Meituan's share price is **34 year-to-date7% (Hang Seng Technology -8%), significantly underperforming**;At the end of last year (December 29, 2022), Bloomberg unanimously expected the company's annual revenue in 2023 to be 275.4 billion yuan, and adjusted net profit to be 140500 million yuan;The latest consensus estimate (October 30, 2023) is that the company's full-year revenue will be 276.6 billion yuan, and the adjusted net profit will be 214600 million yuan, compared with the consensus expectation of revenue and net profit for the whole year at the end of last year, an increase of 05% to 53%, which means that the company's share price is 35% if the company exceeds the performance rate, and the difference reflects the impact of the capital market's concerns about Douyin competition on valuation multiples.
In this context, we went to Shanghai in February and October this year to carry out two local life theme surveys, focusing on food and comprehensive categories, and conducted in-depth interviews with more than a dozen merchants in various categories such as catering, KTV, medical beauty, cultural tourism and local life service providers. The interviews with these respondents, whose roles in their respective companies include corporate managers, head of headquarters operations, heads of online marketing, franchisees, etc., helped us enhance our overall understanding of the local lifestyle industry and track the battle of Meituan and Douyin.
This report will focus on the cognitive iteration of our October survey. We think:
1) Due to the different business characteristics of different categories, merchants have different demands for the use of Dianping Douyin, so the degree of adaptation with the Douyin platform is different, and they may not all be suitable for operating on the Douyin platform. However, some sub-categories have not yet been operated in large quantities, and there will be a bonus period in the next 1-2 years
2) More and more small and medium-sized businesses are beginning to realize that their operating costs in Douyin are becoming high, and these businesses are at risk of losing in the future
3) Meituan has taken more aggressive countermeasures this year, but although Douyin's competition has weakened, the suppression of Meituan's stock price is likely to continue as it will not withdraw from the battle.
In terms of categories, the three categories have different degrees of adaptability to Douyin, and they may not all be suitable for operating in Douyin
The local life in-store service is mainly composed of three categories: dining, in-store integration and wine and tourism, involving more than 200 sub-categoriesIf you take the figures in 2022 as an example, Meituan's three major categories account for 30% of GTV, 50% for in-store and 20% for wine and tourismDouyin's three major categories of GTV account for 50% of dining, 20% of in-store comprehensive and 30% of wine and tourism. In this survey, we feel that due to the different business characteristics of each category, the use of Dianping Douyin has different demands, so the degree of adaptation with the Douyin platform is different, and not all of them are suitable for operating on the Douyin platform. However, some sub-categories have not yet been operated in large quantities, and there will be a bonus period in the next 1-2 years
Information on the operating characteristics of the three categories**:
The competition in the food category is fierce, which is suitable for explosive products, and to a certain extent, it is suitable for Douyin operation, but the write-off rate of Douyin is significantly lower than that of Meituan.
The fierce competition in the catering category, the large number of merchants, and the insufficient chaining rate of catering in China have led to a large number of small and medium-sized businesses in need of online customer acquisition channels in addition to the top chain merchants. Douyin's short ** mode is suitable for merchants to display goods, and the unit price of catering ** coupons is low, and users have the characteristics of impulsive consumption, which is suitable for merchants to hit explosive products. However, merchants in Douyin are not the logic of store operation, but more of the logic of explosive products, seeking users to expand SKU consumption after arriving at the store, or to repeat consumption, that is, to become "repeat customers". For merchants, Dianping undertakes more of its stable operation demands, and therefore, merchants actually pay more attention to Douyin's write-off rate and are also sensitive to ROI. In terms of the current write-off rate, Meituan is significantly ahead of Douyin, with merchants reporting that Meituan's write-off rate is 70-80%, while Douyin's is 40-50%.
Although Douyin can bring new customers, merchants have a better experience of using Meituan, and we also believe that Douyin's bottleneck in these categories is more obvious. In terms of category characteristics, KTV, bathing, and massage have strong local business attributes, mainly serving local consumers within 3 kilometers. Therefore, in addition to acquiring new customers, this category's demand for online platforms has higher requirements for stable operation. Under this attribute, merchants pay attention to the write-off rate indicator and also care about the input cost on the two platforms. Merchants we interviewed said that Douyin's write-off rate was low, only around 20%, while Meituan's write-off rate was 40-50% (Douyin's write-off rate has not improved significantly since the beginning of the year). In terms of commission rates, Meituan's comprehensive commission rate is only 4%, while Douyin's commission rate is as high as 10-15%, including content production costs. However, merchants also said that Douyin is currently an important channel for them to attract investment and join: "In the past, it mainly relied on, but now more than 70% rely on Douyin."
