---
title: "Meituan Rises Amid Pandemic Downturn"
description: "Meituan's Q1 2022 earnings beat expectations with revenue up 25% year-on-year, driven by surging food delivery and instant retail demand during COVID lockdowns, while facing challenges in hotel and travel segments. The company sees opportunities in high-end restaurant onboarding and instant retail growth, but uncertainties remain as offline consumption recovers."
author: "刺猬公社编辑部"
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published: "2022-06-18"
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# Meituan Rises Amid Pandemic Downturn

> Meituan's Q1 2022 earnings beat expectations with revenue up 25% year-on-year, driven by surging food delivery and instant retail demand during COVID lockdowns, while facing challenges in hotel and travel segments. The company sees opportunities in high-end restaurant onboarding and instant retail growth, but uncertainties remain as offline consumption recovers.

**Click to read the original article for details**
> Even Michelin three-star restaurants have started offering delivery, signaling a new landscape for local services amid the pandemic.

On the last working day before the Dragon Boat Festival holiday, Meituan released its Q1 2022 earnings report. At 7 PM on June 2, most "workers" had already left their desks to enjoy a three-day holiday, but Meituan CEO Wang Xing still had one more meeting—he needed to answer analysts' questions on the earnings call.

During the Q&A session, Shanghai was mentioned eight times and Beijing six times. Both questioners and respondents were clear that the pandemic would be a huge variable affecting Meituan for the coming year. **Shanghai and Beijing in the first half of the year are key perspectives for observing Meituan and the entire local services industry.** The pandemic emerges and is controlled; dine-in is suspended and resumes; entertainment venues close and reopen; cross-province travel is halted and restored... When change becomes the norm, the local services industry must answer the question: how to seize opportunities amid change without being plagued by its hidden worries.

**Standing on Both Ends of the Seesaw**

Growth exceeding expectations—this was the assessment after Meituan's Q1 2022 earnings release.

According to Meituan's latest financial data, Q1 2022 revenue reached 46.3 billion yuan, up 25% year-on-year, beating market expectations of 45.3 billion yuan. While revenue grew, losses narrowed. Adjusted net loss was 3.586 billion yuan, down 7.8% year-on-year.

All three core business segments experienced significant impacts from pandemic changes. The impact was bidirectional: prevention policies made cross-regional businesses like hotels and travel difficult, but also brought new opportunities for local businesses like food delivery and instant retail.

In Q1 2022, Meituan's food delivery business grew substantially, with revenue up 17.4% year-on-year to 24.2 billion yuan.

Wang Xing stated on the call that since March, pandemic-related lockdowns caused a sharp decline in delivery orders in first-tier cities. Provinces like Jilin were fully locked down in mid-March, with order volumes dropping nearly 90% compared to pre-pandemic levels. The growth in food delivery this quarter was mainly driven by significantly higher order frequency, higher average order value, and increased marketing revenue during the pandemic.

**Pandemic lockdowns turned food delivery into a rigid demand for the public in some regions.** Data shows that in Q1, Meituan's food delivery transaction users and frequency both increased year-on-year. Delivery transaction volume reached 3.362 billion, up 15.8% year-on-year; transaction users reached 693 million, up 21.7%.

Among them, the growth in active merchants was most notable, up 26.6% year-on-year to 9 million. The suspension of dine-in and work-from-home policies brought a large number of new merchants to delivery platforms, with many mid-to-high-end restaurant brands being "absorbed" by Meituan. After dine-in suspension, merchants turned their entrances into delivery pickup points. (Image source: author)

Against this backdrop, Meituan's food delivery operating margin further improved, with operating profit of 1.6 billion yuan, up 41.3% year-on-year, and operating margin rising to 6.5%. Commission and marketing service revenue grew notably, up 24% and 20.4% year-on-year respectively.

**On the other hand, Meituan's in-store, hotel, and travel revenue faced challenges.** The pandemic significantly reduced travel demand. This segment's Q1 revenue was 7.6 billion yuan, up 15.8% year-on-year but down 12.6% quarter-on-quarter, a decrease of 1.1 billion yuan from Q4 last year.

