How will a market share battle affect China's delivery giants?

Companies are eyeing cross-selling opportunities.

The increasing competition in on-demand delivery is expected to increase costs and squeeze margins for three of China's major platforms, according to a new analysis by S&P Global Ratings.

“With loss-leader promotions including free fresh-made beverages, the platforms will likely spend at least Chinese (RMB) 160 billion within the next 12-18 months to grab or defend market share in food delivery and instant retail,”

S&P Global Ratings analyst Jay Lau said major platforms in China are pushing to grow the on-demand delivery market to capture cross-selling opportunities. The competition is so intense that the government is revising its definition of unfair pricing practices and has warned it will be monitoring for any exploitation of merchants.

“Nonetheless, our base case assumes spending to stay significant, with only mild moderation,” S&P Global Ratings said.

The on-demand delivery market has promising growth potential with double-digit growth rates for the next several years.

"Cross-selling is a main goal," said Lau. "On-demand purchase frequency is high at several times per week. This can drive traffic and increase cross-selling."

S&P Global Ratings said this will benefit JD.com and Alibaba more because of their large existing retail platforms for cross-selling. The impact on Meituan is the highest as food delivery contributes a majority of its revenue.

Meanwhile, margins will not recover over the next 12-24 months as market share battles persist.