Looking at Meituan from a different perspective, I found some missed signals
$Meituan ADR (MPNGY.US)$ “Meituan is becoming more and more like a supermarket.
If we were to look at the Meituan (03690.HK) $Meituan-W (03690) $ earnings report using the methods of analyzing traditional e-commerce in the past, we probably wouldn't be able to draw any optimistic conclusions.
In the past 12 months up to the third quarter of this year, the number of Meituan trading users was 687 million, an increase of only 2.9% over the previous year. The corresponding figures revealed in the second quarterly report and the first quarterly report were 685 million and 692 million, respectively. Combined with the year-on-year turning loss into profit in the third quarter of this year, we obtained revenue of 62,618 billion yuan and net profit of 1,217 billion yuan (mainly driven by new business), of which core local businesses achieved operating profit of 9.321 billion yuan, it is easy to ask the following question:
If we were to look at the Meituan (03690.HK) $Meituan-W (03690) $ earnings report using the methods of analyzing traditional e-commerce in the past, we probably wouldn't be able to draw any optimistic conclusions.
In the past 12 months up to the third quarter of this year, the number of Meituan trading users was 687 million, an increase of only 2.9% over the previous year. The corresponding figures revealed in the second quarterly report and the first quarterly report were 685 million and 692 million, respectively. Combined with the year-on-year turning loss into profit in the third quarter of this year, we obtained revenue of 62,618 billion yuan and net profit of 1,217 billion yuan (mainly driven by new business), of which core local businesses achieved operating profit of 9.321 billion yuan, it is easy to ask the following question:
Apart from improving new businesses, does Meituan's core local business have long-term investment value?
After taking a close look at Meituan's three-quarter report, we found that there are many figures that have given an affirmative answer to the above question: for example, the number of active merchants, the total number of financial reports for four consecutive quarters continued to grow; for example, the number of instant delivery transactions this quarter increased by 16.2% and 22.5%, respectively.
After taking a close look at Meituan's three-quarter report, we found that there are many figures that have given an affirmative answer to the above question: for example, the number of active merchants, the total number of financial reports for four consecutive quarters continued to grow; for example, the number of instant delivery transactions this quarter increased by 16.2% and 22.5%, respectively.
As can be seen from these data, merchant trust in Meituan has increased, and demand for Meituan has increased dramatically when the total number of users has not changed much or even declined slightly. Simply looking at Meituan's current value based on local e-commerce or even food and beverage takeout evaluation systems is actually like “drawing a sword in a boat.”
Looking at the business performance of China and Meituan in several financial reports and the evolutionary logic of its business model, we also found that it was more of the immediate delivery of multiple categories other than food and drink that contributed to Meituan's sharp increase in revenue and profit this season.
Meanwhile, Meituan is becoming more and more like a traditional retail supermarket enterprise. As an entity, it provides consumers with definite immediate demand by improving efficiency and reducing costs.
So how did Meituan achieve this evolution? Can it continue?
01 More and more like a supermarket
At the beginning of the transformation, it was actually more like a natural extension. As the largest food and beverage takeout platform in China, Meituan's easiest business to expand is food and grocery retail. In the 2020 Q3 earnings call, Meituan stated that it is an e-commerce service platform focusing on food categories, while grocery retail is an opportunity with the highest priority and huge market space.
As a result, by the 2021 Q3 financial report, total revenue from food and beverage takeout and commissions had achieved a 14% year-on-year increase. A year of experimentation also gave Meituan an incentive to upgrade its strategy. In the same quarter, it was announced that it would upgrade from “Food+ Platform” to “Retail+ Technology”, proposed “instant retail” for the first time, and announced that it would prioritize resource allocation and continue to focus on the retail business.
After a year, observing the changes in the core figures in the third quarter financial report, you can clearly feel the changes brought to Meituan by this strategy. Core local commercial businesses, including food and beverage takeout and instant retail, and new businesses represented by Meituan Premium contributed very important new growth to Meituan during this quarter.
