The idea of "the countryside surrounds the city" has always been successful, and Meituan has achieved first-come-first-served in different fields (group buying, movie tickets, hotels, takeout, scenic spot tickets, etc.) in a short period of ten years.

Meituan, whose stock price rose one after another, set his own all-time high again today, breaking through the HK $90 mark and heading towards HK $100.

Since the National Day holiday, Meituan has been given a shot in the arm, rising 12 per cent in five trading days. If you look at 2019, Meituan's comments have risen more than 100 per cent this year since hitting an all-time low of HK $40.25 in January.

At present, Meituan has a market capitalization of more than 510 billion Hong Kong dollars (more than US $65 billion), second only to BABA and Tencent, making it the third largest listed Internet company in China.

Once questioned: the more takeout, the more losses, can Meituan make a profit?

When Meituan first went public, the market was full of doubts about Meituan, especially Meituan's takeout business model. Meituan's share price also continued to fall from its offering price of HK $69 to about HK $40.

The query mainly comes from two aspects:

One is the problem of profitability-the cost of riders seriously erodes the gross profit margin of the takeout business.

The Internet platform originally has the effect of economies of scale, and gross profit margins of more than 70% can be found everywhere, but Meituan's gross profit margin was 23.2% last year, 13.8% for takeout business and 89% for arrival business. the main reason is that the rider's cost is too high, and it is a rigid demand, and the coverage of each rider's distribution is actually limited. So to cover a wider range, you have to hire more riders, and labor is rising every year, which is diseconomies of scale.

The second is the issue of competition-strong competition from BABA's ele.me.

It should be said that at that time, when Meituan could not see the profit prospect, the competition issue became the last straw that killed the camel, because the competitor was actually ele.me, behind BABA. At that time, the market share of ele.me was 32.2%. Meituan is 58.6%.

In April 2018, BABA and Ant Financial Services Group completed the wholly-owned acquisition of the takeout platform ele.me for $9.5 billion. In August, BABA announced the establishment of a holding company for local living services in his first-quarter financial results, integrating word-of-mouth and ele.me. BABA and Softbank Corp. plan to invest 3 billion US dollars in the holding company, with a corresponding valuation of about 25 billion US dollars.

The existence of competition will affect Meituan's profitability for a long time, and suppress the improvement of Meituan's realization rate through the competition of distribution fees, promotion rates, incentive fees (user subsidies) and so on.

Therefore, Meituan in 2018 gave the market the impression that it was difficult to make a profit and faced strong competition from ele.me. Naturally, after its listing in September last year, the stock price ushered in a long way to fall.

How did Meituan counterattack?

However, even under various competitive pressures, Meituan tenaciously proved his strength with strong performance. In particular, 19Q2 made an adjusted profit of 1.492 billion for the first time in a single quarter (a loss of 7.7 billion yuan in the same period last year), which greatly exceeded market expectations. Meituan's share price rose 8.86% on the day.

Meituan unexpectedly made a profit, so let's take a look, where is the better-than-expected performance of 19Q2?

Among them, the second-quarter revenue of Meituan's new business and other divisions, including taxi-hailing, increased by 85.1% to 4.6 billion yuan from 2.5 billion yuan in the same period in 2018, and the overall gross profit reached 420 million yuan, from negative to positive. The operating efficiency of bicycle business has been greatly improved, and the operating losses have been significantly narrowed compared with the same period last year and month-on-month. This is mainly because mobike depreciation was basically completed last year, Q2 amortization decreased significantly this year, in addition, taxi-hailing business changed from "proprietary platform" to "aggregation mode", the loss was greatly reduced.

In fact, the reduction in losses in new business can be expected, and the higher-than-expected results mainly come from takeout data.

Meituan's takeout business

In the second quarter, the total transaction value of Meituan's catering takeout business increased by 36.5% to 93.1 billion yuan, with operating income of 12.8 billion yuan, gross profit doubling, and adjusted operating profit becoming positive for the first time, mainly due to the rapid rise in gross profit margin of the takeout business. The market had expected that the takeout business would break even in 2020.

Meituan's takeout business

The reasons for the higher-than-expected delivery business are as follows:

1. The scale effect brought by the increase of order density.

2. The proportion of advertising revenue has increased (the gross profit margin of advertising is 85%, the gross profit margin of takeout is 14%).

3. The proportion of merchant-end commission has increased.

The rise in the gross profit margin of the takeout business has driven Meituan's overall gross profit margin to 35% of 19Q2 from 26.4% in the previous quarter, while the expense rate has also been fully controlled, with sales and marketing expenses as a percentage of total revenue falling to 18.3% from 25.7% in the same period in 2018.

