Aug 14 (Reuters) - Chinese e-commerce giant JD.com ( JD )

is going all out to build its instant-delivery

business to diversify revenue, but breaking into the competitive

industry is proving difficult.

The company has poured billions into JD Takeaway, the

food-delivery unit it launched in February, to cut reliance on a

core retail business hit by a weak economy and tough

competition.

Its results on Thursday showed the service has lifted its

user base, traffic and revenue, with both quarterly active

customer growth and shopping frequency up more than 40%.

But it is struggling to take market share from

long-established incumbents Meituan ( MPNGF ), the industry

leader, and Alibaba's ( BABA ) Ele.me.

Daily active users in JD's delivery business have fallen

steadily since peaking in mid-June, slipping more than 13%

week-on-week by July 27 versus a 6% drop and a 1% gain in the

previous two weeks, M Science data showed.

The data signals "a significant loss of momentum for JD.com ( JD ),

and likely market share loss", M Science analyst Vinci Zhang

said.

"Meituan ( MPNGF ) and Alibaba ( BABA ) already have considerable domain

expertise in food delivery, and I don't think JD has expertise

in that area yet. It will be very challenging," Zhang said.

JD.com's ( JD ) food delivery investments have also squeezed

profitability. Its adjusted operating margin shrank to 0.3% in

the June quarter from 4% a year ago.

Meituan's ( MPNGF ) daily orders across food and retail goods reached

an all-time high of 120 million. The company holds nearly 70% of

the delivery market, Morningstar analysts said in May.

Alibaba's ( BABA ) Taobao instant commerce business combined with

Ele.me reached 80 million daily orders early in July, with daily

active users crossing 200 million.

Company executives have warned of fierce competition, with

the three companies together pledging nearly 200 billion yuan

($27.87 billion) in recent months to subsidize instant delivery,

sparking an "instant retail" price war that has drawn regulatory

scrutiny.

"The competition started to intensify since July," JD.com ( JD )

CEO Sandy Xu said on Thursday, adding the company was focused on

improving its platform to attract more users, merchants and

riders.

Meituan ( MPNGF ) and Alibaba ( BABA ) are yet to report quarterly results.

($1 = 7.1773 Chinese yuan renminbi)