More significant changes occurred in Meituan's new businesses, which mainly include retail businesses like Meituan Maicai, Meituan Youxuan, and Meituan Shansong, as well as mobility businesses like Meituan Bike and Meituan Ride-Hailing, and other businesses.

New businesses have always been Meituan's focus for heavy investment. In Q1 2022, this segment's revenue increased 47% year-on-year to 14.5 billion yuan, with both year-on-year and quarter-on-quarter loss rates narrowing to 62.3%, and operating loss of 9.02 billion yuan.

The pandemic greatly stimulated users' demand for stockpiling and instant shopping. According to data, in the past few months, Meituan delivery users' conversion to retail businesses increased to 70%-80%. In Q1, Meituan Maicai order volume increased nearly 120%, hitting a record high in daily orders; Meituan Shansong also grew strongly, with order volume up nearly 70% year-on-year.

Overall, Meituan's core businesses are at opposite ends of a seesaw, with the pandemic as the fulcrum, causing the pressure on both ends to constantly shift. **In this situation, how to allocate bets across different businesses becomes a crucial topic for Meituan now and in the next phase.**

Meituan is facing valuable development opportunities in local services. In the local services market, Meituan holds offline entities and supply chains, while short-video platforms and grass-planting communities occupy new traffic entrances and are rising strongly.

Facing the fierce attack from online traffic entrances, physical merchants, products, delivery mechanisms, and supply chains are Meituan's moat, providing the fundamentals for its online content promotion and community traffic generation.

Fundamentally, the growth highlights of local services platforms during the pandemic are based on their supply chains and delivery capacity. Facing uncertain offline conditions, technological advantages and business matrix advantages allow businesses to concentrate resources, fully coordinate, and leverage synergies, enhancing resilience against risks.

As a player entering this market by expanding new businesses, Meituan also stated on the call that it will continue to make retail businesses including Shansong its main track, further advancing the "retail + technology" strategy to meet consumers' diverse needs.

#### **Instant Retail: The Battle for the Last Mile**

Under the pandemic's influence, consumer habits and demands are changing, both actively and passively. The most notable change is the pursuit of timeliness.

In the pre-e-commerce era, offline consumption was a strong timeliness model—cash on delivery, consumption meant receiving goods immediately. While timeliness was high, the available SKU selection was limited.

In the e-commerce era, consumers have become accustomed to receiving goods after 1-3 days of logistics (longer in remote areas). They are willing to sacrifice some timeliness for more convenient consumption, a larger SKU, and more transparent prices.

**Meituan's ambition for instant retail has a long history.** In 2018, Meituan Shansong was officially established to meet consumers' instant shopping needs for fresh produce, supermarket daily necessities, clothing, and other goods. However, before 2021, Shansong was lukewarm, even undergoing splits and name changes. Entering 2021, Shansong entered a period of rapid growth. In Q2 2021, Meituan Shansong's transaction volume and GTV grew over 140% year-on-year; by Q1 2022, user numbers and transaction frequency continued to grow, with order volume up nearly 70% year-on-year. Multiple chain supermarkets have joined Meituan Shansong. (Image source: internet)

**On the earnings call before the Dragon Boat Festival, Wang Xing attributed the growth to "the pandemic causing more consumers to accelerate embracing instant retail services."** "Traditional logistics networks have delays and limitations in some cities. Given time sensitivity and new control measures, consumers prefer instant delivery, and supermarkets and convenience stores play a more critical role in meeting daily needs... I hope Meituan Shansong can now benefit from all the tailwinds as we increase consumer mindshare and expand SKU selection."

Business development during pandemic controls has clearly strengthened Meituan's confidence in instant retail. Among these, Meituan Maicai and Meituan Shansong are heavily invested new businesses, complementing Meituan Waimai to complete Meituan's instant retail landscape.