In the same way, although the ticket category can rely on Douyin to gain new customers, we believe that Douyin's bottleneck in this category is also obvious. The ticket category is characterized by "unlimited inventory", so it is not as cost-effective for merchants to acquire customers through a single channel as it is to acquire customers through multiple channels. A more typical scenario is that merchants rely on the Douyin platform to achieve the effect of product promotion, and at the same time increase the number of visitors to Meituan (because more tourists rely on Dianping to place orders). Therefore, although merchants believe that Douyin has helped their business, Meituan still has an advantage in the actual proportion of online channel visitorsIn addition, the market size of the ticket industry is not large, and Meituan's annual ticket and homestay revenue was about 1.2 billion yuan last year, so we believe that Douyin's advantage in this category is not outstanding. However, as the same in-store category, medical cosmetology merchants have different feelings, because medical cosmetology institutions have only recently begun to gradually launch on Douyin, merchants believe that Douyin still has a bonus period. At present, Douyin has only launched 25 medical aesthetic institutions, and it is still in a state of gradual expansion of the white list, so the merchants who have launched believe that Douyin has indeed brought new traffic, and the proportion of new customer traffic is relatively close to that of Meituan and Douyin. However, in the future, as the platform gradually joins more competitors, it is unclear whether the current dividends can be sustained.
Second, small and medium-sized businesses realize that their operating costs in Douyin tend to be high, and this part of the business is at risk of loss in the future:
The difficulty of content production and the cost-effectiveness of operating the Douyin platform are regarded as the focus of consideration by more and more businesses. First of all, merchants have reported that with the influx of more and more competitors into the Douyin platform, it is more difficult to produce good content (that is, content that can get more traffic).In addition, the "Cloud Clipping" tool (which can be understood as a fool-proof content production and upload tool) has ceased operation on Douyin, and merchants need to invite influencers or introduce service providers to produce content (with GTV as the denominator after verification, and the cost rate of merchants using service providers is about 5%) to obtain more traffic. Merchants began to realize that their operating costs in Douyin were rising, and some merchants chose to stop operating on Douyin and only retain Dianping as a stable business channel. We believe that in the future, KA merchants are more likely to continue to have the ability to operate the Douyin platform, or use Douyin as their own product promotion tool regardless of the costHowever, it is becoming more and more difficult for small and medium-sized businesses to operate, and it will be difficult to "emerge" on the Douyin platform. On the contrary, reviews are not very difficult for merchants to operate, and small and medium-sized merchants will retain this channel. This trend can also be compared to Tmall, small and medium-sized businesses cannot get traffic advantages on Tmall because they do not have enough advertising and marketing budgets, and they will naturally show a trend of churn.
3. At the same time, Meituan's counterattack measures have continued this year, but the suppression of stock prices may continue
In our research, we learned about several major "counterattack" measures of Meituan, including reducing annual fees, negotiating deduction points with merchants, and cutting packages. 1) Reduce annual fees: Meituan waived annual fees of 2-30,000 yuan for some merchants at the beginning of the year2) Renegotiate the commission rate: Some merchants have reported that Meituan has given 0Commission reductions ranging from 5% to 1%. At the same time, it will more dynamically track the GTV created by merchants in Meituan. For example, in 2022, the year frame will be adopted, as long as the merchant completes a certain amount of GTV throughout the year, but this year it will be changed to a quarterly framework, that is, the commission rate will be renegotiated every quarter according to the completion of the merchant in the previous quarter, and the merchant will be required to have the same **coupon** on the dual platform;3) Package cutting model: For the category of park tickets, Meituan has taken the measure of "buying out" all the ticket inventory of a certain park and not allowing merchants to list them on Douyin.
In our view, Meituan has been on the defensive in the past year, but with Douyin not exiting the local lifestyle business for the time being, the pressure on Meituan's share price is likely to continue. According to the feedback of merchants, if Douyin's traffic dividend approaches the ceiling next year, and the proportion of GTV operated by merchants on both platforms also tends to stabilize, then the market share of Douyin and Meituan will also be a foregone conclusion. According to this year's Douyin 200 billion GTV and Meituan's 600 billion GTV, the market ratio of the two sides this year is about 1:3, which is basically close to the market share of the two sides in the impact of Douyin on Alibaba in the e-commerce field (3 trillion and 9 trillion), but Douyin's current GTV figures in local life have a higher proportion of swiping orders.