Chelsea_SunChelsea_Sun ・ May. 8, 2024
Chinese Food-delivery Giant Meituan Makes Foray into Middle East
Meituan’s approach in Middle Eastern countries is likely to rely on a familiar subsidy-heavy strategy to draw in users and delivery workers at the outset. As with Hong Kong, the firm is likely to roll out its KeeTa platform in phases and target certain districts to begin with.

AsianFin--Chinese on-demand local services giant Meituan has launched its international food-delivery platform in Saudi Arabia, marking the company’s first overseas expansion amid slowing growth in the Chinese market.

In April, Beijing-based Meituan has debuted its KeeTa app in the Middle East with Riyadh, the capital of Saudi Arabia, as the first stop. The company’s global expansion is emblematic of a push by Chinese companies abroad, seeking growth as local market becomes over-crowded while consumption wanes.

The move into Riyadh, one of the wealthiest cities in the region, follows a successful foray into Hong Kong in 2023. The company’s entry into Riyadh pits Meituan against local rivals including Jahez International Co, Delivery Hero’s Talabat and HungerStation and Uber Technologies-backed Careem. The move comes as Saudi Arabia, already the region’s biggest economy, formulates plans to invest trillions of dollars to become a tourism and commercial hub.

To familiarize with the Saudi market, Meituan's executives have made several visits to the Middle East since 2022. Additionally, they have sought advice from many local Chinese institutions. They delved deep into local laws and compliance solutions.

A Riyadh presence could herald a broader inroads into a friendlier region that Chinese companies have warmed towards.

Meituan’s approach in Middle Eastern countries is likely to rely on a familiar subsidy-heavy strategy to draw in users and delivery workers at the outset. As with Hong Kong, the firm is likely to roll out its KeeTa platform in phases and target certain districts to begin with.

The company in April posted at least a dozen KeeTa job openings for Riyadh on LinkedIn and its own website, including for user acquisition and business development.

However, the business environment in Hong Kong is vastly different from that of Saudi Arabia. Hong Kong people have kept the habit of dining in restaurants. In contrast, Saudi users have very different ordering habits compared to Chinese mainland and Hong Kong. According to a local source, Saudi users order food less frequently, about 2-3 times a week, with white-collar workers ordering more frequently.

Cultural factors are also at play in shaping user habits. For example, during the Ramadan period, evenings after sunset become the peak time for deliveries. It is well known that believers need to perform "five prayers," each taking 20-30 minutes, with an additional "major prayer" on Fridays. Religious reasons objectively reduce delivery efficiency and force Meituan to adjust its algorithms.

Unlike in China, there are no well-established digital service providers in Saudi Arabia, and Meituan and Ele.me cannot be integrated into a single POS machine. In the Saudi market, merchants often have devices from five or six different platforms in their stores.

Moreover, the digital infrastructure is relatively weak, coupled with the lack of Arabic-speaking talents, it becomes more difficult for Meituan to fully leverage the capabilities of its promotion personnel in the short term.

Fortunately, local merchants are open to new players entering the market, and they are in the process of learning to charge commission rates and build user base.

It is learned that commission rates for local small and medium-sized restaurant merchants are relatively high, usually around 20%-30%. The bargaining power of platforms against large chain merchants is weak, and the commission rate mostly remains around 5%, similar to group-buying rates in China.

While Meituan had spent months devising a blueprint for entry, plans could still change and the company could decide to hit pause on any expansion. The company has explored other Middle Eastern markets in the meantime.

KeeTa was launched by Meituan last May and took just months to vault to the second spot in Hong Kong, ahead of Deliveroo, according to independent research.

That move to Hong Kong was regarded as a trial run for a broader global expansion over the long run, as Meituan seeks growth at a time rivals like ByteDance’s Douyin are undercutting its margins.

“The slide in Meituan’s fourth-quarter core local-commerce margin, which fell below 15% for the first time in seven quarters, could persist through December if the firm aims to lift revenue by more than 20% year over year,” Bloomberg Intelligence analysts Catherine Lim and Trini Tan said in a note. “Rivalry could intensify, not just from Douyin but also Alibaba’s Ele.me, where a leadership change on March 31 may prompt new measures to gain delivery market share.”

Meituan’s entry into Saudi Arabia also comes after chief executive Wang Xing in February took direct control of the company’s overseas businesses, a decision that elevates the importance of its international ambitions.

Wang said during the company’s earnings call in March that Meituan was actively exploring international expansion, and that the firm’s cash reserves and cash flows from its domestic business would help it break ground in new markets.

Like its peers, Meituan has been looking outside its home turf for growth amid China’s slowing economic growth, including at one point considering an acquisition of Delivery Hero’s business in Southeast Asia.

A growing number of Chinese tech firms have explored a wider and deeper presence in the Middle East in particular, expecting less political scrutiny compared to places like the United States and Europe. Apart from popular global short video app TikTok and e-commerce fashion platform Shein, Chinese-origin social apps like Yalla Group and Joyy’s Bigo Live have also built a strong following in the region.

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