Meituan Select Seeks Change｜New Distribution

Nan Ming, Luo Zhi

Meituan Select will begin a new round of adjustments. Sources from Meituan revealed that the main direction of the adjustment is to establish a provincial-level system to replace the regional system (referred to as "war zones" by Meituan Select), granting provincial heads operational decision-making power, while weakening the management authority of business departments. The regional operations department will be closed. The announcement of the adjustment is expected to be released as early as this week, though the situation may still change. Previously, Meituan Select had already undergone an organizational restructuring. A month ago, personnel changes were made in Meituan Select's customer experience department, business analysis department, product operations department, regional operations department, Tuanhaohuo business, and the newly added platform operations department. Within less than two months, Meituan Select has made significant adjustments. So, why is Meituan Select making such major adjustments this time? How effective will they be? Can Meituan Select effectively avoid the pitfalls that befell Miss Fresh?

Targeting Self-Financing

It's not hard to see that the core of this adjustment is self-financing. With provincial regions gaining operational decision-making power, Meituan Select is giving itself a fresh start. In the previous organizational structure, the regional offices mostly played a supporting role to business departments, leading to issues like redundant staffing, unclear responsibilities, time-consuming hierarchical reporting, and duplicated resource consumption. Data doesn't lie: Meituan's 2022 financial report clearly shows that the new business segment, which includes Meituan Select, accumulated losses of 28.4 billion yuan, making it Meituan's largest loss-making business segment, with Meituan Select being the biggest loss contributor. For Meituan, the Meituan Select business has always been a major loss center. This adjustment, with its call for "self-financing," seems to signal a "can't afford to support, need independence" message. Meituan Select was born in July 2020, considered by Wang Xing to be a business with a "hundred-billion-scale" market. Although it has been established for less than three years, it has already undergone multiple rounds of personnel and business adjustments. In October 2020, Meituan internally designated the "community group buying" business as a top strategic project. At the same time, the Select business unit added a regional head level, responsible for overseeing five major regions: East China, West China, South China, North China, and Central China. Within three months of its establishment, Meituan Select expanded to 20 cities and was considered the third growth curve after Meituan's two major businesses: food delivery, and in-store and hotel/travel. To support the development of Meituan Select, Meituan chose Senior Vice President and S-team member Chen Liang to lead the team. 2020 was a year of fierce competition in community group buying. With strong human, material, and financial support, Meituan Select quickly stood out in this battle. At its peak, the Meituan Select team had over 3,000 people, especially in Q4 2020, when Meituan Select expanded into more than 2,000 cities and counties nationwide, covering over 90% of townships across the country. At that time, Wang Xing expressed approval of Meituan Select's achievements and direction, stating: "We believe this is the most efficient model. This model helps us penetrate the market, especially in fourth-, fifth-, and sixth-tier cities and lower-level cities." Expanding into lower-tier markets and extending business reach to more grassroots markets was a phased victory for Meituan Select in 2020. But capturing the market was just the beginning; profitability is the ultimate goal.

After the rapid expansion in 2020, the pressure of losses from Meituan Select has been increasingly emphasized:

Starting from the end of 2021, Guo Wanhuai began shifting from the Kuailv business to Meituan Select.
In early 2022, Meituan Select's overall business was fully taken over by Guo Wanhuai.
2022 was the year with the most frequent adjustments since Meituan Select's inception.

It's worth noting that after Guo Wanhuai took over Meituan Select, the entire business line underwent significant adjustments. The business in four northwestern provinces (Gansu, Qinghai, Ningxia, Xinjiang) was closed, retaining the Xi'an base. In July, Liu Wei, the original head of the regional operations department, was transferred, and Meituan Select brought in Zhao Youcheng, a former senior executive at Alibaba, who reported directly to Guo Wanhuai. In August, Meituan's e-commerce business was merged with the Meituan Select business unit. In October, Meituan Select officially announced that its community group buying brand would reposition itself as a "next-day arrival supermarket."

Entering 2023, Meituan Select's adjustments continue. The personnel turmoil and structural changes ultimately have one goal: profitability.

Years of Losses, the Money-Burning Model is Unsustainable

The pressure of losses has always been there. Historical financial reports show unfavorable data for Meituan Select: In Q4 2020, Meituan's new business and other businesses generated revenue of 9.244 billion yuan, with losses expanding from 1.1 billion yuan in the same period last year to 6 billion yuan. If a reason must be found, it can be understood as the fastest expansion phase of Meituan Select. In 2021, the operating loss for Meituan's new business was 38.4 billion yuan, a year-on-year increase of 253.7%. Among new businesses, Meituan Select was the biggest money burner. After the 2021 financial report, Wang Xing stated in a conference call: "Meituan will be more cautious in investing in new businesses and will place more emphasis on high-quality growth." In 2022, the pressure to reduce costs and increase efficiency became more evident. In 2022, the overall revenue of new businesses, including Meituan Select, Meituan Maicai, Kuailv, bike-sharing, and power banks, was 59.2 billion yuan, a year-on-year increase of 39.3%; total losses were 28.38 billion yuan, a significant improvement compared to 2021, but Meituan Select's performance still fell far short of expectations.

