Despite the seeming conclusion of the food delivery war in mainland China, the aftermath continues to linger. Recently, the second-quarter financial report released by JD Group showed a 22.4% increase in revenue, but a staggering 51% year-on-year decline in net profit, nearly halved. This “divisive” financial report reveals the painful cost of JD’s money-burning strategy in this year’s food delivery battle.
According to JD’s quarterly report, the total revenue for the second quarter reached 356.7 billion yuan, a 22.4% year-on-year increase, breaking JD’s three-year record in year-on-year growth rate. However, on the other hand, the net profit saw a significant decrease. The net profit attributable to ordinary shareholders in the second quarter was 6.2 billion yuan, a 51% year-on-year decline, almost halved.
From JD’s financial report, the business is divided into three main segments – JD Retail, JD Logistics, and New Businesses (including JD Daojia, JD Logistics, JD Health, international business).
In the second quarter of this year, JD’s adjusted net profit was only 7.4 billion yuan, a sharp drop of 49% year-on-year; the New Businesses segment incurred a loss of as much as 14.8 billion yuan.
JD’s second-quarter financial report revealed the “money-burning” aspect of the business battle.
In order to gain a foothold in this “money-burning” battle, JD injected billions of yuan in subsidies in April this year to enhance the quality of food deliveries. Subsequently, JD’s food delivery service rapidly expanded its team of full-time riders, with the number surpassing 150,000 by the end of the second quarter. At the same time, JD gradually started covering the costs of social insurance for the riders, further increasing expenses.
All these significant expenditures not only slashed JD’s profits but also impacted its cash flow. JD’s free cash flow in the second quarter was 22 billion yuan, a drastic 55% decline compared to the same period last year.
Official accounts of e-commerce platforms mentioned that this loss figure was astonishing. JD’s money-burning behavior in the food delivery business was the main reason for the group’s declining profits. JD has been the biggest beneficiary of national subsidies, but these subsidies cannot last forever. If JD continues to rely on these subsidies, when the tide of subsidies recedes, it is inevitable that JD will face a stranded situation.
In July, as Taobao Flash Sale and Meituan’s food delivery subsidies escalated, JD unexpectedly chose to withdraw.
Faced with Taobao Flash Sale and Meituan’s daily order volumes breaking historical records of 80 million, 90 million, and even 150 million, JD did not follow suit. Instead, JD publicly expressed opposition to the excessive competition and reduced subsidy intensity, adjusting the compensation for late deliveries to “On-Time Guarantee” and gradually shifting focus to offline services.
The biggest victims of this platform’s “traffic entrance” battle are small and medium-sized restaurants at the bottom of the food chain.
An analysis by the official background media “Yuyuan’s Tale of Heaven” stated that in the subsidy war, many small and medium-sized businesses were forced to bear 70% to 80% of the subsidies. If they do not take orders, their business will plummet; if they do take orders, they will incur increasing losses, eventually leading to closure. To survive, many unscrupulous businesses could only resort to cutting corners, leading to a decline in product quality and forming a vicious cycle. This disorderly competition ultimately results not in cost-effectiveness but in lower quality products and a worse business environment.
The article cited the food delivery battle as an example, indicating that the essence of the food delivery war is not about fighting for market share but for “traffic entrance.” Therefore, after e-commerce platforms joined the “food delivery war,” they did not launch a dedicated delivery app but integrated the delivery function into their main app to drive traffic to their e-commerce business.
Liu Zhicheng, a researcher at the China Macro-Economic Research Institute, believes that this “disorderly” behavior fundamentally stems from platforms leveraging the advantages of data and algorithms to implement unfair pricing practices.
He pointed out that issues such as “big data targeting,” opaque promotional rules, and unclear platform subsidies all constitute unfair competition practices against users and businesses. This food delivery war is not just a competition of business models but also a profound examination of platform monopoly and market fairness.