China Extends Antitrust Scrutiny of Meituan

China's market regulator has extended Meituan's antitrust "rectification period" for an unspecified time, Nikkei Asia reports. This move comes as JD.com unexpectedly enters the food delivery market, intensifying competition for Meituan, the current leader.

The State Administration for Market Regulation initially imposed the three-year rectification period in 2021, fining Meituan 3.4 billion yuan ($466 million) for abusing its dominant market position. This followed a similar action against Alibaba Group six months prior.

The extension stems from Meituan's continued efforts to prevent restaurants from using other delivery platforms, according to a source with direct knowledge of the matter. Meituan has not yet responded to Nikkei's request for comment.

While Meituan faces extended regulatory scrutiny, JD.com is making a significant move into the food delivery sector, challenging both Meituan and Alibaba's Ele.me. Notably, JD announced on Wednesday that it will gradually provide full-time couriers with social insurance and housing funds, while offering accident and health insurance to part-time couriers starting March 1.

To attract restaurants, JD is offering zero commissions for a full year to those who join before May 1. However, this program is limited to select establishments that meet high standards to ensure food safety and quality.

Following JD's announcement, Meituan announced on the same day that it too will gradually provide social insurance for full-time and "stable" part-time couriers, with implementation expected to begin in the second quarter.

Wang Puzhong, a senior Meituan executive, stated in an internal post that the platform is focused on fulfilling its social responsibilities rather than competition. However, neither company has specified the number of couriers their plans will cover.

Given the large number of food delivery couriers and the high cost of social insurance, the move by both companies is significant. This is particularly relevant as more people are entering the delivery workforce amid the economic downturn.

The announcements are likely to be welcomed by Beijing, as they shift the cost of social security to the private sector at a time when the economy is struggling.

Alicia Yap, an equity research analyst at Citi, noted that Meituan's move could raise investor concerns about the impact on unit economics (UE), a measure of profitability per order, and overall profitability. However, she added that Citi estimates Meituan's food delivery UE improved from 0.99 yuan in 2022 to an estimated 1.45 yuan in 2024.

"Hence we believe the operation leverage and execution efficiency by Meituan has successfully mitigated the incremental cost of the past two years," she said.