How does Meituan increase its user base?

In the "2023 China Mobile Internet Half-Year Report" released by QuestMobile, we can see that among the top ten Internet companies in terms of monthly active users, Meituan's user growth is very impressive. So, how did Meituan achieve user growth? In this article, the author tries to deeply dismantle Meituan's strategy to drive growth. Let's take a look.

Friends who know Meituan should know that it is no secret that Meituan has never been a company that excels in traffic operations.

Interestingly, Meituan has been doing well in user growth. Financial reports show that Meituan's annual active buyers reached 680 million in 2022, ranking third among all transaction service platforms in China, which means that approximately 57% of Internet users (a total of 1.2 billion) have consumed at Meituan in the past year.

Recently, a report released by Questmobile, a third-party data monitoring agency, further verified this trend:

Questmobile should be the most reliable third-party data monitoring agency in China at present. This "2023 China Mobile Internet Half-Year Report" shows that as of June, the monthly active users of mobile Internet were 1.213 billion, an increase of about 2% year-on-year. The number of users is close to the population base, but among the top ten Internet companies in terms of monthly active users, Meituan still leads the entire industry with an ultra-high growth rate of 30.2%.

To be clear, the above statistics include multiple apps of the entire group, and are the overall monthly active user numbers after deduplication of apps and mini-programs, not data for a single app such as WeChat, Meituan, or Taobao.

After the domestic opening up, there was a voice that as consumers returned to offline, the user performance of Internet companies might shrink. From the perspective of the entire industry, the performance was indeed not outstanding, but Meituan achieved user growth that surprised everyone.

Even though I personally have always held positive expectations for Meituan, its performance still exceeded my most optimistic expectations.

This article will analyze the logic behind this performance from the following three aspects, hoping to help you understand Meituan:

1. The direct cause of data growth;
2. The underlying logic behind the changes;
3. Meituan’s three strategic strategies to drive growth.

1. Six factors behind the rapid growth of users

The first driving factor, we believe, is the strong recovery of the service economy.

Since 2023, many people's perception of economic recovery has been wavering: we have seen domestic flights packed with people, hotel rooms full and prices skyrocketing; on the other hand, we have seen shopping malls and shops closing, some neighborhood stores deserted, and from time to time we have heard news of layoffs and job losses.

The reason for this confusion is that the recovery is structural. At the GDP level, investment and exports are below expectations, but domestic consumption is very resilient:

Data from the National Bureau of Statistics show that in the first half of this year, my country's total retail sales of consumer goods reached 22.8 trillion yuan, an increase of 8.2% year-on-year. Final consumption contributed 77.2% to GDP growth. This contribution rate has basically remained at around 60% in the past few years (even lower in 2020 and 2022).

Specifically speaking of consumption, major consumption such as real estate is not booming, which has led to a downturn in decoration and home appliances in the upstream and downstream of the industrial chain, and the performance of automobiles can only be considered average; while consumption related to daily life has performed well, especially tourism, travel, performance tickets, hotel accommodation, etc. The rebound is very strong.

Also according to data from the National Bureau of Statistics, the total online retail sales in the first half of the year increased by 13.7% year-on-year, of which physical e-commerce increased by 10.2% year-on-year, and non-physical online retail including tourism, travel, hotel accommodation, etc. increased by as much as 29.2% year-on-year.

With the strong rebound in service consumption, life service apps are the biggest beneficiaries.

Data from Questmobile shows that the monthly active users of movie performances, flight services, train ticketing, hotel services, and online travel apps increased by 172%, 83%, 57%, 42%, and 35% year-on-year, respectively.

Meituan covers all these services, so at least in the areas of in-store hotels and travel, movies and performances, Meituan can be said to have fully enjoyed the benefits brought by the strong recovery of the industry.

On August 15, the National Bureau of Statistics also announced that it would release service retail sales data for the first time starting in August. This data includes retail sales of service activities in the fields of transportation, accommodation, catering, education, health, sports, and entertainment.

Service retail was included in the national economic statistics for the first time. The reason behind this is that the domestic consumption structure is constantly transforming and upgrading, and the consumption pattern is gradually changing from mainly commodity consumption to a balance between commodity and service consumption.

According to the data of per capita consumer expenditure of the whole country, the proportion of service consumption has exceeded 40%. Some scholars predict that by 2025, the proportion of service consumption in my country is expected to reach about 52%, and by 2030 it is expected to reach 55% to 60%, and by 2035 it will generally stabilize at about 65%.

