Meituan Takes On The World With Hong Kong As Launchpad

Globalization is undoubtedly one of the keywords of 2022, with a bunch of tech giants jostling for a piece of pie.

On September 1, 2022, Pinduoduo Group (PDD:NASDAQ) officially launched its cross-border e-commerce  platform Temu in the United States; at the same time, Huawei Cloud and Alibaba Cloud successively announced their overseas expansion plans in Bangkok, Thailand. In December, Alibaba (BABA:NYSE) invested approximately USD 342.5 million in its e-commerce platform Lazada targeting Southeast Asia for the third time this year.

Apart from that, Meituan (3690:HK), China's food delivery giant and local service platform, is also making increasingly high-profile moves in going global.

According to reports from Hong Kong media in February 2023, Meituan is gearing up to enter the Hong Kong market, and it will come into action in the first half of this year or even sooner. Although there are not any official statements on this matter, Meituan has been proactively while silently establishing its food delivery business in Hong Kong. The company updated job vacancies on its recruitment website on February 20, including positions for planning and operations experts in the Hong Kong SAR.

Moreover, Meituan has been advertising via various channels to hire deliver-ers from motorcycle riders, bicycle riders, and walkers (delivering food on foot). Public sources show that the compensation package comprises basic delivery fees, additional service fees, and special rewards (new member rewards, special holiday rewards, and active rewards, etc.). It is calculated that a walker can receive about HKD 20,000 (CNY 17,584 or USD 2547.1) per month, while motorcycle riders can make up to HKD 35,000 (CNY 30,772.7 or USD 4457.4) per month provided they complete their delivery tasks.

On April 4, two days before, Meituan reportedly held its first introduction section in Hong Kong about the delivery business. The company has confirmed that it will launch a brand new, standalone food delivery brand in Hong Kong, with tailored products and services that cater specifically to local markets.

All of this proves Meituan's desire to tap into Hong Kong, dispelling any lingering doubts or rumors. And this move is just one facet of the company's wider ambitions for global expansion, which have become all the more apparent through this decisive action.

Deliveroo and Foodpanda Dominate the Hong Kong Food Delivery Market

The competitive landscape of the food delivery market in Hong Kong has changed a lot in the past few years. As one of the most densely populated markets, the battle goes on and is heating up.

Hong Kong's food delivery market is currently dominated by Foodpanda and Deliveroo, which had shares of 63% and 37%, respectively (as of June 2022) in the first half, according to data from Hong Kong-based market researcher Measurable AI. Data service Statista has estimated that the value of the Hong Kong food delivery market will reach USD 3.61 billion in 2023.

Looking back at their history, Foodpanda from Germany was one of the first food delivery apps to enter the Hong Kong market in 2014; Deliveroo, which started in the UK, followed suit and landed in Hong Kong in 2015; and UberEats entered Hong Kong in 2016. However, what happened to UberEats proved that the Hong Kong delivery market could be a tough nut to crack. At the end of 2021, the market witnessed UberEats quitting with less than 5% of the market share, leaving only Foodpanda and Deliveroo competing with each other.

Founded in 2012, Foodpanda focused on Africa, Asia, Eastern Europe and Latin America markets in its early years. At the end of 2016, Foodpanda was acquired by the German company Delivery Hero, which became its key food delivery platform and started to step into European markets such as the UK while expanding its original markets. Currently in Hong Kong, Foodpanda is in partnership with over 7,000 restaurants and is available for various payments, including GooglePay and ApplePay.

But Deliveroo is another story. It has expanded all the way from European countries such as the UK, Belgium, France, Germany and Italy to Asia and Oceania, which is different from that of Foodpanda. And there are the restaurants they started with and the users they targeted.

Deliveroo was branded by the founders as "delivering food from great restaurants" and focused on high-end restaurant delivery, thus targeting high-spending power people who are willing to pay. It is reported that Deliveroo has over 6,500 partnered restaurants, from luxury hotels, time-honored brands and Michelin-starred restaurants. Foodpanda, on the other hand, started as an affordable food delivery business in Asia, Africa, and Eastern Europe. Those who joined the platform's open take-out service in the early days were low-cost fast food, pasta, fried chicken, etc.

But eventually, the need to expand led the two platforms on very different paths to step into the same river. Deliveroo started to serve more affordable restaurants, and Foodpanda offered more sophisticated dining out. If Meituan is determined to develop in Hong Kong, the food delivery industry is bound to usher in a new round of interesting competition.

