Meituan Shows What Really Matters in a Pandemic

Tim Culpan

(Bloomberg Opinion) -- Meituan Dianping suffered from the Covid-19 pandemic in all the ways that investors would have expected: In-person activities got stung, food deliveries stayed relatively resilient and groceries thrived. As a result, revenue dropped and losses widened.

What’s surprising is the area where China’s leading delivery and bookings provider benefited most: advertising. 

Even with business activity decimated, suppliers who rely on Meituan’s connection with customers kept spending money to chase the few orders that were available. Ad spending on food delivery climbed 21%, while that same subcategory in bookings only dropped 8%. This latter figure is remarkable because the number of hotel room nights plunged 46%. These strong results helped lift the stock almost 10% in early Tuesday trading.

This comes as revenue in Meituan’s only profitable division — the one that handles restaurant and hotel bookings — dropped 31%, which cut earnings there by 57%. Food-delivery sales fell a mere 11%, with losses narrowing by more than half. On the upside, demand for grocery shopping and micro loans drove the company's new initiatives business 5% higher. Overall, operating loss widened 32% to 1.7 billion yuan ($238 million).

I discussed Meituan’s advertising strategy six months ago, likening it to the virtuous cycle deployed by Amazon.com Inc. Having gathered both consumers and suppliers, Meituan can leverage that critical mass to extract income beyond simple commissions. To get ahead of the competition, restaurants not only need to be on the platform, but pay to be seen.

In an investor call Monday night, management highlighted that big brands are jumping aboard. With stores closed and consumers afraid to go out, those that previously survived purely from in-store dining realized that delivery is critical. Customers, meanwhile, wanted food from the premium establishments because they’re perceived to be safer and more hygienic. It was a win-win.

Except if you’re a little local eatery that’s made its business on stir-fry and two-dollar noodles. While millions of consumers will again one day appreciate the convenience and camaraderie of a quick, cheap meal at the neighborhood joint, volumes could drop sharply if people continue to embrace delivery. Now when they vie for ad space, smaller restaurateurs will be competing with a new wave of branded outlets that have larger marketing budgets.

This will still be good for Meituan. The company’s earnings show that when the market is crowded and the pie is shrinking, advertising isn’t a luxury, it’s a necessity. What this portends for the future of small businesses amid an ongoing economic slowdown, however, is less encouraging.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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