Focus on Food+Platform strategy, digging deep into the value of the core industry chain
Meituan's group-buying business was the main focus in its early days, and with the support of several rounds of financing from Ali, Sequoia, Tencent and other giants, it managed to come out on top in the "Hundreds of Groups War", becoming the only remaining fruit among the 5,000 group-buying websites in the same year. Adequate financing not only helped Meituan through its startup period, but also led to the merger of the two dominant players in the group-buying market (Meituan and Dianping merged in 2015), making Meituan China's largest in-store catering service platform. In the last three years, Meituan has accelerated the expansion of its business matrix, piloting new businesses such as catering supply chain, fresh-to-home and travel on top of its catering and wine-travel businesses, to satisfy consumers' increasingly diversified needs for life services and expand the market space of the Meituan-Dianping platform.
Scale and high growth are the foundation of Meituan's high market capitalization. As of September 9, 2019, Meituan's market capitalization was HK$420.1 billion, ranking among the top retail e-commerce companies in China. The fast-growing sales scale and high-frequency user base are the basis to support Meituan's high market capitalization.In the first half of 2019, the transaction value of Meituan's platform amounted to RMB297.6 billion, which maintained a steady growth year-on-year; the number of transacting users amounted to 423 million, and the stickiness of the users has continued to increase.
Meituan's takeaway business, as the core of attracting traffic, needs to continue to invest in rider costs and user incentive expenses, and still has not yet realized a positive profit for the year. On the other hand, the acquisition of Mobike by Meituan in 2018 brought higher asset depreciation and restructuring costs, coupled with the impact of non-recurring gains and losses, such as the fair value change of convertible redeemable preferred shares, which significantly widened the loss in 2018.The net operating cash flow of Meituan in 2018 amounted to -9.18 billion yuan, which was significantly worsened year-on-year.
In response to the problem of losses brought about by new businesses, Meituan began to change its development ideas in 2019, re-examining the competitive advantages of the platform, strategically contracting businesses with less synergistic benefits and larger losses with the main business, such as creating an asset-light Meituan taxi aggregation platform and closing small elephant fresh offline stores, etc., overlaying the impact of the reduction in depreciation of **** enjoyment of bicycles. This led to a significant narrowing of losses and a significant thickening of operating cash flow in the first half of 2019.
In the future, Meituan will continue to dig deeper into the value chain of the catering industry, deepen business synergies between platforms, and realize cross-selling. Despite facing competition from industry leaders in core business segments such as takeout and hotels, Meituan still has a large competitive advantage. The local life service market has a large enough space, and market competition will level off after the industry pattern stabilizes in the future, and the profitability of both Meituan and its competitors will gradually improve.
Focusing on "Food+Platform" and strategically narrowing down its innovative business, in 2018, Meituan carried out a new round of organizational restructuring, forming a model of "two platforms, two business groups and two divisions", clarifying the positioning of its LBS-based services and the core position of Meituan Dianping as a platform for users, and assigning Chen Xudong and Chen Liang, who are better at mobilizing resources and who have a better understanding of the company, to manage independent business divisions, Chen Xudong manages the independent business unit and is responsible for innovative business development, while handing over the management of the store and home business group to newcomers to stimulate the innovative vitality of the mature business.
Based on the residual value of the catering industry chain, we utilize the high-frequency consumption characteristics of the platform for traffic aggregation and cross-selling, turning the flywheel of high-speed development. Among the various businesses, the in-store wine and travel business has achieved solid profitability; the fast donkey catering supply chain has great growth potential, and the scale benefits of the takeaway business continue to highlight the profitability of the business can be expected; the non-meal takeaway and travel/*** enjoy the bicycle business is of strategic importance to improve the high-frequency life service platform, and it is difficult to achieve scale profitability in the short term.
