China’s profitable food delivery giant bodes well for Grab and Gojek

Unicorns are actually not so rare. But you know what is rare? A profitable unicorn.

And that’s what China’s Meituan is.

The popular app – which covers dozens of services from daily deals, food delivery, hotel booking, bicycle-sharing, cinema ticket booking, to ride-hailing – has recently turned profitable for the first time. It has posted US$2.5 billion in profit in the past six months, along with its sister app Dianping. That’s in stark contrast to most of Silicon Valley’s on-demand startups such as Uber, which has clocked in a shocking US$7.4 billion in losses in the first three quarters of 2019.

A Meituan delivery rider on an e-scooter / Photo credit: Meituan

Indeed, things are motoring along so nicely for Meituan that its shares are up by 36% from its initial public offering debut just over a year ago, hitting a valuation of US$68 billion. In comparison, the stock price of the US’ Grubhub has plummeted by 50% in the past 12 months.

This brings us to Grab and Gojek, Southeast Asia’s very own fast-growing super apps.

Both companies are expanding their roster of services so rapidly that, despite both starting as ride-hailing apps, they increasingly resemble Meituan rather than Uber.

Profitable unit

Just over half of Tencent-backed Meituan-Dianping’s revenue is from food deliveries, and that’s growing steadily despite strong opposition from Alibaba’s Ele.me.

Indeed, Meituan’s food unit is itself profitable. Here are the latest stats:

• It’s earned US$838 million in profits exclusively from food deliveries (Meituan Waimai) from April to September 2019.
• The company’s food delivery service is available in 2,500 cities and townships across China.
• It has an average of 700,000 active delivery riders each day.

Aside from the Alibaba threat, it’s also remarkable how food delivery can be the basis of a profitable firm even though the service is typically a low-margin business, with apps charging a tiny delivery fee that’s supplemented by taking a hidden cut from restaurants.

Looking at Meituan’s app right now, its customers are hit with only a 2 yuan charge – that’s US$0.28 – for delivery, despite nearby deliveries taking up around 20 minutes of a rider’s time.

GrabFood / Photo credit: Grab

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