Behind Meituan’s doubling of its bottom: From infinite war to mind war

The local life track is constantly flooded with new and old players. Faced with the strong attack of Douyin, Meituan will comprehensively upgrade its membership system and re-position the local life field.

After doubling from the bottom in three months, Meituan has become one of the most talked-about stocks by investors recently. In fact, in recent times, the topic of Meituan has always been about the "Local Life War between Douyin and Meimei", which has made Meituan investors full of worries. The stock price has bottomed out and doubled. In addition to the factor of overseas capital repatriation driven by macro will, what else has the market seen?

In our opinion, April 18, 2024 may be an important starting point for observing this issue. After that day, Meituan seemed to begin to return to the market aesthetics and gradually move out of its own new paradigm.

On April 18, Meituan launched its fourth structural adjustment of the year: the previously integrated Meituan platform, store business group, home delivery business group and basic R&D platform will be merged into the "core local business" segment, and Wang Puchong will serve as the CEO of core local business.

Wang Xing said in the email that he expects the "core local business" to uphold the mission of "helping everyone eat better and live better", strengthen the construction of the management system, continuously upgrade organizational capabilities, consolidate the technical foundation, seize technological opportunities, deepen the industry, and create more value for customers. Most people believe that the purpose of Meituan's frequent structural adjustments this year is to cope with the competition from Douyin and Kuaishou.

However, we believe that this is not entirely the case. The main reason is that Meituan’s own business has formed a broad "synergy" effect. Even without the competition from Douyin, the large-scale gathering and penetration of core local businesses is inevitable.

Recently, Meituan's membership system will be fully upgraded. The "God Membership" that previously only covered the takeaway business will gradually expand to the in-store business. In other words, Meituan's original separate business systems will be fully integrated, and the structural adjustment is only the first step. The comprehensive upgrade of the membership system is just a drop in the ocean. Today, we will focus on deconstructing Meituan's business model, moat, and the inherent laws and needs of the current development of the platform economy.

01 From Infinite War to Mind War

Meituan has two significant business advantages: food delivery and in-store business. Food delivery is a high-frequency traffic entrance, and Meituan has a market share of more than 70% in this market, which has a crushing advantage. Food delivery has become a high-frequency traffic entrance with strong stickiness, thus flowing back customer traffic to other business lines.

In terms of innovation in food delivery, Meituan is integrating the supply chains of catering and even other businesses, forming a unique business model of "Pinhaofan" and showing a rapid growth momentum, thereby further breaking into the sinking market and cultivating customer minds (low prices) and changing the ecology.

In terms of in-store business, Meituan has the widest range of merchants and high-quality evaluation data, thus forming a solid customer stickiness. When other Internet giants such as Douyin entered the in-store business, they did not form a real "stickiness" by relying on short-term preferential prices.

When we decide whether to patronize an unfamiliar local business, we have already formed the mindset of looking at reviews on Dianping. Almost all chain stores are offering discounts to encourage customers to choose to "collect and check in" on Meituan or Dianping apps.

Therefore, rather than saying that the local life war is a war of operations or a war of credit, it is better to say that it is a war of minds. With the largest instant delivery team formed by the food delivery business, food delivery riders can also achieve "everything delivered to home" (flash purchase) during "off time". The instant delivery team and the leading advantage in the field of local merchants have made Meituan the "top spot in the instant delivery field."

The complementary business hours of food delivery and flash sales provide Meituan's instant delivery team (riders) with sufficient business time, so that they are not too busy during busy times and have nothing to do during slow times. This is conducive to improving the competitiveness and threshold of its instant delivery team.

Flash sales are becoming one of Meituan’s core strategic businesses. Before the flash sales, Meituan was just a “catering and lifestyle” service provider, but the flash sales directly pushed Meituan’s business up a level – from “department store online shopping” to “big online shopping”, and the three-dimensional and horizontal strategy is clearly visible.

