Chapter 2

The Delivery War

In 2025 two of China's best-funded companies attacked Meituan's core business at once. Judged on the metrics that compound — order and GTV leadership, the profitable order mix, rider and merchant density — the franchise held. But it held only by matching the subsidies, and that is what turned a ¥52.4bn segment profit into a ¥6.9bn loss. The war revealed a real but contestable moat: a cost-and-density advantage rivals could dent with cash, not erase.

Two well-funded entrants, one incumbent

For most of the last decade Meituan's food-delivery dominance was rarely tested by an equal. That changed in early 2025. JD.com entered on-demand food delivery in February, waiving merchant commissions and pledging around ¥10bn of consumer subsidies; Alibaba escalated in response, folding Ele.me into a relaunched "Taobao Instant Commerce" and committing a subsidy program the size of ¥50bn over the following year. Meituan answered in kind rather than cede ground. Press and analyst accounts of the episode — the filings describe it only as "intensified competition" — put industry-wide daily orders at roughly 100 million entering 2025 and above 250 million at the war's peak, with promotional coffees selling for as little as ¥2 and a single Saturday drawing a reported 120 million orders across platforms.

Meituan's own report frames the year with unusual candour for a Chinese issuer: 2025 was "a year of both significant opportunities and formidable challenges," met "in the face of the intense competition" [1]. Its support-fund programs alone "assisted over 500,000 merchants in alleviating operational pressures from irrational industry competition" [2]. The word management keeps returning to is irrational — the tell of a fight it did not start and does not expect to last.

What defending the line cost

The bill lands almost entirely in one place. Core Local Commerce — food delivery, Instashopping, in-store, hotel and travel — had earned a rising operating profit for years: ¥38.7bn in 2023, ¥52.4bn in 2024, a 20.9% margin [3]. In 2025 it recorded a ¥6.9bn operating loss, a negative 2.6% margin — a ¥59bn swing in a single year [4].

Source: FY2024 Annual Report (2023–2024) [5]; FY2025 Annual Report (2025) [6].

The mechanism was spending, not demand. Core Local Commerce revenue still grew 4.2% to ¥260.8bn [7]; the damage came through incentives netted against delivery revenue and, above the segment line, a 60.9% jump in selling and marketing expense to ¥102.9bn [8]. The pain deepened through the year: the fourth quarter alone carried a ¥10.0bn Core Local Commerce operating loss, a negative 15.5% margin against a positive 19.7% a year earlier, as quarterly selling and marketing expense rose 83.4% [9] [10]. Total segment operating profit for the group fell from ¥45.1bn to a ¥17.0bn loss [11]. This is the cost side of the Franchise and Trough question, itemised: the trough was bought, quarter by quarter, to hold a position.

The rivals paid too. Press and analyst estimates put the three platforms' combined subsidy-and-marketing cost above ¥100bn across the second and third quarters, with Alibaba's instant-retail losses estimated near ¥87bn for the campaign and JD's new-business unit losing on the order of ¥47bn. No participant made money; the question the war actually settled is who came out of it with the franchise intact.

Whether the moat held

On the numbers that matter, Meituan kept the lead. Through the worst of the war it reported "record DAU and MTU in food delivery," "high retention and growing transaction frequency among core users," and "maintained leadership in both order volume and GTV" [12]. Over 800 million consumers used the platform, and app DAU rose more than 20% year over year [13]. Crucially, management located its edge in the higher average-order-value segments — the profitable orders, not the ¥2 coffees the subsidies bought.

Sources: order-share estimates are analyst/press figures (JPMorgan data as reported by Sixth Tone and CNBC), late 2025; positioning per those accounts. Meituan's leadership on order volume and GTV is per the Q3 FY2025 earnings call [14].

Read the share figures with care. The late-2025 snapshot — Meituan near 50%, Alibaba near 42%, JD around 8% by daily order count — flatters the challengers, because their totals include tens of millions of subsidy-driven, low-value instant-commerce orders inside a pool that itself had more than doubled on promotion. On a restaurant-delivery GMV basis the gap is wider: Alibaba's own claim was a 40% GMV share "under a two-player market definition," implying Meituan retained roughly 60% of the economically meaningful volume. The honest read is that Meituan's share slipped from a commanding level but its lead in profitable order value did not break. Its "absolute" advantage proved defensible, not unassailable — a distinction that decides whether 2025 was impairment or trough.

Why the moat is real: density, not slogans

The advantage rivals struggled to copy is physical, not promotional. Meituan's delivery network is, in its own long-standing words, "at the core of our food delivery and Meituan Instashopping businesses, and it has always been our competitive advantage" [15]. That network — the on-demand fleet management the company built to a global scale over a decade [16] — produces order density, and density is what lets a courier chain three deliveries in one loop instead of one. A challenger can buy an order with a subsidy; it cannot instantly buy the merchant supply, the rider liquidity, and the dispatch efficiency that make that order profitable at scale. That is why the war cost Meituan a fifth of a margin point but cost JD and Alibaba far more per order gained.

The test cuts the other way in categories where density is thinner. The second front — instant retail, where Instashopping quick-commerce revenue still grew 15.9% to about ¥28bn in the third quarter [17] — is exactly the ground Alibaba and JD chose, because grocery and general-merchandise fulfilment is younger and share is more mobile. Meituan is consolidating there rather than retreating: in February 2026 it agreed to acquire the fresh-grocery operator Dingdong for an initial US$717 million [18]. In-store services — the highest-margin corner of Core Local Commerce, and one already stress-tested by short-video platforms — held its "dominant mindshare" through the year on review depth and merchant coverage [19]. Execution is not itself a moat; the moat is the density and the two-sided supply the execution has compounded, and it showed up as a defended position rather than a slogan.

The turn, and what would change the read

By late 2025 the war was de-escalating under regulatory pressure. China's market regulator summoned all three platforms, published draft rules restricting long-running, large-scale subsidies, and by August had extracted public commitments to stop the price war. The first-quarter 2026 results are the first read on the other side: management said "industry-wide subsidies eased," competition shifted "back toward fundamentals like service quality and efficiency" — Meituan's own turf — and unit economics improved [20]. The total segment operating loss narrowed from a ¥15.3bn low in the third quarter of 2025 to ¥4.1bn, on revenue of ¥91bn [21] [22]. Management says it remains "confident in the long-term growth potential and competitiveness" of the segment [23].

The read here is that the moat is real but narrow: a scale-and-density cost advantage that survived a two-front assault by better-capitalised rivals, but only by spending its own profit to do so. The strongest fact against it is that the advantage was contestable at all — a supposedly dominant franchise had to burn a year of segment earnings to defend share, and it did lose some. What would flip the read from trough to impairment is straightforward to watch: a re-escalation of subsidies into 2026, or share and order-mix that keep eroding once promotions stop. Management itself flags a nearer risk — that second-half 2026 order growth "could turn negative year over year" on tough comparisons [24]. One quarter of rational competition is evidence, not proof. But the direction — losses a third of their peak, competition back on service and efficiency — is the direction a defensible trough would take.