Delivery speed is disrupting the e-commerce retail landscape. Tmall Supermarket offers next-day delivery, JD Supermarket claims one-hour delivery, and Meituan has upgraded to 30-minute delivery. Their common target is instant retail. Earlier, Wang Puzhong, President of Meituan's Home Delivery Business Group, predicted that the instant retail market would reach 1 trillion yuan in five years, with Meituan Flash Shopping aiming for 400 billion yuan. On October 11, Meituan Youxuan announced a brand upgrade to 'Tomorrow's Supermarket' with the slogan 'Really, Really Save.' This indicates that beyond instant retail, Meituan will directly compete with platforms like JD Supermarket and Tmall Supermarket. The shift from community group buying to an online supermarket also signifies the integration and complementarity of Meituan's near-field and far-field e-commerce, forming two e-commerce forces: 'instant delivery' and 'X-day delivery (next-day).'
01 Meituan's E-commerce Dream Within Meituan, Wang Xing's 'e-commerce dream' has long been discussed. From Flash Shopping to Youxuan to Tuanhaohuo, Wang Xing, who advocates 'no boundaries,' has never stopped his ambition to enter e-commerce. In July 2018, based on users' delivery needs for fresh food, supermarket daily necessities, and clothing, Meituan officially launched the 'Meituan Flash Shopping' brand. By Q2 2021, Flash Shopping's transaction volume and amount grew over 140% year-on-year. During the Qixi Festival that year, Flash Shopping's single-day orders hit a new high, with popular categories including flowers, beauty products, and 3C electronics. Meanwhile, Flash Shopping launched the 'Billion Brand Growth Plan' for brand owners and the 'Hundred Cities, Ten Thousand Stores Action' for chain supermarkets.
In July 2020, Meituan announced an organizational adjustment to establish the 'Youxuan Business Unit' and launch Meituan Youxuan, entering the community e-commerce track. This product adopts a 'pre-order + self-pickup' model, centered on community convenience stores, providing household users with vegetables, fruits, meat, poultry, eggs, beverages, snacks, home kitchen and bathroom products, instant frozen foods, and grain, oil, and seasonings to meet daily meal needs. Tuanhaohuo launched around the same time as Youxuan, using a direct-from-origin plus group buying format, focusing on a 'save + good' shopping experience, but developed slowly initially. In September 2021, Liu Xiaogang, former CEO of NetEase Yanxuan, joined Tuanhaohuo, reporting directly to Wang Puzhong, Senior Vice President of Meituan and President of the Home Delivery Business Group, after which Tuanhaohuo expanded rapidly. According to 36Kr, Tuanhaohuo's GMV nearly tripled year-on-year in the first half of this year, potentially completing its 800 million yuan annual target ahead of schedule.
After several rounds of exploration, Wang Xing and Meituan found the best way to enter e-commerce: instant delivery. On the demand side, many consumers' need for instant availability is no longer limited to food ordering but extends to more categories. On the supply side, brand merchants also need instant logistics networks to meet this demand. Meituan Delivery, which started with food delivery, now provides customized instant logistics services to hundreds of brands like Starbucks and McDonald's. 'Under the new opportunity of delivering everything to home, Meituan is committed to building an industry ecosystem with merchants, partners, and riders for common development,' said Wei Wei, Vice President of Meituan and General Manager of Meituan Delivery. 'Meituan Delivery has opened multiple capabilities to ecosystem partners in technology platforms, delivery networks, and upstream and downstream industry chains.' He summarized: by opening Meituan Delivery capabilities, it horizontally meets merchants' and users' instant logistics needs across more categories and scenarios; vertically, it can share terminal delivery resources to serve more merchants and users.
Source: Tianfeng Securities
Industry insiders believe that earlier Flash Shopping and Youxuan were local life services, Tuanhaohuo was Meituan's first step toward a 'classical e-commerce model,' and upgrading Youxuan to 'Tomorrow's Supermarket' is more like a transformation based on Meituan's existing genes. The '2021 China Instant Retail Industry Research Report' by iResearch mentioned that the key card in instant retail is category. Currently, Meituan Youxuan's SKU count is leading in the industry. According to LatePost, Meituan Youxuan has achieved 1,500 SKUs in most regions, while the average for similar formats is around 1,000. The report further noted that Meituan Youxuan intends to increase SKUs to 3,000, which is on par with large membership supermarkets; Sam's Club has about 3,000-4,000 SKUs.
