---
title: "Meituan Trapped in Group Buying"
description: "To survive, Meituan is downsizing and contracting its group buying business, having burned over 20 billion yuan in the past year, which is unsustainable. Guo Wanhuai, wife of founder Wang Xing, now leads Meituan Select, focusing on cost optimization and profit models, as the company faces market pressures and strategic shifts."
author: "苗正卿"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2022-05-23"
language: "en"
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---

# Meituan Trapped in Group Buying

> To survive, Meituan is downsizing and contracting its group buying business, having burned over 20 billion yuan in the past year, which is unsustainable. Guo Wanhuai, wife of founder Wang Xing, now leads Meituan Select, focusing on cost optimization and profit models, as the company faces market pressures and strategic shifts.

“To survive, Meituan is downsizing and contracting its group buying business, having burned over 20 billion yuan in the past year, which is unsustainable.” On April 25, a source told Huxiu that Guo Wanhuai, wife of Meituan founder Wang Xing, is currently the actual head of the Meituan Select business line (since Guo replaced Chen Liang last year, the three major business lines of Meituan's “fast, buy, excellent” have all reported to Guo).

Guo Wanhuai has long been engaged in financial and operational work within Meituan, and “optimizing costs and profit models” is seen as a key goal after Guo took the helm.

On the 25th, Meituan Select officially announced that it would suspend pickup point services in Beijing starting on the 26th. Earlier this month, Meituan Select had already closed its operations in Gansu, Qinghai, Ningxia, and Xinjiang.

Synchronized with the service suspension is personnel optimization.

On April 22, the second round of “personnel optimization” around businesses like Select began. After the “previous round of optimization” on April 8, some employees had already become resigned.

A Select business line employee told Huxiu that on April 8, he accompanied a colleague who was being optimized to the roadside outside Meituan headquarters at Wangjing Hengdian Building to hail a taxi. At that moment, he felt “compassion” and thought, “This might be my future too.” Sure enough, within two weeks, he received the exact “optimization” news.

Meituan Select was precisely the key department for Meituan's massive expansion in the past year: in 2021, Meituan's employee count increased by more than 50,000, and to match the national expansion of the Select business, Select became the key destination for new Meituan employees.

Since the beginning of 2021, Meituan's senior management has treated the “community group buying business” where Select operates as a company-level strategic project, with a large amount of resources tilted toward the Select business line. (Note: Internally, Meituan always refers to the group buying business as community e-commerce.)

For example, during the BD expansion period, to poach from competitors, some “provincial regions” used salaries 2-3 times higher, which broke Meituan's existing compensation system; and in the first two quarters of 2021, Meituan internally allowed the Select business to “exceed” subsidy usage, making Select the project with the highest “subsidy burn” since Meituan's founding.

**The short-term massive investment of funds and resources into the community group buying business has given Meituan Select obvious “forced ripening” characteristics**: In some cities where large-scale group buying business is not feasible, Meituan Select still built teams and even laid hardware. Also, the massive recruitment of BDs, in order to pass their probationary period assessments, frantically penetrated various store locations—leading to some registered group points being too close together.

The sudden changes caught some employees who had not been with the company long off guard. Some employees who had joined Select for less than 9 months were optimized, and one employee told Huxiu, “During recruitment, Select painted a bright future and promised year-end dividends,” but a few months later, the reality he faced was “resubmitting resumes and finding a new job.”

The upheaval around Select is not over.

Sources told Huxiu on April 22 and April 25 that Select's senior management had issued specific instructions on 2022 performance and direction to the “large regions.” In mid-to-late April, local leaders within each “large region” were gathered in the central city of the region for meetings. Unlike the usual “efficient transmission of instructions” model, some “large regions” had meetings lasting three days without concluding.

An insider revealed to Huxiu on April 26 that Meituan Select will continue to withdraw from some remote markets and underperforming cities, and simultaneously continue “personnel optimization.” “We need to reverse Select's losses in the second quarter and strive to achieve breakeven by the end of 2022 to regain capital market confidence.”

At 16:00 on April 26, Meituan's Hong Kong stock closed at HKD 145.3, while on April 23, 2021, Meituan's stock price was HKD 306.4. Compared to its highest market value in 2021, Meituan's market value has now shrunk by more than one trillion HKD.