Takeaway: core traffic entrance, short-term competition intensified
Takeaway itself is a service industry with a very large proportion of labor costs, and therefore extremely sensitive to labor costs. Because dynamic costs account for a large proportion, fixed costs account for a very small proportion, so there is little scale effect. Based on this view, many people are not optimistic about the long-term profitability of the takeaway business. The takeaway business is extremely sensitive to labor costs, and even at the largest scale, it's hard to get excess returns.
The value of the takeout business comes from two parts: the B-side "labor-to-rent" replacement value, and the C-side convenience provided by the delivery boy to the consumer. Merchants need "takeout" to increase sales channels and improve ping efficiency, and consumers need the convenience of takeout, which is the basis of the takeout business model. The reason why restaurants use "takeaway" is mainly because it provides more channels for customers, and part of the channel cost is to pay the commission. When comparing the channel costs of "dine-in" with those of casual customers, one of the largest is rent. We thus draw a rough conclusion: the proportion of rent in the revenue of restaurants is about the upper limit of the proportion of takeaway commission. In addition, with the gradual growth of the middle class, the number of people who pay a premium for convenience will continue to grow, and there is still room for the "convenience premium" to continue to rise in the future.
The takeaway is a high-frequency, just-demand industry. With the barriers getting stronger and stronger, the average profit per unit will gradually become thicker. As the organizer of the takeaway, the remaining balance is profit after charging both sides and deducting the wages of the takeaway boys. In the early stage of the industry, in order to ensure that there are no new entrants, as well as the stability of the ecology, only a weak balance can be reached between the commission and the cost, so it is a thin profit industry. Along with the stabilization of the competitive landscape, operational barriers and the formation of bilateral networks, the platform's premium ability will become stronger and stronger, and the average profit per unit is expected to become thicker and thicker.
The greater the difference in growth rates between store rent and delivery labor, the more lucrative the business can remain. In the long run, because the scarcity of stores is greater than the scarcity of labor, so rent will grow significantly faster than labor. The longer the time cycle, the greater the gap between rent and labor increases, so takeaway is a business that can be friends with time. Assuming that after years of operation, we reach the limit of the restaurant's commission, the upper limit of the commission ratio will be the ratio of rent and waiter's labor in the restaurant's revenue. Then we can get a very simple formula: the profit margin of Meituan Takeout = the premium consumers pay for convenience + rent for merchants - delivery costs. To simplify this formula further, in order to retain consumers and prevent new entrants, we reduce the consumer draw to 0. Then the profit margin of Meituan Takeaway = store rent - delivery labor costs. If the long-term growth rate of store rent is faster than the growth rate of delivery labor costs, the takeaway business will get better and better.
Meituan's takeout revenue is divided into three parts: platform commissions, online marketing service fees and delivery fees. With the growth of scale and the improvement of services, Meituan's commission draw rate increases, marketing service revenue grows, and the revenue generated by subsidies offsets the reduction, pulling the takeaway realization rate up rapidly. the first half of 2019 food and beverage takeaway realization rate was 14.0%, an increase of 1.0% year-on-year.
The powerful and practical ground promotion team is the key to victory for Meituan to stand out in the "Thousand Tours War".
At the end of 2011, Gan Jiawei, who came from Ali's "Iron Army of Chinese Supply", joined Meituan under the opportunity of Ali's investment in Meituan to carry out refined management of Meituan's tens of thousands of people in the ground promotion team, and to implement the leading method of cost and efficiency, and to start from the supply side, and to quickly launch a large number of merchant resources, and to increase the size of Meituan market from 10% within a year's time. The market size of Meituan increased from 10% to 18% in one year. The dine-in merchant resources accumulated by the ground push team in the early stage also helped Meituan catch the train of the high-speed development of the takeaway industry, one step ahead of Hungry Mou, to create a local life service platform that combines the store and takeaway business. According to the statistics of Avery Consulting, in 2018, the online life service merchants reached 6.07 million, and the active merchant penetration rate of Meituan has reached 95%, with a leading advantage.
