Source: Late Late Post Author: Shen Fangwei
We have learned that Meituan Takeaway's new business, “Make Good Meals”, had an average daily order volume of nearly 5 million orders in the first quarter of this year, which is almost 10% of the average daily order volume of Meituan Catering Takeout's 57 million orders in the fourth quarter of 2023. People close to Meituan judged that preparing meals will become larger, and the proportion of takeout orders in the long term is expected to reach 20%.
Meituan began piloting the meal preparation business in 2020. It was initially positioned as a low-cost takeout product for a sinking market, but has now entered most markets across the country, including Tier 1 and 2 cities.
The idea of preparing a good meal is that the platform intervenes in the supply chain, negotiates prices with merchants, and allows users, merchants, and riders to separately place orders, deliver meals, and use the “pick” method to reduce tripartite costs.
Preparing a good meal is Meituan's most important attempt at cheap takeout. In the fourth quarter of 2021, the customer unit price of Meituan Catering's takeout was about 50 yuan (excluding delivery), and the prepared meals, which began to be promoted the following year, offered meals with an average price of less than 15 yuan and 0 delivery fees.
Behind trying cheap takeout, Meituan realized that the growth rate of food and beverage takeout orders was slowing down and was close to the ceiling; changes in the environment have also increased the number of people who order cheap takeout.
Meituan's method of making takeout a unit price of 15 yuan or even lower is very similar to its old rival Pinduoduo. We recommend packages one by one, instead of recommending restaurants like Meituan Takeout, just as Taobao once paid attention to the differences between stores and products recommended by Pinduoduo. Fewer choices ensure that every single item can gather large sales, allowing restaurants to reduce costs through scale effects and riders to accept lower unit prices.
People close to Meituan believe that preparing meals to complete the 5 million day order already means that the attempt at cheap takeout was initially successful.
How can Meituan make cheap takeout?
In 2022, Meituan Takeaway began promoting ready meals. Previously, the average customer unit price for Meituan Catering takeout was about 50 yuan, and the average delivery cost of an order was about 7.5 yuan. Meal prep is aimed at a market where the customer unit price is less than 15 yuan. In the past, they accounted for about 20% of Meituan takeout, and losing one order is the norm.
Meituan hopes to improve the loss situation of low-price orders by preparing meals. The way is to find more low-priced supplies and reduce delivery costs.
The supply model for preparing meals is that the platform decides which low-priced meals to sell, targets investment, and negotiates with merchants to set low-margin supply prices. Compared with past prices, it can be cheaper.
Most of the suppliers that make good meals are small to medium businesses that are highly dependent on online orders. Meituan uses subsidies and traffic to help them gain customers, while merchants need to cooperate with Meituan to make low and affordable products in exchange for price and volume, and rely on higher turnover profits.
In terms of delivery, the free-running model used to prepare meals was launched by Meituan Takeaway in 2021. Meituan's delivery system will prioritize orders placed by the same merchant and route orders with similar addresses to free-running riders. In the same period of time, free-running riders usually complete 2 to 3 times the number of orders completed by regular riders, and the revenue of the two is basically the same.
The free-running model effectively controlled the delivery cost of packed meals, and packed meals grew rapidly. Since 2022, Meituan's takeout delivery fees have gone through several rounds of adjustments. In the same year, the number of daily orders for packed meals reached one million. After entering Tier 1 and 2 cities such as Beijing, Shanghai, Shenzhen, and Chengdu in 2023, the number of daily orders exceeded 3 million.
In terms of product presentation, the emphasis on preparing meals is a single item, which is different from the store logic of Meituan Takeout.
Meituan Takeaway operates in merchant stores. Similar to Taobao, merchants want more exposure in addition to comprehensive rankings based on factors such as price, quality, and delivery efficiency. They need to invest more in advertising. Some merchants pass on advertising expenses to consumers, and the price of each takeout order also increases.
Pinduoduo uses SKU logic to present products. Similar to Pinduoduo, merchants do not need to participate in all kinds of advertising and promotion. After the platform limits the highest price and minimum meal specifications, it provides more traffic to the lowest-priced product to ensure the cost performance ratio of the user side.
However, it is difficult to standardize meal products. In order to reduce costs, small and medium-sized merchants may act, such as using worse raw materials, etc., and the platform will need to increase control in the future.
In the early days of the launch, due to low gross profit, merchants were not very motivated to participate. Meituan allowed the sales volume of established merchants to add up to takeaway store sales, helping it increase its traffic weight. This strategy attracted many merchants to settle in. This year, Pin-Hao Mei went from a sinking market to some Tier 1 and 2 cities, and some brand-name restaurant chains have also introduced exclusive meal plans to add to Bundle Meals.
