot up to $1.35 billion. As New York Times said, Groupon was the craziest the Internet company in history.

The business model in Groupon is that it only sales one product or service per day, and via daily updating and bulk-discount price, Groupon is able to attract mass purchasers and then, collect 50% of the transaction commission in return. Groupon creates a new Internet business model consists of e-commerce, social marketing and online ads.

Certainly, there are many Groupon-likers in China. Those imitators copied all the virtue of Groupon, and some of them even involves its interface and model. Resource said there were already over 100 of them, but be frank, even the number is 200+, I would not be surprised. This market is already overheated and going much crazy than people expected. Some of them already raised a large bucket of money, and several deals I heard are around $5 millions; RenRen, the leading Chinese social network also launched its own group purchase site called Nuomi, and it only took hours, amazingly 152,095 users bought the offer (costs around $5.8 for 2 movie tickets, 2 coke, 1 box of popcorn and 1 Häagen-Dazs icecream).

1.  Group Purchase, New and Old business model

If you think sites like Tudou, Youku are copycats of YouTube, Renren, Kaixin001 are copycats of Facebook, I can understand that because there were no video-sharing sites, social networks sites similar to those western services in China. However, I would strongly suggest you Rethink if you believe Groupon model is 100% new for China too. In fact, Group Purchase (in Chinese it’s called Tuan Gou) is hugely popular in China especially in Home improvement/Home decoration market where thousands of people got connected online and buy the same products together in street shops in order to get a good bulk-discount. I met the co-founder of the leading group buy service site TG.com.cn weeks ago. He said his company is expecting rmb 50 millions after-tax income and getting ready for IPO. So education cost for Groupon model is, I would say, nearly zero. It is an ‘old’ model, but also ‘new’ to Chinese consumers as Groupon represents a new format of ONLINE group purchase with the interesting ‘deal of the day’ strategy. No one ever made the online group purchase experience so easy in China.

2. An easier model for Groupon-likers to survive?

Groupon is very easy to copy. But, the interesting point we have to see is that unlike video-sharing, social networks, twitter models which are all about user-base (at burning money) at the beginning, Groupon is making cash-flow since the first day. And Groupon model focus on one deal in one city, and the fact in China is that it’s not difficult to find a deal (from restaurant, spa etc) and the Internet in China is very geographic. In other words, it should be relatively easier for those startups to survive. However, if you have many targeting at the same market, then it’s all about how to do the marketing in the end. Can you offer better share with those merchants? Do you have enough money to reach more industry sectors and grow faster? Surviving is one thing, at some point, you may also need huge money to burn. (Why did Groupon raise such amount of $$$ even when it’s already hot!!)

3.  Better Service or Better Price?

I’ve read some feedback from some Chinese Groupon users. They’ve started complaining on the service they got. ‘Cheap price does not mean we also accept Cheap service’, they said. Groupons can offer you good price, but they can not guarantee whether or not the merchants are able to offer mass customers the service with the good quality. When your users come to you only for cheaper price, be careful, because that might also imply the customer loyalty is low. Especially in China, your customer can quickly move to another one with cheaper price or a big one with better service guaranteed.

4. Happy or Sad story in the end? Startups vs. Big guys

This is typically Chinese-style sad story. When those giants see the interesting new business models, instead of partnering with you or acquiring yours, they prefer to launching something on its own. Renren’s Nuomi has shown its super power with huge user base. Taobao, has launched its Groupon service on ju.taobao.com, and Dianpin (the leading Yelp-like service) has also launched its t.dianping.com. They have not started heavy promotion yet, but they are watching the market until they are fully ready and the market is more mature. So why Chinese VCs still rush for those startups? How do they expect these sites to exit one day? A few very lucky ones could take the lead in the end with enough money to burn, or one of them could be acquired by Groupon if it comes to China one day? Well, I don’t know.

5. Innovation or just Interesting? The Groupons’ Aggregator

Given the fact that there are so many Groupon service in China and I am assuming there are more to come. So the question becomes, where to efficiently find those deals on each service. The answer is obvious, we need a search engine. Now we see the sites such as tg123.com, niutuan.com, 122.net etc the Groupon services aggregator/navigation site. I don’t know what kind of partnership involved with those groupon services aggregated, but it’s smart, isn’t? At least, it perfectly fits for Chinese!

Before you finish the reading, just for you to taste the Chinese Groupons, the following is a list of our favorites (via web20share.com).

1. Lashou – http://www.lashou.com/

• Highlights: recently has closed $5million investment and company valuation is reported around rmb 1 billion.
• Main Group Purchase Item: Restaurant, Pub, KTV, SPA, Hairdressing, Yoga and other selected featured firms.
• Currently Covered Cities: Over 100 cities including Beijing, Shenzhen, Guangzhou, Nanjing, Daqing, Nanchang etc.

2. Meituan – http://www.meituan.com/

• Highlights: it’s founded by Wang Xin, the guy also co-founded first Chinese Facebook, Xiaonei.com (now Renren.com) and first Chinese Twitter, Fanfou.com (now closed);
• Main Group Purchase Item: Restaurant, Pub, KTV, SPA, Hairdressing, Yoga, etc.
• Currently Covered Cities: Beijing, Shanghai, Wuhan

3. Mituan – http://mituan.com/

• Main Group Purchase Item: Quality local living services
• Currently Covered Cities: Hangzhou

4. Cooltuan – http://www.cooltuan.com

• Main Group Purchase Item: Restaurant, SPA, Photography, Hairdressing, Cinema, Gym, Live CS Show, etc.
• Currently Covered Cities: Shanghai

5. Manzuo – http://www.manzuo.com/

• Main Group Purchase Item: Delicacy, Tour, Gym and SPA, etc.
• Currently Covered Cities: Beijing

6. Groupon China – http://www.groupon.cn/

• Main Group Purchase Items: Food & Beverage, Pub, SPA, KTV, Hairdressing, Yoga, Training and transaction, etc.
• Currently Covered Cities: Beijing, Chengdu, Fuzhou, Guangzhou, Nanjing, Hangzhou, Jinan, Nanning, Qingdao, Shanghai, Shenyang, Suzhou, Tianjin, Xiamen, Taiyuan and Zhengzhou.

7. Groupon365 – http://www.groupon365.com/

• Main Group Purchase Item: hottest, and the most fashionable and salable goods
• Currently Covered Cities: Qingdao

8. Tuank – http://www.tuank.com/

• Main Group Purchase Item: Restaurant, Pub, KTV, SPA, Hairdressing, Yoga and other selected featured firms.
• Currently Covered Cities: Nanchang

9. Runtuan – http://www.runtuan.com/

• Main Group Purchase Item: Restaurant, Pub, KTV, SPA, Hairdressing, Yoga etc.
• Currently Covered Cities: Guangzhou

10. 55tuan – http://www.55tuan.com

• Main Group Purchase Item: Restaurant, KTV, SPA, Hairdressing, Yoga etc.
• Currently covered cities: Beijing