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Coronavirus tests China's appetite for food delivery

Despite turbulence, analysts remain optimistic about burgeoning market

A driver is handed takeaway food through the window of a restaurant in Beijing. The coronavirus outbreak has hit food delivery businesses   © Reuters

HONG KONG -- China's food delivery businesses are struggling to rebound from the country's coronavirus crisis as shuttered restaurants and sealed-off residential compounds add to customers' health risk concerns.

Huang Zhou, a hardworking entrepreneur in Guangzhou, in southern China, used to rely on meal deliveries every day. But as the novel coronavirus hit the country in late January, Huang switched to home cooking. Since then she has not ordered a single meal, even though China, by and large, has curbed domestic coronavirus infections.

"I'm not that busy these days, so why not cook by myself?" said Huang, while enjoying some homemade sweet dumplings.

Her after-school educational center remains closed as China has not relaxed restrictions on large-scale gatherings. Huang is also wary of the possibility of contracting coronavirus from food deliverymen or restaurant staffers. Although there have been only four new infections in Guangzhou this week, "I'm still concerned," she said.

Until the coronavirus outbreak hit, food delivery had boomed in China thanks to the popularity of smartphones and a growing desire for convenience among wealthier Chinese. The number of monthly active users of food delivery services reached 400 million last year.

But the crisis -- and the newly found interest in home cooking shown by people such as Huang -- have been a challenge for the sector, which reached 179 billion yuan in transactions during the third quarter of 2019, according to a report in November by market intelligence firm Trustdata.

While lockdowns might have been expected to generate more interest in home food deliveries as people could not venture out, this was more than offset by the closure of restaurant kitchens and by consumer fears that food preparation could be a vector for coronavirus transmission.

Meituan Dianping, China's third-largest internet company by market value as well as the country's No. 1 food delivery service provider, said transaction volumes halved in February and that recovery had been slow as some restaurants have yet to reopen and consumers' health concerns have persisted. The Beijing-based company controls roughly two-thirds of China's food delivery market.

While Hong Kong-listed Meituan emphasized its efforts to create virus-beating food delivery solutions, "we expect our business performance will be significantly affected in [the] first quarter and probably the whole year of 2020," said Wang Xing, the company's founder and chief executive, in an earnings call on Monday following the release of its October-December quarterly financial results.

Meituan is expected to see red ink on its balance sheet again in the first quarter of this year, with a non-GAAP operating loss of 1.2 billion yuan ($169 million), according to a research note published by Nomura on Tuesday. The company, with a market cap of HK$477 billion ($61 billion), behind only Alibaba Group Holding and Tencent Holdings among Chinese internet companies, turned profitable as recently as the fourth quarter of 2019., Alibaba's food delivery arm, has also taken a hit from the epidemic. In the first two weeks of the Chinese Lunar New Year holiday break in late January, "restaurant visits and food delivery orders declined noticeably year-over-year because many restaurants had not resumed normal operations," said Daniel Zhang, Alibaba's chief executive, in an earnings call in February.

Analysts say restaurant operations are returning to normal as time passes, but food delivery app users have pointed out another barrier.

"I wanted to order food but I just cannot," said Wang Yuefei, a health care consultant in Beijing. Like many others in the country, the property management company at the complex where Wang lives has barred nonresidents -- food deliverymen included -- in a bid to curb the spread of the virus. Instead of enjoying door-to-door delivery, Wang now has to walk at least 20 minutes to collect her order from a designated site.

"I don't feel like taking that walk," Wang said, adding that she has to work from home while looking after her 7-year-old daughter. As a result, she has not made any orders since the outbreak. Previously, Wang used at least three times a week.

Despite the turbulence analysts remain optimistic about the sector's potential. "COVID-19 is causing a pause, not a stop in growth momentum," Nomura analysts said in their research note.

Ella Ji, a technology analyst with China Renaissance Securities in New York, acknowledged the impact of coronavirus on food delivery businesses but suggested the epidemic would give the industry a long-term boost. "High-end restaurants, which once turned their back to food delivery, now have embraced this option due to the lockdown amid the outbreak," Ji said. "Other restaurants will also double down their food delivery offerings as the epidemic demonstrated the importance of moving their operation online."

To help users overcome their coronavirus fear, Meituan and have recently introduced a so-called "contactless delivery" approach with the help of autonomous vehicles and other solutions. But even so, Huang, the businesswoman in Guangzhou, seems unconvinced.

"Contactless food delivery is pointless," she said. "The riskiest part is cooking. Once the virus already got into my food, what difference would it make if no one touched the package during the delivery?"

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