**The Money-“Ripened” Group Buying Machine**

Yang Yanying, a Meituan Select group leader, quietly “works” for two other group buying brands in her 314-person WeChat group.

Initially, she was only a Meituan Select group leader, but due to income constraints, she had to serve as a group leader for multiple platforms simultaneously.

As a Meituan Select group leader, **her main income comes from new customer acquisition and order commissions**—after a new user places an order, Yang can receive about 20 yuan in “commission”; her order commission rate is about 5% of the total order amount. On the day with the lowest “commission” in April, Yang only received 9.26 yuan.

Every morning from 7:30 to 8:30, Yang needs to wait by the roadside for the Meituan Select delivery truck. The truck driver not only brings the goods from the previous day's orders but also some new products—they are instructed to introduce and recommend these products to the group leaders. If the group leader is willing to promote these products in the group, they will receive a higher commission rate.

But Yang rarely chooses these new products: choosing new products outside the order means Yang needs to buy the goods with her own money first, then rely on herself to “solicit sales” in the WeChat group. If they don't sell in the end, Yang has to deal with them herself.

Yang's hesitation implies Meituan Select's “product promotion logic” over the past year—group leaders and price subsidies are the most critical engines for product promotion. Products that “sell well” on Meituan Select either gained popularity quickly through the platform's heavy investment in ultra-low prices, or were promoted tirelessly by group leaders and boosted sales through “community” social fission...

But Meituan Select's **two “product promotion” engines have both “stalled.”**

Compared to the first half of 2021, Yang's motivation for new customer acquisition and selling has declined: during the peak subsidy period, the commission for new customer acquisition could even exceed 100 yuan per person, and the order commission rate was far higher than 5%. At that time, in the WeChat group, Yang not only actively promoted products but even filmed videos of cooking ingredients to share.

But starting in the fourth quarter of 2021, Meituan Select's subsidies were rapidly reduced, and Yang found her income as a group leader quickly declined. Several acquaintances who rented houses to be group leaders quit (because the income couldn't cover rent), leaving only those like her who live in the community or own small shops nearby.

The low-price strategy is also dying out. Starting from the third quarter, some ultra-low-priced products gradually disappeared from the Meituan Select platform. On one hand, it was limited by price policies, but on the other hand, Meituan Select's previous “low-price model” was unsustainable.

In Meituan Select's system, distributors are the fulfillment parties: they need to list products on the platform every morning through “bidding.” Products of the same category face bidding—only the lowest-priced products can stay on the shelves and receive some promotional resources.

In the eyes of distributors, Meituan Select is strong. In the first half of 2021, when Meituan Select was burning money most fiercely, once the platform discovered that a supplier did not provide the “lowest price on the entire network,” it would veto and cancel the supplier's cooperation status from then on. (Here, “lowest price on the entire network” means that on all community group buying platforms, the same supplier must give Meituan the lowest price.)

Distributors not only have to pay “low prices” but also bear fulfillment costs—they need to transport goods to Meituan's warehouses and bear the losses during transportation.

The root cause that makes distributors bear such pressure yet still flock to it is traffic. With huge subsidies and traffic diversion from the main app, Meituan Select was the fastest-growing community group buying platform in terms of users in 2021, and at that time, the industry still had a positive outlook for the “second half” of community group buying. Some distributors, with the mindset of “not wanting to miss the trend,” gambled heavily on community group buying.

The other side of the coin is that Meituan, through such “resolute” price and cost control strategies, kept products on the platform as low-priced as possible. At the same time, Meituan Select further passed on benefits to users through coupons, discount vouchers, first-order activities, etc., thus attracting a large number of highly price-sensitive users in lower-tier cities.

In less than a year, Meituan Select's users surged by more than 150 million. Since Meituan Select is bound to the main Meituan app, these new users were incorporated into Meituan's user pool. Thus, in the capital market, Meituan presented a new and attractive story: while major platforms were struggling with new user acquisition, Meituan became the top platform with the most new users in the year.

But hidden behind all this “prosperous appearance” is money burning wildly in the “group buying furnace.”