As for why to become a 'supermarket,' Wei Wei once said that from a category perspective, beauty and personal care, appliances, and consumer electronics have online penetration rates exceeding 50%, but instant retail's offline penetration is only 1%, leaving huge room for growth. Moreover, Meituan's robust delivery system allows it to perfectly handle supermarket delivery needs. A typical example: when the new iPhone 14 went on sale this year, Meituan used drones for the first delivery, completing the first order in just 5 minutes and 56 seconds, 'beating' most e-commerce sites' delivery speeds.
From product selection to delivery, Meituan's retail e-commerce ambitions are surfacing. A Meituan employee told Value Planet that this upgrade stems from two considerations: first, to enhance user awareness and differentiate from Meituan Maicai; second, to shift from a hit-product model to a full-category model for long-tail effects. In fact, this upgrade was foreshadowed: starting Q2 2022, Meituan reclassified its reported revenue into core local commerce and new businesses. Flash Shopping moved from new businesses to core local commerce, merging with food delivery, in-store, and hotel & travel, while new businesses mainly include Youxuan and Maicai. This change clearly indicates that Flash Shopping, responsible for instant retail, is now a core business, and 'Tomorrow's Supermarket' is another addition.
In 2019, Wang Xing said, 'Jiang Fan and Huang Zheng will inevitably have a battle,' referring to the competition between Taobao and Pinduoduo. Three years later, the war continues, but now Meituan has joined the fray.
02 Meituan Enjoys Proximity Dividends To achieve fast delivery, one needs strong local delivery capacity. Fortunately, Meituan, as a platform starting with food delivery, naturally has the advantage of close proximity to users, so it chose 'speed' as its main direction. In selecting categories, Meituan also chose essential products like fresh produce and urgent items like medicine and daily necessities. To support the 'buy on demand, deliver on demand' new retail model, Meituan has consistently innovated in delivery, using big data, AI, cloud computing, and promoting drones, autonomous delivery vehicles, delivery lockers, and smart delivery stations. From 2018 to 2021, Meituan's R&D investment was 7.072 billion, 8.446 billion, 10.893 billion, and 16.676 billion yuan, with a compound annual growth rate of nearly 24%. In the first half of this year, R&D investment further grew to 10.083 billion yuan, up 36.66% year-on-year. It can be said that in the pursuit of 'speed,' Meituan has gone to extremes, earning the title of 'volume king' in e-commerce.
Source: Zhongtai Securities
After upgrading to 'Tomorrow's Supermarket,' the rich product supply, deep special supply chains, and mature logistics from Meituan Maicai and Flash Shopping become reusable resources. Externally, Meituan's shift from community group buying to instant retail inevitably collides with many giants. Industry insiders say 'Tomorrow's Supermarket' faces many competitors, such as Dingdong Maicai and Hema in fresh food, JD Supermarket and Tmall Supermarket in comprehensive categories, and local supermarket online businesses like Dmall and Yonghui Supermarket APP, even Douyin Mall. Each competitor has strengths: JD has self-operated and logistics advantages, Tmall Supermarket has Alibaba's platform advantages (bargaining power), and Dmall and Yonghui have enough stores to serve as 'front warehouses.'
Source: Tianfeng Securities
JD's financial data shows that in Q2 2022, JD's largest growth category—supermarket—saw order volume growth of over 25% year-on-year. Alibaba has also stated that Ele.me, relying on its extensive local instant delivery network formed by food delivery, will collaborate with Alibaba's new retail '3-kilometer ideal living circle,' Hema's 'half-hour delivery' and 24-hour home emergency services, and 'Tmall Supermarket one-hour delivery' to become the logistics infrastructure supporting various new retail scenarios. Therefore, after 'Tomorrow's Supermarket' launches, industry competition will intensify. Industry insiders say that during the community group buying period, Meituan already secured the top position, so it won't reduce investment like Hema; after expanding to a 'supermarket' concept, Meituan will only increase investment. Additionally, Meituan staff have leaked online that this brand upgrade is not just at the brand level but strategic, and Youxuan may replace Tuanhaohuo in Meituan's APP bottom navigation. This might be what Wang Xing meant in this year's Q2 earnings call: 'The business model of instant retail will bring tremendous changes to the retail industry, and I believe they can play a greater synergistic role in the future.'
