This article was published on March 8 as an invitation for Zhuang Shuai's column in Securities Market Weekly
In 2023, the market will be very unfriendly to Meituan. Douyin's high-profile entry into local life and its cooperation with Ele.me to vigorously promote the food delivery business led to a continuous setback in Meituan's market value.
However, judging from the fourth quarter and full-year results of 2023 released at the end of March, Meituan has clearly withstood the seemingly biggest competitive pressure since its listing, and handed over a satisfactory answer, not only returning to double-digit revenue growth (up 26% year-on-year) to 276.7 billion yuan, but also operating profit of 13.4 billion yuan.
In particular, the core local business, which is dominated by takeaways, flash sales, and in-store wine and tourism, continued to achieve steady development, with revenue of this business segment increasing by 29% year-on-year to RMB206.9 billion, and operating profit of RMB38.7 billion, up 31% year-on-year. The overall number of instant delivery orders increased by 24% year-over-year to 21.9 billion.
It can be seen from the many aspects of Meituan's competition with Douyin that the moat of Meituan's food delivery business is very high, and it has successfully resisted the offensive of the "Hungry Shake Alliance" in 2023.
With the end of 2023 and the beginning of 2024, the adjustment of the heads and departments of Douyin's local life business, the change of Ele.me's management, combined with the revenue and profit data of Meituan's financial report, Meituan seems to have passed the "most dangerous moment".
Can Meituan stay afloat?
In my analysis and judgment, many of Meituan's businesses are in the market stage of stock competition, and they can remain profitable for a long time.
Stock competition in the takeaway market
According to previous news, Alibaba will most likely sell the physical retail businesses of Yintai, RT-Mart and Freshippo, so will Ele.me, the main rival that has an impact on Meituan's profits, also be sold?
I don't think so, because Ele.me, although it is also in a loss-making state, is an e-commerce platform with food delivery business as its core, rather than a brick-and-mortar retailer that needs to keep opening stores to grow.
In addition, Ele.me's "Hummingbird" intra-city delivery is a very core and important asset, whether it is from the profit of Meituan's takeaway business, or compared with the high gross profit of Flash Delivery and SF Express, Hummingbird is worth holding for a long time.
The current situation is that the food delivery market is effectively only Meituan and Ele.me competing. In the past few years, Meituan has not only not destroyed Ele.me, but has allowed Ele.me to hold on to some major high-tier cities, and its losses have continued to narrow.
On February 7, Alibaba Group released its financial report for Q3 of fiscal year 2024 (Q4 for the natural year of 2023), which showed that driven by the healthy growth of Ele.me and the rapid growth of AutoNavi, the revenue of Local Life Group increased by 13% year-on-year, orders increased by more than 20% year-on-year, and the annual active consumers exceeded 390 million.
Ele.me's losses continued to narrow effectively, driving Local Life Group's adjusted EBITA (operating profit and loss) to accelerate to RMB2,068 million. Compared with the same period in 2022, the loss has narrowed from 2.923 billion yuan to 30%, greatly exceeding market expectations.
Obviously, the independence of Ele.me in 2023 will no longer require mandatory business collaboration with Koubei and Fliggy, but will allow Ele.me to focus more on the food delivery business.
The alliance with Douyin has also allowed Ele.me to gradually ease down, and while the scale of users is growing, it can more accurately understand the multi-level needs of users.
After an in-depth understanding, I found that in the past two years, Ele.me has carried out more refined and differentiated operations in terms of organizational optimization, marketing and platform operation, as well as ecological construction capabilities, and has maintained advantageous areas to seek development opportunities, and used the multiplication effect of "user * merchant * rider" to make Ele.me switch from defense to offense through catering takeaway + instant retail.
Analyzed in this way, will Ele.me put more pressure on Meituan?
On the contrary, I think that the new management of Ele.me clearly aims to go public, and the best strategy for Ele.me should be "peaceful coexistence, differentiation and survival" when the capital market needs and needs.
