arts:the InternetRivers and Lakes Author: Zhigang
On May 25, Meituan released its first quarter performance report for 2023. As expected, the recovery came quickly. In the first quarter of 2023, Meituan achieved revenue of 58.6 billion yuan, a year-on-year increase of 26.7%. At the same time, the operating profit in the first quarter turned from loss to profit, reaching 3.59 billion yuan. Among the data, the pace of local consumption recovery is fully evident.
With the momentum of recovery, can the growth be maintained in the future?
On April 25, Douyin announced a set of data at the Life Service Ecology Conference, and the number of Douyin service providers has exceeded 2 million. After three years of setting up local life, with POI as the starting point, Douyin launched an impact on local life.
Facing the disruption of Douyin and Kuaishou, how long can Meituan’s high growth last? Can Meituan win this “tough battle” by holding the core barriers of distribution? With these questions in mind, we try to find answers.
Meituan’s “Cost Reduction and Efficiency Increase”, riders and merchants are miserable?
Recovery and growth is the main tone of Meituan’s first-quarter financial report.
The financial report shows that in the first quarter, core local business revenue was 42.9 billion yuan, a year-on-year increase of 25.5%, and new business revenue was 15.73 billion yuan. In terms of core local business revenue structure, distribution service revenue is 16.9 billion, commission revenue is 15.8 billion, and online marketing service revenue is 7.74 billion.
Distribution service orders increased by 14.9% to 4.26 billion orders, distribution service revenue increased by 18.8% year-on-year, commission income increased by 32.4% year-on-year, online marketing service revenue increased by 10.6% year-on-year, and other services and sales revenue increased by 143.6% year-on-year.
Perhaps out of caution against intensified market competition, or because of sensitivity to the public opinion environment, Meituan has changed the way it discloses its performance. Data such as food delivery revenue and delivery costs are no longer disclosed. The speculation did not stop.
However, judging from the past disclosed data and the latest financial report, the cost of delivery is still very high.
In 2019, the cost of Meituan riders accounted for 83% to 41 billion. In 2021, Meituan’s commission income will be 77.1 billion, and related expenses will be 72.1 billion. In 2022, Meituan’s revenue will be 70.1 billion, and related costs will be 80.2 billion…
The financial report for the first quarter shows that while the distribution revenue has increased, the cost of sales has also increased from 35.5 billion in Q1 in 2022 to 38.8 billion in Q1 in 2023, and revenue accounted for 66% of revenue. The financial report also stated that the increase in costs was mainly due to the increase in delivery-related costs.
Reducing costs and increasing efficiency seems to be a must-answer question for Meituan.
Reducing costs and increasing efficiency is a good thing for other companies, but for Meituan, it is a difficult thing. Controlling delivery costs will ultimately affect either the income of riders or the commission of merchants.
In the past three years, Meituan has faced the most severe public opinion environment. There are no other reasons. One is that the merchants asked to reduce commissions, and the other is to increase the benefits of riders. Both points point to the cost of Meituan.
Under pressure, Meituan’s choice was to increase the delivery fee. At the time when the transportation capacity was difficult, most consumers accepted it. After some operations, the final result was that Meituan’s annual loss in 2022 was 5.8 billion. Realized an adjusted profit of 9.7 billion.
In the first quarter of 2023, Meituan seems to have room to breathe, but new problems come with it.
On April 21, Meituan food delivery riders in Shanwei City, Guangdong Province announced a collective strike due to dissatisfaction with delivery unit prices and management issues.
After the Shanwei rider incident, new situations also occurred on the merchant side.
Recently, it was reported that Weijia Liangpi, a local brand in Xi’an, is no longer able to order food on the Meituan APP, and group purchases and Dianping have all suspended operations. At present, the news has not been confirmed by the brand, but some people believe that the move of the brand merchants is based on the percentage.
Three years have passed, and the pressure from merchants and riders is still there, and the pressure from public opinion on Meituan’s commission has not disappeared. But even if it is “defying the world‘s disgrace”, Meituan has to finish the matter of reducing costs and increasing efficiency.
Because in terms of delivery, Meituan really can’t afford to lose.
Internet Rivers and Lakes believes that the business model determines the financial model, and the financial model in turn affects the business model. In the past, the financial model of Meituan’s local life business was “two with one”, commission + advertising brought the delivery business to take off.
