(Yicai) Feb. 6 -- Dingdong Cayman’s shares plunged after the online grocer said it will sell its China business to local on-demand services giant Meituan for USD717 million.

Dingdong [NYSE: DDL] closed 14.4 percent lower at USD2.74 per share in New York yesterday.

Meituan's wholly-owned unit Two Hearts Investments will buy all issued shares of Dingdong Fresh Holding, the entity that substantially controls Dingdong’s Chinese mainland business, for an initial USD717 million, subject to adjustment, the pair announced in separate statements yesterday. Dingdong’s international business is not included in the deal.

Meituan said the Beijing-based firm considers grocery retail a strategic priority, and the transaction supports its long-term growth plans in this area. “The transaction will help fully leverage the respective strengths of both parties in product capabilities, technology, and operations, providing consumers with better consumption and delivery experiences,” it said.

Meituan's stock [HKG: 3690] ended 2.6 percent down at HKD91.40 (USD11.70) in Hong Kong today.

As of Sept. 30, Dingdong had more than 1,000 front-end warehouses in China and had over seven million monthly transacting users, Meituan said, adding that it also represents best-in-class supply chain capabilities and has a good reputation among consumers.

Dingdong's mature supply chain and stable profitability have strategic value in filling Meituan's shortcomings, Zhang Yi, chief executive office of market research firm iiMedia Research, told Yicai.

The acquisition will form synergies between Dingdong and Meituan’s instant-retail service Shangou and grocery brand Little Elephant Supermarket, strengthening Meituan’s position in local services, Zhang said. The deal will also help Meituan narrow the gap with major rivals Alibaba Group Holding and JD.Com, both of which have expanded quickly in the fresh grocery market through their retail brands Freshippo and 7Fresh, he said.

“Since its founding, Dingdong has been driven by the vision of redefining the traditional fresh food industry through the deep integration of digital technology and supply chain innovation," said CEO Liang Changling.

"We believe that this unwavering commitment is aligned with Meituan's company mission of 'Helping People Eat Better, Live Better, ' laying a solid foundation for the strategic merger between the two companies," Liang added.

Founded in 2017, Dingdong grew into a major fresh grocery e-commerce platform in East China during the Covid-19 pandemic, when people were unable to go to supermarkets. The Shanghai-based company went public in June 2021 and achieved its first full-year profit in 2024.

Dingdong's net profit shrank 38 percent to CNY82.9 million (USD11.6 million) in the third quarter of last year from a year ago, remaining profitable for the seventh straight quarter, according to its latest earnings report. Revenue rose 2 percent to a record CNY6.7 billion (USD935.9 million).

Editors: Dou Shicong, Futura Costaglione