Meituan warns of pain from virus outbreak in Q1

March 31, 2020 16:59
Meituan Dianping’s largest revenue generating operation, food delivery, has a low profit margin. Photo: Reuters

After turning profitable last year, China's food-delivery giant Meituan Dianping (03690.HK) has warned that it could return to loss again in the first quarter of 2020 due to the fallout from the coronavirus pandemic.

Meituan's food delivery platform has 450 million active customers. While food delivery itself is barely profitable, the super app has been able to gain from the large customer base as users patronize other services, such as making hotel bookings or eatery reservations.

Currently, Meituan has three main business units, which generated total revenue of 28.2 billion yuan in the fourth quarter of last year.

The core food delivery business generated 15.7 billion yuan of income, and the so-called in-store unit contributed 6.4 billion yuan, while new and other businesses generated 6.1 billion yuan.

However, the food delivery unit only generated a gross profit of 2.8 billion yuan, with a gross profit margin of 17.7 percent. By contrast, the in-store business had a hefty gross profit margin of 88.8 percent, and the unit contributed gross profit of 5.6 billion yuan, double of that of the food delivery division.

Under the in-store business, Meituan acts as an virtual agent to facilitate the booking of services of all kinds.

Customers can make reservations at popular restaurants for a fee, or make a booking at a nail bar, gym, vet, whatever that is available on the app to save time for making phone calls or queuing up.

They can also ask Meituan to help arrange specialized, premium services from these outlets.

However, the pandemic has now badly hurt the service sector, including hotels, restaurants and other in-store merchants on Meituan’s platform.

This is why the company is anticipating a grim first quarter.

This article appeared in the Hong Kong Economic Journal on March 31

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist