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Meituan’s main business is groceries but the mega app also competes in areas including ride-hailing and accommodations. Here: food delivery couriers for Meituan in China.
Qilai Shen/Bloomberg
Americans may have trouble understanding the maze of competition in China that confronts companies like home-sharing app
Airbnb
,
which said it would close its domestic business in the country.
But the landscape it faced in China presented similar challenges that have driven out other foreign brands in different sectors, and that make survival tough even for domestic players. Airbnb’s domestic business is costly and complex to operate, a person familiar with the decision told Barron’s on May 24. China’s tough Covid-19 lockdowns made the issues worse, the person added.
According to interviews Barron’s conducted with users and hosts of Airbnb and its competitors in China, the main reasons boiled down to a few simple factors: cheaper prices could be found elsewhere, and there are many competing apps that users are familiar with because of other services provided by those apps.
Mega-app
Meituan
(3690.Hong Kong) offers a prime example of how users can become beholden to one platform because it features numerous on-demand services. For
Meituan
’s
700 million active users, its main business is food delivery, where it leads the sector, but it also competes strongly in bike-sharing, car-hailing, ticket sales for movies, planes, and trains—and of course, accommodation.
It is hard to gauge the homestay market in China. Most surveys ask about accommodation in general, which can include hostels, hotels, and private rooms.
“From which of these online providers have you booked an accommodation—hotel or private accommodation—in the past 12 months (website or app)?” asked a recent Statista Global Consumer survey.
Airbnb was fifth, with 19% of respondents in China saying they had used the app in the last year.
Trip.com Group
(TCOM), and Meituan were at 75% and 50%, respectively. Other players include
Booking.com
(BKNG), and Chinese platforms Tujia, Xiaozhu, and Feizhu, known in English as Fliggy and owned by
Alibaba Group Holding
(BABA).
“Lodging in China is highly fragmented, with the top five players accounting for one-quarter share of the lodging industry in 2021,” Euromonitor International wrote recently.
China is full of dedicated short-term rental facilities, serving as sort of mini hotels, offering shared and private rooms. Unlike an Airbnb rental, which is found only through an app, and many of these are buildings visible from the street with signs advertising their units.
Barron’s spoke with a couple exiting one such facility in the metropolis of Chengdu, who said they checked Meituan for their weeklong stay, but chose this particular lodging off a friend’s recommendation.
“It’s cheap and right in the middle of town,” the man said.
In this reporter’s Beijing apartment complex, phone numbers are scribbled on the elevator walls beneath the words “Homestay.” When Barron’s called one of the numbers, a man who owns a unit in the very same complex offered to rent it out by day, week, or month, fully furnished and at a price competitive with nearby units found through apps.
Airbnb’s downfall also stems from the foible that has edged out many American firms hungry to leap into China’s enormous market—knowing the country.
“Local rivals Tujia and Xiaozhu managed to get many more listings across many more locations within China than Airbnb, illustrating the importance of having a strong presence on the ground which can connect with Chinese in far-flung locations, which cumulatively account for a much larger share of the population than the higher tier cities,” said Mark Tanner, managing director of marketing research firm China Skinny.
“Local players also recognized the unique traits and drivers of Chinese consumers, which may not connect with travelers elsewhere,” he told Barron’s. An example is Xiaozhu’s facial recognition-enabled smart door locks for guests, tapping into Chinese consumers’ embrace of facial recognition, he said.
In a 2020 SEC filing, the company said, “We will continue to incur significant expenses to operate our business in China, and we may never achieve profitability or sizable supply penetration in that market.”
In a recent filing, it didn’t mention China at all. In an accompanying letter to shareholders, it noted the country only once, to say that it was seeing a rebound in the Asia Pacific market except for China. Airbnb opened its mainland China business in 2016, and the business accounted for about 1% of the company’s overall revenue for the last few years, Barron’s previously reported.
On an earnings call on May 3, the only mention of China came from chairman and CEO Brian Chesky, who said: “China is primarily an outbound business. People go to China, but primarily they travel and leave China and they go to other communities.”
Airbnb said it would still allow Chinese going abroad to use its app to book accommodations.
