A new story of Meituan emerges.

Text｜Ren Cairu

Editor｜Qiao Qian

Once again at the end of the earnings season, Meituan has presented a satisfactory performance report.

In the third quarter, Meituan's revenue and profit both exceeded expectations. Among them, the revenue increased by 22% year-on-year to 93.6 billion yuan, and the adjusted net profit increased by 124% year-on-year to 12.83 billion yuan. The most important segment - the core local business - saw its operating profit increase by 44.4% year-on-year to 14.6 billion yuan.

In this quarter, along with Meituan's promotion season and the further integration of the segmented businesses within the core local business sector, organizational iteration is also continuing.

At the executive level, the scattered hotel and travel businesses such as accommodation, ticket vacation, and homestay have been uniformly integrated. Li Jinfei, the former person in charge of buying medicine, has taken the position as the head of the newly established "Hotel and Travel Business Division" and has been simultaneously promoted to Vice President of Meituan. The newly established "Medical and Health Business Division" is led by Li Xiaohui, and both report to Wang Puzhong. In addition, Tao Xuexuan, who was appointed as the head of Meituan's Platform Product Department in March this year, has also been promoted to Vice President of Meituan.

Overall on the business side, the most core takeout and in-store businesses are steadily advancing along the established route.

"Abandoning GMV in pursuit of order volume" has been the direction of Meituan Takeout throughout the year. The low-price mentality has become the key point, and this is the original intention of products such as Pinhao Fan and Shen Qiang Shou. According to 36Kr, the order volume of Meituan Takeout in the third quarter still increased by about 12% year-on-year, similar to the second quarter, and the decline in the average order price has also improved.

The competitive landscape of in-store businesses has stabilized. The earnings report mentioned that the order volume of in-store hotel and travel businesses increased by more than 50% year-on-year in this quarter, and the number of annual transaction users and annual active merchants has exceeded historical highs. The synergy brought by "Shen Member" may be one of the contributors.

The only concern this quarter is that the growth rate gap between commission income and advertising income has reappeared. During the period when Meituan was in the most intense competition with Douyin, the growth rate of Meituan's advertising income was once lower than that of commission, reflecting the pressure Meituan faced in the battle for merchant advertising. Later, as the competition between the two eased, Meituan's advertising income growth surpassed commission starting from the first quarter of this year.

However, in the third quarter, commission income increased by 24.3% year-on-year, while advertising income increased by 18.1%. Will the "nightmare" reappear? Leaving aside the competition, this is more likely related to the overall macro environment. Advertisers' budgets are tightening, and the platform is also simultaneously reducing commission subsidies. According to Goldman Sachs data, as of the fourth quarter, the order volume and GTV growth of Meituan's in-store hotel and travel businesses have remained strong, so there is no need to worry for the time being.

Currently, the e-commerce industry as a whole has entered a red ocean competition period, and the traffic of retail channels has begun to be redistributed online and offline. There is no absolute winner in content e-commerce, and almost every major Chinese Internet company has its own confusion. In contrast, Meituan may not have as much confusion.

Under the eternal topic of "finding increments", Meituan Youxuan, which was once highly expected, may not be able to achieve the vision of "300 - 400 million new users" in the short term. Fortunately, now, in addition to the two mature businesses of takeout and in-store, Meituan finally has a new growth curve that the market believes in - Flash Purchase.

01  Flash Purchase Advances, Competing in the Instant Retail Battlefield

When Meituan released its fourth-quarter report last year, we mentioned an important change that "Youxuan steps back, and Flash Purchase takes over". Now, this transformation has a more concrete manifestation.

In the post-earnings conference call of this quarter, Meituan CFO Chen Shaohui said, "Our instant retail business, especially Meituan Flash Purchase, will continue to grow significantly." The data performance indeed reflects this. The earnings report shows that the number of users and transaction frequency of Flash Purchase in the third quarter both achieved double-digit growth.

