In recent months, the Chinese government has spent a lot of time reining in the power of domestic large tech companies such as Alibaba. So, it’s natural that Meituan should receive some scrutiny as well.
Meituan, which used to be called Meituan Dianping before a September 2020 name change, has risen to become China’s third largest tech company.
Starting off as a Groupon clone, Meituan has parlayed its success into a super-app on par with Tencent’s WeChat.
Founder and CEO Wang Xing seeks to make Meituan the king of China’s “online to offline” space. He is now taking the company on a new journey, challenging big incumbents in the massive community buying space, and burning plenty of cash in doing so.
In 2010, Wang Xing, a serial entrepreneur with experience in the United States, started a website called Meituan. He had been inspired by Groupon and Meituan was essentially a China based copy.
Meituan joined a morass of nearly 5,000 Groupon copycats in the Chinese internet space. If they did not differentiate, then they would have drown in a sea of competitors. Faced with so much competition from companies like Lashou.com, indiscriminately buying their way into the lead, Wang decided to reject such unsustainable spending and focused on efficiency and profitability.
This focus paid off the next year when the market shook out and funding tightened up. Fortunately, Meituan had enough cash in the bank to survive. By then, Wang had established his business playbook: A focus on efficiency and cost-leadership through the use of technology. A ruthless horizontal expansion.
Meituan began its move towards something bigger with the 2012 launch of Maoyan Dianying, an online movie ticketing site. This came just two years after the company’s founding. Movie tickets made a lot of sense for Meituan’s first expansion. Movie times can be indexed and updated. People like to buy tickets ahead of time so to reserve the best seats. And lots of people like to see movies.
Meituan followed up Maoyan with a flurry of product launches. A year later in 2013, they stepped into the hotel booking space. They also entered food delivery – soon to be one of their core services.
In 2015, Meituan expanded once more into transportation ticketing with train and airplane tickets. The company also announced a merger with Dianping.com, a restaurant reviews website launched in 2003 that is kind of like China’s Yelp.
Dianping had good traction in first and second-tier cities like Shanghai. But they lagged behind in China’s other urban areas. The merger allowed Meituan to add Dianping’s established customer base to its own and consolidate the industry. The merger was pitched as a combination of equals and the two companies would collaborate on innovation.
But Wang quickly sidelined Dianping’s founder Zhang Tao and replaced the team with his own. The new company emerged as a heavyweight in the Chinese tech landscape. They raised money and continued their horizontal expansion throughout the Chinese local services ecosystem.
In 2018, Meituan went public on the Hong Kong stock exchange, raising $4.2 billion at a valuation of $50 billion. The stock has done well since then and today it has a $220 billion market cap.
Meituan is a sprawling beast with over 200 offered services but its products lines are all centered on offline services ordered online. We mentioned Maoyan earlier, its movie ticketing service. It also has its food and grocery delivery services – Waimai and Meituan Grocery. The company has majority share – around 65% – in the Chinese food delivery business. Alibaba backed leading competitor Eleme has less than 30%.
In its travel and hotel booking products, Meituan has majority shares of the Chinese online hotel booking market according to their Q3 2020 earnings report.
And Meituan services more than just consumers too. In 2016, the company launched supply chain, online advertising tools, and cloud-based enterprise resource planning software for their many small business merchants. This is their first expansion into software and it helps lock those businesses into the Meituan platform.
The company makes revenue from sales commissions, online advertising from vendors on its platform, and other services fees. Fiscal year 2020 revenues totaled $17 billion.
WeChat is China’s most famous super-app. What started out as a simple chat app has bundled together various parts of people’s live to meet all of their daily needs.
Meituan follows a similar strategy – referred to in its annual reports as “Food + Platform.” Meituan has built proficiencies in delivering many types of items. For instance, they recently added delivery of flowers, medicines, and more. But the biggest revenue and profit drivers are food and groceries.
The food delivery business is so important to Meituan because it is so commonly used in China. Like with the rest of the world, the pandemic has accelerated food delivery adoption.
Over 421 million Chinese consumers have placed a food delivery order – 86% of whom are white collar workers. Furthermore, they use it quite often – an average of 25.5 transactions in 2019.
Since food delivery is so frequently used, it drives traffic for Meituan’s other services like travel bookings, in-store dining, and even wedding planner. This is the platform part of the “Food + Platform” strategy. Cross-selling these local services makes Meituan even more of a destination for Chinese consumers.
Furthermore, that titanic transaction volume helps drive scale. In 2020, Meituan hired 9.5 million drivers – more than the population of Austria. This titanic scale lets them dispatch their deliverymen on the most optimal routes, minimize downtime, and be the low-cost leader.
Meituan had been one of those rare companies with backing from both Alibaba and Tencent, rivals in China’s internet space. Wang had originally raised money from Alibaba. But after the 2015 merger with Dianping, Tencent as a Dianping investor had the option to invest in the combined entity. They did, pitching in a billion dollars in a 2016 fundraising round.
Tencent’s friendly relationship with Meituan continues to this day with the latter’s favorable feature placement within the WeChat ecosystem. Alibaba sold their stake at a discount from the 2016 round, citing their focus on their own homegrown online-to-offline services division.
In an interesting 2017 interview, Wang talked a little bit about Meituan’s relationship with the two titans. He likened it to China’s relationship with the United States and the Soviet Union.
After the Dianping merger, Wang went to Jack Ma and Daniel Zhang, to talk about resetting relations: “I thought we could learn from the successful merger of Didi and Kuaidadi. Alibaba and Tencent fought endlessly. Eventually they shook hands and made up, and now they are both shareholders of Didi. And so I told Alibaba that Meituan sincerely hoped it could receive support from both Tencent and Alibaba, but they said, you are completely mistaken. We think the consolidation of Didi and Kuaidadi was a failure. We will not make the same mistake again.”
Alibaba thereafter began developing several directly competing services to Meituan. As Meituan finished up on 2020, they warned investors to expect several quarters of operating losses as the company continues its battles and expands into the community buying. To fund this expansion, the company raised $10 billion by selling debt and equity.
Wang is so willing to stir up dust with titans like Alibaba because he is in general very comfortable with competition. Meituan’s style of horizontal expansion means charging forward into a field of crowded incumbents. This latest competitive push takes Meituan into “community purchasing” with its Meituan Select service.
Community purchasing is a new Chinese ecommerce trend where communities can set up local groups for bulk buying. It’s kind of like Groupon, but more localized. Pinduoduo pioneered this model, where people can band together to unlock group discounts.
Founded in 2015, Pinduoduo is now worth $140 billions and its founder Colin Huang is one of China’s richest people.
The community group buying concept began in China’s hinterlands – massive cities with millions of people that nobody has ever heard of. It is a titanic market estimated to be worth $100 billion in 2021.
In May 2021, Wang posted on the social media network Fanfou.com a 1,000 year old poem by Zhang Jie titled “The Book Burning Pit.” Then he deleted it. Because he knew he done goofed. Meituan’s stock crashed to a seven month low as the market immediately saw the post as a criticism of Beijing and its recent anti-trust moves.
The Chinese government has been very sensitive of such things – starting with the very public beat down of Alibaba Group after the Jack Ma speech. Meituan is very comfortable with conflict. They have carried their Zen through years of battles and horizontal industry invasions.
But now perhaps they have come across an opponent against which they cannot win.
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