The takeaway platform extracts commissions in two main modes: platform delivery and merchants' own delivery, and the current share of orders delivered by the Meituan platform is about 70%. Looking at the industry as a whole, both HungryMall and Meituan will set commission rates based on business categories and delivery methods. According to statistics, the commission rate of merchants responsible for delivery by the HungryMall platform is about 15%-25%, and the commission rate of merchants delivering on their own is 5%-8%; the commission rate of merchants responsible for delivery by Meituan is 15%-25% (merchants generally reflect about 22%), and the commission rate of merchants delivering on their own is 5%-10%.In the first half of 2018, Meituan's GMV/takeaway revenue/commission increased by 96.95%/ 90.89%/87.02%, the rapid growth in sales scale while the commission rate remains stable, merchants and platforms*** enjoy the growth dividend; in the first half of 2019, Meituan GMV/takeaway revenue/commission increased by 37.49%/47.52%/42.13% year-on-year, and the increase in the commission rate has increased the burden of the merchant's operation.
The revenue of takeaway platforms is dominated by commission, and merchants are an important resource competing among platforms.
Early in 19, HungryMall announced that it would lower the rate of 2,000 small and medium-sized merchants by 3%, and subsequently expand the offer to more merchants; Meituan also correspondingly released an 11 billion yuan merchant support program, and if all of it is invested in the commission offer, it is estimated that the platform merchants' commission rate can be lowered by about 3%.
User demand diversification, takeaway becomes the entrance of local life service platform
The accelerated pace of life and dense population distribution have driven the development of China's takeaway industry. According to Avery Consulting, the online rate of China's food consumption market is expected to exceed 20% in 2019, and the food consumption e-commerce market size is expected to reach RMB 2,243 billion. For consumers, takeout saves the time cost of traveling and cooking for three meals a day, so consumers are willing to pay the corresponding consideration for dishes and delivery services; with the diversification of user needs, the importance of new retail services such as non-meal takeout is gradually highlighted, and the competition in the takeout industry has stepped from the traffic dividend period into the second half of the comprehensive digitization of local life services, and it has become the mainstream to create a high-frequency traffic entrance through food takeout and promote the The upgrading of the local life service platform has become mainstream.
From the perspective of the market pattern, the takeaway market is highly concentrated, and the market share of Meituan Takeaway in the first quarter of 2019 reached 63.4%, and the leading edge continued to expand, but at the same time, it is also subjected to the challenge of the gradual development of power after the integration of Hungry and Koubei. According to the data of AiMedia Consulting, HungryMou's market share in first and second tier cities has rapidly increased to 47.4%; on the other hand, the new retail business has become a new engine of growth for HungryMou, and the new retail turnover of HungryMou in the fourth quarter of 18 years has increased by 32.2% from the previous quarter, which is higher than that of Meituan by 7.4%; HungryMou accelerated its sinking into 100 third and fourth tier cities in 2018, and achieved a market share of over half of the market share in a number of cities, including Dali and Shunde. market share of more than half.
According to AiMedia Consulting, the proportion of users ordering takeout through the entrances of takeout APP/Alipay/WeChat mini-program/WeChat third-party services in the third quarter of 2018 was 60.2%/35.3%/26.2%/24.1%, and the opening of multi-channel entrances has become the key to attracting traffic to the takeout business. Hungry for a docking Taoshenda / Tmall small store / RT-Mart and other merchants, in ali ecological synergy diversion of users to achieve rapid growth, through the alipay and taobao entrance generated by the hungry for a order accounted for 30%. In addition to the independent APP, Meituan Takeout also channels traffic through the Meituan APP/WeChat first-level entrance, user retention rate and purchase frequency remain stable, and user stickiness increases with the length of time using the platform.
