How to become profitable in China - a lesson from a food delivery app

Wednesday 18 December 2019

Article

China has seen fast growing consumer start-ups with surging numbers of users getting to IPO/capital market very quickly, Luckin Coffee being a recent example. However very few of these start-ups are profitable and there is a question whether they can ever become so.

The recent news of Meituan Dianping, a Chinese food delivery app, turning profitable is quite interesting and shows a common pattern of how the internet-like new retail and consumer companies are "finally" become profitable in China - and again, it is NOT about the original "purpose" of the business, but the small merchants on the platform.

In Meituan's case the food delivery charge in China is low and it is very difficult for the delivery service alone to break even. Now Meituan is turning to Alibaba's playbook, i.e. charging commissions and marketing service fees to tens of thousands of small merchants and food service providers on the food delivery platform - and recent news shows some promising results.

So, to be successful in China, would you consider an alternative business model or revenue stream in China, which could be quite different from the "original" business model in home markets?

Find out more about Adam Xu, Partner

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