1) Let's talk about @AcquiredFM's episode on Meituan. Fan disclaimer: I'm a big fan, my Substack is partly inspired by their process.
I thought the episode was good, I have a few different interpretations and a more cautious outlook:
2) My first reframing is the proxy war between Tencent and Alibaba. Meituan, PDD and Didi all have to grow-up in the shadows of this dynamic. It's almost impossible to be neutral.
This means that whatever Meituan did with one, it affected their dynamic with the other.
3) Alibaba is a traffic taker (since it is focused on conversion at the end of the funnel) while Tencent is a traffic giver.
This means that for Ali, Meituan was only there to give them more traffic, whereas Tencent was driving volume to the apps
4) Wang Xing realised this when Tencent invested in Dianping and was giving them a lot of attention through traffic and Tenpay. Alibaba didn't really offer anything to counter and that's when Wang Xing decided to switch teams.
5) Once that happened, of course, Ali was pissed and went on a scorched earth routine to invest in Elema.
The sequence of events as I understood this was that Wang Xing was more active in the side-switching (aided by Neil Shen and Tencent who are best buds) and Ali was reactive.
6) A key point is Meituan's core-competency in strong field sales capabilities and cash management.
This enabled their survival throughout the Groupon-clone wars. When their competitors were burning cash on ads, their field sales were signing merchants in lower-tier cities
7) This was spearheaded by their ex-COO was a VP of Alibaba B2B sales, Gan Jiawei. Who brought a level of professionalism and methodology to Meituan during a much-needed strategy low. Their in Chinese tech is their command of the best field sales team thelowdown.momentum.asia/former-meituan…
8) In the same way PDD's edge is their gamification roots, Tencent is their focus on traffic and JD is their own logistic system. Meituan's field sales allowed them to break into successive other offline-services such as ticketing, hotels and cinemas.
9) Wang Xing's love of cash (during a crucial moment during the Groupon wars he literally send out a screenshot of the cash amount in Meituan's bank account), also drove their expansion into the super app strategy. Own the user by owning their traffic
10) The outlook is not rosy around Community Group Buying. Not just highly competitive since Pinduoduo, Didi, Meituan and a bunch of Tencent backed players are fighting for market shares. They are also on the wrong side of regulators
lillianli.substack.com/p/the-hottest-…
11) In December the regulators released a list of '9 don'ts' that warned tech players against predatory pricing of their offerings.
And days ago, China has imposed fines totalling RMB 6.5 million (around $1 million) on five CGBs
technode.com/2021/03/03/chi…
12) Meituan included. Quite concerning that their main focus revenue growth channel for this year is getting heavily regulated.
It's not going to get much better given the anti-monopoly sentiment that Chinese regulators have started to put out.
13) The flip side of being an all-inclusive app is that they have become a monopsony for restaurants and riders. There's been a steady building of backlash against both Meituan and Elema in the Chinese media narrative. They are seen as exploitative of both workers and restaurants
14) Some sources:
so.sina.cn/palmnews/web-s…
radiichina.com/delivery-china…
ft.com/content/d6189e…
15) But the general story behind why Meituan's even moving into CGB, is that their traffic growth has been stagnating and their profit margins are decreasing.
User growth and merchant growth have been slowly. The gross margin for food delivery is dropping.
16) It's nothing immediate but clear that Meituan needs a new source of new users and new traffic. That's why CGB is a strategic focus, becoming a high-touch point app for lower-tier cities residents is going to be very lucrative. Getting groceries is the initial landing point.
17) So Meituan's in an awkward position right now. They have to crack CGB but know the regulators' watching their every move. They also know they are not in the regulator's good books given the series of complaints from delivery workers and (to a much smaller degree) restaurants.
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