The Chinese government has spent a lot of effort reining in the power of large tech companies like
Alibaba. And deservedly so. So it is natural that Meituan should receive scrutiny as well.
Meituan, which used to be called Meituan Dianping before a September 2020 name change,
has risen to become China's third largest tech company. Starting off as a Groupon clone,
Meituan has parlayed its success into a super-app on par with Tencent's WeChat.
Founder and CEO Wang Xing seeks to make Meituan the king of China's
"online to offline" space. He is now taking the company on a new journey, challenging
big incumbents in the massive community buying space, and burning plenty of cash in doing so.
In this video we are going to look at one of China’s newest and most ruthless tech giants.
In 2010 Wang Xing, a serial entrepreneur with experience in the United States, started a
website called Meituan. He had been inspired by Groupon and Meituan was a China based copy.
Meituan joined a morass of nearly 5,000 Groupon copycats in the Chinese internet space.
If Meituan did not differentiate itself then they would drown in a sea of competitors.
I do not know if you remember those days back in the United States, but Groupon's surge and growth
foreshadowed Uber's years later. The industry burned immense amounts of venture capital. You had
to hire thousands of salespeople to knock on small businesses' doors and convince them to sign up.
Faced with so much competition from companies like Lashou.com
indiscriminately buying their way into the lead, Wang decided to reject such
unsustainable spending and focused on efficiency and profitability.
This focus paid off the next year when the market shook out and funding tightened up.
Fortunately, Meituan had enough cash in the bank to survive.
By then, Wang had established his business playbook:
A focus on efficiency and cost-leadership
through the use of technology. Ruthless horizontal expansion. And a zen comfort with competition.
Meituan began its move towards something bigger with the 2012 launch of Maoyan Dianying,
an online movie ticketing site. This came just two years after the company's founding.
Movie tickets made a lot of sense for Meituan's first expansion.
Movie times can be indexed and updated. People like to buy tickets ahead of time
so to reserve the best seats. And lots of people like to see movies.
Meituan followed up Maoyan with a flurry of product launches.
A year later in 2013, Meituan stepped into the hotel booking space.
They also entered food delivery - soon to be one of their core services.
In 2015, Meituan expanded once more into
transportation ticketing with train and airplane tickets.
The company also announced a merger with Dianping.com,
a restaurant reviews website launched in 2003 that is kind of like China's Yelp.
Dianping had good traction in first and second-tier cities like Shanghai.
But they lagged behind in China's other urban areas. The merger allowed Meituan
to add Dianping's established customer base to its own and consolidate the industry.
The merger was pitched as a combination of equals
and the two companies would collaborate on innovation.
But Wang quickly sidelined Dianping's founder Zhang Tao and replaced the team with his own.
The new company emerged as a heavyweight in the Chinese tech landscape. They raised
money and continued their horizontal expansion throughout the Chinese local services ecosystem.
In 2018, Meituan went public on the Hong Kong stock exchange,
raising $4.2 billion at a valuation of $50 billion.
The stock has done well since then and today it has a $220 billion market cap.
Meituan is a sprawling beast with over 200 offered services
but its product lines are all centered on offline services ordered online.
You have the aforementioned Maoyan, its movie ticketing service.
Its food and grocery delivery services - Waimai and Meituan Grocery. The company
has majority share - around 65% - in the Chinese food delivery business.
Alibaba-backed leading competitor Eleme has less than 30%. More on this one later.
Its travel and hotel booking products. Meituan has majority share of the Chinese
online hotel booking market according to their Q3 2020 earnings report.
Meituan services more than just consumers too. In 2016, the company launched supply chain,
online advertising tools, and cloud-based enterprise resource planning software
for their many small business merchants. This is their first expansion into software
and it helps lock those businesses into the Meituan platform.
The company makes revenue from sales commissions, online advertising from vendors on its platform,
and other service fees. Fiscal Year 2020 revenues totaled $17 billion USD.
WeChat is China's most famous super-app. What started out as a simple chat app has
bundled together various parts of people's lives to meet all of their daily needs.
Meituan follows a similar strategy - referred to in its annual reports as "Food + Platform".
Meituan has built proficiencies in delivering many types of items.
For instance, they recently added delivery of flowers, medicines,
and more. But the biggest revenue and profit drivers are food and groceries.
The food delivery business is so important because it is so commonly used in China.
Like with the rest of the world, the pandemic has accelerated food delivery adoption.
