Meituan KeeTa in Hong Kong’s food delivery race; analysts are skeptical

Chinese food delivery giant Meituan has launched a sister app in Hong Kong, the first time it has launched outside mainland China, but some analysts are skeptical it will quickly gain significant market share.

“I’m not too optimistic about Meituan’s expansion in Hong Kong,” Sean Yang, managing director of Blue Lotus Research Institute, told CNBC. “I don’t think the market is big enough for Meituan to invest significant resources.”

The food delivery service, called KeeTa, was launched on May 22 in two residential areas, Mong Kok and Tai Kok Tsui.

A month later, KeeTa announced in a press release shared with CNBC that it was expanding to Hong Kong’s Sham Shui Po and Yau Tsim Mong districts after its initial market launch “exceeded expectations.”

KeeTa plans to cover the entire Hong Kong market by the end of this year, Meituan said at its launch.

The expansion comes as Meituan-Dianping faces stiff competition in the domestic market from new players such as TikTok sister Douyin, and as hopes for a strong recovery in China from the coronavirus pandemic fade.

Meituan is the market leader in China’s food delivery industry, Nearly 70% market share In mainland China, according to industry research firm ChinaIRN.

A KeeTa spokesperson told CNBC: “We have received a lot of inquiries and requests from diners and restaurants outside of Mong Kok and Tai Kok Tsui, which has greatly strengthened our confidence in further expanding the area.”

The spokesman said the company would “continue to provide delivery services and expand the service to more parts of Hong Kong as soon as possible”.

Wang Kai, senior Asia equity analyst at Morningstar, doesn’t think the move into Hong Kong will have a major impact on the company’s earnings.

Compared with last year, KeeTa’s entry into Hong Kong “could only gain another 7 million users,” he said. Meituan has more than 678 million users in China.

“I don’t think (KeeTa) has much impact on Meituan’s revenue,” Wang said.

Meituan declined to comment on the analyst’s views.

“I think Meituan wants to find a market that is culturally close to mainland China, build a team and talent, and try to see if they can take some market share in overseas markets in the long run as well,” said Blue Lotus’ Yang. He was referring to Hong Kong as a test bed for Meituan, which could eventually expand internationally.

About 10% of the entire restaurant industry currently utilizes food delivery services — compared to an average of 21% in China two years ago, according to arA report by research firm Momentum Works.

This is because “ordering food delivery is not as common in Hong Kong as it is in mainland China,” the report said, adding that there is a high density of dining establishments on every street corner in the Asian financial hub.

The food delivery market in Hong Kong is currently dominated by Foodpanda and Deliveroo, which had market shares of 64% and 36%, respectively, in May before KeeTa launched, according to data provider Measurable AI. The data takes into account both delivery orders and pickup orders.

KeeTa currently does not provide takeaway service, only delivery service.

After five years of operation in Hong Kong, Uber Eats will exit Hong Kong at the end of 2021. The company had about 5% market share at the time of its exit, according to Measurable AI.

“If there are already two or three major players in this market, it’s actually hard to change consumers’ mentality unless they do a lot of subsidizing activities,” said Yang of the Blue Lotus Research Center.

“(KeeTa’s entry into Hong Kong) should lead to more coupons and discounts for consumers. In the long run, this should benefit consumers,” said Morningstar’s Wang.

Respectively, Hong Kong launches investigation into anti-competitive practices From Deliveroo and Foodpanda. That means players can’t do things like limit restaurants or penalize them for exclusive deals with other platforms.

This could mean that smaller players such as KeeTa may be able to expand their market share.

To acquire new users, KeeTa Free gift voucher worth HK$300 (US$38.30) for every new user Can be used to offset meal and delivery charges. The company “plans to further carry out various marketing activities” in the new area, such as free delivery for all, recommended discounts and food offers.

KeeTa also launched a set meal starting from HK$60 (including delivery fee) to solve the pain points of customers who dine alone. According to CNBC’s survey, Foodpanda and Deliveroo typically require a minimum order of HK$50 to HK$80, excluding delivery fees.

To further attract customers, KeeTa introduced a “On Time Promise” policy to all users. If a customer’s order is more than 15 minutes behind schedule, the customer will be compensated with a voucher.

Ryan Lai, managing director of Foodpanda Hong Kong, told CNBC that short-term promotions are not enough to build customer loyalty in the long run.

“In such a highly competitive market landscape, we found that building strong customer stickiness is a key success factor,” Lai said.

“We believe that the entry of new players in the local delivery space reflects the industry’s untapped growth potential in the market,” he said, adding that Foodpanda will continue to serve customers better.

Regarding new entrants, a Deliveroo Hong Kong spokesperson said: “Since Deliveroo first entered the Hong Kong market seven years ago, we have been bullish on the prospects of the local food and grocery industry, so we see competition as a challenge and a driver of innovation”.

Recently, the platform has also launched a “on time commitment” policy for paid users, who will be compensated with vouchers if an order is 15 minutes or more late.

However, Momentum Works said in the report that Hong Kong’s food delivery market “remains lukewarm”, noting that growth rates have been modest even amid the pandemic.

But the research firm said KeeTa could draw on its parent company’s expertise in China.

“As long as Meituan nails down the leadership, picks the right people, and effectively organizes the internal structure, they shouldn’t have to worry about competition from the two incumbents.”