Market shrugs off delivery giant Meituan’s anti-monopoly probe

Shares of China’s largest food delivery service provider rose as investors expect a limited impact from China's antitrust investigation into the company over alleged monopolistic business practices

Market shrugs off delivery giant Meituan’s anti-monopoly probe
Delivery riders for Meituan, one of China's biggest food delivery firms, chat while waiting for orders outside a restaurant in Beijing on April 27, 2021. Photo: Greg Baker / AFP.

(ATF) Shares of Meituan, China’s largest food delivery service provider, rose as investors expect a limited impact from China's anti-monopoly investigation into the company over alleged monopolistic business practices.

Meituan is the second Chinese tech firm to undergo an anti-monopoly investigation after Alibaba’s record $2.8-billion antitrust fine. Alibaba’s shares in Hong Kong plunged as much as 15% after the antitrust probe was made known to the public. Asia Times Financial reported earlier this month that Meituan may be a next target of Beijing’s anti-monopoly campaign.

Meituan rose 2.6% on Tuesday and closed at HK$313 ($40.30), reversing from a 0.5% loss on Monday. The Chinese takeout firm dipped 0.9% on Wednesday morning.

Meituan is the fifth-largest stock by weighting on the benchmark Hang Seng Index. 

“We have established a case to investigate into Meituan’s alleged monopolistic practices such as ‘picking one from two’, based on a public tip-off,” the State Administration for Market Regulation (SAMR), China’s top market watchdog, said in a one-line statement on its website on Monday after market close.

“Picking one from two” refers to the practice by some e-commerce platforms to force merchants to choose it as their exclusive distribution channel.

In a statement, Beijing-based Meituan said it will “actively cooperate with the investigation by the regulatory authorities” and that its various businesses are operating normally.

“After the authorities’ antitrust investigation is completed, Meituan will very likely receive a penalty and be ordered to stop its violations such as the ‘picking one from two’ practice,” Liao Xinyu, an analyst from Nomura Orient International Securities, said.

Limited impact seen

However, the investment bank expects a limited impact on Meituan's business.

"In the early days of the food delivery service market, the ‘picking one from two’ practice did help Meituan to gain a competitive advantage as it helped the company differentiate its restaurant offerings from those of competitors. We believe Meituan's strong market position and customers' loyalty will continue to fuel strong business growth, even if it stops the ‘picking one from two’ practice,” Liao said.

Still, the investigation into Meituan came as a surprise, because Meituan was supposedly given a 30-day “grace period” to self-inspect monopolistic behaviors.

On April 13, Meituan and 33 other internet giants were summoned for a “guidance meeting” by SAMR, the cyberspace administration and the tax authority, and ordered to carry out self-inspection within 30 days.

“Judging by Meituan’s case, the anti-monopoly law enforcement is stricter than we had expected,” Liao noted.

Before Tuesday, Meituan's shares had bounced back by 10.5% from a low of HK$276 on April 13.

Despite the antitrust pressure, Nomura Orient International remains upbeat about the outlook of Meituan in the long run, as well other Chinese tech giants such as Alibaba, Tencent, and They have maintained a “buy” rating and a HK$404 ($52) pricing target for Meituan.

Threat to raise merchant fee rate 

Meituan and Alibaba’s, whose name translates as “Are you hungry?”, together accounted for about 95% of China’s food delivery market as of the second quarter of 2020, according to iiMedia Research. 

The two have been cutting each other off, forcing merchants to ditch the other’s platform.

A recent court ruling in Huai’an city in Jiangsu province asked Meituan to pay compensation of 352,000 yuan ($50,115) to for “unfair competition” revealed that Meituan threatened to raise the merchant fee rate from 18% to 25% if merchants continue to also sell on Merchants that continue to sell on and refuse to agree to the price increase will face listing suspension.

Meanwhile, another court in Wenzhou city in Zhejiang province ordered to pay 80,000 yuan ($12,336) in damages to Meituan for forcing merchants to sign exclusive partnership agreements.

Taking the antitrust penalty (4% of the previous year’s revenues) that Alibaba received as a benchmark, Meituan will likely be fined 4.6 billion yuan ($709 million) by SAMR – about 4% of the company’s $18 billion net cash balance, Liao noted.

China’s penalty for a company found with monopolistic business practices is 1-10% of its annual revenues from the previous year.

It is unknown how long the probe into Meituan will last. SAMR’s investigation into Alibaba took over three months. 

Meituan announced last week that it would raise a whopping $10 billion from additional share placement and convertible bond issuance to fund technological innovations such as unmanned delivery services using drones and self-driving vehicles.

Facing user saturation in China’s urban areas, Meituan, like other tech giants such as Alibaba, Tencent, and, has been vigorously expanding to the rural regions with a Groupon-like shopping model locally known as “community group buying”, and trying to grab users with substantial subsidies. 

Losses from this new business widened to 10.9 billion yuan ($1.7 billion) last year from 6.7 billion yuan ($1 billion) in 2019, but the company managed to record an overall net profit of 3.12 billion yuan ($481 million) thanks to the increasing popularity of its food delivery service amid Covid-19, albeit with a 33% year-on-year decrease. Its revenues were up 17.7% to 114.8 billion yuan ($17.7 billion).

The community group buying service is also a target in Beijing’s anti-monopoly campaign as the government became concerned that the tech giants - with their fancy algorithms and wealth - are taking jobs away from local grocers.

In March, Meituan and several other tech firms such as Pinduoduo and Didi were penalized by SAMR for “disrupting the market’s pricing orders” by offering substantial subsidies in their community group buying services. Meituan, Pinduoduo and Didi were fined 1.5 million yuan ($231,300) each.

China Meituan SAMR probe antitrust investigation 'One from two'