An insider told Huxiu that in Meituan's history, Meituan Select's “annual burn” exceeded that of any previous project, and in the foreseeable future, Meituan Select's burn intensity will also be “unprecedented.”

The attitude of senior management made the “fire” of Meituan Select even stronger. After determining group buying as the core new direction, senior management was dissatisfied with the “overly conservative” head of the Select business.

**At that time, Meituan's senior management thought was to quickly cover the market through large-scale investment to complete penetration, and then gradually develop with precision after gaining market share and a dominant position**—this is not only typical internet thinking but also the core strategy of Meituan's rise over the past 12 years.

An insider revealed that afterwards, the Meituan Select team began to act aggressively. Taking personnel expansion as an example, some veterans had already pointed out that “the expansion scale of the Select business line is too large,” and noted that **in some underdeveloped regions, rapidly expanding scale would face the challenge of a long return cycle.**

“Under the existing internet thinking model, burning money to rapidly expand scale and market share is a necessary path, but there are differences in people's predictions about how long the burn cycle will last,” said the person close to Meituan's senior management, pointing out that Meituan's real life-and-death problem in group buying is: **treating a protracted war and positional warfare as a short-term encounter battle.**

**The Positional Warfare of Burning Money**

“In community group buying, don't be superstitious about user loyalty,” an internet veteran who founded and failed in the community group buying field over the past five years told Huxiu. All dead and surviving community group buying platforms are being counterattacked by the “strategy of blindly believing in low prices.” “Highly price-sensitive users will compare prices and buy from whoever is cheaper.”

After the pandemic, there was indeed a wave of consumption upgrades around community group buying. At that time, on some platforms, sales of traffic-generating products began to decline periodically (traffic-generating products are usually ultra-low-priced daily vegetables, such as low-priced potatoes and cabbage), while sales of reasonably priced and high-margin products began to increase.

But this trend gradually disappeared in the second half of 2021. Some analysts believe that weak consumption and repeated pandemic outbreaks caused “highly price-sensitive users” in some cities to return to conservative consumption strategies in 2021. “A typical trend is that sales of traffic-generating products began to steadily recover, and the popularity of basic dishes rebounded.”

The loyalty of group leaders also affects user loyalty.

After the second half of 2021, Yang Yanying became a group leader for two other platforms. She admitted that whoever gives her higher rebates, she will actively promote their products in her WeChat group or on her Moments. (Rebate: the order commission a group leader receives or additional subsidies for a specific product.)

The “defection” of group leaders is a life-and-death issue for any community group buying platform that “depends on group leaders”: high-repeat-purchase users gather in WeChat groups, and the groups belong to the group leaders personally; the offline pickup model further strengthens the social connection between these users and the group leaders, so when group leaders start promoting other platforms' products, some users will switch based on past “cooperative trust.”

This forms a vicious cycle in the community group buying field: when platforms invest heavily in subsidies, user numbers and daily active data grow significantly; once subsidies disappear, all data plummet—**like a patient relying on hormones, they can be lively and healthy, but only if they don't leave the hormones** (money).

And it's not just user loyalty maintenance that requires burning money.

In 2021, major community group buying platforms began investing heavily in infrastructure—community group buying basics centered on cold chain. This was a helpless matter: the core users of platforms like Meituan Select are mostly in underdeveloped areas, and the products they buy on community group buying platforms are mainly daily ingredients like vegetables and fresh produce. To reduce transportation costs and improve quality control, building their own cold chain became a necessary path.

A person responsible for community group buying cold chain logistics once told Huxiu that platforms initially wanted to solve the problem through third-party companies, but ultimately found that in most target markets for community group buying, either there were no mature third-party suppliers, or third-party cooperation prices were extremely high.

But “infrastructure” is not something that can be completed in a few months. The above person analyzed in mid-2021 that, given the current investment intensity of major platforms, it would take about 3 years to truly see the “cost reduction and efficiency improvement effects” brought by infrastructure.

BD also burns money. (BD: business development, commonly known as “ground promotion staff” in the community group buying circle.)