In Meituan’s core local commercial business, distribution actually doesn’t make much money. The main earners are commissions, marketing business and in-store business. Let’s take Q3 in 2022 as an example. Meituan’s distribution revenue is 20.1 billion, with a loss of 2.5 billion, but commission income is 16.1 billion, advertising revenue is 10.1 billion, non-delivery revenue cost is 14.4 billion, and the total income is 11.8 billion.
That is to say, from a financial point of view, delivery is essentially a “traffic business” for Meituan, which is a loss-making business. What really makes money for Meituan is the commission (to the store) and advertising fees (online marketing).
Relying on delivery at a loss, relying on “high frequency and low frequency”, Meituan has achieved operating profit through store visits and advertising, but the question is, how long can Meituan’s operating profit last when the new business is still losing money?
In the future, if Meituan wants to turn losses into profits in terms of net profit, relying on “two belts and one” can’t win the game. What Meituan needs is “three A”: distribution, advertising, and commissions can make money, and they can all be profitable . Because after the real competitive pressure comes, there may not be much room for Meituan’s profit growth for advertising expenses and in-store business.
It is not the old rival Ele.me that puts pressure on Meituan, but Douyin.
In 2021, Douyin internally adjusted the level of the life service department. Since then, local life has become the first-level department of Douyin. Merchant entry threshold.
“Douyin’s local life business is advancing very quickly. It only took about half a year from its launch to the number of merchants breaking through 10,000.” Li Xu (pseudonym), a local service provider, said to the Internet Jianghu: “The business expanded rapidly in the early stage, and many merchants are on the Internet. Douyin has tasted dividends, and they all want to try to cooperate with the new platform, but there are also many merchants who are worried about the previous “choose one” thing.”
Faced with the menacing Douyin, it is impossible for Meituan to restart the subsidy war. After all, it has been losing money for so many years, and it is time to make a profit. But the pressure on Meituan is indeed real.
In the face of pressure, Wang Xing at the financial report meeting in March answered this way: “Compared with other platforms, Meituan has differentiated value. In 2023, Meituan will focus on synergy between food delivery and in-store business, and consolidate the existing Advantage.”
Anxiety behind the recovery, the content leverages the local life pattern
Meituan’s actions may have come a bit late.
In March of this year, Meituan re-introduced low-price group buying and enhanced content, as if to fight a “defensive war” for local life, but Meituan’s response was still a bit late. At this time, more than two years have passed since Douyin deployed local life.
On the current client side, the low-cost perception of Douyin’s local life services is taking shape.
Judging from the actual consumption cases of friends around me, the most obvious change on the user side is that some users always search Douyin to compare prices when they go to the store for consumption. Not a lot.
This means one thing: in the scene of going to the store, the entrance cognition that Meituan has built up over the years is being broken.
In fact, Douyin’s local life is not a threat to Meituan’s “Zhongjun account” takeaway and delivery, but the “left wing” of marketing services and the “right wing” of Meituan’s local life profit model.
What was the secret of Meituan’s success in local life and business?
1. Low-cost traffic
Because of commercialization, the traffic cost of Meituan is obviously higher than in the past, and the advantage of low-cost traffic is gone. The result is the continuous growth of Meituan’s online marketing service revenue in the financial report.
However, Douyin has a content + vertical industry model, which has been brought to the local life field. Merchants have cheaper traffic channels, and Douyin’s local life business has naturally grown rapidly.
What is the end of Internet commerce? is the content. After cutting into the e-commerce track from live broadcast, in the field of local life, Douyin tried to prove this point again.
2. Low price
Users of local life services have no loyalty. Users can transfer from Meituan to Ele.me and then to Meituan. Low prices support users’ decision-making.
After all, the market will not allow another subsidy war between Meituan and Douyin, and Douyin, as a “latecomer”, has a natural latecomer advantage in price, which will further promote the growth of Douyin’s local life-to-store business.
That is to say, businesses need low-cost traffic and users want cheap services, both of which are Douyin’s advantages. For Meituan, Douyin’s local life service is a precise attack. Online marketing and in-store consumption, the former is related to whether Meituan can earn more advertising fees from merchants, while the latter is directly related to the commission commission for in-store business.