According to 36Kr, Meituan Flash Purchase currently has 30,000 flash warehouses, and the average daily order volume has exceeded 10 million orders. The growth rate of the order volume is still three times higher than that of the takeout order volume. Compared with takeout, the average order price of Flash Purchase is often higher, which is also beneficial for the improvement of the average delivery income per order.

At the "2024 Meituan Instant Retail Industry Conference" held in mid-October this year, Xiao Kun, the person in charge of Flash Purchase, emphasized the incremental demand in the lower-tier markets. He gave an example that when initially encouraging merchants to enter the lower-tier markets, most people were skeptical, but Yougouduo made efforts in Xichang, and its monthly profit has reached seven figures. Regarding the imagination space for the lower-tier markets, Xiao Kun said, "Currently, it is not a problem to expand to towns, but villages are temporarily not within the scope of expansion."

Another major milestone is that in addition to small and medium-sized merchants, KA merchants have also begun to enter the flash warehouses. Xiao Kun mentioned at the conference, "MINISO is really a company that I admire very much" - this retailer, which has been in the spotlight recently, has opened more than 500 "warehouse stores" in one year, and may subsequently develop exclusive products for online sales. In Xiao Kun's view, even if offline brands have thousands of stores, it is difficult to meet the needs of more than a billion consumers in China, and "opening warehouses" is a more efficient way to fill the demand.

Both large and small players are competing to enter the market, and it is not an exaggeration to describe this momentum as a "swarm". In Meituan's expectations, the number of flash warehouses will reach at least 100,000 by 2027.

The popularity also means congestion.

Internally, the participating merchants of Meituan Flash Purchase are already facing more intense competition for locations and traffic. A flash warehouse operator told 36Kr, "Flash warehouses are divided into multiple categories. In addition to general merchandise warehouses, there are also medicine warehouses, pet supplies warehouses, adult products warehouses, and other vertical warehouses. The investment for small warehouses is generally between 50,000 and 80,000 yuan, while large warehouses are generally more than 300,000 yuan." A flash warehouse merchant told us that initially investing 80,000 yuan to build a small warehouse, it was only after gradually increasing the SKU to more than 3,000 that the cost was recovered.

The common feeling among participants is that small warehouses are becoming more difficult to operate. "Fundamentally, the platform's traffic is inclined towards comprehensive warehouses because Meituan hopes to increase the average order price." At the same time, the number of entrants has significantly increased. "Compared to the past, more professional product selection and operation are now required, otherwise the investment is likely to be wasted."

Looking at a higher level, JD.com, Taobao, and Douyin are all exerting efforts in instant retail, and the entrances within the apps are becoming more and more prominent.

The latest development occurred at JD.com. The original person in charge of this business, Li Changming, was transferred, and Yang Wenjie from Meituan became the business head of Dada Minute Delivery. Thus, after the former Meituan Vice President Guo Qing became the chairman of Dada Group, he further directly manages the JD.com Minute Delivery business.

The internal positioning of the Minute Delivery business at JD.com is also "fully benchmarking against Meituan Flash Purchase". Currently, Sam's Club, Yonghui Supermarket, Wumart, Cotti Coffee, Luckin Coffee, etc. have all opened flagship stores on JD.com Minute Delivery. The business boundary is even wider than Meituan Flash Purchase, covering multiple business forms such as fresh produce, supermarkets, tea and coffee beverages, etc., but the overall number of merchants入驻 is still far less than that of Meituan Flash Purchase.

At this stage, in the large battlefield of instant retail, the market's expectation for Meituan Flash Purchase is still the highest. In the report "Meituan's Path to 300 Hong Kong Dollars" recently released by Morgan Stanley, it is mentioned that the scale of the Chinese instant retail market will grow at a compound annual growth rate of 20% to 2 trillion yuan by 2030, and "Meituan is most likely to seize this opportunity". In its estimation, Meituan will occupy 50% of the instant retail market share in 2030, with a long-term UE of 1.7 yuan.

If Meituan can successfully obtain such a market share, its moat will no longer be limited to the takeout and in-store businesses that have been developed over the years.