Let's take a look at the core local commercial business in the third quarter. Revenue increased 25.9% month-on-month and 24.6% year-on-year to 46.33 billion yuan, while operating profit increased 13% month-on-month and 124% year-on-year to 9.32 billion yuan.
A careful breakdown of the revenue structure of local commercial businesses shows that the biggest year-on-year increase was revenue from delivery services and commissions. The year-on-year increase was 30.6% and 22%, respectively, and 26% and 29% month-on-month respectively.
Since the number of transaction users is close to its peak, there has been no significant increase; however, the month-on-month growth rate of the number of instant delivery transactions was 22%, which is lower than the revenue growth rate of these two major businesses, so it can be concluded that the delivery fee paid by the user end and the customer unit price increased at the same time.
Looking at the business performance of China and Meituan in several financial reports and the evolutionary logic of its business model, we also found that it was more of the immediate delivery of multiple categories other than food and drink that contributed to Meituan's sharp increase in revenue and profit this season.
Meanwhile, Meituan is becoming more and more like a traditional retail supermarket enterprise. As an entity, it provides consumers with definite immediate demand by improving efficiency and reducing costs.
So how did Meituan achieve this evolution? Can it continue?
01 More and more like a supermarket
At the beginning of the transformation, it was actually more like a natural extension. As the largest food and beverage takeout platform in China, Meituan's easiest business to expand is food and grocery retail. In the 2020 Q3 earnings call, Meituan stated that it is an e-commerce service platform focusing on food categories, while grocery retail is an opportunity with the highest priority and huge market space.
As a result, by the 2021 Q3 financial report, total revenue from food and beverage takeout and commissions had achieved a 14% year-on-year increase. A year of experimentation also gave Meituan an incentive to upgrade its strategy. In the same quarter, it was announced that it would upgrade from “Food+ Platform” to “Retail+ Technology”, proposed “instant retail” for the first time, and announced that it would prioritize resource allocation and continue to focus on the retail business.
After a year, observing the changes in the core figures in the third quarter financial report, you can clearly feel the changes brought to Meituan by this strategy. Core local commercial businesses, including food and beverage takeout and instant retail, and new businesses represented by Meituan Premium contributed very important new growth to Meituan during this quarter.
Let's take a look at the core local commercial business in the third quarter. Revenue increased 25.9% month-on-month and 24.6% year-on-year to 46.33 billion yuan, while operating profit increased 13% month-on-month and 124% year-on-year to 9.32 billion yuan.
A careful breakdown of the revenue structure of local commercial businesses shows that the biggest year-on-year increase was revenue from delivery services and commissions. The year-on-year increase was 30.6% and 22%, respectively, and 26% and 29% month-on-month respectively.
Since the number of transaction users is close to its peak, there has been no significant increase; however, the month-on-month growth rate of the number of instant delivery transactions was 22%, which is lower than the revenue growth rate of these two major businesses, so it can be concluded that the delivery fee paid by the user end and the customer unit price increased at the same time.
First, the growth was not mainly driven by food and beverage takeaways. The reason is also relatively simple: if it is the active price increase of merchants on the platform, it may only occur during a specific period of time in certain regions. It is unlikely that Meituan's performance will continue to drive for three months, and the magnitude will not be that large; in addition, consumer demand and the psychological ledger of catering are also relatively stable, especially on a month-on-month basis, and cannot contribute to such a high growth rate.
Second, with regard to the increase in delivery fees, due to the hot weather in the third quarter and repeated outbreaks in September, Meituan's subsidized delivery fees were reduced. After all, delivery costs (fees paid to takeaways) still exceeded takeout delivery revenue. The former figure was 22.6 billion yuan, while the latter was 201 billion yuan.
Therefore, instant retail sales other than takeout have become a growth pole for Meituan's core local commercial business. According to financial reports, categories such as supermarkets, flowers, beverages, non-food specialty stores, and pet care continue to grow rapidly. For example, the number of orders for the Tanabata Festival in August reached a new high of 9.7 million orders. In the third quarter, the transaction volume of convenience stores and supermarkets on the Meituan platform increased by 27.9% and 62%, respectively, and the number of orders in small stores for couples increased by 125% year on year.
