High commissions, Meituan’s Achilles’ heel

Remember, when Tencent became the public enemy of the Internet, Wang Xing complained, "Is there any business that Tencent doesn't do?" Now that time has turned, this sentence can almost describe Meituan. Is there any business that Meituan doesn't do?

1. Hit the "middle layer"

The market's attention to the competition between Meituan and Douyin exceeds that to Meituan's own performance and space.

Some voices in the market believe that the reason why Douyin was able to achieve a breakthrough against Meituan in local life in just two years is that it grasped Meituan’s "Achilles' heel", that is, the in-store business.

Meituan's market expansion has continued fiercely in recent years. The market share of its food delivery, in-store and other businesses has continued to expand, and its profits have continued to increase. At the same time, new businesses have continued to expand, making it one of the few Internet companies that can still compete.

But behind the aggressive expansion, Meituan’s weaknesses are constantly being exposed.

Meituan is like a Mongolian cavalry, expanding by fighting to support the war. Takeout is the traffic source, and in-store dining is the profit source. The high profits from in-store dining support new businesses, and the new businesses in turn feed back the traffic source.

The financial report shows that in Q4 2022, Meituan's local core operating profit was 7.22 billion yuan, and the new business lost 6.37 billion yuan. In Q4 of 2021, the core local business operating profit was 5.12 billion yuan, and the new business lost 9.36 billion yuan. For the whole year of 2022, the core local business operating profit was 29.5 billion yuan, and the new business lost 28.4 billion yuan. One can earn, and the other dares to spend.

The ever-increasing commissions for food delivery have caused merchants to suffer and even led to large-scale boycotts. The continuous failure of new businesses has consumed a huge amount of funds, and cracks have appeared in Meituan’s empire of food, drink and entertainment.

The market believes that Meituan’s high commission has created a gap in the market, and Douyin has seized this opportunity to become a new player.

Commissions represent market transaction costs. Excessively high transaction costs in mature markets often create opportunities for new players.

In his article "Pinduoduo's Revolution", Zhang Peng believes that the reason why Pinduoduo was able to rise even when it was generally recognized that there was no room for growth in the e-commerce market was that Taobao's traffic was becoming increasingly expensive, and merchants were looking for low-cost platforms under high transaction costs, which led to Pinduoduo's rise.

Meituan's transaction costs have been rising year by year. During the epidemic, the takeaway business even led to a joint boycott by merchants because of Meituan's high commission. As Meituan's cash cow, the in-store business has also brought Meituan extremely high profits. In comparison, Douyin's zero commission just hit Meituan's weak spot.

In fact, as the "middle layer" of Meituan's entire ecosystem, the in-store business is special in that while it provides high profit returns, it does not have market traffic itself and needs food delivery to provide a steady stream of customers.

Douyin attacked Meituan from the middle layer, not only to cut off its food supply, but also because Meituan had little room to fight back in its in-store business.

The competition between TikTok and Meituan clearly reflects the competition between Tencent and Alibaba back then.

Transaction scenarios are often traffic black holes, so Alibaba continues to acquire traffic platforms and provide traffic for Taobao transactions.

On the other hand, Tencent's social network is a natural traffic pool. In the past decade, Tencent has supported trading platforms such as JD.com and Pinduoduo, but it has never been able to engage in e-commerce on its own.

TikTok is similar to Meituan.

Douyin is like an air force, conquering cities quickly and fiercely. In fact, it is true. With 700 million daily active users, Douyin has been tried by various industries in recent years. The industry even believes that as long as Douyin brings in 700 million daily traffic, almost no industry will not be impacted.

Meituan is like the army. If the air force takes down a city, the army has to defend it. It is easy to attack a city but difficult to defend it. In fact, the army needs to guard it. For Meituan, the flesh and blood Great Wall comes from more than 5 million riders.

Douyin will not rashly attack Meituan’s underlying traffic base - the food delivery business, which means huge investments in infrastructure costs and subsidies.

The situation of attacking the middle layer has also occurred. In the Weibo war that year, Tencent did its best to maintain its social position, but it also led to the rise of game tools such as YY. However, between the social networking platform with its foundation and the cash cow, Tencent chose social networking.

If you want to attack your competitor’s core business, it will inevitably lead to a crazy counterattack. Didi and Meituan started to engage in food delivery and taxi-hailing businesses, but the final result was not ideal.

From in-store to outside, Meituan underestimated Douyin's ambition and determination for local life, which was also a major strategic mistake of Meituan.

2. Wang Xing’s “retribution in this life”?

Some netizens commented that Douyin’s start of group buying and food delivery business is Wang Xing’s “karma in this life.”

Zhang Yiming has become the next Wang Xing. Previously, Meituan’s entry into various fields led to Wang Xing and Meituan being considered to be expanding without boundaries.

Many of Meituan’s businesses have become nightmares for companies in many fields. For example, Meituan entered the power bank industry at a late stage of development by leveraging its merchant resources, and directly launched a price war, causing the financial models of many companies to fail and being pulled back into the battlefield, while Meituan was considered the harvester.

Earlier, Meituan entered the hotel, tourism, medical beauty and other industries, and Meituan, which was conquering everywhere, became the public enemy of the Internet.

At that time, there was a voice asking how Meituan could avoid being surrounded by enemies on all sides.

Douyin and Meituan have similar characteristics, but they are now intersecting.

ByteDance has also been expanding without boundaries in recent years. In addition to Toutiao and Douyin on the content side, there are also many social products. In terms of actual business, ByteDance has also expanded in multiple directions, from the initial finance to education, and then to e-commerce, live streaming and supermarket business.

It is worth noting that Zhang Yiming and Wang Xing have too many things in common. In addition to being from Fujian, Zhang Yiming once worked under his boss Wang Xing at Kuxun and Fanfou, and was deeply influenced by Wang Xing.

In a way, Zhang Yiming is like Wang Xing's shadow. The two have the same work experience, and the experience of working together also makes them have similar ways of thinking. When they became the top entrepreneurs born in the 1980s, they were also not satisfied with their current achievements and chose to expand without boundaries.

However, it can be found that ByteDance has never touched businesses that require contract fulfillment, which has led the market to believe that ByteDance does not have the ability to penetrate the industry. On the contrary, Meituan's advantage lies in contract fulfillment.

Many people may not realize that the instant retail represented by Meituan is undergoing a milestone turning point.

Wang Xing's expectation for Meituan is to earn only RMB 1 per order and 100 million orders per day. Many people thought that Meituan was still far from this number, but in 2022, Meituan's daily catering takeaway orders peaked at 60 million, compared to only 20 million in 2018.

In addition, the daily order volume peak of Meituan Flash Purchase (including Meituan Grocery Shopping) reached 11 million, and the daily order volume peak of Meituan Medicine Shopping reached 5.8 million.

Meituan is approaching Wang Xing’s goal of 100 million orders per day.

What changes will 100 million orders bring? The most significant change is the reduction in delivery costs. Rider delivery also has a scale effect. The more orders there are, the more orders the riders can get to "support themselves", and in turn the price of each order can be reduced.

For comparison, the express delivery industry only entered the 10 billion era in 2014, while Meituan alone had 17.7 billion annual delivery transactions.

This is also the reason why the market currently believes that Douyin will not be able to shake Meituan Waimai in the short term.

Meituan itself has also begun to run into problems. Many companies have been affected by the epidemic in the past three years, but for companies like Meituan, it almost means that the dividends have disappeared.

In Q4 of 2022, Meituan experienced a decline in consumers. Financial report data showed that the number of transaction users decreased from 690 million to 677 million, a decrease of 13 million.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.