02 Annual Topic, How is the Loss Reduction of New Businesses?

Another point worth mentioning in this quarter's performance is that Meituan announced that "except for Meituan Youxuan, the other new businesses as a whole achieved profitability in the third quarter." Morgan Stanley pointed out in a research report in August this year that "loss of new businesses" is one of the three "KPIs" of Meituan this year (the other two are the growth of takeout order volume and UE optimization, and the profit of in-store hotel and travel businesses).

Among the three main sectors of new businesses, Kuailv has a more mature development. Under the trend of instant retail, Xiaoxiang Supermarket has also entered the fast lane. A person close to Meituan told 36Kr, "But internally, the overall positioning of this business is still a strategic business, and monetization is not the main goal for the time being."

There are not many new demands in the Internet that can be competed for. After the mentality of "instant home delivery" has become increasingly mature, the fresh produce e-commerce and front-end warehouse businesses where Xiaoxiang Supermarket is located have also begun to usher in a heated battle. Recently, JD 7Fresh has launched a "price war", shouting an aggressive slogan, hoping to seize the market in this赛道 with low prices.

Leaving aside the above two businesses, let's look at the key point of Meituan's loss reduction - Meituan Youxuan.

According to Goldman Sachs' estimates, Meituan Youxuan's loss in the third quarter is approximately 1.7 billion yuan. Combining data from multiple investment banks, the loss scale of this business in the second quarter is between 1.6 billion and 2 billion yuan. It can be seen that the loss reduction of Youxuan is still continuing, but the speed of loss narrowing may be slowing down.

Previously, the loss reduction idea of Meituan Youxuan can be generally summarized as "actively giving up some scale in order to maintain profits." Therefore, improving the profit margin is the top priority.

A person close to Youxuan told 36Kr that the assessment indicators for employees include sales (GMV), gross margin, average unit price, and ODR (Order Defect Rate, mainly related to negative feedback, user satisfaction, and after-sales processing, etc.), among which more attention is paid to the gross margin and average unit price. This has led to measures such as price increases, withdrawal of white-label products, and warehouse closures, but this has also simultaneously led to a certain degree of shrinkage in the user scale.

The organizational level is also continuing to be streamlined. According to 36Kr, Meituan Youxuan completed an adjustment at the beginning of September this year, re-integrating the country into nine major regions - over the past few years, the business has expanded by dividing into detailed regions, and now it is being tightened, completing the change from "battle zones - 17 provincial regions - 9 regions". At the same time, the staff size has also been significantly reduced. As for the "village groups" intended to penetrate the lower-tier markets, the overall sentiment within the company is "if it succeeds, great; if not, it doesn't matter."

In the opinion of the above-mentioned person, the loss reduction of Youxuan has passed the "shallow water area". After bold adjustments, more in-depth and complex operational capabilities may be required in the next step. On the one hand, for many regions, it is not easy to quickly supplement brand merchants. On the other hand, in addition to seeking profits from the product side, the commercialization of Meituan Youxuan is far from sufficient. In contrast, "the advertising income of Duoduo Grocery has played an important role in achieving profitability".

Currently, investors generally have an optimistic expectation for Meituan's valuation, and another consensus is that "if Youxuan and the overseas business can perform well, the valuation will rise to a higher level."

In terms of overseas expansion, Keeta launched in Riyadh, the capital of Saudi Arabia, in October this year. When the management was asked about the overseas progress at the conference call, they only vaguely mentioned that "currently focused on Saudi Arabia, but the long-term strategy includes global expansion." Multiple local merchants in Riyadh told 36Kr that compared to the local mature takeout platforms, Meituan's advantages may lie in two points: a more mature subsidy mechanism and greater diligence.

Overall, Meituan is still relatively calm at this stage - the competition with Douyin has entered a new consensus stage, allowing it to use more energy to sort itself out and take the lead in establishing a foothold in the new market. This also means that "stable growth" and "imagination" coexist, and in the current environment, such a state is already very precious.