Through a series of layouts, Meituan has painted an image of a "life service business empire" for us:

1. Flash sale business, instant delivery of department stores.

2. Meituan Best Selection, promotional department store items will be delivered the next day.

3. Xiaoxiang Supermarket, which operates its own fresh food and general merchandise (a prototype of an e-commerce platform), offers high quality products at low prices.

4. In-store business, connecting offline life merchants.

5. Hotel and travel business. The hotel and travel business is second only to Ctrip, occupying the sinking market and the "minds of young users."

6. Dianping APP, like Xiaohongshu, read experiences and encourage sharing.

7. You can “shop around” on the Meituan APP, which provides one-stop services for lifestyle, hotel and travel.

…

In other words, Meituan is occupying the "customer minds" from an all-round perspective in the local life field, and then expanding into the e-commerce field.

The expansion of local life business scope has continuously facilitated the lives of consumers. At the same time, it has also organically combined various business chains to form a whole.

With the above momentum, Meituan has become a duopoly in community group buying, on par with Pinduoduo (slightly inferior to Pinduoduo, mainly due to its huge supply chain advantages).

Even though Pinduoduo has a strong supply chain advantage, Meituan has firmly established itself in the second spot thanks to its advantages in offline local life and delivery teams, which shows how strong it is.

In terms of flash sales, it has surpassed JD.com and become the undisputed leader in flash sales. Needless to say, it occupies more than 70% of the market share in food delivery, and its share is still increasing. Although it faces competition from Douyin, its in-store business still firmly controls the largest market share. The success of these businesses is inseparable from two points:

The high coverage of takeout and its instant delivery team, as well as local life businesses, is ultimately inseparable from the mindset that consumers have already formed.

So how to connect these originally independent businesses, connect them internally, form a closed loop, and strengthen consumers' desire and mentality for consumption linkage has become the key to Meituan's moat and a powerful weapon against external competitors.

02 Tik Tok is both a threat and a “catfish”

In 2023, Douyin's local life GTV (total transaction volume after write-offs) will be close to 200 billion yuan, and most of it will be contributed by the in-store business. During the same period, Meituan's in-store business GTV was about 600 billion yuan - Douyin's local life transaction volume is close to 1/3 of Meituan's in-store business.

At the beginning of this year, there were rumors in the market that Douyin would acquire Ele.me to make up for its shortcomings in instant delivery and continue to advance into local life. Although this was not confirmed later, market participants continued to question whether Meituan could resist Douyin's crazy advance.

In this context, Meituan began to adjust its internal organizational structure on a large scale, and the latest step is to integrate all core local business departments. Market insiders believe that this move is to resist the entry of Douyin, strengthen the synergy effect of Meituan, expand customer stickiness, and resist the invasion of Meituan in a targeted manner. So let's first look at the advantages of Douyin's local life:

1. Huge customer base. Douyin has over 800 million monthly active users, and its customer base and effective market share are significantly ahead of Meituan, especially in the lower-tier markets (third, fourth, and fifth-tier cities), where it has greater advantages.

2. Short video marketing, precise push notifications, and store visits are its unique and greatest advantages.

3. The "booth fee" is cheap, the marketing cost is low, and the subsidies are large in the early stage of development. To put it bluntly, the advantages of Douyin are the advantages in the early stage, and the disadvantages in the later stage are obvious. How to explain it?

1. Douyin uses short videos to push content accurately, which caters to the concept of "active marketing", that is, the model of stores looking for people, which is more suitable for some "big stores" or "chain stores" to expand customer flow in the early stage. However, the model of "stores looking for people" is more suitable for the early stage, not for the later stage. "People looking for stores" is the main trend. Meituan has obvious advantages in this regard.

2. Douyin has more than 800 million monthly active users, and the effective duration is longer, so it can push ads accurately, but the "advertising time" is relatively limited. If the advertising time takes up too much time of the customer, it will reduce the customer's favorability, so the time for advertising push is limited. This leads to Douyin being very fast in the early stage, but in the later stage, it will be stretched due to the demand for time from other businesses and the control of the overall advertising business. On the other hand, Meituan is a place where customers look for stores and have the need to participate in short videos or live broadcasts. Customers are more direct and will not cause disgust.

