May 29, 2021 03:43 PM

Meituan Makes Changes to Allay Anti-Trust Concerns as Sales Beat Estimates

Meituan says it is changing practices that sparked an anti-trust probe
Meituan says it is changing practices that sparked an anti-trust probe

(Bloomberg) — Chinese food-delivery giant Meituan is working to address regulators’ concerns about its business, changing practices that sparked an anti-trust probe while promising better treatment for its millions of drivers and restaurants.

The Beijing-based company has set up a dedicated team to work with officials conducting the investigation and vowed strict compliance with new guidelines. It’s also providing insurance for its delivery force — a victory for an army of mostly part-time personnel — and cutting fees for partner restaurants. Chief Executive Officer Wang Xing said he anticipates “no significant impact” from the government scrutiny.

“In terms of our day to day operation, we haven’t been significantly impacted,” the 42-year-old billionaire assured investors during the earnings call. “This event will not jeopardize the competitive advantage of our food delivery business.”

For now, Wang’s company is riding a strong post-Covid recovery. Meituan reported better-than-expected revenue of 37 billion yuan ($5.8 billion) in the March quarter, more than doubling from the pandemic-hit year-earlier period. It posted a record 4.8 billion yuan net loss after stepping up investments in newer arenas like online groceries and community commerce.

”Investors don’t care about their first-quarter performance, which is pretty much in line with expectations,” said Shawn Yang, managing director of Blue Lotus Capital. “What we want to know is whether Meituan can maintain its growth momentum moving forward. It remains unclear how the company will withstand competition in community e-commerce as well as regulatory pressure.”

Meituan’s billionaire founder is trying to quell investor unease about the fallout from Beijing’s crackdown on powerful internet firms. The months-long campaign has helped wipe $130 billion from Meituan’s market value since its February peak, forced the overhaul of budding fintech businesses and spurred giants like Jack Ma’s Alibaba Group Holding Ltd. to adjust internal policies to address accusations of monopolistic behavior. Meituan pledged to avoid forcing exclusive arrangements with its merchants, the alleged practice that landed Alibaba a record $2.8 billion fine.

Meituan shares have slumped this year after Beijing announced an investigation into the tech giant in April over alleged antitrust violations, weeks after slapping a record fine on Alibaba. Financial regulators then imposed wide-ranging restrictions on its fintech operations, alongside those of peers like Didi. Renewed scrutiny over the treatment of its delivery riders have fueled concern that labor expenses are poised to soar, which would further compound losses stemming from increased spending.

The antitrust investigation into Meituan signaled Beijing was extending its crackdown beyond fellow billionaire Jack Ma’s tech empire, as it sought to curtail the growing influence of technology giants over every aspect of Chinese life as well as the vast amounts of data they’ve amassed through providing services like online shopping, chatting and ride-hailing. Nomura analysts estimate that Meituan could face a fine of just over $700 million as a result of the probe, based on the $2.8 billion penalty imposed upon Alibaba.

Meituan has long been criticized by rivals and merchants for alleged excesses like forced exclusive arrangements. The firm — which competes against Alibaba’s in food delivery — had previously been found guilty of unfair competition in at least two legal cases this year and ordered to pay compensation, local media has reported. The corporation had also rejected allegations that it charged onerous commissions to restaurants during the Covid-19 outbreak last year.

Alongside, Meituan also faced an online backlash after several delivery riders were killed or injured while trying to meet strict deadlines, with a recent documentary on Beijing TV — in which a social security official moon-lit as a driver — reigniting a debate about the treatment of gig-economy workers. It was among a handful of operators fined by the antitrust watchdog in March for giving improper subsidies to expand in the red-hot arena of community e-commerce. The Shanghai Consumer Council criticized the company in May for practices that hurt consumers’ rights, including problems with refunds and misleading content on its mobile app.

While Meituan made no mention of the regulatory scrutiny, the company highlighted efforts to improve the welfare of its delivery riders and help merchants, including providing support for digitization to improve efficiencies.

“We are dedicated to providing deeper understanding and better caring for our delivery riders and helping improve their career path and personal growth,” according to the earnings statement.

Meituan’s antitrust woes have coincided with growing competition, with competitors like Alibaba telegraphing their intention to hike spending. China’s largest e-commerce firm said in May it will invest “all incremental profit” into technology and community commerce, while Pinduoduo Inc. executives on Wednesday reiterated plans to invest “heavily” in areas like logistics infrastructure and technology.

“Even though Meituan’s widening loss is expected, its record high level signals the company’s determination to invest for the long haul, and has negative implications for industry margins,” Bloomberg Intelligence senior analyst Vey-Sern Ling said. “Companies like Alibaba, Tencent, and Pinduoduo have already indicated their willingness to step up spending, but the magnitude and duration of such investment is uncertain and remains highly dependent on competitive dynamics.”

Operating losses in its new initiatives business swelled to 8 billion yuan on revenues of 9.9 billion yuan in the March quarter, after it ramped up investments in retail. The company opened more warehouses in the four cities it operates in, allowing it to grow quarterly transacting users for the business by more than 400% from a year earlier. Total users for the 12 months ended March climbed to 569.3 million from 448.6 million a year ago.

Its food delivery division swung to an operating profit of 1.1 billion yuan, following losses during the Covid lockdowns across China last year. Its in-store, hotel and travel business grew profits fourfold as Chinese citizens returned to traveling domestically.

The litany of bad news has fueled investor jitters. Shares of Meituan dived in May after Wang posted a classical poem about book burning during the Qin dynasty that some interpreted as a veiled criticism of Beijing. The entrepreneur deleted it days later and issued a clarification that he used the poem in reference to the company’s competitors.

Contact editor Michael Bellart (

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