Changes in residents' consumption structure and the rise of service retail mean that the local life service industry will steadily release its growth momentum for a long time to come.

We believe that the second driving factor is that consumers’ local online consumption habits have continued during the epidemic.

Takeout, flash sales, Meituan grocery shopping, Meituan Youxuan and other home delivery services have not withdrawn from consumers' daily lives after being opened up, but have become more closely connected with them.

According to the data we have learned, the year-on-year growth in the number of takeout orders in the second quarter was faster than in the first quarter, estimated to be close to 30%, while the flash purchase business maintained a high growth trend, with an estimated growth rate of more than 40%, and the premium and grocery shopping businesses maintained a steady development momentum.

The growth in monthly active users on the takeaway merchant side also reflects this trend. In June this year, the monthly active users of the merchant version of Meituan Takeaway reached 13.85 million, a year-on-year increase of 26.3%. Unlike April and May, June last year was a month with a high base.

The third driving factor is the change in the user age structure.

As the flow of people resumes, more people have gathered in first- and second-tier cities. From the inter-city distribution structure of mobile Internet users in the above figure, we can see that the proportion of users in first-tier, new first-tier and second-tier cities has increased by 5.5 percentage points compared with the same period last year, and the population has obviously gathered in large cities.

In the age distribution of users in first- and second-tier cities, the proportion of those born in the 2000s and 1960s has increased significantly. Those born in the 2000s have a very high growth rate in services such as food delivery, tourism, movie performances, and travel.

The elderly are becoming more and more familiar with the Internet and have become the main driving force behind Meituan's user growth.

The fourth factor is that Meituan has increased its investment in content construction to promote user activity.

Since the beginning of this year, Meituan has continued to increase its content construction, including the original user reviews of the Dianping system, the merchant "must-eat list", and the "Black Pearl" operation. It has also started the construction of the "must-order list" for Meituan takeout, supplemented by interesting gameplay such as mini-games, receiving red envelopes, and reading novels. More importantly, it has officially launched short videos and live broadcasts.

(Meituan Takeaway Coupon Festival live broadcast, the number of viewers exceeded 5.6 million)

Meituan Live has been testing for a long time and was finally officially launched on April 18 this year. It has been warmly welcomed by consumers and merchants since its launch.

According to official statistics from Meituan, the first 418 live broadcast lasted 11 hours, and Meituan’s takeaway orders increased by 50% year-on-year, while DAU increased by 75% year-on-year.

Meituan Live took advantage of its victory and achieved even more impressive results on 618. During the Wallace event, sales exceeded 150 million yuan, Starbucks Frappuccino series product sales increased by 370% week-on-week, and Haidilao sales increased by 51% week-on-week. While selling a huge number of redemption coupons, consumers usually purchase other goods when ordering takeout for redemption. According to system statistics, each redemption coupon can drive sales of 1.5 times the amount. Merchants reported that Meituan Live’s consumer targets are clearer, so the redemption rate is generally much higher than other platforms, and some are as high as 3-5 times that of other platforms.

The fifth factor is brought about by the development of urbanization.

With the acceleration of urbanization, the physical radius of cities has expanded rapidly. Major cities have basically experienced old city renovation and new city expansion movements. The distances of modern people's commuting, consumption, leisure and entertainment have become longer. As residents' income increases, there is an incremental demand for the value of time. The accelerated pace of urban life has exacerbated this time cost, which has put higher requirements on the efficiency of commodity circulation within the city. "Fast" has become a rigid demand that conforms to the laws of social development. The service retail and commodity retail characteristics provided by Meituan perfectly fit this trend, which will be beneficial to its business development and user stickiness in the long run.

The sixth factor is caused by social development and changes in family structure.

In 2021, data from the seventh national census showed that the average number of people per household in China was 2.62. This figure was 3.1 10 years ago and 3.44 20 years ago. The family population structure continues to shrink, which is in line with the development trend of modern families. This is basically the case all over the world, especially in East Asia.

According to a report by Tianfeng Securities, the average household size in my country continues to shrink, and the current level is comparable to that of Japan around 2000. The reduction in average household size has led to an increase in the marginal cost of eating at home, which will weaken people's willingness to eat at home and prompt small households to turn more to convenient catering.