During the hot war phase of community group buying in 2021, the remaining major platforms engaged in a money-burning war over BD resources—the reason behind this is that high-quality BDs not only hold key merchant resources but also have close relationships with group leaders and potential group leaders in their cities.

“The cities where community group buying can be carried out are limited. Core platforms like Duoduo Maicai and Meituan Select are competing for the same markets, the same people, and the same resources, and BD is the key node connecting this world.”

**Meituan Select's BDs are almost the true “operational axis” of this money-burning machine**: They are responsible for point coverage during group opening, group leader development, and resource linking. Generally, after the group opening period ends in 2-3 months, BDs shift to a maintenance mode, frequently visiting group leaders, paying close attention to their performance, and helping the platform promote certain products. (Promoting products to group leaders.)

In some cities, the “BD world” around community group buying is deeply intertwined. When expanding into city markets, community group buying platforms often adopt a “one-shot” strategy—finding the “BD leader” with influence or networks in the city and poaching them along with their “followers” at high prices.

During the expansion period in 2021, Meituan invested huge sums in its BD lineup—in a sense, Meituan Select's expansion into every new city had to start with recruiting local BDs.

Rapid short-term expansion made it impossible to optimize Meituan Select's efficiency, resulting in low BD productivity. An insider told Huxiu that in mature markets like East China, although the density of group leader points was already extremely high, Meituan was still expanding BDs and trying to increase performance by “stacking people.”

In some fiercely competitive cities, Meituan Select gave some BDs “above-normal” resource permissions, hoping they would quickly expand group leader resources—so much so that related costs rose.

Affected by high raw material costs and high logistics prices, starting in the second half of 2021, the money-burning model of community group buying gradually became unsustainable: on the supply side, supplier prices gradually increased—suppliers responsible for fulfillment faced higher cost pressures and could only choose to raise prices, while logistics costs in some regions rose by more than 100%.

And the ultra-low-priced potatoes and radishes that platform users had become accustomed to became difficult to offer under such cost pressures—platforms needed to bear more “price differences” to maintain the existing low-price model, which left many community group buying platforms on their last legs or dead. Pressure from user growth further squeezed platforms: all internet platforms entering community group buying faced slowing user growth starting in the third quarter of 2021.

**“The money-burning new customer acquisition model in community group buying has hit a growth ceiling.”** A senior internet figure said that the challenges facing community group buying cannot be solved in the short term: all platforms need to reduce costs and increase efficiency, which includes two aspects: one is optimizing organizational strength to improve personnel efficiency and reduce costs; the other is investing in infrastructure to optimize supply chain and logistics, and ultimately achieve economies of scale. “This requires at least three to five years of continuous investment to see initial results.”

But the time left for Meituan Select to “burn money” is running out. In 2021, Meituan's losses around new businesses in the four quarters were 6 billion yuan, 8 billion yuan, 10.9 billion yuan, and 10.2 billion yuan, respectively. In 2021, Meituan had to bear a 3.4 billion yuan fine on one hand, and on the other hand, bear increased costs under the new food delivery policy.

And in February 2022, the new “commission reduction” policy for food delivery will further pressure Meituan's existing profit model. This means that in 2022, Meituan will not be able to “calmly” burn money: the days of consuming 20 billion yuan on community group buying like in 2021 are gone forever. (Note: In 2021, the food delivery business was still one of Meituan's most important “cash cows,” being Meituan's largest revenue source and second-largest net profit item, with annual revenue of 96.3 billion yuan and net profit of 6.2 billion yuan.)

Currently, Meituan Select is changing its “way of life,” but this obviously requires going through pain.

Inside Meituan, the “optimization” turmoil in the Select department has become a topic of conversation among employees: meeting rooms marked with “special needs” are where HR and relevant employees hold “optimization talks.” They are collected of their computers and badges and asked to leave as soon as possible.

And those optimized Select employees were surprised to find that their “living water” system had already been closed. **Just as Meituan HR had eagerly sought them out months ago, now the HR department urgently wants them to leave—both times, sincerely.** (Living water system: Meituan's internal transfer application system.)

Cover image: Visual China | Source: Huxiu APP (ID: huxiu_com) | Author: Miao Zhengqing

_**-END-**_


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