Local life sinks beyond price war

In the field of group buying of takeout, the sinking market has always been a battleground for strategists. What new moves has Meituan, as the "big brother" among them, made recently?

Meituan has played the local group buying card by becoming an online media provider and using Kuaishou, upgrading its strategy for sinking markets to the 3.0 stage and shifting to a steady path of low-risk growth.

After Jiuli’s organizational adjustments at the beginning of the year, Meituan made a series of moves after the membership system was fully integrated into the platform business.

First, on July 11, the WeChat official account of "Meituan Takeaway Cooperation Cities" released a business information, planning to recruit elevator media advertising franchisees in sinking cities. Then the next day, media reported that the previous strategic cooperation between Kuaishou and Meituan had expired and been renewed recently, and the cooperation between the two parties would be fully upgraded.

Previously, the upgrade of God Membership was mainly to inject the "high-quality" traffic from home delivery to the store. The essence was to integrate the business, open up business synergy, and also give appropriate internal resources to the home delivery business. Like God Membership, the focus of these two strategic cooperations is also local store group purchases.

Take the cooperation with Kuaishou as an example. Compared with the pilot cooperation three years ago, the upgrade mainly lies in more cooperation space and richer supply. One is the scope of cooperation space, which will be further expanded to "100 cities and 100 stores" nationwide in the future. Another is that this cooperation has introduced more group purchase products, from the past commodity package form to a variety of marketing product combinations such as vouchers, membership products, and flash sales products.

In addition, whether it is the cooperation with Focus Media or the contract upgrade with Kuaishou, the two strategic cooperation cards played in succession point to the sinking market. Obviously, compared with the sinking of the e-commerce market, which only launched a price war, the sinking of local life group buying has new competition besides low prices.

1. Meituan’s 3.0 expansion into lower-tier cities by working as a media agency and using Kuaishou

Meituan has always attached great importance to the sinking market.

Since its listing, Meituan's layout for sinking can be roughly divided into three stages according to the growth path of traffic funnel: attracting new users, activating users, and promoting conversion. Currently, Meituan, which is engaged in media promotion and Kuaishou, may not lack the traffic of people in the sinking market, but more sales methods to promote the conversion of 700 million user traffic into orders.

From this perspective, Meituan is entering the 3.0 stage of increasing its business penetration rate in lower-tier markets.

In the 1.0 phase, Meituan’s layout in the sinking market was mainly focused on attracting new sinking market users through community group buying business. At that time, Wang Xing even said bluntly about this market: “Meituan Youxuan, as a community e-commerce business, may be the best opportunity that comes once every five or even ten years.”

In order to seize this business window, Meituan adopted a strategy of exchanging losses for growth. In the third quarter of 2021, Meituan recorded the largest single-quarter loss since its listing, with a net loss of 9.99 billion yuan. However, the loss also brought Meituan a large number of users.

Since the investment in July 2020, as of the third quarter of 2021, Meituan's transaction users have reached 667.5 million, a year-on-year increase of 40.1%. Among them, in the first and second quarters of 2021, Meituan disclosed in the earnings call that the number of new users reached 120 million.

Industry data analysis agency, Analysys Consulting said that Meituan Youxuan has become the main force in acquiring new customers for the Meituan platform, and is expected to bring 300-400 million new users to the platform.

It can be said that the low-priced community group buying business has almost doubled the growth of new users for Meituan at the cost of losses. However, the low-priced community group buying business has limited synergy with the high-priced hotel and tourism business. Therefore, providing more products needed by people in the sinking market and activating traffic have become the main line of Meituan's sinking in the 2.0 stage.

In the activation phase of 2.0, the most representative product is the launch of Pinhaofan. Meituan started to pilot the Pinhaofan business in 2020, initially positioning it as a low-priced takeaway product for the sinking market. Low price is its core competitiveness. In the fourth quarter of 2021, the average customer price of Meituan's catering takeaway was about 50 yuan, and Pinhaofan, which began to be promoted the following year, provided meals with an average price of less than 15 yuan.

However, this product, which was first launched in the sinking market, entered first- and second-tier cities such as Beijing, Shanghai, Shenzhen, and Chengdu in 2023, and Pinhaofan ushered in a breakthrough of 3 million daily orders. It eventually became a strong line of defense for Meituan's price competitiveness in the first- and second-tier food delivery markets.

In the third quarter of 2023, Meituan mentioned Pinhaofan for the first time in its financial report and conference call. The management focused on selecting high-cost-effective products, strengthening the Pinhaofan strategy, and meeting consumers' demand for delivery efficiency. In this statement, Pinhaofan is no longer a special product for sinking, but has become a manifestation of Meituan's price competitiveness in catering takeaways.

According to Bocom International, the total number of orders for Pinhaofan will reach 1.16 billion in 2023, accounting for 6% of Meituan's takeaway orders. Compared with the 300-400 million new customers of community group buying, it is hard to say that Pinhaofan has helped Meituan activate the needs of people in the sinking market. Some catering professionals believe that the core demand is not due to price. People in fourth- and fifth-tier cities usually eat in restaurants or cook at home.

In the 3.0 stage, Meituan's focus shifted to group buying business. Compared with the community group buying in the 1.0 stage, which was mainly an e-commerce model for buying fresh food, the core of local group buying is still to explore the business potential of Meituan's first curve. And local group buying is based on the advertising business attributes of LBS, which can also well undertake the activation and conversion functions after attracting new customers.

This point has been pointed out by former Alibaba President Guan Mingsheng: "The Thousand Group War is essentially an offline advertising war. If it is aimed at merchants, no matter how good the advertising is, it is not as good as a strong field promotion team; if it is aimed at consumers, online advertising is far more effective than offline brand advertising."