3. Precision marketing has low initial advertising costs, but in the long run, short videos are the most expensive, so they are more suitable for large stores and chain stores. They are relatively unbearable for low-end stores, especially private stores, and cannot obtain traffic. Meituan provides standard and diversified services, where people find stores, which is relatively friendly to small and medium-sized stores.

4. The group purchase discounts created by the initial subsidies are unlikely to last. In the later stage, when people go to the store, they still look at the discounts. If the Douyin prices are not significantly discounted, it is easy for the store business to be marginalized. At present, most catering businesses will operate the Meituan APP for a long time. Giving gifts to customers to collect and check in is a symbolic event that the store believes that Meituan is worth investing in for a long time.

The above reasons determine why the threat of Douyin seemed strong in the early stage, but weak in the later stage. There is still an essential boundary between the two. Meituan’s integrated development in the field of food delivery and home delivery has enabled Meituan to integrate the in-store and home delivery businesses, thus strengthening its stickiness to customers.

If you are a customer, you can easily realize all the local life on Meituan, and it is quite convenient and affordable. Will you still be shaken by the functions of other apps? Douyin’s in-store business, which has made the "more favorable" in-store business, has not yet been firmly established when it was hit hard by Meituan. This is evident.

There is a very good saying: "One can polish jade with the help of others' knowledge". Therefore, Meituan "takes advantage of the momentum of Douyin" to vigorously develop live broadcast and short video business, which in turn feeds back to boost "in-store business", realizes the promotion needs of merchants who recruit people, and then strengthens the stickiness of merchants and meets the diversity of customer needs, realizing more commercial value realization. This is obviously a very good thing for Meituan.

Therefore, Wang Puchong was appointed as the core local business CEO, taking full charge of the in-store, home delivery and Meituan platforms: First, to strengthen the synergy of Meituan's various businesses and make Douyin impeccable. At the same time, to coordinate various business units, achieve complementary and smooth traffic, integrate the service system, strengthen customer stickiness, and then strengthen the occupation of customer minds.

This provides a broad space for the value of Meituan's more businesses: "Pinhaofan" under the supply chain integration of takeout, "live broadcast and short video" on the Meituan platform, and the entry of takeout's God Members into the store business. It is expected that Meituan will develop more high-quality business models and deepen its self-transformation in the future. However, Douyin's desire to establish an all-round advantage in local life seems to be far away. A slight difference can lead to a huge mistake.

Perhaps this sentence is very suitable for describing the current local life on the Internet.

03 The platform economy is shifting from reducing costs and increasing efficiency to the battlefield of mid- and low-end consumption

Pinduoduo suspended its local business expansion at the beginning of the year; Meituan optimized its community group-buying business and eliminated its taxi-hailing business; JD.com reduced its share of the lower-tier markets; Tencent focused and invested; Alibaba made a bold move...

All these tell us that the Internet platform economy is currently on the path of "reducing costs and increasing efficiency". Therefore, we see that the revenue growth of some platform economies may not be that fast, but the profit growth rate will be much higher than the revenue growth rate, which reflects this phenomenon. Reducing costs and increasing efficiency is extremely beneficial for creating value.

But why did they enter the tide of cost reduction and efficiency improvement? Internet antitrust has set a framework, but more importantly, the boundaries of Internet giants have been deepened.

Tencent, Douyin, Meituan, Pinduoduo, Alibaba, JD.com, etc. all have their own moats. There may be gains and losses in one city or one place, but the high walls built by the base camp seem difficult to be broken. This is also extremely beneficial to social value and enterprises.

Otherwise, how can there be stable expectations in the midst of disorderly expansion and capital waste? At present, low-end and mid-end consumption remains resilient, providing a good soil for these platform consumption companies.