Meituan Needs a Second Growth Engine

Meituan saw its revenue surge 22.8% to CNY 219.95 billion in 2022, with adjusted net profit hitting CNY 2.83 billion. The peak daily order volume of food delivery — Meituan's ace card — also surpasses 60 million orders in 2022. Despite this, the transactional user count dropped 1.8% YoY to 678 million, reflecting increasing competition in China's local services market to some extent.

In a bid to tap into the lucrative sector, Chinese video-sharing giant Douyin has been ramping up its own delivery services, announcing a nationwide launch in March after a trial in Beijing, Shanghai and Chengdu. The news once caused Meituan's share price to plummet over 9%, wiping over HKD 80 billion off its market value.

Check our latest analysis here: Can Douyin Grab a Slice of The Food Delivery Market From Meituan?

As Meituan's domestic business hits a bottleneck with user numbers and traffic reaching a plateau, coupled with challenges from its rival Ele.me and the entry of cross-border players, the company is in urgent need of finding new growth possibilities.

The answer may lie in Hong Kong, and the global market.

"To continue to be favored by investors in the secondary market, the company must expand its business scope," said an industry insider. "That is how Meituan reacts. It further expands its business reach in the mainland to ride-hailing, grocery, shared bicycle and chargers, while globalizing its food delivery business in the overseas market."

However, as an asset-heavy business, the biggest test for Meituan is how to manage and improve the capacity in a cost-efficient manner, especially at a time when it has just turned a loss into a profit.

Is it a Good Business?

It is hard to give the conclusion at this very early stage, but we have to say, it is a hard nut to crack.

Unlike us, food delivery has never been the go-to choice for consumers in Hong Kong. "Food delivery in Hong Kong is extremely expensive. The delivery fee can cost as much as HKD 20, sometimes even half the price of the food itself," said a Hong Konger during an interview with EqualOcean. "The delivery distance is also limited — mostly within 1 km, with no guarantee of timely arrival. I'd better dine in or pick up items myself after placing an order."

According to the data platform Statista, the penetration rate of food delivery in Hong Kong is estimated to be around 3%, which is only one-tenth of that in mainland China. From a data perspective, there is undoubtedly ample room for growth in this market. However, the failures of food delivery platforms Uber Eats and HKTV Express in Hong Kong demonstrate that it is not as sexy as we think.

In fact, as early as 2018, Meituan had already put its plan to enter the Hong Kong market on hold due to the restrictions on electric motorbikes. To drive an electric motorbike, delivery workers must comply with more stringent local requirements to obtain road permits, or sacrifice timeliness and delivery scope by walking instead. Beyond the challenge of delivery capacity, the high commissions, strict labor laws, antitrust regulations, and the  dominance of rivals like Deliveroo and Foodpanda all make it difficult for Meituan to re-write its glory in this new market.

However, from a business analysis perspective, Meituan at least has a strong team in place. Sources reported that the new project for the Hong Kong market would be under the lead by Guangyu (Tony) Qiu, the former head of Kuaishou’s internationalization division who joined Meituan in July 2022. Previously, he also served as the Chief Operating Officer of Didi's international business unit.

Back to the question we posted ahead, Wang Xing, Meituan's founder and CEO, once commented that Hong Kong is an ideal testing ground for their global infrastructure and practical strategies. Put simply, the management team is not too concerned about whether it's a good business or not.

This is easily understandable. As an international metropolis, Hong Kong is physically and psychologically closer to mainland China, yet it presents more diverse consumer habits, lifestyles and cultures. The infrastructure development and management concepts are also more similar to those of developed markets overseas. Once successful in this market, its globalization process will be easier to promote. It is in line with the strategy of many tea beverage brands which choose Southeast Asia as their first offshore destination, such as MXBC (Chinese: 蜜雪冰城), Nayuki (2150:HK), HEYTEA, CHAGEE (Chinese: 霸王茶姬), etc.

"It is only a small-scale pilot project. We aim to sharpen our organizational capabilities on the global stage through strategic investments in new initiatives."

Bottom Line

Although Hong Kong is largely a mere springboard for Meituan's larger globalization aspirations, the resulting competition is inevitable. And progress comes as follows. For consumers, the addition of a new platform means an upgrade of user experience; while for merchants and delivery workers, they would benefit more from the industry in transformation instead of bonuses and subsidies themselves.

However, it remains to be seen whether Meituan's business growth in Hong Kong will generate the same positive effects as TEMU has had on PDD, particularly in terms of share price. Despite the potential for long-term growth, we believe that short-term expectations must be tempered given the competitive landscape and other external factors.