Meituan’s new card to fight back against TikTok

On April 18, in an internal email released by Meituan CEO Wang Xing, a new round of structural adjustments was announced: 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 the core local business.

At the same time, Meituan will no longer set up the in-store business group and the home delivery business group. The departments originally under the two business groups will be adjusted to be directly under the "core local business". In addition, Meituan has also carried out large-scale transfers and rotations of middle-level managers and established multiple sub-departments.

It is worth noting that this is Meituan’s fourth structural adjustment this year, and the last round of structural adjustment was in 2017.

The industry believes that from a longer-term perspective, Wang Puchong may be the final choice for the long-term adjustment of Meituan’s core management since Wang Huiwen retired.

Why intensively adjust the organizational structure?

In 2020, Douyin officially established a local life team. By 2022, Douyin's life GMV increased by 7 times year-on-year, covering more than 370 cities and more than 2 million stores. According to Haitong International Research Report data, Douyin's local life GTV will reach 200 billion yuan in 2023, about 1/3 of Meituan, and most of it will be completed by in-store business.

Douyin has stirred up the dispute in local life.

Earlier this year, Zhang Chuan, then president of Meituan’s in-store business group, described the competition with platforms such as TikTok in local life as “a brutal and torturous trench warfare” in an internal letter. Ten days later, Meituan’s stock price fell below its IPO price.

The competitive power brought about by friendly competitors represented by Douyin has indeed threatened Meituan.

In the battles over the past few years, Meituan has not gained the upper hand. Its response is to counter the opponent's moves and compete in the direction led by Douyin.

For example, Douyin subsidizes merchants and consumers, and Meituan has also increased its efforts. In 2023, Meituan's marketing expenses increased by 18.9 billion yuan compared with the previous year, and the marketing expense rate increased by 3 percentage points. The substantial increase in marketing investment has caused Meituan's quarterly profit to gradually decline from about 7.7 billion yuan in the second quarter of 2023 to 5.7 billion yuan in the third quarter and 4.4 billion yuan in the fourth quarter.

In addition, in August 2022, Meituan began testing the short video function, and at the end of 2023, the short video entrance was placed in the APP.

The tab bar at the bottom of the homepage; in March this year, a new "theater" channel was added, which collects various short plays. It has the charm of creating a "TikTok" in Meituan.

Under this coping strategy, Meituan is somewhat "passive" in the competition, which is related to Meituan's internal organizational structure.

Since 2015, Meituan has adopted a business group system, gradually forming two business groups: home delivery and store delivery, plus three platforms: Meituan platform, smart transportation platform, and basic research and development platform, as well as business units such as Dianping, Youxuan, Shopping, and Kuailv. These businesses are relatively independent in operation, with different business group leaders. In other words, Meituan's store and home delivery businesses have long reported to two managers respectively, which may lag in resource scheduling and business coordination, and cannot fully unleash their combat effectiveness.

According to an insider close to Meituan, group buying and food delivery have a high degree of overlap on the supply side, and the company has been trying to promote the synergy between in-store and home delivery businesses to meet similar consumer needs with different fulfillment methods. "Food delivery, group buying, and hotel and travel have always been important high-frequency businesses of Meituan. Integrating the platform and R&D together reflects Meituan's determination to further improve organizational efficiency and upgrade product experience."

Overall, Meituan focuses on local commercial businesses centered on in-store and home delivery, with the intention of integrating the previously independently developed in-store and home delivery businesses for coordinated development, concentrating superior resources to make more efficient decisions and implement them, and better respond to external changes.

What kind of imagination does the adjusted Meituan have?

After this round of major structural adjustments, what will Meituan's future development look like? We try to see Meituan's next development from several aspects.

Wang Puchong is undoubtedly the biggest highlight of this structural adjustment.

Wang Puchong was born in 1984 and was once the head of Baidu Takeaway. After joining Meituan in 2015, he focused on the home delivery sector, helping Meituan Takeaway defeat Ele.me and leading Meituan Flash Purchase to gain a foothold in the instant retail field.

In January 2018, Wang Puchong was promoted to senior vice president and became the youngest member of Meituan’s core management team S-team; in October, Meituan established the Home Delivery Business Group, and Wang Puchong became president.

Meituan has a high opinion of Wang Puchong. LatePost reported that a Meituan insider commented that Wang Puchong is smart, pragmatic, down-to-earth in management, and has a big picture view of the rhythm of business development. "For example, in the food delivery war, when to engage in supply and when to focus on delivery, the timing and rhythm are very well grasped, rather than just following what the opponent does, or doing what everyone thinks should be done."

In the past two years, Douyin's local life has risen strongly. Although the growth rate of the home delivery business headed by Wang Puchong has slowed down, it still maintains a significant market advantage.

Grasping the timing and rhythm and taking the initiative in competition are the capabilities that Meituan urgently needs at the moment, and Wang Puchong may be able to fill this capability gap.

The moat that Meituan has built in the past will continue to play a key role. The delivery network consisting of millions of food delivery boys is Meituan’s real moat.

Snowball creator Viscosity Forest believes that Meituan has the most efficient distribution system and scale advantages, and has a deeper moat against traditional e-commerce and live streaming e-commerce. "Meituan uses offline physical space to connect user needs, and competitors cannot compete with it. Content platforms can generally become e-commerce trading platforms as long as they have traffic. But instant e-commerce is different, because you need a supply chain and distribution system, which are built up little by little with money. In the later stage, if the opponent relies on money to build up, it will actually kill 500 enemies and lose 1,000 of its own."

However, some people also pointed out that there is a variable in Meituan’s moat, namely Ele.me. “If Ele.me opens its delivery system to the outside world, and of course Ele.me is also developing in that direction, then the instant delivery system will no longer be a barrier, just like express logistics for e-commerce now.”

The financial report shows that Meituan's revenue in 2023 is 276.7 billion yuan, a year-on-year increase of 25.8%; net profit is 13.9 billion yuan, while the loss in 2022 is 6.7 billion yuan; adjusted net profit is 23.25 billion yuan, while it was 2.83 billion yuan in the same period of 2022. Among them, Meituan's core local business division earned 38.7 billion yuan, and although its new business has reduced losses, the loss still reached 20.2 billion yuan.

Judging from this financial report, Meituan has obviously withstood the pressure, with revenue and net profit exceeding expectations, and turning losses into profits for the whole year. This also indirectly proves that Meituan's basic market is stable enough. But at the same time, with operating profits greatly reduced, Meituan does need to release more fighting power. Under the new structure, there may be a more powerful counterattack.

The battle for local life has intensified further.

References:

1. Jiemian News: Meituan starts its fourth structural adjustment this year

2. Lieyun.com: Meituan is “seeking” change, and a young leader born in the 1980s takes the lead

3. Alphabet List: Meituan has a "little" CEO