Meituan drives to Brazil in search of growth, only to crash into Chinese rival DiDi

The two Chinese internet giants have sued each other in South America’s largest nation over unfair competition related to their food delivery businesses

Key Takeaways:

• Meituan and DiDi filed lawsuits against each other in Brazil this month as both look to build up food-delivery operations in the country
• The move to Brazil is part of both companies’ efforts to expand overseas as they seek relief from their fiercely competitive home market

By Warren Yang

As Chinese companies seek new markets to hedge against increasing competition, a weak economy and regulatory risks at home, they may inadvertently find themselves exporting their trademark cutthroat competition to the countries they enter. A rather extreme version of that scenario is playing out now between leading food delivery company Meituan (3690.HK) and ride-hailing giant DiDi Global.

The two companies have become embroiled in a messy legal fight in Brazil as their rivalry in food delivery heats up in Latin America’s largest market. In the latest episode of the drama, DiDi’s Brazilian food delivery unit, 99Food, last Tuesday sued Meituan’s overseas food delivery brand, Keeta, in a São Paulo court, alleging trademark infringement and unfair competition, according to a report in financial media outlet Caixin. Less than a week earlier, Meituan accused 99Food of dangling cash advances to its restaurant partners to stop them from working with Keeta. The apparent tit-for-tat moves mark an intensification of the legal battle between the two that just started this month.

The clash is just the latest battle between a growing number of internet-based Chinese service providers bringing their intensely competitive ways to foreign markets. In another similar case, online fast fashion sensation Shein and discount e-commerce company PDD’s (PDD.US) Temu international arm have become embroiled in a series of suits in the U.S. accusing each other of everything from copyright infringement to bullying each other’s suppliers.

Meituan and DiDi are clashing in Brazil after competing briefly in China’s food-delivery market. In 2018, DiDi, best known for its ride-hailing app, expanded into food delivery to chip away at Meituan’s dominance, launching a service similar to Uber Eats. But that venture didn’t last long, and DiDi exited the business in 2019. It later tried other variations of food-delivery services in China but none gained much traction.

Meituan controls more than two thirds of China’s food-delivery market, competing with smaller but well-funded rivals like Alibaba’s Ele.me and JD.com (JD.US; 9618.HK). That leaves little room for DiDi or any other newcomers.

Instead of continuing a losing fight in China’s food-delivery market, DiDi has focused on overseas expansion, particularly in Latin America, which offers rapid urbanization, a large young population and accelerating adoption of digital and delivery services.

DiDi’s move into Brazil’s food delivery market comes after it entered the country by investing in ride-hailing startup 99 in 2017. It fully acquired the company the following year and rolled out 99Food in Brazil in 2019, only to fold it in 2023. But it revived the unit in April this year.

Elsewhere in Latin America, DiDi Food debuted in Mexico in early 2019 and became the most downloaded food app in the country by 2022. Didi now has food-delivery operations in Columbia, Costa Rica, the Dominican Republic and Peru, where it also provides its core ride-hailing services.

Meituan is also looking for growth outside China as the domestic food-delivery market saturates and consumers grow increasingly cautious with their spending. Its international push, being personally led by founder Wang Xing, started with the launch of Keeta in Hong Kong in 2022 and extended to the Middle East last year. Then Meituan unveiled a plan in May this year to invest $1 billion in Brazil. The company hasn’t even started operating in the Latin American country yet but its feud with Didi there escalated quickly.

Small victory

Meituan sued 99Food this month for trying to divert traffic on Google away from Keeta by buying search terms related to the app. It won a small victory as a São Paulo court ordered 99Food to stop the practice within three days or face a daily fine. Meituan has also accused 99Food of offering cash payments to merchants for not working with its competitors, including Keeta. Such demands for exclusivity are generally considered anti-competitive, and resulted in a record $2.8 billion fine against Alibaba in China in 2021.

In the suit filed last Tuesday, 99Food says Keeta’s branding, including its color scheme and fonts for its delivery bags and website interface, looks too similar to its own, and that can confuse Brazilian consumers. The company is seeking damages and a ban on Keeta’s use of similar designs. Meituan hit back by saying yellow has been the main color of its branding for more than 14 years.

Meituan is doing pretty well financially in China, at least for now. Its revenue increased about 18% year-on-year to 86.6 billion yuan ($12 billion) in the first quarter, and its net profit jumped 87% to 10 billion yuan as its margins improved.

By comparison, DiDi’s gross transaction value increased 13.5% year-on-year to 102 billion yuan in the first quarter as contributions from its international businesses grew about 28% to account for a little less than a quarter of the total. The company’s net profit also surged during the three months, tripling from a year earlier.    

DiDi, which acquired Uber’s China business in 2016, is as dominant in ride-hailing services in China as Meituan is in food delivery. But it is facing growing pressure from local competitors, with its market share slowly shrinking.

DiDi also previously fell victim to a regulatory crackdown in China. The company made a New York IPO in 2021, only to raise the wrath of China’s cybersecurity regulator for failing to undergo a data security review before the listing. As punishment, its app was removed from domestic app stores, and it was ultimately forced to delist from New York and fined a huge amount for data breaches.

That saga highlights the high regulatory risks Chinese companies face at home, especially in the sensitive tech sector, which has been a factor behind the international expansion efforts by many. So DiDi will probably continue to step up its overseas campaign, just as Meituan and others like Shein and Temu are doing. That means many of these companies may find themselves in a growing number of clashes outside China, both in the marketplace and also potentially in court.

Meituan shares have lost 20% of their value this year, although they still trade at a price-to-earnings (P/E) ratio of 17, much higher than about 9 for JD.com. Neither valuation is particularly high, however, showing investors remain cautious on the group due to a slowing economy and regulatory risks in China, and potential for similar problems as they move abroad.

Meituan’s stock decline suggests that investors are growing skeptical about its ability to continue to deliver juicy earnings growth in China. The surest solution to address that concern is overseas expansion. But many others are thinking the same, including formidable competitors like DiDi.

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