For comparison, the proportion of Chinese food in Japan has continued to increase as the family structure has changed. Chinese food refers to meals eaten by consumers outside of sales stores, including food that is eaten directly after purchase at convenience stores, supermarkets and other retail stores, or food that can be eaten by heating it in a microwave or pouring hot water. According to TF Securities' forecast, the current penetration rate of takeout for "eating" in China is still in its early stages and has not yet reached its ceiling. If compared with the penetration rate of Chinese food in Japan, the average daily takeout orders are expected to exceed 80 million in 2025.

2. The underlying logic behind data changes

Data usually has a lag, and it is the natural result of a series of behaviors and factors. The underlying logic behind these different factors is actually: the development of the Internet industry has shifted from competition for traffic to competition for user value. Only those companies that find the long-term and universal needs of users and continuously create value around user needs can win the stable trust of users and naturally usher in continued growth in users.

Meituan occupies the core demand of people's lives, which is food. Food is the most important thing for people. Food is characterized by high frequency, rigid demand and stability. Focusing on this long-lasting and universal demand, Meituan started with food group buying. When users needed to eat delicious food without leaving home, food delivery came into being.

Eating is a very pleasant but also serious thing, so choice is very important. In order to help consumers find delicious restaurants better, content aggregation platforms such as Dianping are particularly important. Meituan Dianping not only provides consumers with basic business reviews, but also rates these businesses and screens out high-quality restaurants. The “Must-Eat List” has become the most important selection indicator in the catering industry because of its fairness, justice and lasting influence. In order to meet the needs of more high-end people, Dianping has launched the “Black Pearl” restaurant guide, which also has the potential to become the industry’s high-end food guide standard.

Following the same logic, Meituan Takeout has also begun to focus on the "Must-Order List" to help takeout users screen; these contents are more of a time-saving method for users who have needs, while Meituan's short videos and live broadcasts are more about guiding users who do not have clear needs.

So you see, most of the work done by Meituan is centered around providing services for users’ core need of “eating better”.

When these high-frequency and rigid-demand users settle down, there will naturally be demands for life services such as leisure and entertainment, travel and vacation, and travel accommodation. Therefore, in the main line of catering group buying, Meituan naturally expanded into hotels, homestays, leisure and entertainment, movie performances and other businesses; in the main line of catering takeaway, it naturally expanded into takeaway home services for various commodities such as flowers, medicines, and daily necessities, which constitute the main body of flash purchases; for more high-frequency and time-sensitive areas such as daily necessities for residents, Meituan launched its own Meituan Grocery Shopping, and further extended to Meituan Youxuan and e-commerce in the commodity retail field. All services other than catering group buying and takeaway are designed to make users "live better."

Meituan’s mission is to enable users to eat better and live better. All the work it does - although many people have criticized it in the past for its lack of sense of boundaries - is centered around user needs to create user value and has never deviated from its mission.

When a company always creates value around user needs and does things well, why would users leave it? Not only will old users not leave, but there will also be a steady stream of new users coming to it. This is the underlying logic behind Meituan’s rapid and sustained user growth: in the hourglass game of user retention, the gap at the bottom is very, very small, and the user retention rate is very, very high.

3. Meituan’s three strategic axes to drive growth

Yes, our conclusion in the previous paragraph seems quite thrilling, but there is actually a logical key that needs to be emphasized: that is, “doing things well.”

Only if you do a good job within your mission can you satisfy existing users and attract a steady stream of new users. So what exactly does Meituan do well, or what are its three strategic tools to do its core work well?

We think the first is low price.

The word "tuan" in Meituan means group buying. People often say that three people form a group. The starting point of Meituan is to gather the power of everyone, leverage the price lever, and help users save money.

The in-store hotel and travel business that developed from group buying is jokingly called a "profit cow" by many people today, but in fact group buying has been a business that pursues ultimate cost-effectiveness from the beginning.

From the logic of the catering industry, we believe that dine-in is a typical high-gross-profit, low-frequency business, and the industry's gross profit is usually between 50-60%. An ordinary Chinese restaurant (not fast food) is run by only two people and is located on a road that is not particularly busy. Assuming that there are 3 guests per table, and an average of 8 tables per day, with an average consumption of 80 yuan per person, the daily turnover is about 2,000 yuan, and 60,000 yuan per month. If the gross profit is 60%, the gross profit is 36,000 yuan. After deducting the rent of 8,000 yuan and the water, electricity and gas of 5,000 yuan, there is still 23,000 yuan left per month, which is not as good as the top, but better than the bottom.

Group buying packages usually reduce prices by more than 30%. Because of the group buying price stimulation, consumers' demand for dine-in is stimulated, the consumer base expands, and the frequency increases. For merchants, although the gross profit margin decreases, they can actually make more money due to the increase in turnover rate and order volume.

