Meituan Narrows Losses: Prospects in Saudi Arabia

In October 2023, Meituan launched its overseas food delivery platform, Keeta, in Riyadh, the capital of Saudi ArabiaThis move comes after a period of indecision regarding the company's international strategy and marks a significant milestone as they navigate new marketsGiven the unique geographic and temporal qualities of Saudi Arabia, the choice to begin their overseas expansion here is loaded with potential, signifying a high ceiling for future growth.

Despite Meituan's cautious approach, the early indicators suggest that their initial efforts in Saudi Arabia might yield better outcomes than their previous ventures in Hong KongAnalyzing the company's recent quarterly reports reveals a trend of diminishing losses in new business sectors, hinting that Meituan’s pre-launch groundwork in Saudi Arabia was more methodical than previously assumedThe full financial impacts of the new venture will likely reflect in future earnings reports, but early reports imply that Keeta is off to a relatively smooth start in the Middle Eastern market.

Identifying Core Leverage Points Before Expanding to Saudi Arabia

Meituan’s foray into international markets began with a pilot program in Hong Kong

By the end of 2022, Keeta had become the second-largest food delivery service in the regionBy May of this year, as Meituan celebrated one year in Hong Kong, reports indicated that Keeta had climbed to the top positionThis success story provided Meituan with a vital reference point and confidence as they made plans to expand further into the Middle East.

Looking back at Meituan's timeline related to market research in the Middle East, it’s evident that the company had ambitions in the region prior to 2022. However, internal disagreements over the initial launch point delayed the decision-making processUltimately, by April of this year, executive approvals finalized the choice of Saudi Arabia as the first destination for Meituan’s Middle Eastern endeavorsBloomberg reported on April 26 that the company was preparing to launch Keeta in Riyadh.

By September 9, Keeta had started trial operations in Al Khobar, marking the end of a multi-month preparatory phase before the official launch in Riyadh in October

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From the decision to launch until the actual deployment only took four months, reflecting a strategic momentum that had been cultivated over years of exploration.

However, before this swift progress, Meituan navigated nearly two years of indecisivenessCommencing in October 2022, Meituan's investment arm sent representatives, including Zhu Wenqian, to engage with potential opportunities, coinciding with the Qatar World Cup—an opportune moment to assess the Middle Eastern marketZhu was reportedly tasked with gathering insights on local business policies and competition within the food delivery sector.

By May 2023, Zhu and leading executives, including CEO Wang Xing, returned for a series of discussions with Saudi royalty and ministers, indicating that Saudi Arabia had transitioned into a favored option for the company’s Middle Eastern ambitions.

Previously, there had been discussions about launching operations in Dubai, yet it appears those interests have waned as the business environment there is already saturated with foreign competitors

Although Dubai is known for its advanced business landscape, Saudi Arabia offers a less competitive food delivery sector ripe for entryThis calculated choice reflects a desire to avoid the costly faux pas committed in Hong Kong, where Meituan focused on gaining market share through aggressive spending.

The decision to enter the Saudi market also rests on larger macroeconomic factorsCentral to this strategy is Saudi Arabia’s Vision 2030, which includes extensive infrastructure development initiatives and economic reforms aimed at attracting foreign investmentThis ambitious plan directly competes with Dubai’s longstanding reputation as the Middle East’s economic hubFurthermore, new regulations indicate that from January 2024, foreign companies without regional headquarters in Saudi Arabia will not be eligible for new contracts, complicating international businesses' operations in the region

This acute awareness of local policies and economic trends makes Meituan’s strategic approach in Saudi Arabia both proactive and reactive in nature.

The need for prudence couldn't be greater; Meituan's leadership must gauge the sustainability of any short-term benefits resulting from recent policy shiftsWhile the allure of favorable regulations might tempt quick entry, unforeseen challenges could ensue if these policies were to alter in the future.

Thus, while prior potential advantages were announced years in advance, Meituan’s recent confirmations reflect a deliberate consideration of the evolving global landscapeDecisions made over time are understandably cautious, illustrating the complexities of such venturesUltimately, Meituan’s ongoing success points to the idea that thoroughly vetted strategies yield more fruitful outcomes in the long run.

Significant Loss Reduction in New Ventures: Is Saudi Arabia Surpassing Hong Kong?

As noted, the rapid development of Keeta in Hong Kong has been noteworthy since its official launch

Capitalizing on initial incentives such as “10 Billion Reward,” Keeta quickly climbed to become Hong Kong’s second-largest food delivery platform by November, boasting a 31% market share according to StatistaBy March, Keeta had purportedly captured an impressive 44%, solidifying its position as the top service in the region.

Examining Meituan’s quarterly reports reveals a marked reduction in losses associated with new business sectors, suggesting that the investments in Hong Kong had minimal impact on their overall financial healthMeituan’s new ventures include not just international expansion, but also services like Meituan Preferred, Xiao Xiang Supermarket, Kurier, ride-sharing, and bike-sharing services.

Previously, Meituan Preferred had paused its expansion plansRecent reports indicate that the loss for that sector is projected to be contained between 10 to 12 billion yuan in 2024, a reduction by 8 to 10 billion yuan from previous losses

In contrast, the new businesses had faced losses exceeding double-digit percentages but have significantly improved efficiencies, with losses diminishing to 6.1% and 4.2% in Q2 and Q3 of this yearThis trend aligns closely with the timeframe of Keeta’s Hong Kong operations and preparations for the Saudi launch.

Insights from research institutions reveal that while overseas business losses may escalate, the other elements (excluding Keeta) are still on track for further loss reductionsThe anticipated overall loss is expected to reflect this balanced approach, soothing fears of sudden financial grievance.

In summary, the prospects for Meituan’s new ventures are tied primarily to the international expansion segment, which may yet expand financial strain.

Reports indicate that Keeta has achieved about 70,000 daily orders in Riyadh, with projections targeting 100,000 orders by November, marking a notable market penetration rate of approximately 27%. This is considerably sharper than Keeta’s initial Hong Kong penetration rate of merely one to three percent in its first three months.

Keeta’s strategies in Saudi Arabia involve promotional tactics such as first-order discounts and fee waivers, contrasting sharply with the aggressive “10 Billion Reward” strategy employed in Hong Kong

Given that competitive dynamics in Hong Kong are already mature, Meituan needed to adopt more straightforward financial tactics in Saudi Arabia, where consumer habits are still developing, thereby necessitating a push into the market through generous incentives.

However, the long-term profitability of either approach—aggressive cash burn in Hong Kong or user-subsidizing delivery in Saudi Arabia—remains to be seen until the next financial update after Q4.

Concluding Remarks

The evidence suggests that the potential ceiling for food delivery in Saudi Arabia may outshine that of Hong KongNonetheless, Meituan’s overseas expansion carries significance beyond just the food delivery sectorHistorically, their operational model in China relied on leveraging high-frequency delivery systems to penetrate more lucrative in-person hospitality segments