Meituan's move into instant retail is logically smooth, given its food delivery foundation. Expanding to other categories can reuse both users and delivery capacity. However, in the instant retail market, Meituan faces formidable competitors.

**First are two internet giants that, like Meituan, operate platform models: Alibaba and JD.com.** In 2020, Tmall Supermarket's business unit was renamed to Same-City Retail Business Unit, signaling Alibaba's determination in same-city e-commerce. However, Tmall Supermarket still offers next-day delivery, lagging behind instant retail in timeliness.

Subsequently, Taobao launched services like Hourly Delivery and Tmall Supermarket Half-Day Delivery within its app, attempting to integrate product resources, delivery capacity, and user bases across Taobao, Tmall Supermarket, and Ele.me, ensuring that when users have instant retail needs, "fertile water does not flow to outsiders' fields."

Taobao's search results page integrates instant retail capabilities like Ele.me and Half-Day Delivery. (Image source: author)

Because of Ele.me, Alibaba has same-city rapid delivery capabilities, while JD.com became the largest shareholder of Dada Group at the end of February 2022 through equity increases, completing the final piece of its full-timeliness logistics puzzle.

According to financial reports, in the 12 months ending March 31, 2022, JD Daojia's total GMV was 49.1 billion yuan, up 74% year-on-year, with annual active users increasing to 67.9 million, up 47% from 46.1 million in the same period of 2021.

JD Daojia entrance on JD.com's homepage. (Image source: author) Instant retail lies on the extension of Meituan's local services business and also on the extension of Alibaba and JD.com's e-commerce businesses. In the second half of 2022, the battle among the three platforms is likely to continue for a long time.

**Second are self-operated model players**, such as Hema, Pupu Supermarket, Dingdong Maicai, and Miss Fresh. Self-operated instant retail service providers mostly focus on fresh produce, gradually expanding to other SKUs like daily necessities to cover daily needs.

The advantage of the self-operated model lies in quality control, as goods are self-purchased, allowing control over quality and greater profit adjustment space. The disadvantage is SKU: under the platform model, SKUs can theoretically expand infinitely as long as merchants are willing to join, while self-operated platforms must consider costs, sales capacity, warehousing, etc., offering only a limited range of products.

In the future, with high-quality and stable quality control and delivery capabilities, fresh e-commerce will likely hold its current market, but in the broader instant retail market, the space for fresh e-commerce is not too large.

**In the instant retail market, there is also an invisible competitor: same-city express delivery service providers**, such as Shansong and SF City. They also have instant delivery capabilities but do not participate in retail; they only undertake delivery needs after retail, and instant retail delivery is just part of their business.

In the future, once giants invest heavily in instant retail and each has its own delivery service provider, they will inevitably squeeze some business space from same-city express delivery providers.

**What Happens When Offline Consumption Recovers?**

Under the pandemic's influence, residents of big cities like Beijing and Shanghai experienced long periods of home isolation this spring. The pause on offline consumption naturally impacted Meituan. As epidemic prevention policies in cities like Beijing and Shanghai ease, new opportunities will emerge.

The first opportunity is the growth in instant consumption demand mentioned above, which will not be repeated here. Correspondingly, Meituan's Shansong and Maicai businesses, which have been laid out for a long time, both saw explosive growth in the first half of the year and were emphasized by Meituan on this quarter's earnings call.

The second opportunity is the batch onboarding of high-quality delivery merchants.

Previously, due to considerations of taste, efficiency, and reputation, many high-priced restaurants never joined delivery platforms. But after dine-in suspension, to maintain operations and reduce losses, many high-priced restaurants with per-capita spending over 300 yuan began accepting delivery orders.

**The list of new delivery merchants even includes King's Joy, the world's only Michelin three-star vegetarian restaurant.** Located opposite the Lama Temple in Beijing, with a per-capita price exceeding 1,000 yuan, this restaurant launched delivery in mid-May, mainly selling staple foods, homemade pastries, and set meals priced from 300 to 600 yuan.