In 2024, Meituan adjusted its strategy to stipulate that after 90 days of the merchant's launch, the order sales volume, reviews, etc. of the prepared meal will no longer be recorded in takeout stores. People close to Meituan believe that the logic of the adjustment is to allow businesses that specialize in preparing meals to increase sales and attract more merchants to prepare good meals.
In the third quarter of 2023, Meituan first mentioned preparing a good meal in financial reports and conference calls. Management focused on cost-effective products and strengthened the strategy to meet consumers' demand for delivery efficiency. According to BOC International's analysis, the total number of orders for ready meals reached 1.16 billion in 2023, accounting for 6% of Meituan's takeout orders.
A number of takeaways from Chengdu and Beijing said that in the past two years, their attitude towards preparing a good meal went from being clearly rejected to skeptical to having to follow up because consumers wanted to order more cost-effective takeout.
After the merchants settle in and prepare meals, they will maintain a low-profit operation for a long time.
Take a fried chicken merchant in Chengdu as an example. Their signature “Fried Chicken + Cola” cost 6.5 yuan per serving. In the past, the price of Meituan and Hungry was 14 yuan, which earned 2 to 3 yuan per order, excluding delivery fees and commissions; now he uses 7.5 yuan to supply prepared meals, earning only 1 yuan per order, and the platform sells them at 9.9 yuan.
Hungry has also tried a cheap takeout product similar to “Xiaobao Group,” but there has been no significant progress. A hungry person called preparing meals “an additional problem made by good students.” He believes that there are two reasons why Hungry can't replicate the preparation of meals: one is that there is a lack of user data, which makes it impossible to accurately define demand; second, the market share is low, and there is a lack of bargaining power for merchants.
People close to Meituan believe that preparing good meals will help strengthen Meituan's leading position in the takeaway industry. Meituan currently has more than 70% of the market share. Doing good at low prices can increase consumption frequency and reach new users, and also prevent other competitors from entering the takeout market at low prices.
More and more serious business exploration
Over the past ten years, the takeout war between Meituan and Hungry has turned most potential takeout consumers online in China. If Meituan wants to continue to grow, it needs to let more people who used to order less takeout, and those who didn't order takeout to start ordering takeout. Low prices are one of the most effective methods.
As a reference, in 2020, China Finance estimated the potential average daily order volume of Meituan Takeout:
Assuming that people with a monthly salary higher than riders are high-frequency takeout users, the reason is that the user's time is more “valuable” than that of riders. CICC calculated that the average monthly wage of Meituan riders in 2018 was 5,968 yuan, and that Meituan averaged 1.2 people eating per takeout order. In reverse, users with a monthly salary of 4973 yuan or more are more likely to become core takeout users.
Beijing Normal University counted the per capita income distribution of Chinese households in 2019. Among them, the average monthly income of 70 million people was above 5,000 yuan. Considering Meituan Takeaway's subsidy rate of about 21%, the monthly salary “threshold” for core takeaway users was lowered to about 4,000 yuan. The number of people corresponding to this income level is about 135 million people.
Assuming that 90% of them are core takeout users, and Meituan's takeaway market share is 70%, the target number of takeaways is expected to reach 85 million people.
According to estimates of 85 million core users ordering 120 orders per year and 400 million non-core users ordering 30 orders a year, it was finally determined that Meituan's average daily takeout orders could reach 61 million orders.
According to Meituan's 2023 annual report, the average daily food and beverage takeout order volume for the whole year was about 53 million. Among them, the average daily order volume for the third quarter, which had the most outstanding performance, was 59.42 million, which is close to CICC's estimate.
Meituan hopes to continue growing. In addition to launching low-cost takeout, it is also expanding from food and beverage takeout to more categories.
In terms of extended distribution categories, in the past few years, Meituan has focused on the instant retail business flash sales and pharmaceuticals, all of which have brought new growth to Meituan.
Flash sales averaged 7 million orders per day in 2023. We learned that the target date for flash sales was 9.8 million orders in 2024, an increase of 40% over the previous year; Meituan Pharmaceutical's peak daily order volume reached 5 million, which ranked first in the fields of instant retail and instant pharmaceutical retail respectively.
In addition to connecting to more supermarkets and convenience stores, Meituan Flash Shopping has pioneered a new supply — Lightning Warehouse. It only accepts online orders, has lower location costs, and can adjust the supply chain side in a timely manner according to market demand to achieve lower product prices. In 2023, Meituan opened more than 6,000 lightning warehouses, and plans to add 2,000 more in 2024. Currently, the unit price for flash shoppers is 80 yuan, which is 1.6 times that of food and beverage takeout.
We have learned that Meituan is doing some more serious business exploration, and will be involved in managing every takeout meal, sorting out every aspect of the transaction, and helping merchants improve processes to improve efficiency and reduce costs.
Meituan has done enough business experiments to try to break through the ceiling of the original store and rider business. Looking at it now, the price reduction is still the most effective.
edit/lambor