So you see, the group buying business is essentially to redirect the high-profit, low-frequency catering business to a relatively low-profit, high-frequency business.

Of course, this guiding effect is not enough. Takeout leads it to the real low-profit and high-frequency direction.

The average monthly sales volume of a store on Meituan Takeout is around 1,000 orders, or about 33 orders a day. If other takeout channels are included, that’s almost 50 orders a day. This is just the level of a mid-level entry-level takeout store. Some stores can even achieve more than 10,000 orders a month.

Just take a look at the data and you will know that takeout is a low-profit, high-frequency business for restaurants.

So who are the beneficiaries? Of course, the consumers. Where do the profits go? They are divided among more links in the industrial chain (such as riders), and a portion is issued as coupons to users as subsidies.

The same logic applies to group buying, takeout, flash sales, grocery shopping, selection, ticketing, hotels, tourism and other businesses, which is to lower prices, expand the user base, and increase consumption frequency. Ultimately, the expansion of scale will feed back to merchants, allowing all industries to move from higher gross profit and lower frequency to lower gross profit and higher frequency.

It is precisely because of the baptism of two rounds of group buying and takeout to reduce gross profit and expand the market that the catering industry cannot bear the heavy costs of traditional live e-commerce.

Because traditional live streaming e-commerce is essentially a business model with high channel costs, with platform commission + advertising exceeding 5%, and top influencer commission exceeding 20%, plus expensive slot fees, as well as inherent inventory, circulation, express delivery, and labor costs. How high a gross profit margin does a product need to cover this cost?

Anyway, takeout is 100% impossible to squeeze out so much money, so we see that Meituan has adopted a sufficiently differentiated strategy for live streaming. It uses official live streaming rooms and merchants’ own live streaming to lead the way. You basically don’t see Internet celebrities or experts doing this. The cost of Meituan’s official live streaming room is very low, with only two anchors and a few staff members’ salaries, and the cost is almost negligible to 0 (for Meituan). Merchants do not need additional commissions or slot fees for live streaming, and the output is still amazing. Which merchant doesn’t want to take advantage of such a good thing? So let’s exchange price for volume, so its model still continues the previous logic, low price.

Moreover, unlike traditional live-streaming e-commerce, the fulfillment link of Meituan’s live-streaming must be completed locally offline. Whether it is takeout or in-store group-buying live-streaming, the goods must eventually be delivered to the home or settled in the store. The service flexibility of a single store is limited. The traditional live-streaming e-commerce model of big anchors, large traffic, and large orders is simply not suitable. Experts with a large number of fans are unlikely to take on live broadcasts of local life. Just calculating the commission is a big problem.

What Meituan values ​​most is the mentality of low prices . This is also why short video platforms entered the local group buying market. Meituan first started the special group buying business. No matter what methods or means are used, the price must be lowered. It is necessary to strengthen the mentality that Meituan is the channel with the highest cost-effectiveness. Meituan’s live broadcasts, whether official or self-broadcasts, all follow this logic: no more additional costs, increase output, so please keep the price to the lowest.

Still taking the largest and most watched catering group buying industry as an example, Meituan’s commission is 3%, and Douyin’s is 2.5%. However, Meituan has done a lot of merchant incentive subsidies, and the final commission of both parties is similar, and Meituan’s is even lower.

In addition to commission costs, Douyin also has a lot of additional costs. For example, asking influencers to shoot short videos and help publish them costs about 6-8%. Now the system provides less and less natural traffic. Even for influencers with a certain fan base, publishing this kind of business video requires a lot of money to invest in traffic (that is, purchasing traffic from short video platforms, known as local promotion). According to feedback from some mid-level influencers, the proportion of invested traffic in some areas has reached more than 70%. These advertising costs are naturally borne by the merchants. So in fact, through short video delivery and cooperation with third-party influencers, the channel cost is much higher than Meituan. These costs will sooner or later be passed on to consumers. This is why, after several months of fighting, Meituan's price competitiveness has once again been highlighted.

If one wants to sell goods through live streaming via the TikTok channel, the cost will be incredibly high unless the merchant broadcasts the product themselves.

China's life service industry is very large. According to iResearch Consulting, the scale of China's local life service market was 19.5 trillion yuan in 2020, and it is expected to increase to 35.3 trillion yuan in 2025. The penetration rate of the Internet in the local life market is only 12.7%, far lower than the 26% of the e-commerce industry. The market can accommodate multiple players. The frequency of life service consumption is higher, so making profits thinner, increasing the frequency, and giving benefits to consumers is Meituan's first move.