While the business is losing money, external competition is putting considerable pressure on Meituan Select. After three years of competition, only Meituan Select and Duoduo Maicai remain in the community group buying arena, but Meituan Select's performance is far behind Duoduo Maicai. According to media reports, in 2022, both Meituan Select and Duoduo Maicai set GMV targets of 250 billion yuan. Ultimately, Duoduo Maicai achieved 180 billion yuan, while Meituan Select only completed half of its target. The battle for lower-tier markets is intensifying. Pinduoduo, which is adept at spending money, frequently launches subsidy wars. For Pinduoduo, which is skilled at spending money to grab market share, "subsidies" have almost become its trademark. This tactic has worked repeatedly, whether against Alibaba's ecosystem or Meituan's market. Meituan, troubled by losses, is clearly the least willing to engage in a money-burning war. Pinduoduo knows this weakness well. Subsidies not only help Pinduoduo grab users but also force Meituan to retreat. In Q1 this year, Duoduo Maicai launched a new round of attacks on Meituan Select, including targeted price cuts and promotions, and issuing more subsidies to small and medium-sized merchants and ordinary consumers. Meituan Select was forced to follow suit with subsidies, which delayed its path to positive gross margins and led to a decline in market share.

In addition to business segment adjustments, Meituan Select has also seen several rounds of layoffs. In early 2022, after Guo Wanhuai fully took over Meituan Select from Chen Liang, Chen Liang was announced to step away from frontline business and become a company advisor, focusing on organizational building and strategic research. Losses cannot continue, and Wang Xing's expectation of "high-quality" growth says it all. With internal loss pressure and external competitors closing in, the unprofitable Meituan Select, besides "looking beautiful," may also have to take on the responsibility of "earning money to support itself."

Community Group Buying: No Winners

Wang Xing once said that community group buying is an important opportunity that comes only once in a decade. Unfortunately, on the front lines, only Meituan and Pinduoduo remain in this once-in-a-decade opportunity track. They haven't lost, but they haven't won either. The main categories in community group buying are fresh produce and daily necessities, using a model where users place orders the same day and pick up the next day to reduce costs. Since the explosive growth of community group buying at the end of 2019, most people believed this was a highly profitable track. Unfortunately, losses are the norm in community group buying, with very few profitable companies; most are just "cheering for nothing." The biggest competitor for community group buying is the local supermarket. When going out to shop, there are many small supermarkets around residential areas, making it convenient to buy anything. Therefore, community group buying must be cheaper than supermarkets to have an advantage. But maintaining low prices is not easy. Miss Fresh, after its U.S. IPO, no longer had attractive prices, even more expensive than community supermarkets. Additionally, community group buying provides a series of services including warehousing, products, and delivery, significantly increasing cost pressure. Generally, companies in community group buying adopt a front-warehouse model, setting up numerous small warehouses based on user density. Each city needs a considerable number of front warehouses to ensure product freshness, and employee and rental costs are significant. When a community group buying product loses its price advantage, it struggles to retain users and generate repeat purchases. In terms of price, community group buying can't compete, and product quality also struggles to threaten supermarkets. Although users choose products themselves, they can't see the physical items; relying solely on images, they can't determine if the next-day product is truly fresh. Lacking a self-inspection process, community group buying products are packed by sellers, which can lead to inferior products and discrepancies between images and actual goods.

Looking back at the development of community group buying, both Alibaba and Tencent have coveted this market. Alibaba tried acquisition and transformation, Tencent tried investment, but both failed. JD.com and Didi directly abandoned the business. This is because internet logic doesn't work in this market; centralized platforms of big companies are ineffective for community group buying, and the standard internet playbook of "traffic subsidies and burning money to attract customers" doesn't work. Building a new capability, strengthening the supply chain, and helping millions of community small shops make money together is not something that can be achieved by the spillover of big companies' capabilities. According to a report by LatePost, a regional management executive from a major company's community group buying business said, "The scariest thing is seeing no hope. Originally, everyone planned to burn money for two to three years to cultivate user awareness and habits, but now we can't burn money. The internet business suddenly becomes a pure retail business." News from small startups is also mostly negative, such as Miss Fresh being rumored to have a broken capital chain and unable to operate, and Xingsheng Youxuan shrinking its market and closing businesses in multiple provinces.

Despite massive losses, Meituan Select has not been abandoned. Before entering community group buying, Meituan had explored the fresh produce sector for five years. Community group buying is one of the larger battles Meituan has fought in the retail sector, and until the last moment, Meituan is actively trying to save itself. After Guo Wanhuai took over the community group buying business, she repeatedly emphasized using internet thinking to transform the retail industry, drawing on her experience at Kuailv. She hoped Meituan Select would learn from Kuailv's mid- and back-office system management, using data accumulated by mid- and back-office algorithms to guide frontline procurement. However, the effect has not been obvious. Meituan Select's operating profit margin is approximately -12%, with daily order volume of about 32 million items, while Duoduo Maicai's corresponding figures are -7% and 35 million items. In terms of daily order volume, market share, and unit economics, Meituan Select lags behind Duoduo Maicai. In Wang Xing's view, Meituan Select's advantage lies in its control over offline group leaders. Meituan Select treats group leaders as a necessary part of the chain, offering an average referral reward of 15 yuan per person. For a single order, Meituan Select's loss rate is 10 percentage points higher than Duoduo Maicai's, because Meituan Select spends half of its costs on commission rewards to group leaders, which is 4-5 percentage points higher than Duoduo Maicai.

Entering community group buying, Meituan Select has no way back. The tens of thousands of employees invested and the tens of billions in losses need to be answered with future profits. This is a battle that cannot be lost.