03 New Growth Engine Zhongtai Securities predicts that by 2025, the domestic instant retail market will reach about 1 trillion yuan, with a five-year CAGR of 37.8%. By 2026, instant retail could bring Meituan 400 billion yuan in GMV. This number sounds exaggerated, given that Meituan's food delivery GMV in 2021 was only 702.1 billion yuan, but a closer look shows that instant retail brings Meituan far more than just GMV.
Source: Zhongtai Securities
First, the industry has great prospects. According to Euromonitor and the China Chain Store & Franchise Association, the instant retail market grew at a compound rate of 146.3% from 2016 to 2020, far exceeding traditional supermarkets (2.2%) and convenience stores (14.1%). With the proliferation of smartphones, consumers have developed 'lazy,' 'homebody,' and 'fragmented' shopping habits, shifting from traditional supermarkets (limited coverage, time-consuming) to convenience stores (near-field, community-oriented, shorter access time) to instant retail (shopping without leaving home), seeking increasingly convenient services. Comparing Meituan Flash Shopping's search terms in 2019 and 2021, the trend from 'search for food and drink' to 'search for everything' is evident. Therefore, instant retail with more SKUs could become Meituan's new growth engine for the next five years.
Second, among the four competitive dimensions of 'more, faster, better, cheaper,' Meituan already satisfies the first three and is working hard on 'saving money.' According to the 'Z Generation Youth Online Consumption Insight Report' by the 21st Century Economic Research Institute, nearly 90% of young consumers compare prices before purchasing. As a generation raised during 6.18 and Double 11 shopping festivals, they navigate coupons and discounts, obsess over price comparison, and pursue 'cost-performance' and 'quality-price ratio.' Meituan has centered on 'cheap' since Youxuan, and after upgrading to 'Tomorrow's Supermarket,' the slogan changed to 'Really, Really Save' to continue capturing consumer mindshare. For example, in the most common daily necessity category—drinking water—on Tomorrow's Supermarket, Kangshifu boiled water 550mL12 bottles sells for 9.99 yuan, Kangshifu packaged drinking water 550mL12 bottles for 7.99 yuan, and Coca-Cola Ice Dew 550mL*24 bottles for 11.99 yuan, while the same three items on JD Daojia are 17.9 yuan, 13.8 yuan, and 16.06 yuan, respectively.
Finally, instant retail is expected to broaden Meituan's profit paths. Based on Meituan's 2021 food delivery GMV of 702.1 billion yuan and commission income of 28.5 billion yuan, the overall commission rate is about 4%, and the net profit margin for food delivery is only 6.4%, making it a less profitable 'hard task.' To improve profit margins, Meituan can only focus on two aspects: first, increase average order value to dilute delivery costs. With higher AOV, since delivery cost per order remains unchanged, the fulfillment cost rate decreases. Referring to JD Daojia's AOV (192 yuan), Tomorrow's Supermarket has significant room to increase AOV. Second, increase order density to dilute fixed costs like personnel and warehouse rent. Currently, Tomorrow's Supermarket's SKUs basically meet daily needs; as orders for high-margin products like alcohol, beverages, home appliances, and digital products increase, future profit paths may gradually broaden.
Overall, 'Tomorrow's Supermarket' bears the burden of reversing Meituan Youxuan's losses. In the first half of 2022, new businesses including Youxuan generated revenue of 20.25 billion yuan but an operating loss of 15.24 billion yuan, while core commerce's operating profit was only 13 billion yuan. It can be said that new businesses like Youxuan have essentially eroded profits from food delivery and hotel & travel. Helplessly, Meituan must find a new way out for its community group buying business that has burned billions. Referring to JD Supermarket's operating data, in 2021, JD Supermarket's gross margin plus fulfillment costs totaled 15%, significantly lower than offline supermarkets like Yonghui and Gaoxin Retail. This translates to consumers finding that JD Supermarket's product prices plus delivery fees are still more cost-effective than shopping at large supermarkets. Moreover, as alcohol and dairy products increase, JD Supermarket's profit margins further improve. These are important strategic implications for Tomorrow's Supermarket.