For merchants, the sinking market media that cooperates with Focus Media has strong competitiveness due to its precise conversion effect based on geographical location and the ground promotion of online franchisees; for consumers, more group buying product forms in cooperation with Kuaishou are also a form of advertising that can reach the sinking population with a higher frequency.

2. Will sinking be the magic weapon to break the price war?

From the perspective of Meituan’s own development, whether it is to achieve higher business penetration in the sinking market or to break through the business growth ceiling of local group buying, the benefits of continued sinking are self-evident.

However, compared with the company's own business development direction, from the perspective of industry competition, sinking may be an attack launched by Meituan.

In the past, Meituan’s leading position in the local group buying sector was mainly the result of its complementary merger with Dianping after the war of thousands of groups.

During the war between thousands of groups, the core strength of Meituan's victory was not traffic or capital, but the optimization of user experience and long-term and patient execution of correct strategies. Therefore, Meituan is often ridiculed as the winner of the war between thousands of groups.

However, the essence of group buying is a low-threshold online CPS advertising. Like other online advertising, group buying can bring online traffic to offline. By redeeming coupons, merchants can clearly calculate the traffic brought by marketing, and the coupon discount is the cost paid by the merchant for unit traffic, which is consistent with the CPC advertising principle of paying according to user clicks.

When a larger C-end traffic platform joins and the B-end market supply has long been cultivated by Meituan, the competition faced by Meituan is different from the past. In the past few years, facing the competitive pressure from Douyin in the group buying market, Meituan launched live broadcast room marketing IP and launched low-priced group buying products, mainly following the defensive strategy of competition.

Under the defensive situation, the two companies were caught in a price war in local group buying in first-tier cities. Under the new situation, how to break the deadlock of price war competition and expand the local life cake has become the choice of Meituan.

From the perspective of corporate development, Meituan’s ability to achieve unexpected success in the lower-tier markets has been its clever move in many past competitions.

During the expansion phase of the food delivery market, Meituan emerged victorious as a latecomer and defeated the original market leader, Ele.me. In this regard, Meituan investor Xu Xin once concluded that Wang Huiwen, Wang Xing's right-hand man at the time, only took six months to learn the ropes. Before Ele.me accelerated its expansion into third-tier cities, Meituan quickly launched an offensive in 100 cities and surpassed Ele.me in market share.

This food delivery battle has also been widely interpreted by the market as the most classic strategy of surrounding the cities from the countryside in the history of China's Internet business wars. In the earlier group buying market, Dianping's failure was largely due to its slow move into the lower-tier markets. Subsequently, it merged with Meituan with the help of various parties, becoming the most successful handshake and peace in the Internet industry so far.

If for Pinduoduo, the sinking market represents a broad base, then on the road to Meituan's development and growth, the sinking market is a surprising victory that escapes the existing tense competition. Faced with the competitive pressure caused by Douyin in the group buying market in the past few years, whether Meituan, which has broken through in the sinking market, can achieve another victory has become the biggest highlight.

3. Low-risk growth replaces the second curve

In the past, Meituan’s way of breaking through the growth bottleneck was mainly to find new businesses and build a second curve. This was true for everything from group buying to food delivery, from food delivery to instant retail, from local life to community group buying e-commerce. This is also known as Wang Xing’s infinite game rule, which made Meituan a borderless enterprise. This initial competition is also known as the “T”-shaped innovation strategy.

However, with the listing of Meituan, it has gradually developed into China's largest local life service platform and is committed to developing into a new e-commerce platform that "delivers everything to your home". When the horizontal expansion has already covered everything, vertically digging deep into the new potential of old businesses has also become Meituan's new direction.

Not only Meituan, but many platform-based companies with complex businesses have begun to slow down the pace of expanding new businesses and instead focus on optimizing their own businesses.

In the past six months, Alibaba has also optimized and redesigned the Taobao web version, Taobao TV version, and re-upgraded 1688 and other old e-commerce businesses. ByteDance, known as the App Factory, has also slowed down the pace of new application launches in the past year, and instead assigned more businesses to its home base, Douyin.

In the era of the mobile Internet wave, the growth path that the second curve growth theory wants to convey is paradigm shift, emphasizing that in order to move forward in business, sometimes radical change is necessary, which means opening up a new path that is completely different from the current one, requiring people to have a completely new perspective on familiar problems.

The market growth logic at that time was all about the future. Under the new growth logic, the era of exchanging losses for growth has passed. How to grow while making profits has become a new proposition for all Internet companies today.

Some Internet commentators believe that it is often easier to explore new markets than to start new businesses and find new curves. Not only in the lower-tier markets, but also in e-commerce, the wave of Alibaba and Pinduoduo going overseas in the past period of time is essentially to copy past successful experiences to new markets with lower dimensions and achieve a new path of low-risk growth.

On the one hand, it is going global to find global growth for old businesses and breaking through the growth ceiling of the Chinese regional market; on the other hand, it is going local to find new groups for old businesses and further increase the penetration rate of local life. At present, raising the ceiling of old businesses through new markets and replacing the second curve of paradigm shift with low-risk growth have become the steady theme of Meituan.

The more mature Meituan can remain calm when facing the pressure of competition from platforms such as TikTok. However, compared with the stage when it was in its growth stage and dared to challenge Alibaba, Meituan now has a little more adult burden of "not losing money and increasing revenue". Under the burden of adults, Meituan's strategic execution can activate some youthful vitality, which also becomes the key to where Meituan's ceiling is.

Author: Gu Er

Source: WeChat public account "New Entropy"

This article is authorized by @新entropy to be published on Operation Party. Any reproduction without permission is prohibited.

The title image is from Unsplash, based on the CC0 agreement