From Groupon clone to China’s largest lifestyle services provider

Meituan Dianping was originally two companies—Meituan and Dianping—competing in the same lifestyle app space. However, Meituan was primarily focused on group-buying and food delivery, while Dianping emphasized restaurant reviews.

In 2015, a merger ended the bitter rivalry between the two and marked the inception of Meituan Dianping, a super-app that has expanded to encompass a wide range of lifestyle and entertainment categories.

Although the company’s forays into ride-hailing and bike-rental services have been expensive gambits that haven’t yet paid off, it has seen success in other efforts, particularly its expansion into the online travel sector and the movie ticketing space.

Meituan has also made significant strides in online travel booking. Its hotel booking unit Meituan Hotels dominates the market, surpassing domestic rivals like online travel giant Ctrip. The company has expanded into flight ticketing services in a bid to become a one-stop shop for travel booking.

The Meituan food delivery empire

Although Meituan now offers a wide range of services, food delivery is still its core business and its main source of revenue. In recent quarters, Meituan has been able to improve profitability of its on-demand delivery business, even in an increasingly saturated market.

The road to conquering China’s $37 billion online food-delivery services market was not without its challenges. Meituan faces fierce competition from Alibaba, one of China’s most valuable tech companies, which owns the food-delivery platform Ele.me.

The rivalry goes way back. Before the merger, Alibaba was a major backer of Meituan while Tencent backed Dianping. After the two companies consolidated into Meituan Dianping, Tencent remained a main backer. Alibaba, on the other hand, sold nearly all of its shares in Meituan and invested in Ele.me, then a new entrant in the space.

After a cash-burning food-delivery war with Ele.me that lasted a few years, Meituan finally came out on top. Meituan currently operates China’s largest food-delivery platform, which accounts for over 64% of the market in China, according to third-party research company Data Center of China Internet (DCCI) report (in Chinese). The company boasts of having served around 400 million customers and processed 6.4 billion food orders in 2018.

In the third quarter of 2019, Meituan’s food-delivery business made up 56.7% of its total revenue. The business was still seeing strong momentum, an increase of 39.4% to RMB 15.6 billion compared to the same period in 2018. The growth was primarily driven by higher average purchase frequency and an increase in average spend per order.

Holding off competitors and maintaining strong growth, however, requires resources.The cost of food delivery in the fourth quarter of last year increased by 53.6% year-on-year to RMB 9.5 billion, which the company attributed to mounting labor costs for its delivery fleet.

In recent years, Meituan has been investing in self-driving technology and high-definition mapping services, aiming to reduce reliance on delivery drivers—of whom the company employed 2.7 million last year.

Forays into travel booking, hotel, home rentals

Another fast-growing business segment for Meituan Dianping is travel operations, ranging from flight and hotel booking to home rentals.

The growth of Meituan’s online travel-booking growth has mainly been driven by an increasingly younger and geographically diverse user base. According to the company, post-’80s consumers made up the bulk of their 20 million new users last year, while users from lower-tier cities contributed to around half of their online hotel bookings.

For the third quarter of 2019, the company’s Gross Transaction Volume of in-store, hotel and travel businesses increased 29.4% from the same period in 2018.

Meituan’s travel arm is well-established. The company was offering hotel booking services as early as 2013, and started to consolidate its travel services in 2015 after the acquisition of Kuxun.com from Expedia’s TripAdvisor.

In October in the same year, Meituan ventured into air ticketing. Thanks to Meituan’s growing user base and the recent acquisitions and investments, the air ticket-booking business also took off.

In the second quarter of 2018, Meituan Hotels was ranked first in China by volume and nights booked, according to the data monitoring firm Trustdata, overtaking Ctrip, Qunar and

Tongcheng-eLong combined. Well into the first half of 2019, Meituan continued to lead the industry in terms of room nights reserved, accounting for 47.3% of the market.

Cash-burning businesses

After years of rapid expansion, the company has pledged to be more prudent this year when investing in non-core businesses such as mobility and new retail, as certain past investment efforts have come with hefty costs.

The company’s cost of revenues for “new initiatives and other business” was RMB 5.2 billion in the last quarter, a drastic increase from RMB 0.5 billion in the same period of 2017. In its 2018 annual report, the company attributed the increase to their acquisition of Mobike, with the increase in car-hailing driver-related costs and other outsourcing labor costs resulting from the expansion of non-food delivery service.

In April 2018, Meituan acquired the troubled bike-rental startup Mobike for RMB 18.1 billion ($2.7 billion), rebranding it as Meituan Bike. Despite some growth in the past two years, Mobike continues to be a drag on Meituan’s profit margin. Last year, the bike-rental unit contributed RMB 4.6 billion—over half—of the company’s adjusted net losses.

Meituan’s bike-sharing unit will continue to be loss-making through 2021, according to a recent research report from equity firm China Tonghai Securities.

Another of Meituan’s new initiatives, Ella Supermarket, has also weighed down the company’s profitability. Earlier this year, seeing how its offline grocery stores had stumbled in gaining traction as well as the continued burden of logistics and traffic acquisition costs, the company decided to downsize the unit.

Like other tech companies such as Baidu, Hellobike, and Didi, Meituan has made a move into the ride-booking services. The company saw its ride-hailing aggregator service Meituan Dache as an opportunity to open up wider user-acquisition channels.

Last year, after expanding its services to include ride-hailing and bike-sharing, Meituan saw a boost in annual active users by 29.3% to more than 400 million in 2018 compared with the year prior.

Teaming up with smaller car rental companies—Shouqi, Shenzhou and the like—allowed Meituan to take on the ride-hailing giant Didi Chuxing, which was in crisis mode last year after the murders of two passengers.

However, shortly before its Hong Kong IPO in September 2018, Meituan suspended its ride-hailing unit’s expansion plans, citing a reevaluation of current market dynamics.
In May of this year, the company announced the expansion of its ride-hailing operation into 15 more cities, including Hangzhou, Shenzhen, Wuhan, and Chengdu.

Striking the right balance between operating costs and expansion efforts has been a challenge for Meituan Dianping, but its strategy of blanketing the services sector within the broader lifestyle category has indeed been paying off. Its non-core businesses, such as the travel and hotel segment, have benefited from increased traffic from users of its well-established food-delivery platform. Meituan has also been able to cross-sell many products within its ecosystem.