The Big Sell | Meituan expands in e-commerce, rivaling Alibaba and JD

From food delivery to travel booking, Meituan earned itself the title of the “Amazon of services” in China by providing a wide range of services that touch nearly every aspect of Chinese people’s lives. Now, the giant service app is expanding to Amazon-like territory, selling physical goods, a sector that will put it in competition with local retail giants like Alibaba, JD, and Pinduoduo.

Operated under a platform model, Meituan already has a footing in physical goods e-commerce: It’s among the most popular choices for on-demand or next-day delivery of fresh produce and groceries. Yet that is a small fraction of China’s trillion-dollar online retail market. Starting by selling food and beverages, the company now aims to become a comprehensive e-commerce platform, selling not only daily services (food deliveries) and groceries, but also tangible goods like consumer electronics, cosmetics, and clothing.

Alibaba, JD, and Pinduoduo, the three largest e-commerce platforms in China, still dominate China’s online retail market. But the space is no longer a three-horse race after the entry of a slew of rivals such as short-video apps Douyin and Kuaishou. Meituan wants to take a bite of the physical goods e-commerce pie too. 

Meituan, a relative latecomer, has quite ambitious plans, based on some aggressive moves over the past month. In early March, the company rolled out direct sales services for physical goods. Meituan’s pilot shopping review feature, initially tested as Zhenxiang, was rebranded as Guangguang and formally launched this month with additional social and entertainment elements. On top of that, the everything app also dipped its toe into the hot cross-border shopping sector by integrating a global retailing section into the e-commerce channel of its main app. 

Taking a leaf out of rivals’ playbooks

Meituan’s earliest foray into e-commerce dates back to 2013, but it closed that business three years later to focus on food delivery. The company revived efforts in late 2020 by setting up a new marketplace, Tuanhaohuo, and then moved on to update the platform to a full-fledged business unit and rename it Meituan E-commerce (our translation) in 2021.

Facing a sophisticated market, Meituan is taking a leaf out of the playbooks of rivals like Alibaba, JD, and Pinduoduo by adopting market-proven models and features. While discussions on the ethics of copying business models and features continue, it’s still common for Chinese internet firms to “borrow” ideas from each other. 

Meituan is known for beating rivals with better executions. After all, Wang Xing, Meituan’s CEO and the master of “copy to China,” started Meituan in 2011 as a clone of the then high-flying Groupon and beat more than 100 other Groupon copycats, becoming the sector’s leader. 

Meituan vs JD: In mid-March, Meituan rolled out a new e-commerce service under the direct sales model to sell products directly to customers in a model similar to JD.com. Through a Beijing-based subsidiary, Meituan launched many “self-operated stores” on its e-commerce platform, selling beverages and snacks for starters, such as the Chinese energy brand Eastroc Beverage, rice and meat seller CR NG Fung, and snack brand Xiaowanxiong. Under the model, Meituan functions as the main operating body for controlling product quality, sourcing, and delivery. Although Meituan’s popular Instashopping service offers on-demand service for non-food deliveries, it is operated through cooperation with third-party offline merchants. Meituan’s direct sales model previously only applied to its grocery group-buy unit Meituan Maicai. Meituan followed Alibaba to become the second Chinese tech major to embrace the direct sales model for physical product e-commerce this year.

Meituan vs Alibaba: Meituan renamed and relaunched its shopping review feature Zhenxiang as Guangguang (“shopping around” in English) to tap into the content-driven e-commerce trend. It’s no coincidence that the new name is the same as Taobao’s Guangguang, a content channel where merchants, influencers, and consumers publish short blog posts to recommend products. Meituan intentionally made its new feature a namesake of Taobao’s Guangguang in the hopes of picking up some of the clouts of its rival, local media reported. Taobao’s Guangguang now claims more than 200 million monthly active users after launching in 2020. 

All e-commerce giants are trying to emulate the Zhongcao model, a marketing strategy first popularized by Instagram-like Xiaohongshu. The term zhongcao (“planting grass”) refers to the idea that favorable and comprehensive reviews of a product can sow the mental seeds that nudge consumers to buy it. 

