Delivery men for Baidu Waimai in Qingdao, Shandong?province. [Photo provided to China Daily]

Major food delivery competitors have been losing big money in fight for market share

Chinese consumers who live on cheap meals delivered to their doorsteps may see their happy days numbered because the steep discounts now offered by business operators may end soon as a result of market consolidation.

Media reports since Monday have said that China's online search giant Baidu Inc is close to completing a deal to sell its food delivery business, Waimai, and its group-buying e-commerce business, Nuomi, to rival Meituan-Dianping, an online-to-offline (O2O) service provider backed by Tencent Holdings Ltd.

Nasdaq-listed Baidu denied the reports on its official micro blog on Tuesday. However, industry observers said Baidu is likely to sell Waimai and Nuomi since it now has to keep pumping money into the O2O businesses. This is especially true since its traditional online advertising business is slowing.

Lu Zhenwang, chief executive officer of Shanghai-based Wanqing Consultancy, said that it is very likely that Baidu would sell Waimai and Nuomi－the only question is to whom.

"It is no longer a wise decision for Baidu to keep investing heavily in Waimai and Nuomi to fight for market share against cash burning competition. Its online advertising business has seen signs of slow down due to regulatory restraints," he said.

Another sign is the change of attitude of Robin Li, chief executive officer of Baidu, over the company's O2O business. Li said last year he would invest 20 billion yuan ($3 billion) in Nuomi, betting big on the O2O business. But this year, artificial intelligence has climbed to the top of his agenda in most of his public speeches.

In a recent interview in Caijing magazine, he said Baidu Waimai needs innovation. "If it cannot beat other competitors, then drop it. A decision must be made," he said in the interview.

Like much of the competition in China's internet industry, the war for the country's online food delivery is backed by Baidu, Tencent and Alibaba Group Holding Ltd. The deep-pocketed Chinese web triumvirate has offered many great deals, including cash rebates and coupons, to lure customers, and it is probably too good to last.

Huang Yuanpu, founder of iyiou.com, a site dedicated to covering and analyzing the moves of the O2O market, said that most of the companies in the O2O sector lack a mature business model to bring in profit and no investors can keep pumping in money.