Instead of fighting price wars and marketing wars with Meituan, we will carry out differentiated marketing and operation strategies through regionalization, while reducing internal management costs, maintain a dynamic and balanced competitive situation with Meituan, and find profit opportunities in the food delivery and instant retail business.
Referring to the data of Meituan's instant retail platform, Meituan Flash Sale, in 2023, the number of Meituan flash sale orders will increase by more than 40% year-on-year, and the number of active merchants will increase by nearly 30% year-on-year.
Although in the instant retail market, Meituan flash sales and JD Dada have formed a stable pattern, in the food delivery business and Meituan duopoly Ele.me still has the opportunity to do a good job in the instant retail business in some regional markets and get a piece of the pie by taking advantage of the advantages of instant delivery.
If Douyin can't successfully acquire Ele.me, the only instant delivery team that can compete with Meituan is JD Dada, Flash Delivery, and SF City.
Obviously, JD.com, like Alibaba, places a lot of emphasis on the growth of its instant retail business, and with Dada also achieving quarterly profitability in 2023, the likelihood of Dada being sold to Douyin is also slim.
The third party is a service attribute, and has no experience in the operation of a strong business such as a takeaway platform, and the integration of the acquisition will take a long time and it is uncertain whether it can meet expectations.
After all, it took a long time for JD.com to acquire Dada, a third-party intra-city delivery company, to carry out instant retail business, and although it was finally successfully listed, the overall performance and growth rate in the past two years still lagged behind the Meituan flash sale department, a late entrant.
In the case of no new entrants in the food delivery market, Meituan and Ele.me will form a duopoly market pattern, and the goal of both sides is not to fight to the death, or even to fight for each other, but to expand the market together to maintain stable growth and profitability.
In-store businesses are used to make money
On the one hand, the in-store hospitality business has a large market space, and on the other hand, the market has a high profit margin, so even if Douyin increases its investment, it is unlikely to cause Meituan to lose money. Because Douyin does not want to lose money in the in-store business, first, it is not necessary, and second, Douyin's e-commerce business has entered the deep water area.
In 2023, Douyin's e-commerce business will reach more than 2 trillion yuan, and in the face of old rivals such as JD.com, Taobao Tmall, Pinduoduo, and Kuaishou e-commerce, as well as the three new forces of WeChat video account e-commerce, Xiaohongshu e-commerce and Baidu e-commerce, the growth pressure of Douyin e-commerce can be imagined.
Looking at the financial report of Ctrip, an old rival of Meituan Travel for many years, in 2023, it is also very gratifying. In 2023, Ctrip's revenue will be 44.5 billion yuan, a year-on-year increase of 122%.
Therefore, whether it is Douyin, WeChat, or Xiaohongshu, the in-store business is not to fight with Meituan and Ctrip, make strategic losses, and then dominate the world, challenge the status of the boss, and change the industry pattern. The main reason is that the market is big enough and the profit is high enough, and I want to come in and make money.
It's just that Meituan has to guard against it, after all, Meituan started from catering to stores, and after the increase in merchants, it improved the instant delivery system and developed into a home (takeaway) business.
According to the financial report data, Meituan's sales and marketing expenses in 2023 will reach 58.6 billion yuan, while in 2022 this data will be 39.7 billion yuan, a year-on-year increase of 47.5%, and the proportion of revenue will also rise from 18.1% in the previous year to 21.2%.
Meituan explained that it was mainly due to the recovery of consumption, the business environment and changes in business strategies, which led to an increase in user incentives, promotion and advertising spending.
Meituan's unconventional investment in sales and marketing may be surprised by competitors, capital markets and the media, and once Meituan finds that its competitors' investment in in-store business is not as high as expected, it believes that it will make corresponding adjustments in 2024.