King's Joy's delivery interface. (Image source: author)

The entry of high-quality restaurants means more high-ticket orders and activity from high-spending consumers. For the delivery business, without consuming additional resources, the batch entry of quality merchants is an important foundation for attracting quality consumers and increasing average order value.

But opportunities need to be seized and converted; otherwise, they are just fleeting meteors, not successful rehearsals. Opportunities arising during special times also leave several hidden worries once life returns to normal.

The first worry comes from delivery merchants. During the pandemic, high-quality restaurants joined delivery as a last resort. Once offline consumption recovers, how many restaurants will retain delivery services? When they no longer need to settle for second best, merchants may abandon delivery as the second choice.

On the other hand, small and medium merchants, the cornerstone of the delivery business, may struggle to sustain operations due to the pandemic. The closure of some small merchants could affect delivery order volume and marketing revenue.

The second worry comes from consumers. Is pandemic-era consumption behavior a habit-forming process or a necessity under abnormal circumstances?

Wang Xing expressed great confidence in the Shansong business during the Q&A session, saying: "In 2022, we will continue to increase investment in Shansong. We will allocate more resources to capture consumer mindshare and drive growth in our key categories."

Confidence comes from data growth. In Q1, Meituan Shansong order volume increased nearly 70% year-on-year. It was revealed that in Shanghai, compared to the last week of February, daily orders and GTV in the week of March 21 surged about 80% and 29%, respectively.

**In the tense atmosphere of stockpiling, the demand to "save money" temporarily gives way to "deliver immediately."** Even if prices are slightly higher than long-distance e-commerce like Taobao, JD, and Pinduoduo, consumers are willing to pay for certainty. This is the basic premise for the explosive growth of same-city instant delivery during the pandemic.

When the tense atmosphere disappears and life returns to normal, whether consumers will dynamically update the priority between "price" and "time" remains unknown.

The third worry is consumers' demonstrated craving for offline shopping (especially fresh produce and daily necessities).

On the first day of the Dragon Boat Festival holiday, dine-in was still suspended across Beijing. In major shopping malls, fresh food stores like Hema and 7Fresh were the most crowded, in stark contrast to the quiet surrounding shops.

At a Hema store in Changping District, before 6 PM, some products had already been sold out. In the aquatic section, the pools that originally held shrimp and crabs only had a few dead crayfish left. Nearby staff were busy slaughtering live fish, with a full plate of perch and yellow croaker waiting to be processed.

In popular areas like fruits, semi-finished products, and cooked food, staff with work badges were promoting Hema X membership to consumers. Many were tempted by gifts, while others declined, saying they lived too far for delivery. Clearly, Hema is prepared for the recovering offline consumption, but consumer activity exceeds expectations.

Hema was bustling during the Dragon Boat Festival holiday. (Image source: author)

This is a rebound after being "cooped up" for too long. Outside the mall, a young man sat on a flower bed edge, with supplies just purchased from the mall at his feet. Beside him was a box of freshly opened spicy crayfish tails. He was scrolling through short videos with one hand and eating crayfish with the other—an important "outing" activity for his Dragon Boat Festival holiday.

Shopping at supermarkets and fresh food stores not only fulfills the survival need for daily necessities but also serves as a form of leisure and relaxation.

From delivery, Maicai, Youxuan to Shansong, Meituan's keywords in the local services track all revolve around "online-ization." Achieving "everything to home" through "high-frequency driving low-frequency" online transactions is Meituan's core strategy for local services.

But the convenience brought by online-ization cannot satisfy all consumer demands. The online-ization of fresh produce has boundaries in eroding offline consumption. **This boundary will challenge Meituan's Youxuan and Maicai businesses, which have been heavily invested in over the past year.**

Seeing hidden worries in smooth sailing and opportunities in turbulent currents is the survival wisdom of giants.

Meituan, gradually leaving its youth behind, still has many hopes and challenges.

Source: Hedgehog Commune (ID: ciweigongshe)

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