Internet & Tech

Will they deliver?

Latest fundraising sees Meituan become the world’s fourth biggest unicorn


No more feasting on clients’ meal

China is no stranger to food safety scandals. The latest culprit was a unscrupulous food deliveryman, who was caught on camera opening a customer’s order, taking a few bites, and then spitting a mouthful back into the food.

Emblazoned in a yellow jacket, the man was readily identified as an employee of Meituan-Dianping, one of China’s most wide-ranging O2O service providers. As video of the incident went viral, Meituan was quick to announce it had fired the offending driver and apologised to the customer.

“This incident reminds us: platform operators need to constantly be on guard when it comes to matters of food safety and delivery sanitation,” the company confessed. “Meituan will strengthen its guidance for and realisation of its discipline policies at its many takeout delivery stations. At the same time, it will work to perfect methods for sealing products to prevent this kind of thing from happening.”

A week earlier Meituan-Dianping had been celebrating better news. The firm had just completed a $4 billion funding which now values it at around $30 billion. According to Bloomberg, that makes Meituan the world’s fourth most valuable unicorn, edging past Airbnb to rank behind Uber, Didi Chuxing and Xiaomi.

Meituan’s CEO Wang Xing noted that the new investment would help the company enter a “new stage” where it takes on more social responsibilities. At the time, he probably wasn’t thinking of increased oversight for his deliverymen and was focusing more on Meituan’s environmental impact. According to a report from the Qianzhan Industry Research Institute last year, around 65 million food containers (the sort used for takeaways) are thrown away daily, while the food delivery industry consumes 20 million plastic bags and 20 million pairs of chopsticks every day too.

According to the South China Morning Post, as a market leader Meituan would have been responsible for much of this waste. Till recently it led the field in food delivery, getting 40% of orders. However acquired Baidu’s delivery unit in August, with financial support from Alibaba, creating a combined 53% market share (see WiC378).

Alibaba had formerly backed the group discount site Meituan, before it merged with Tencent-backed restaurant review app Dianping to form Meituan-Dianping (see WiC300). Alibaba has since sold its stake in the merged firm to concentrate on, integrating that delivery start-up with its own search service Koubei to create a broader O2O platform.

Analysts reckon Tencent led last week’s $4 billion Meituan fundraising to shore up its defences against its archrival Alibaba. But an equally interesting investor in the C-round was newcomer Priceline, the American owner of travel sites Agoda and already has a partnership with Ctrip – China’s domestic leader in hotel booking – providing some 60% to 80% of the online travel agency’s overseas rooms. While Priceline has the option of taking a 15% stake in Ctrip it has opted to invest in Meituan Travel, to broaden its reach in the China market.

Meituan Travel is the dedicated tourism platform launched by Meituan-Dianping in May this year. The subsidiary has an inventory of over 340,000 hotels, most of which are in lower-tier cities, where Ctrip has less coverage. Agoda, with its portfolio of over 200,000 hotels, will also partner with Meituan Travel.

Meituan says that only part of the raised capital will go towards its travel site, pledging the rest will be ploughed into in-store dining, lifestyle, entertainment, on-demand delivery and leisure sectors (i.e. everything else). But whether the company’s broad expansion plans are sustainable is doubted by some. According to The Economist, both Meituan and run their core food delivery services at a loss and are kept afloat simply by huge fundraising efforts.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.