Over 421 million Chinese have placed a food delivery order - 86% of whom are white collar
workers. Furthermore, they use it quite often - an average of 25.5 transactions in 2019.
Since food delivery is so frequently used, it drives traffic for Meituan's other services
like travel bookings, in-store dining, and even wedding planning. That is the
platform part of the "Food + Platform" strategy. Cross-selling these local
services makes Meituan even more of a destination for Chinese consumers.
Furthermore, that titanic transaction volume helps drive scale. In 2020, Meituan hired 9.5
million drivers - more than the population of Austria. This titanic scale lets them dispatch
their deliverymen on the most optimal routes, minimize downtime, and be the low-cost leader.
Meituan had been one of those rare companies with backing from both Alibaba and Tencent,
rivals in the Chinese internet space.
Wang had originally raised money from Alibaba. But after the 2015 merger with Dianping,
Tencent as a Dianping investor had the option to invest in the combined entity.
They did, pitching in a billion dollars in a 2016 fundraising round.
Tencent's friendly relationship with Meituan continues to this day
with the latter's favorable feature placement within the WeChat ecosystem.
Alibaba sold their stake at a discount from the 2016 round,
citing their focus on their own homegrown online-to-offline services division.
In an interesting 2017 interview, Wang talked a bit about Meituan's relationship with the two
titans. He likened it to China's relationship with the United States and the Soviet Union.
Which is pretty fun to think about, if you are familiar with that stuff.
After the Dianping merger, Wang went to Jack Ma and Daniel Zhang,
today Alibaba CEO, to talk about resetting relations:
> I thought we could learn from the successful merger of DiDi
and Kuaidadi. Alibaba and Tencent fought endlessly.
Eventually they shook hands and made up, and now they are both shareholders of DiDi.
> And so I told Alibaba that Meituan sincerely hoped it could receive support from both
Tencent and Alibaba, but they said: “You are completely mistaken. We think the consolidation
of DiDi and Kuaidadi was a failure. We will not make the same mistake again.”
Alibaba thereafter began developing several directly competing services.
As Meituan finished up on 2020, they warned investors to expect several quarters of
operating losses as the company continues its battles and expands into community buying. To
fund this expansion, the company raised $10 billion by selling debt and equity.
Wang is so willing to stir up dust with titans like Alibaba because he is in general
very comfortable with competition. Meituan's style of horizontal expansion
means charging forward into a field of crowded incumbents.
This latest competitive push takes Meituan into "community purchasing"
with its Meituan Select service. Community purchasing is a new
Chinese e-commerce trend where communities can set up local groups for bulk buying.
It is kind of like Groupon, but more localized. Pinduoduo pioneered this model,
where people can band together to "unlock" group discounts. Founded in 2015, Pinduoduo
is now worth $140 billion and its founder Colin Huang is one of China's richest people.
The community group buying concept began in China's hinterlands - massive cities
with millions of people that nobody has heard of
like Dandong, Panjin, and Fushun. It is a titanic market estimated to be worth $100 billion in 2021.
Meituan is not going to win it without a fight. Meituan Select directly competes with JD.com’s
Dingdong Maicai, Xingsheng Youxuan,
Pinduoduo’s Duo Duo Maicai, Alibaba’s Taobao Maicai and Didi Chuxing’s Chengxin Youxuan.
I should mention. Interestingly enough, Pinduoduo is also a Tencent investment,
having scaled up in their early days through their usage of WeChat groups and mini-programs.
The Meituan team is definitely not afraid of stepping on their siblings' toes.
Wang is a student of history. In interviews, he quotes Chairman Mao
and cites the Hundred Regiments Offensive - a glorious WWII Chinese victory commanded
by CCP-KMT general Peng Dehuai. He would be a great asianometry viewer.
Considering Wang’s knowledge of history, a recent deleted post on his social media is
worth closing with. May 2021, he posted on the social media network Fanfou.com a 1,000 year old
poem by Zhang Jie titled "The Book Burning Pit". Then he deleted it. Cuz he knew he done goofed.
The stock crashed to a seven month low as the market immediately saw the post as a criticism
of Beijing and its recent anti-trust moves. The Chinese government has been very sensitive of
such things - starting with the very public beat down of Alibaba Group after the Jack Ma's speech.
Meituan is very comfortable with conflict. They have carried their
zen through years of battles and horizontal industry invasions.
But now perhaps they have come across an opponent against which they cannot win.