On the earnings call, Meituan also appeared confident: "At present, the industry has stabilized. We're seeing other competitors doing things differently, but we're very confident that we'll be the leaders in the industry. ”
Reduce costs and increase efficiency of new businesses
Finally, I have to mention the new business based on Meituan Optimal and Meituan Grocery (which has been renamed Little Elephant Supermarket), although the loss will narrow in 2023, it will still be as high as 20.2 billion yuan, and basically most of the money earned will be lost in the new business.
The question is, is it worth it?
I don't think it's worth it, although Meituan Optimal and Duoduo Grocery have also formed a stable competition pattern of community e-commerce, their nature is completely different.
Duoduo Grocery is not making a new business model or platform, but a powerful supplement to the performance of the Pinduoduo community, especially Duoduo Grocery has also included some sites of the Cainiao Post Station into the bag and changed it to Duoduo Station, after all, compared to the income of receiving a share of express delivery, Duoduo Station also has a share of commodity sales, which is naturally much more attractive.
What is Meituan's strategic goal?
Is it to improve the supply and warehousing layout of Meituan's fresh food and FMCG products, or to expand revenue (the financial report shows that Meituan's merchandise retail business revenue will rise to 69.8 billion yuan in 2023), or to acquire users in the sinking market?
Either way, it seems that it will be difficult to make a profit in the short term, and it is possible that you will continue to invest in losses.
Moreover, it is difficult for Meituan to form synergies or complements with the instant retail business and the Xiaoxiang supermarket business. Fortunately, Meituan began to stop losses in a timely manner, and in March 2024, Meituan Preferred suspended 10 RDC positions (regional distribution centers) and began to shrink the front.
In the earnings call, Meituan said that it will make strategic adjustments in 2024 to improve its business model, with the goal of significantly reducing operating losses. For Meituan's preferred business, the markup rate of goods will be increased and subsidies will be reduced.
Let's look at the little elephant supermarket, after stabilizing the Beijing market, it began to expand in the Pearl River Delta and the Yangtze River Delta. After the new expansion this year, it has basically covered more than 30 points in the Yangtze River Delta.
The focus of Meituan's new business is on Little Elephant Supermarket, because Little Elephant Supermarket is a first- and second-tier market, and the real-time retail model of self-operated front-end warehouses can not only reuse real-time delivery resources, but also complement Meituan's instant retail model with an open platform in terms of supply.
After the renaming, Little Elephant Supermarket has been able to better build the "supermarket mentality" of users, and gradually expand the SKU from fresh food to FMCG and daily necessities with high customer orders and high gross margins.
According to the financial report data, the transaction value of Little Elephant Supermarket will increase by about 30% year-on-year in 2023.
Reduce the "capital" preferred by Meituan and increase the "efficiency" of Xiaoxiang Supermarket.
Conclusion
Looking outward, the industry pattern is stable, and the competition situation is becoming clearer.
In the food delivery business, Meituan and Ele.me form a duopoly; the in-store business is under pressure, but it is still very profitable, and everyone wants to come in to make money; in the instant retail business, Meituan flash sales and JD Daojia are in a duopoly pattern, and profit is the common goal.
Looking inward, instant delivery is Meituan's strength and moat.
Looking ahead, Meituan is actively expanding its overseas markets and the technological advantages it can exploit.
In October 2023, orders on Meituan's KeeTa platform, which was launched in Hong Kong, doubled in a month, according to data provided by market research firm Measurable AI.
After the successful verification in Hong Kong, the Southeast Asian market, which has relatively low labor costs, is likely to be the next growth point for Meituan's overseas business.
The gradual liberalization of drone delivery will also benefit Meituan, which has covered multiple scenarios such as offices, communities, universities, scenic spots, municipal parks, and medical care.
Looking backwards, are there any chasers?
JD.com once announced that it would enter the food delivery market, but with the change of management, it is no longer mentioned.
Other Internet platforms, technology companies and third-party intra-city delivery companies seem to find it difficult to compete in the food delivery business (including instant retail), and few people can come up with hundreds of billions of dollars as investment.