I recently visited the Meituan-Dianping headquarters in Beijing – and I summarized my 3 take-aways in Part 1. In this part (2 of 4), I’m going to argue against some of the common statements I hear about Meituan. This is what I think, in my mostly humble opinion, a lot of people are getting wrong.
Myth 1: Meituan is only food delivery.
From their now public financials, we can see that +70% of their daily orders are in food and delivery. And that these numbers are big (about 20M orders daily). So the company remains concentrated in food (dine-in and delivery). That is a pretty good place to be given the high frequency of those particular services. Plus, you gotta start somewhere.
But expansion into other consumer services is critical and the company is doing that quite aggressively. The main verticals they mention are hotels, lifestyle (entertainment, ticketing, wedding, beauty), and transportation (bike-sharing via Mobike, maybe ride-sharing).
And while these services are small percentage of their daily orders today, they are still in the millions of orders daily. So these are already big numbers. Plus, the operating margins on these other services tend to be much higher than in food delivery. I am watching for any moves into other mass market essential, high-frequency services.
Hospitality is the Meituan service I am watching most. They are #2 or #3 in hotel bookings in China and this is a space they could win big in. Ctrip is #1 by a long ways but they have stayed within travel and hospitality. It is unclear to me whether such an approach can win against broader services platforms (like Meituan) and against “product plus services” platforms (like Alibaba). I am watching Alibaba, Ctrip and Meituan in hospitality.
Myth 2: Food delivery and O2O are unprofitable.
Definitely local services and O2O are not as immediately profitable as things like hotel bookings and dining reservations. You just have additional costs, like putting bicycles on the streets and paying delivery and other people. You can’t do it all with software (unfortunately).
But according to Meituan’s financials, they are have a gross margin of 36% overall (with food delivery being lower at 8-10%). That is pretty great – and should increase as they move into other services. Plus, they have around 290M monthly average users, with an average customer using their service once a month. And some using it much more. So basically, you have a lot of volume of activity with a healthy gross margin overall.
The big issue is the marketing expenses. However, even with the marketing and other expenses, the company is operating negative but fairly close to break-even. They should start making operating profits soon, depending on growth and on how competitors behave.
The losses that the O2O leaders have been taking thus far has mostly been about the competition at the early stages of a market. This is fairly common in China. This phase is hopefully pretty much over in much of O2O and only ele.me and Meituan are left. Although others could enter.
Myth 3: Meituan is going into too many things. They are taking on too many competitors.
The strategy side of me agrees with this. Meituan is jumping into tons of services (bike-sharing, ride-sharing, ticketing, etc.). And they are taking on everyone from Alibaba to Ctrip to Didi.
But strategy doesn’t really help you that much on the front lines of digital China. It is useful for established digital giants (Alibaba, JD, Didi, etc.) and for how digital tools transform established industries (new retail, transportation, financial services, healthcare). But the very front lines of digital China are usually just a frantic sprint. Companies don’t have time for strategy. They roll out products and services as fast as they can. They respond to what their competitors are doing in almost real time. They move really fast when new opportunities or threats emerge. Strategy is just not as important as innovation, culture and speed.
And with a rapid-fire approach, a lot of stuff ends up not working. Failure is common. So you continue what works. You close what doesn’t. And you keep trying new stuff.
Based on this, I view Meituan’s rapid jumps into various services and sectors as mostly a strength. They will try a bunch of stuff and much of it will not work. But constant innovation and rapid product launches are a good posture for consumer services e-commerce in China.
Myth 4: Meituan cannot really go international.
When you win in China as a digital giant, the big question is then “what now?” For many (Tencent, Alibaba, JD, Didi, Alipay, Ctrip), one answer was to go international.
A common argument is that Meituan cannot go international because food delivery is a local service requiring a sea of delivery riders. That is hard to replicate overseas. I mostly agree with this.
However, many of their other services are already international. And going international is one of Meituan’s big initiatives for 2018.
- Dianping (their app for reviews, discussion and group buying) is already offering services in 40 countries.
- Hospitality goes internationally easily – and this is probably required for them to compete with Ctrip.
- Other services like Mobike and beauty salons can go international by following their consumers when they travel. For things like beauty services / lifestyle, this is mostly about getting foreign merchants on the platform. Not that hard. For services like Mobike, they will probably find local partners for operations and funding.
Meituan appears to mostly be going after SE Asia and India, and mostly opportunistically. Most Chinese digital giants view Asia as a strategic requirement to some degree.
That’s it for Part 2. In Part 3, I’m going to go into what I think are the big important questions for Meituan going forward:
- Can they evolve from a food order and delivery service to a full consumer marketplace platform?
- Where are the industry barriers going to end up? Who is actually competing with who in online consumer products and services in China?
Thanks for reading, -jeff
- Three Things I Learned From My Visit to Meituan (Pt 1 of 4)
- Meituan vs. Alibaba vs. Didi vs. Ctrip: Why China’s Internet Giants Are Colliding In Local Services (Pt 3 of 4)
- Meituan vs. Alibaba vs. Ctrip Is About 3 Big Questions (Pt 4 of 4)
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