In order to cope with the impact brought by Ali's 88VIP members and to further explore the value of high-sticky users, Meituan launched paid membership in the second half of 2018, and the average purchase frequency of members is more than three times that of non-members; in June, Meituan and Tencent Video released joint membership, which attracted 400,000 new paid members to the platform. Attracted by the continued abundance of membership benefits, the purchase frequency and monthly consumption of Meituan members are expected to further increase.
Rider costs are highly affected by seasonal factors, and the company will continue to invest more under competitive pressure
Since both consumers and merchants need to pay delivery fees to Meituan (which varies from merchant to merchant and is generally RMB5-8 per order), the realization rate of orders delivered by Meituan is much higher, but at the same time the platform is required to bear the cost of the riders. Rider costs can generate some economies of scale with the growth of takeaway order volume and the smoothing of distribution peaks and valleys, but takeaway consumption focuses on timeliness and quality, and it is expected that the labor cost of the takeaway industry will still maintain a high level.2019 second quarter rider costs were 9.27 billion yuan, and the cost and expense ratio was reduced by 6% year-on-year, mainly due to the increase in the density of orders to dilute the average single distribution cost and the optimization of route algorithms in the AI order scheduling system, improve the impact of delivery efficiency; the rider cost expense ratio decreased by 7% YoY in the second quarter because of good weather conditions in the second quarter, sufficient rider capacity, and a corresponding decrease in rider subsidies.
From the perspective of seasonal factors, in the second quarter of 2009, under the influence of the reduction of rider subsidies, the adjusted net profit of Meituan Takeaway turned positive for the first time; in the second half of the year, due to the increase in demand for summer takeaways and the arrival of cold weather in winter, it is necessary to provide higher subsidies to incentives for riders, and the cost of delivery will increase accordingly. From the perspective of the market pattern, Hungry Bird Hummingbird Delivery has a higher instant delivery market share, and under the competitive pressure of Hungry Bird, it is expected that Meituan will continue to improve the construction of the rider network.In the second quarter of 2019, Meituan's catering takeout gross margin reached 22.3%, a record high. It is expected that in the future, Meituan takeaway will realize a solid profit in the second quarter of a single quarter, and with the improvement of scale efficiency, the annual profit can be expected.
Relying on the offline operation capability accumulated in the original store-to-store business and the technological and operational advantages of continuous deep cultivation, the market share of Meituan Takeaway has been increasing in recent years, and is now significantly ahead of its rivals.In 2016/17/18, the market share of Meituan Takeaway was 35.4%/46.1%/58.6%, respectively, an increase of 1.7/10.7/12.5 pct.19 In the second quarter of the year, the market share of Meituan Takeaway was 35.4%/46.1%/12.6%, an increase of 1.7/10.7/12.5 pct. The market share of Meituan/Hungry (plus Hungry Star) /other takeaways was 65.1%/32.8%/2.1% respectively, with Meituan leading the market share. In terms of revenue caliber, Meituan's share was even higher, at 68.6%, while HungryMall's was only 31.4%.
Competitive pattern and market share show geographical differentiation. Meituan has a clear advantage in low-tier cities (economically underdeveloped areas), and its share is similar to that of HungryMall in first- and second-tier cities. The network effect of takeout has strong geographical attributes, and the proportion of each city varies greatly. According to grassroots research, Meituan's share in first- and second-tier cities is about 58.6%, and in third- and fourth-tier cities is about 80%.
Currently, the competitive landscape is still relatively fierce, and it is inevitable that the competitive landscape will moderate from a long-term perspective. In my opinion, takeout itself is a business with a strong "bilateral network" effect, and the platform needs to gather enough C-end customers and B-end customers at the same time, so the competition pattern is stabilizing, and it's harder to have a large-scale change. In the future, with the gradual saturation of the market and the marginal decline in the efficiency of red packet placement (unit user incentives to bring new single volume tends to decline), user incentives are expected to stabilize the scale of placement (no longer increasing) until the decline. It is expected that after a full game, the competitive landscape will gradually ease to reach the oligopoly **** scheme.