China’s food delivery apps could fill up on Beijing’s blessing
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Food delivery is a serious business in China. A 30-fold growth in the market pushed the equity value of China’s largest on-demand delivery platform to $180bn in 2021, as pandemic lockdowns gave sales a boost. The prolonged slide in shares of Meituan since then seems overdone.
Meituan’s Hong Kong-listed shares are down more than 80 per cent from their 2021 peak. Part of that is due to weak consumer spending growth amid an economic slowdown. But the bigger fear is the threat that Douyin — the original Chinese version of TikTok — poses to the industry as its food delivery service business expands faster than expected.
ByteDance’s Douyin rapidly built out its food delivery operation last year to cover 30 big Chinese cities, in direct competition with Meituan. The short-video platform’s 750mn daily active users could present a formidable force.
In recent years, Beijing’s crackdowns on a wide range of industries have shown that government support is a make-or-break factor in a Chinese company’s earnings and stock performance. Being aligned with government policies and targets has proved a winning formula.
As an online platform, Meituan had been targeted by broader crackdowns on the country’s tech sector. But a shift in government policy to deal with China’s rapidly ageing population could turn out to be an unexpected stroke of good luck for the company.
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Government guidelines around building a “silver” economy announced last week have identified dining assistance to the elderly as a priority. Food delivery and logistics companies are the primary beneficiaries of policies that focus on meal delivery to senior citizens and nursing homes.
It helps that China’s elderly users are digitally savvy. China’s most popular social media app, Tencent’s WeChat, has more than 120mn users aged between 55 and 70. As the total market size grows, competition from ByteDance will be less of a threat.
Meituan trades at just 16 times forward earnings, the lowest level since its 2018 listing. Its valuation is less than half that of global peers including DoorDash, a possible sign of lingering concerns over regulatory risk following Beijing’s crackdown on the tech sector.
But its strong position in the local food delivery industry, accounting for 70 per cent of the market share, means it is perfectly positioned to reap the benefits of long-term demand growth. The company’s other businesses, including catering, ride-hailing and travel booking, have the potential to serve as a hedge until it does so.