Local life and business, what we pay attention to is “high frequency and low frequency”.
The same is high frequency and low frequency. The “high frequency” of Meituan is the “high frequency” of tool traffic, which itself is a trading platform with a strong purpose. On the other hand, content platforms such as Douyin and Xiaohongshu are the “high frequency” of content traffic, and the user activity is significantly higher.
Whether it’s ordering takeaway or buying fruit, people will think of opening Meituan when they have a need, and content replacement itself is “content discovery needs-services meet needs”. This is the advantage of Douyin.
In fact, Meituan’s opponents today are different from Alipay back then.
At that time, Alipay was revised to integrate resources and entrances, and mainly promote local life services. It wanted to compete with Meituan. The final results showed that Meituan still has the advantage of entrance. The difference from that time is that Ele.me and Meituan are competing in the same dimension, but now the players that Meituan has to face are Douyin and Kuaishou.
Meituan is a bit like Ali back then, because Alipay’s traffic is essentially tool traffic, consumable traffic, not content traffic. Therefore, Ali’s strategy has always focused on integration and continued to obtain traffic sources.
Douyin and Kuaishou are, on the contrary, a bit like Tencent back in the day. Wechat has a steady stream of traffic in hand, but what is lacking is a suitable means of monetization. Therefore, Douyin is constantly looking for new business monetization scenarios: live e-commerce and local life are all new monetization scenarios.
It’s not that Meituan doesn’t have content genes. After merging with Dianping in 2015, Meituan has won the “content” competition in local life. Since then, the core of the growth of local life business is to rely on subsidies to cultivate user habits, relying on scale Optimized contract fulfillment capabilities to train users to place orders.
But now, Meituan puts short videos at the center of the app and regains content, which may have missed the best opportunity.
Not all the cards played by Douyin are good cards.
Douyin has entered the local life, and takeaway is always a business that cannot be avoided. In the delivery business, Meituan has obvious advantages. In fact, when it comes to local lifestyle businesses, Meituan’s biggest trump card is its large-scale instant delivery capabilities. According to the Tianyancha APP, in February this year, a company suspected of Douyin takeaway delivery service was established.
Recently, it has been reported in the market that the overall launch time of Douyin’s food delivery business is at the end of June 2023. At that time, first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen, as well as new first-tier cities such as Changsha, Chongqing, and Wuhan, will open merchants to settle in.
The one who defeats Microsoft must not be the next Microsoft, and the one that can defeat Meituan must not be another Meituan. When the foundation of local life is not deep, it may not be a good move to enter the food delivery.
Local life business has enough sociality. Takeaway, riders, merchants, and users are not just a commercial element of doing business, but behind them are thousands of families, which are the epitome of society. Therefore, the war in the field of local life ultimately plays a role in more invisible things.
The problem of food delivery is not a simple business problem, but a social problem in essence.
Merchants’ revenue, riders’ revenue, and platform profits are an iron triangle that is difficult to reconcile. The profit of one party must mean the loss of the other party. The essential contradiction cannot be resolved. Cost and potential social conflicts need to be resolved by the local life business itself.
These complex invisible things may also be problems that need to be faced in the future. On these issues, Meituan obviously has richer experience in dealing with them.
No matter how low Douyin’s traffic costs are, and how fast the local life business is progressing, what it ultimately faces is the competition of the marginal cost of the entire system.
With the support of the entire distribution system, the marginal cost of Meituan’s local life services is already competitive enough. How to break through this competitiveness may be a problem that Douyin, as a latecomer, needs to think about cognitively.
Write at the end:
The local life field has been “truce” for so many years, and it is also a good thing that it is lively again. From the perspective of consumers, of course, I hope that there will be more and more players in the local life service. After all, there is competition and there are dividends.
Whether it is Douyin Kuaishou, Alipay, or Meituan, consumers always want better services and better experiences. As a veteran user of Meituan, I also sincerely hope that Meituan can bring better products and services, and go further and further on the road to profitability.
Disclaimer: This article is based on the company’s statutory disclosure content and published information, but the author does not guarantee the completeness and timeliness of the information. Another: The stock market is risky, and you need to be cautious when entering the market. The article does not constitute investment advice, and you must judge whether you invest or not.
Original title: Changes in the local life chess game: Meituan recovers and grows, Douyin makes great strides