Grab’s acquisition of Uber Southeast Asia seemed to have brought the battle between the ride-hailing giants to an end (or temporarily end). In China, Uber’s destructive price war was brought to an end, after it was finally acquired by Didi. However, another price war in the ride-hailing market is happening again, this time – between Didi and Meituan.

Subsidy War II

Chinese tech companies are known to offer generous subsidies to win over markets. Just as Didi invested billions of dollars to win market share from Uber before 2016, Meituan is now doing the same to challenge Didi’s monopoly. Meituan is perhaps one of China’s most valuable tech firms and known as “Chinese Groupon” and “Chinese Yelp”.

Meituan’s bus stop ads

After debuting the ride-hailing service in Nanjing last year, Meituan started its national expansion across China in March 2018 with huge subsidies.

Meituan’s subsidy plan

  • Three months of waived service fees for the first 20,000 registered drivers in Shanghai (usually it is 8% of the fare while Didi is 25% )
  • A guaranteed daily incentive of US$95 (CNY600) for drivers who is available online for over 10 hours and receive more than 10 trips between 6 a.m. and midnight.
  • Additional US$30 (CNY200) if drivers complete a certain number of rides
  • US$2 off (CNY14) for the first three rides

A week after the war started, Wang Xing, Meituan’s CEO, said at a conference that Meituan has already taken a one-third share of Shanghai’s ride-hailing market.

As the dominant player in China, Didi had reduced the incentives and discounts in the past year. Therefore, it is not surprising at all that many price-sensitive users switched to Meituan because of better discounts. Meituan, with an already huge user base of 280 million users has no problem convincing them to do rightly so.

In response to Meituan’s move into ride-hailing, Didi also started its food-delivery service with huge subsidies (many meals are almost free) to compete with Meituan’s core business and claims that they have won over 30% of the market in Wuxi.

Customers can order a KFC lunch or a dessert set for free.
Didi’s food delivery drivers

The war won’t last long

On average, Meituan is subsiding around US$5 (CNY40) per trip. According to an internal email from Didi, Didi had over 7.5 billion rides in 2017, if Meituan aims to capture a 20% market share, it needs to invest an eye-popping amount in subsidies alone. It is definitely not sustainable nor helpful for its upcoming IPO plans. (Meituan is said to be seeking  a US$60 Billion valuation in its upcoming Hong Kong IPO)

Besides, Tencent is the major stakeholder in both Didi and Meituan. Tencent will not allow the subsidy battle to last long, to its own detriment.  

Last but not least, though the subsidies indeed made Meituan acquire a lot of users in a short time span, most of them were price-sensitive users. This kind of users don’t have brand loyalty and will switch easily between platforms, seeking discounts and offers. It will also make it very difficult for driver supply to catch up with demand, as many people who previously took public transportation, now use Meituan’s ride-hailing app.

Conclusion

It’s reasonable for Meituan to want a piece in the ride-hailing market. Its dreams of becoming an all-in-one consumer services app is indeed achievable. However, in order to grow more sustainably, Meituan should think about the customer pain points, thus improving the customer experience. This can help retain more valuable customers.

It is said that Go-Jek is coming to Singapore and other SEA cities. Will the same war happen between Grab and Go-Jek? We’ll see. 🙂

Thanks for reading The Low Down, insight and inside knowledge from the team at Momentum Works. If you’d like to get in touch with us about any issues discussed on our blog, please drop us an email at hello@mworks.asia and let us know how we can help.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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