However, JD's advantage lies in KA-level merchants; reportedly, over 80 of the top 100 supermarkets in China cooperate with JD Hourly Shopping and JD Daojia. Data shows that Meituan Flash Shopping's KA merchants account for 25%-30%. Meituan's advantage is in small and medium supermarkets; according to a Zheshang Securities report, Flash Shopping mostly serves small and medium supermarkets and convenience stores, covering over 100,000 merchants. It is foreseeable that Tomorrow's Supermarket will focus on lower-tier markets. In these markets, due to the lack of large comprehensive stores, consumers mainly shop at nearby convenience stores and mom-and-pop shops. Data shows that such small formats account for 44% of sales in township markets, far exceeding the national average of 25%. Tomorrow's Supermarket can compensate for these small stores' insufficient SKUs and scattered locations, meeting consumers' needs for online shopping and timely delivery, thereby forming its unique commercial value.
04 Success or Failure Hinges on This E-commerce is one of the earliest proven internet monetization models, so it has always been a battleground. At Meituan's strategy meeting in September last year, Wang Xing announced upgrading Meituan's strategy from 'Food + Platform' to 'Retail + Technology,' elevating retail and technology to a strategic level. In the 2021 chairman's report, Wang Xing also said, 'We firmly believe that the endgame of the retail industry is delivering everything to home.' Wang Xing's prediction is correct. According to the '2022 Instant Retail Fulfillment and Delivery White Paper,' the instant retail market is expanding year by year, with the transaction scale of China's retail O2O platforms growing at a compound annual rate of over 80% from 2016 to 2021, gradually covering all customer groups, demands, regions, scenarios, times, and categories.
From service e-commerce to physical e-commerce, Meituan's understanding of retail is instant ordering and instant delivery. In its current layout, Meituan has cooperated with multiple brand chains in digital, beauty, daily necessities, and maternal and baby products: in digital, with Huawei authorized stores, Apple authorized stores, Xiaomi, etc.; in beauty, with Sephora, Watsons, etc.; in daily necessities, with MUJI, Miniso, KKV, etc.; in maternal and baby, with Yili. In contrast, Meituan has not yet found a large-scale 'friend' in the digital 3C sector, but it is well known that digital 3C is the most profitable product for e-commerce platforms. Therefore, on October 21, Meituan announced a strategic cooperation with Suning.com, a partnership jokingly called 'squirrel rescuing lion,' as both sides get what they need. Meituan needs Suning's supply chain resources to strengthen itself, and Suning needs Meituan's help to enter the instant retail market. Currently, over 600 Suning stores have completed Meituan onboarding, covering 175 cities. Consumers can search 'Suning.com' on the Meituan APP to see nearby stores and order products like phones, computers, accessories, and home appliances, with delivery in as fast as 30 minutes. This gives Meituan the possibility to increase AOV and the capital to compete with rivals like JD.
Now, Meituan is going further on the 'Retail + Technology' path, with more partners after a series of alliances. However, it should be noted that retail business tests not only delivery but also supply chain integration, cost control, and after-sales service. If Meituan only focuses on delivery and blindly pursues 'speed,' it would be putting the cart before the horse.
References: [1] 'Meituan Series Deep Dive · Same-City Retail: Deep Roots Yield Fruits, Rich Soil Shines Brightly,' Zhongtai Securities [2] 'Near-Field E-commerce Series: Community Group Buying Deep Dive—Rectifying the Source, Refining the 'People, Goods, Places' Value Chain,' Guohai Securities [3] 'Meituan Flash Warehouse: New Instant Retail Format, Growing Wings of the Big Retail Map,' Tianfeng Securities [4] 'Wei Wei: Meituan Delivery Helps You 'See and Get',' China Logistics and Purchasing Magazine
This article is based on public information and is for information exchange only, not constituting any investment advice.
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