CNBC AI News, July 17 – Meituan’s CEO of Core Local Commerce, Wang Putaozhong, recently shed light on the notoriously thin profit margins of the food delivery business, specifically Meituan’s take.
According to Wang, Meituan’s delivery business achieved approximately a 4% profit margin last year, with minimal fluctuation. He emphasized that the company’s overall profit growth stemmed primarily from scaling operations, rather than aggressive profit-margin expansion. The industry, he asserted, inherently operates on razor-thin margins.
Wang elaborated that food delivery is a complex and exacting business where even minor miscalculations at any stage can quickly lead to losses. He pointed to the struggles of competitors to achieve profitability. While Meituan’s operating profit margin (OPM) hovers around 3%, Wang claimed this is already a global success story. He contrasted this with U.S. giant DoorDash, which levies higher commissions – reportedly 16%-18% even for merchants using their own delivery personnel, in addition to customer-paid delivery fees and tips – yet still grapples with profitability.
The core of the issue, Wang explained, lies in the exceptionally low per-order profit margins – barely more than a dollar or two. This leaves little room for error or unexpected costs. The delicate balancing act involves satisfying four key stakeholders: merchants, delivery riders, the platform (Meituan), and consumers. Finding a balance that keeps all parties content is an enormously challenging task. This is why Wang repeatedly stresses the intricate and low-margin nature of the industry; it’s a business model that can’t be approached with idealistic or simplistic strategies.
Wang also alluded to the skepticism surrounding ambitious profit targets expressed by other industry figures. He cited the sentiment of Zhang Xuhao, former CEO of Ele.me, who reportedly stated upon selling his company to Alibaba in 2018 that the food delivery model would never be profitable.
Original article, Author: Tobias. If you wish to reprint this article, please indicate the source:https://aicnbc.com/4899.html