In addition, Meituan Flash Shopping has also strengthened cooperation with traditional physical retail brands and continues to establish new strategic partnerships. For example, the coverage of authorized distributors of Apple products on the platform expanded to more than 200 cities, and iPhone 14 sales increased strongly on the day of launch; in addition, hundreds of Suning Tesco stores were launched on the platform. This led to a 30% year-on-year increase in the number of active businesses and the number of new entrants.
The expansion into multiple categories of instant retail has brought about an increase in business revenue and profits. More importantly, Meituan has extended its reach to users' broader lifestyle needs in addition to catering, making users realize that Meituan can be treated like a “supermarket.” In particular, while the epidemic is still ongoing, Meituan's immediate delivery is one of the core livelihood guarantees. In addition to addressing consumers' immediate needs in a timely manner, it has also consolidated Meituan's mentality of “everything at home”.
02 Can the “supermarket” model continue?
Between changes and establishment of user awareness and changes in investors' value judgments, Meituan also needs to solve one problem: can the “supermarket” model continue for a long time?
Many people may think that Meituan's immediate retail performance in the third quarter was due to the benefits brought by the pandemic. Once the policy is relaxed or ended, consumers will move from online to offline again, allowing Meituan to return to the old path of relying only on food and beverage takeout.
However, we believe that for companies like Meituan, the pandemic has brought not only opportunities, but also equally severe challenges.
The opportunity is that China's instant retail market is at least 1 trillion yuan. It is believed that Meituan Flash Shopping, as the largest instant retail player in China, has a nationwide distribution network and efficient contract fulfillment capabilities, and may reach 10 million orders per day within a few years.
The challenge also comes more from the supply side. If Meituan cannot overcome the impact of the epidemic and give users a definitive consumer experience, users will abandon Meituan, let alone achieve any growth.
Therefore, this kind of thing, like a traditional offline supermarket, allows users to feel a sense of certainty and security that “I can meet my needs here” is a prerequisite for the continuation of Meituan's “supermarket” model.
A so-called offline supermarket is a comprehensive chain store that can be retailed or purchased in bulk. It supplies users with fresh food, food, and daily necessities as the main products. Currently, there are two main similarities between Meituan and supermarkets: chain operation — serving consumers in multiple local communities; fresh food, and household goods — the same core categories as Meituan retail.
As can be seen from information revealed by Meituan in several financial reports and press conferences, meeting immediate needs, serving local consumers, and promoting everyday consumer goods such as fresh groceries are the three major characteristics of Meituan's retail business. This kind of business logic is almost consistent with the underlying logic of traditional supermarket retail such as Walmart; around this kind of business characteristics, Meituan actually already has the ability to make the “supermarket” model sustainable.
The business philosophy of retail companies is to improve operating efficiency, reduce business operating costs, and use “low prices” to benefit consumers from the saved costs, making the cost performance ratio more and more extreme. As a supermarket, Meituan, on the one hand, reduces contract fulfillment costs through the construction of an immediate logistics system, smart warehousing and sorting, etc. On the other hand, through the new model, we go deep into the upstream supply chain, reduce costs and achieve lower prices for consumers through large-scale local direct procurement and private brand building.
For example, Meituan's instant retail contract execution time is based on real-time logistics systems, intelligent scheduling systems, and technological applications such as drones and automatic delivery vehicles covering more than 2,800 cities, regions, and counties across the country, which can provide consumers with door-to-door delivery services 30 minutes after placing an online order; in the supermarket category business including fresh food, Meituan Grocery Shopping's contract execution time is equivalent to Dingdong Grocery Shopping, Pu Pu Supermarket, etc.; it is also a variety of private brand models in Meituan Mingda supermarkets, that is, by customizing products with special sizes and specifications for platform users to meet the high frequency and low demand of users Price requirements.