Who will the market ultimately choose, the king of the traffic game, or the honest person who makes solid profits by offering low prices? We should be able to see the answer soon.

The second is high-quality service.

Takeout is a very special business, with extremely high requirements, extremely tight time, extremely low unit prices, and extremely obvious peaks and troughs.

When facing such user needs, you need to be particularly attentive.

Meituan has an instant delivery network covering more than 2,800 cities and counties across the country, ensuring that users can receive food on time about 30 minutes after placing an order. Compared with the half-day delivery, next-day delivery or even multi-day delivery of physical e-commerce, the difficulty is incomparable.

In addition to food delivery, Meituan has also established a next-day delivery network that extends to villages, towns and townships in more than 2,000 cities and counties across the country. The number of self-pickup stores in low-tier markets exceeds 1.3 million, and they are even equipped with a cold chain system, so that people in small towns can enjoy the same next-day delivery service as in big cities, and at extremely low prices.

Meituan Grocery, as Meituan’s self-operated service, has made up for the shortcomings in covering the needs of high-net-worth users in the area, and its sales have increased 50 times in the past four years.

In addition to providing these basic services, Meituan has even tried to further shorten the delivery time to 15 minutes. In business districts where white-collar workers gather in Beijing and Shanghai, such as Shangdi in Beijing and Jing'an in Shanghai, and near some office buildings, Meituan has launched a 15-minute express delivery service. It has set up takeaway forward warehouses in these places and delivered food from some specially invited merchants to the forward warehouses in advance. The service starts at 11 a.m. every day and only serves lunch needs. After consumers place an order, the system arranges riders nearby to deliver the food directly to consumers from the forward warehouse based on their location, and sometimes it only takes 2-3 minutes to deliver.

In Meituan’s food delivery live broadcast room, consumers can watch and order immediately, and the food can be delivered within 30 minutes. Not only can they see the introduction of the food, but sometimes they can also learn about the background and story of the merchant. The same is true for Meituan’s grocery shopping live broadcast room. We believe that the same scene will soon extend to the flash sale field. Millions of daily necessities merchants only need to turn on the camera to communicate with consumers in real time and deliver the food to consumers within 30 minutes.

The third is supply chain management.

Meituan is in a local network. Unlike shelf e-commerce, this network naturally faces national merchants and a unified large market. It is oriented towards local merchants, local consumers, and local demands.

This makes it impossible for it to face merchants with an absolute high-pressure policy like shelf e-commerce platforms. Because in a national network, the loss of a merchant is almost zero, while in a local network, losing a merchant may mean a 3-5% supply loss, because the density of merchants of the same category within a 3-kilometer radius is actually quite limited.

This means that Meituan needs more flexibility, more balance, and more importantly, more empathy and kindness in supplier management.

Intelligence is a gift, while kindness is a choice.

The latter is actually more difficult, so I think that from a long-term perspective, this is actually a huge and often overlooked advantage of Meituan, that is, it is accustomed to managing the supply chain flexibly out of kindness, rather than simply and crudely taking a one-size-fits-all approach - which is obviously more suitable for decentralized local supply chains.

In addition, Meituan uses a series of labels such as massive user reviews, store ratings, must-eat lists, must-order lists, black pearls, etc. to guide merchants to improve the quality of goods and services, and efficiently match consumers with high-quality merchants, and then combine high-quality delivery team management to serve consumers well.

In addition to the in-store, food delivery and rider supply chain networks, Meituan is also involved in the construction of commodity supply chains, building its own warehousing and logistics, such as forward warehouses for grocery shopping, forward warehouses for food delivery, food delivery self-pickup cabinets, and selected large warehouses in major provinces and cities. Since last year, it has also started to operate lightning warehouses for local instant retail. In addition to warehousing and distribution, it is also involved in upstream research and development and production links. Its own brands such as Huasuan and Xiang Dachu have established a good consumer mind.

Ensuring low prices, ensuring high-quality services, and ensuring high-quality supply, such a simple strategy ensures that Meituan can focus on the priorities that consumers really need and that it really needs to care about, and can concentrate on solving those problems that really need to be solved.

If we look at it from a longer business cycle, traffic is only a short-term indicator, and all service-oriented companies must eventually return to user value. From this underlying logic, the current business value of Meituan obviously needs to be re-examined.

Source: Zouma Finance (ID: zoumacaijing)