Alibaba Battles in Price Wars, But Will the Bubble (Tea) Pop?

China’s e-commerce giants are once again engaged in a bruising price war to grab market share, this time in “instant retail” and food delivery.

A series of hefty discounts and incentives – such as offering free bubble tea – is drawing customers to their quick-delivery schemes.

That is driving their shares higher today, but has hurt recent stock performance. Retail sales are also getting a boost from a government trade-in program.

Record delivery numbers

Alibaba Group Holding BABA (HK:9988) shares shot up 6.8% on Tuesday trade in Hong Kong, after the company said yesterday that it had on Saturday tied its July 5 record of making 80 million on-demand deliveries.

Rivals JD.com JD (HK:9618) and Meituan MPNGY (HK:3690) are also getting a stock bounce, after China today reported gross domestic product figures for Q2 that show growth of 5.2%. Meituan shares ended Tuesday up 4.2%, while JD.com added 2.1%.

The Beijing government has also supported the businesses of Alibaba and JD.com, though not Meituan, with the equivalent of $42 billion in backing for consumers to trade in electronics, household items such as washing machines, and even gasoline cars to make the switch to electric vehicles.

Better-than-expected GDP

The GDP was better than expected in part thanks to companies globally front-loading purchases ahead of higher U.S. import duties. China’s GDP slowed from 5.4% in Q1 but still remains above the government growth target for the year of “around 5%.”

Despite the apparently strong demand, there are cracks appearing, what Nomura’s Asia economics team call “nascent signs of a demand setback.” So we will need to watch how both Chinese companies and the Beijing government respond.

As in late 2022, 2023 and 2024. Beijing “may again be compelled to either significantly ease prior restrictions or step up stimulus to arrest the slowdown,” the Nomura team state. 

“To effectively cope with the mounting challenges, we believe Beijing needs to take bolder actions to clean up the mess in the property sector, support consumption in a more sustainable way by reforming the pension system, fix the fiscal system to better protect business owners, and improve its relationships with other economies," they write in a note to clients.

Flash shopping

The impetus for Alibaba’s share price jump today is its $7 billion in spending over the next 12 months to promote its new Taobao Shangou or “flash shopping” service.

Users of Taobao’s in-app Shangou service are being wooed with cash vouchers, coupons and heavily subsidized prices. Merchants also receive support through store-launch subsidies, product discounts, reduced commissions and delivery subsidies.

JD.com has pledged to invest $1.4 billion over the next year to expand its food-delivery business, previously the domain of market-share leader Meituan. Meituan said over the weekend that its instant-retail order volume also hit a new high of 150 million orders on Saturday, days after notching a new high of 120 million last week.

Some stores around China reported over the weekend that they were so flooded with online orders that, perversely, they had to suspend walk-in service for customers.

Meituan has been offering coupons for free milk tea, while JD.com said Friday it is offering 100,000 servings of crayfish every night at a fixed price of C¥16.18, which is less than $2.30. Alibaba has been offering flash-sale coupons for C¥188 (US$26) on milk tea and breakfast orders, and surprise limited-time coupons, with one promising C¥18.80 off purchases above C¥18.80.

Is there room for all three e-commerce giants to succeed? Meituan captured 65% of the food-delivery market last year, according to Bocom International numbers, with Alibaba’s Ele.me service snagging 33%. JD.com then entered the food-delivery battle in February. Alibaba said in June it would roll Ele.me into its main Taobao business, in a bid to combine food and fast-retail delivery as part of the “instant retail” trend.

Meituan CEO and founder Wang Xing says the company will do “whatever it takes to win,” investing the equivalent of $13.9 billion in food services, to support merchants and boost consumer demand.

Alibaba boost this year

Alibaba shares are up 39.6% so far this year, but have yet to recapture their spring highs as the competitive picture heats up.

Meituan shares are down 16.2% as it contends with the new competition. JD.com shares are also down 5.7% year to date.

Goldman Sachs estimates the three competitors spent a combined $3 billion on food delivery and instant retail in Q2.

Since their March 2025 highs, Alibaba shares are down 20.9%, with Meituan off 31.2% and JD.com down 30.2%.

The companies should not be directly impacted by the turmoil over tariffs. But if China’s economic prospects are dented, that could hurt consumer ebullience and spending. All three competitors trade at less than half the highs they struck in 2020 and 2021, before China’s bruising battle to eliminate Covid-19 hampered the economy.

China’s economy has also struggled ever since the Beijing government in August 2020 introduced the “three red lines” on leverage in the property industry that caused multiple defaults and bankruptcies among developers, with home prices entering a downward spiral that continues.

New-home sales fell 10.7% in June by value, year on year, the worst reading since last September. Volumes were also down and deteriorating, leading to further home-price drops.

All the discounts on bubble tea won’t turn around a troubled economy if home values and prices continue to destroy household wealth. Investors who want to pick a likely winner in the bruising fast-retail price war should likely look to improvements in Alibaba’s stock price – with the caveat that government intervention could change the competitive picture if regulators feel the coupons and flash discounts are out of hand.

At the time of publication, Alex Frew McMillan had no position in any security mentioned.