In addition, Meituan drones is also continuously enriching its service content, and has successively reached cooperation with dozens of brands such as Baiguoyuan, Hefulao Noodles, and Manner, which can provide users with thousands of product choices in various categories such as food, drinks, and fresh fruit. As of November 2022, Meituan drone delivery has been launched in 5 business districts, covering 18 communities and office buildings, serving nearly 20,000 households, and has completed more than 100,000 orders for real users.
Therefore, Meituan positions itself as a “local technology retail chain dedicated to meeting the definite needs of consumers.” Refer to companies such as Walmart and Costco, which have higher efficiency and lower gross profit margins, give more profits to consumers, and maximize cost performance. Therefore, when evaluating Meituan, we need to pay attention to the following indicators:
Certainty. The ability to meet the ever-changing deterministic needs of users and provide stable, rich and accurate quality, fulfillment, and localized supply is the foundation for Meituan to form a retail enterprise. Among them, the continuously increasing transaction order volume and customer unit price data disclosed in financial reports is a critical inspection indicator.
technology. In the long run, classic retail companies such as Walmart use technology to improve efficiency and reduce costs. This is also the biggest long-term variable in retail, a low-margin industry. Whether Meituan's drones, automatic delivery vehicles, and intelligent scheduling systems, sorting systems, etc. can be applied on a large scale ahead of the retail industry determines Meituan's upper limit.
As Meituan gradually became a retail technology company, the criteria for judging its value were also different. The future of Meituan is clearly not to be a “universal store”, but rather a “limited but accurate grocery store that meets the needs of users.” We believe that Meituan has taken a good step in building user mentality; in the future, continuous efforts are needed to resolve the three-stage development path of “from nothing, from having to good, and from good to accurate” to truly complete the transformation.
Second, with regard to the increase in delivery fees, due to the hot weather in the third quarter and repeated outbreaks in September, Meituan's subsidized delivery fees were reduced. After all, delivery costs (fees paid to takeaways) still exceeded takeout delivery revenue. The former figure was 22.6 billion yuan, while the latter was 201 billion yuan.
Therefore, instant retail sales other than takeout have become a growth pole for Meituan's core local commercial business. According to financial reports, categories such as supermarkets, flowers, beverages, non-food specialty stores, and pet care continue to grow rapidly. For example, the number of orders for the Tanabata Festival in August reached a new high of 9.7 million orders. In the third quarter, the transaction volume of convenience stores and supermarkets on the Meituan platform increased by 27.9% and 62%, respectively, and the number of orders in small stores for couples increased by 125% year on year.
In addition, Meituan Flash Shopping has also strengthened cooperation with traditional physical retail brands and continues to establish new strategic partnerships. For example, the coverage of authorized distributors of Apple products on the platform expanded to more than 200 cities, and iPhone 14 sales increased strongly on the day of launch; in addition, hundreds of Suning Tesco stores were launched on the platform. This led to a 30% year-on-year increase in the number of active businesses and the number of new entrants.
The expansion into multiple categories of instant retail has brought about an increase in business revenue and profits. More importantly, Meituan has extended its reach to users' broader lifestyle needs in addition to catering, making users realize that Meituan can be treated like a “supermarket.” In particular, while the epidemic is still ongoing, Meituan's immediate delivery is one of the core livelihood guarantees. In addition to addressing consumers' immediate needs in a timely manner, it has also consolidated Meituan's mentality of “everything at home”.
02 Can the “supermarket” model continue?
Between changes and establishment of user awareness and changes in investors' value judgments, Meituan also needs to solve one problem: can the “supermarket” model continue for a long time?
Many people may think that Meituan's immediate retail performance in the third quarter was due to the benefits brought by the pandemic. Once the policy is relaxed or ended, consumers will move from online to offline again, allowing Meituan to return to the old path of relying only on food and beverage takeout.
However, we believe that for companies like Meituan, the pandemic has brought not only opportunities, but also equally severe challenges.
The opportunity is that China's instant retail market is at least 1 trillion yuan. It is believed that Meituan Flash Shopping, as the largest instant retail player in China, has a nationwide distribution network and efficient contract fulfillment capabilities, and may reach 10 million orders per day within a few years.