Meituan intends to increase traffic and improve conversion and repurchase rates with the new review feature, said Esme Pau, senior director at Tonghai Securities. 

Cross-border e-commerce: Meituan this month unveiled a global shopping channel to tap cross-border commerce, a popular vertical that gained momentum during the coronavirus pandemic. The channel sells items sourced from Australia, Japan, the US, and other countries to Chinese shoppers. The most popular categories are skincare products, baby products, apparel, and vitamins. The state considers such platforms part of its efforts to boost exports and imports. 

Meituan is a serious e-commerce contender

E-commerce is too big a pie for any tech company to ignore in China. Meituan, with its vision as a platform company, won’t stop with just a small fraction of the market.

Meituan’s accelerated e-commerce drive aligns with the strategic shift announced last October, when the company upgraded its strategy from “food plus platform” to “retail plus technology” searching for new growth points. 

Meituan CEO Wang Xing sees the direction of e-commerce moving from an “everything store” to “everything now.” On an earnings call for the Hong Kong-listed company’s third-quarter performance of 2021, Wang said, “retail will be our focus and remain the main area where we will do our fundamental capabilities in the future. So please understand ‘retail’ in a broader sense as to sell goods or services to end customers.” 

Analysts told TechNode that they are quite bullish about Meituan’s e-commerce prospects. The company has the right toolkit to push into retail e-commerce, including its existing on-demand delivery network, platform capabilities, user base, and merchant relationships, according to Michael Norris, research and strategy manager at marketing and sales firm AgencyChina. “Going forward, one of the keys will be to build user habits to shop from Meituan in more contexts,” he said.

It’s not a decision propelled by recent market developments. Meituan’s push into wider e-commerce through Instashopping predates China’s regulatory pressure on things like mandatory lowered fees for core food delivery businesses, Norris added.

Zhuang Shuai, founder of Beijing-based consulting firm Bailian, predicts Meituan’s e-commerce business could achieve an annual gross merchandise volume of around RMB 1 trillion ($160 billion) soon. Norris estimated that the goal would be attainable within the next three years. The estimated volume is around the same size as the e-commerce volume from ByteDance’s Douyin.

Zhuang notes that the company is also leveraging its e-commerce business to attract more delivery orders to best use its logistics capacity. Food delivery alone can’t satisfy Meituan’s delivery capacity because of the low-traffic hours between meals. 

During a March 25 earnings call, Meituan managers stressed that they would prioritize allocating resources to the e-commerce business. “The rationale for expanding retail goods e-commerce was to bring value to retailers and customers while increasing job opportunities for [Meituan’s] delivery couriers,” said Pau.

Bad timing for e-commerce?

Meituan is entering a crowded market where incumbents are reeling from slowing growth. In 2021, Alibaba and Pinduoduo reported the slowest revenue growth since their respective IPOs in 2014 and 2018. JD also posted its weakest revenue growth in six quarters. The sluggish revenue growth for the major players comes against a dip across the overall market. Data from China’s National Bureau of Statistics shows that online spending on physical goods, including food, clothing, and cosmetics grew by just 12% year-on-year in 2021. The slowest pace since recording such data started in 2015.

“We believe the timing is good,” said Tonghai analyst Pau. Meituan, like all other Chinese internet players, will need to diversify its revenue stream to be sustainable long-term, she said, referring to tightened regulatory pressures on its core businesses in food delivery, in-store coupons, hotels, and dining. 

Meituan is thus fighting an uphill battle but is nonetheless making an important strategic move, according to Zhuang, the Bailian founder. “The food delivery market has reached its ceiling, but e-commerce is a much larger market with no foreseeable ceiling,” he said. Despite the slowdown, e-commerce is still growing and companies providing good products and services to customers will always stand out from the crowd, he believes. 

Meituan’s advantage in e-commerce, or any other new endeavor, lies in its ability to aggregate all kinds of services and products into a one-stop super app ecosystem, Zhuang said. The company still relies heavily on its more popular food delivery and travel services to attract users. E-commerce is only a supplement function on the main app, for now.