The performance data show today's "fruit", and the seeds behind the "cause" have already been planted.

1. The track-choice is greater than effort.

The life service industry, including food consumption, hotel booking, tourism-related services, transportation services and other services, has an industry size of 18.4 trillion, an online scale of 2.7 trillion, and a trillion-class market. the future will be a trend of both industry size and online penetration.

Meituan chose such a "people-service" track to successfully avoid the competition from BAT, social networking, e-commerce and search. At the same time, the track market scale and ceiling of "people and services" are as high as those of BAT, and it is a track that can give birth to enterprises with a market capitalization of hundreds of billions of dollars.

Take the catering industry as an example, one of the most important elements: turf effect. The best way to improve turf efficiency? Takeout!

Takeout accounts for a large proportion of food and beverage revenue in the United States (more than 60% of KFC's revenue in the United States comes from takeout). As the overseas third-party delivery platform is not developed, the chain catering develops its own delivery service. Including McDonald's Corp, KFC and Pizza Hut all have their own strong delivery service teams.

In China, due to higher urban population density, the popularity of the mobile Internet, and lower-cost scooter delivery services, there is no similar means of transportation in many overseas countries (American takeout is basically delivered by car). As a result, the market will be larger than overseas, and leading companies will enjoy a higher market capitalization.

Well, let's go back to the question about Meituan's profitability. Previously, the market thought that the cost of takeout riders was too high, resulting in diseconomies of scale, but ignored the trend of China's high population density and residential centralization, resulting in an increase in order density (for example, a rider could only send one order per trip in the past, but now he can send 2-3 orders). The scale effect of order density is becoming more and more obvious. For example, the gross profit of Meituan takeout 19Q2 increased by 1.45 billion yuan over the same period last year, of which the order density brought about an increase of nearly 880 million.

2. The business logic of "high frequency playing low frequency".

One column: do vertical depth in the field of catering, and make the chassis thick. There is not only the homeopathic outbreak of the front end, but also the potential of the back end to constantly strengthen the control of the industry.

One horizontal: the horizontal development of life service business, the core logic is "high frequency and low frequency". Takeout as a head is extremely high-frequency, Meituan's most extreme users will order takeout more than 20 times a month. With such high-frequency business drive, traffic distribution can be formed and distributed to movie tickets, hotels, tickets, entertainment and other fields.

By focusing on the "Food+Platform" strategy, Meituan has lower traffic costs than other independent APP, such as ele.me, can capture user needs at many levels, and constantly cultivate and strengthen users' habits.

This platform strategy + low traffic / customer acquisition cost enables Meituan to maintain his competitiveness in the fierce competition (price subsidy as a phased marketing means for the industry to get customers in the early stage, in the mature stage of the development of the industry, when users' habits and loyalty to the platform are more mature, the marginal utility of subsidies decreases).

According to Trustdata data, the current leader of China's catering takeout industry is Meituan Dianping. Meituan's market share has increased from 31.7% in 2015 to 63.4% of Q1 in 2019, continuously squeezing the survival space of ele.me and other delivery platforms. Ele.me and ele.me occupy most of the rest of the market, the whole market is basically carved up by two head enterprises, and the tail enterprises will gradually withdraw from the market.

Facts have proved that the competition did not bring great difficulties to Meituan, but his market share continued to expand.

3. Executive ability of management

Group buying is a matter of low gross profit. At the beginning, the competition barrier was not high, and then there was the "Thousand Regiment War" that Meituan experienced. In the end, only Meituan was still alive. This is not an easy achievement. Just like the gross profit margin of group buying is not high, but to be able to do a very large scale and serve a lot of people, this process is a very high competitive barrier, which tests the management's ability of operation, decision-making and execution.

For example, when Meituan does group buying business, he stands out not because he spends money, but because he focuses on developing second-and third-tier urban markets, grabs the blue sea in the red sea, does not do physical e-commerce or offline advertising, and buys a large amount of online traffic. seize mobile Internet dividends and optimize user experience.

The same idea is used in the hotel business, that is, to do business that Trip.com does not cover (except for business travelers). At first, it revolves around specific small business areas such as hospitals and universities to meet the needs of local accommodation.

It can be seen that this idea of "the countryside encircling the city" has been successful all the time, and Meituan has achieved first-come-first-served in different fields (group buying, movie tickets, hotels, takeout, scenic spot tickets, etc.) in a short period of ten years.

The cause of yesterday, the result of today. Simple things, as long as they can persist, may blossom and bear fruit, just as Wang Xing regards the long-term doctrine pursued by Amazon.Com Inc as the standard, thinking about the future of the company in the long run, it is very simple and clear, but few companies can do it.