The challenge also comes more from the supply side. If Meituan cannot overcome the impact of the epidemic and give users a definitive consumer experience, users will abandon Meituan, let alone achieve any growth.
Therefore, this kind of thing, like a traditional offline supermarket, allows users to feel a sense of certainty and security that “I can meet my needs here” is a prerequisite for the continuation of Meituan's “supermarket” model.
A so-called offline supermarket is a comprehensive chain store that can be retailed or purchased in bulk. It supplies users with fresh food, food, and daily necessities as the main products. Currently, there are two main similarities between Meituan and supermarkets: chain operation — serving consumers in multiple local communities; fresh food, and household goods — the same core categories as Meituan retail.
As can be seen from information revealed by Meituan in several financial reports and press conferences, meeting immediate needs, serving local consumers, and promoting everyday consumer goods such as fresh groceries are the three major characteristics of Meituan's retail business. This kind of business logic is almost consistent with the underlying logic of traditional supermarket retail such as Walmart; around this kind of business characteristics, Meituan actually already has the ability to make the “supermarket” model sustainable.
The business philosophy of retail companies is to improve operating efficiency, reduce business operating costs, and use “low prices” to benefit consumers from the saved costs, making the cost performance ratio more and more extreme. As a supermarket, Meituan, on the one hand, reduces contract fulfillment costs through the construction of an immediate logistics system, smart warehousing and sorting, etc. On the other hand, through the new model, we go deep into the upstream supply chain, reduce costs and achieve lower prices for consumers through large-scale local direct procurement and private brand building.
For example, Meituan's instant retail contract execution time is based on real-time logistics systems, intelligent scheduling systems, and technological applications such as drones and automatic delivery vehicles covering more than 2,800 cities, regions, and counties across the country, which can provide consumers with door-to-door delivery services 30 minutes after placing an online order; in the supermarket category business including fresh food, Meituan Grocery Shopping's contract execution time is equivalent to Dingdong Grocery Shopping, Pu Pu Supermarket, etc.; it is also a variety of private brand models in Meituan Mingda supermarkets, that is, by customizing products with special sizes and specifications for platform users to meet the high frequency and low demand of users Price requirements.
In addition, Meituan drones is also continuously enriching its service content, and has successively reached cooperation with dozens of brands such as Baiguoyuan, Hefulao Noodles, and Manner, which can provide users with thousands of product choices in various categories such as food, drinks, and fresh fruit. As of November 2022, Meituan drone delivery has been launched in 5 business districts, covering 18 communities and office buildings, serving nearly 20,000 households, and has completed more than 100,000 orders for real users.
Therefore, Meituan positions itself as a “local technology retail chain dedicated to meeting the definite needs of consumers.” Refer to companies such as Walmart and Costco, which have higher efficiency and lower gross profit margins, give more profits to consumers, and maximize cost performance. Therefore, when evaluating Meituan, we need to pay attention to the following indicators:
Certainty. The ability to meet the ever-changing deterministic needs of users and provide stable, rich and accurate quality, fulfillment, and localized supply is the foundation for Meituan to form a retail enterprise. Among them, the continuously increasing transaction order volume and customer unit price data disclosed in financial reports is a critical inspection indicator.
technology. In the long run, classic retail companies such as Walmart use technology to improve efficiency and reduce costs. This is also the biggest long-term variable in retail, a low-margin industry. Whether Meituan's drones, automatic delivery vehicles, and intelligent scheduling systems, sorting systems, etc. can be applied on a large scale ahead of the retail industry determines Meituan's upper limit.
As Meituan gradually became a retail technology company, the criteria for judging its value were also different. The future of Meituan is clearly not to be a “universal store”, but rather a “limited but accurate grocery store that meets the needs of users.” We believe that Meituan has taken a good step in building user mentality; in the future, continuous efforts are needed to resolve the three-stage development path of “from nothing, from having to good, and from good to accurate” to truly complete the transformation.
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