Meituan Dianping to halt ride-hailing expansion in China amid crisis at industry leader Didi

Meituan Dianping, operator of the world’s largest on-demand food delivery service, said it aims to halt further expansion into China’s ride-hailing market, as industry leader Didi Chuxing remains gripped by a safety crisis.

“We regularly evaluate the synergistic value car-hailing services could bring to our platform,” Meituan said in the updated prospectus it filed to the Hong Kong stock exchange on Tuesday. “Based on current market dynamics, we do not expect to further expand this service.”

Beijing-based Meituan started its pilot ride-hailing operations in two mainland cities, Shanghai and Nanjing, earlier this year. The company had planned to initially offer ride-hailing services in at least five cities. It recorded daily active users of around 18,000 on August 31, according to Chinese data services provider Aurora Mobile.

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The change in strategy for Meituan, which is pursuing up to a US$4.4 billion listing in Hong Kong, has come after the deaths of two young women passengers on Didi’s carpool-like Hitch service within the space of three months.

Didi founder Cheng Wei and president Jean Liu Qing issued a mea culpa last week for the company’s role in the deaths, saying that “breathless expansion” had caused the start-up to lose sight of its original goal of improving transport.

Didi, which is widely speculated to be exploring an initial public offering, has suspended operations of its Hitch service, fired two senior executives and will start a week-long pause of its late-night services between 11pm and 5am from this Saturday, when its safety practices are to be revamped.

“Meituan might have wanted to shy away from this kind of trouble, so it decided not to take the ride-hailing business a step further,” said Xue Yu, an analyst at technology research firm IDC. “I don’t think Meituan’s retreat from ride hailing will affect Didi much. After all, Meituan only operates in two cities.”

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Meituan introduced its ride-hailing operation in February in Nanjing, capital of the eastern-central coastal province of Jiangsu, and rolled out the service in Shanghai in March.

Expanding ride-hailing services nationwide would have required more investment from Meituan.

Demand for its pilot operations in Nanjing and Shanghai has been helped by heavy subsidies programmed for users and drivers. The cost of rides hailed on Meituan started at 5 yuan, compared with the initial charge of 14 yuan on a regular taxi.

Meituan posted total revenue of 15.8 million yuan (US$2.3 million) for the first four months of this year, up 95 per cent from the same period last year, according to its prospectus. The firm’s cost of revenue, however, increased 148.5 per cent to 11.8 million yuan. It cited car-hailing driver expenses among the main items in its cost of revenue from operations.

A spokeswoman for Meituan did not immediately respond to a request for comment on the company’s ride-hailing subsidies.

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Founded in 2010 and backed by internet giant Tencent Holdings, Meituan recorded a net loss of 19 billion yuan last year even as it developed into China’s leading e-commerce platform for on-demand services.

The company’s core business is food delivery, which accounts for 69 per cent of the total transaction on the Meituan super app that offers a range of services, including food delivery, dining, local listings and online bookings.

Its main competition in China in the food delivery business is Alibaba Group Holding-owned Ele.me. Alibaba, the parent company of the South China Morning Post, is said to be looking to merge Ele.me with its food and lifestyle services arm, Koubei, to heat up the competition with Meituan.