Meituan is intensifying its local group buying strategy by venturing into elevator media and upgrading its cooperation with Kuaishou, marking the evolution of its lower-tier market strategy into Phase 3.0, shifting towards a more stable path of low-risk growth.

Following organizational adjustments at the beginning of the year and the comprehensive integration of its membership system into platform operations, Meituan has continued to roll out new initiatives.

First, on July 11, the official WeChat account "Meituan Takeout Cooperation Cities" released a business invitation, planning to recruit elevator media advertising franchisees in lower-tier cities. The next day, media reports claimed that the strategic cooperation between Kuaishou and Meituan, which had recently expired, had been renewed, with both parties set to comprehensively upgrade their partnership.

Previously, the upgrade of the Super Member program primarily involved directing high-quality traffic from home delivery services to store visits, essentially integrating business operations while倾斜ing internal resources towards home delivery services. Similar to the Super Member program, these two strategic partnerships also focus on local store group buying.

Taking the cooperation with Kuaishou as an example, compared to the pilot cooperation three years ago, the upgrade primarily involves expanding cooperation spaces and enriching offerings. One aspect is the expansion of cooperation to "hundreds of cities and stores" nationwide. Another is the introduction of more group buying products, shifting from traditional commodity packages to a combination of vouchers, member products, flash deals, and other marketing products.

Moreover, both the partnership with Focus Media in elevator media and the renewed cooperation with Kuaishou point towards the lower-tier market. Clearly, compared to the price wars in the e-commerce market, the penetration of local life group buying involves more than just low prices; there are new forms of competition.

01 Elevator Media and Kuaishou: Meituan's Phase 3.0 in Lower-tier Markets

Meituan has always attached great importance to the lower-tier market.

Since its listing, Meituan's layout in the lower-tier market can be roughly divided into three stages: user acquisition, activation, and conversion. Currently, with its ventures into elevator media and Kuaishou, Meituan may not be lacking in user traffic in lower-tier markets but rather in sales strategies to convert its 700 million users into orders.

From this perspective, Meituan is entering Phase 3.0, focusing on improving business penetration in lower-tier markets.

In Phase 1.0, Meituan's layout in the lower-tier market primarily revolved around acquiring new users through community group buying services. At that time, Wang Xing even stated directly, "Meituan Xuanyou, as a community e-commerce business, may be the best opportunity in five or even ten years."

To seize this business window, Meituan adopted a strategy of sacrificing profits for growth. Ultimately, in the third quarter of 2021, Meituan recorded its largest quarterly loss since its listing, with a net loss of RMB 9.99 billion. However, these losses also brought a massive influx of users to Meituan.

Since its investment in July 2020, Meituan's number of transacting users reached 667.5 million by the third quarter of 2021, representing a year-on-year increase of 40.1%. In the first and second quarters of 2021, Meituan disclosed that it had acquired an additional 120 million users during its earnings calls.

Industry data analysis firm Analysys International stated that Meituan Xuanyou became the main force driving new user acquisition for the Meituan platform, estimated to bring 300-400 million new users.

It can be said that the low-priced community group buying business exchanged nearly doubled new user growth for Meituan through losses. However, the low-priced community group buying business has limited synergies with high-priced hotel and tourism services. Therefore, providing more products needed by people in lower-tier markets and activating traffic became the main focus of Meituan's Phase 2.0.

In Phase 2.0, the most representative product was the launch of Pinhaofan. Meituan began piloting the Pinhaofan business in 2020, initially positioning it as a low-priced takeout product targeting the lower-tier market. Low prices were its core competitiveness. In the fourth quarter of 2021, the average order value of Meituan's catering takeout was approximately RMB 50, while Pinhaofan, which was promoted starting the following year, offered meals at an average price of less than RMB 15.

However, this product, originally launched in lower-tier markets, achieved a daily order volume of 3 million after entering first- and second-tier cities such as Beijing, Shanghai, Shenzhen, and Chengdu in 2023. It ultimately became a formidable defense for Meituan's price competitiveness in the takeout market in first- and second-tier cities.

In the third quarter of 2023, Meituan first mentioned Pinhaofan in its earnings reports and earnings calls, with management focusing on cost-effective product selection and strengthening the Pinhaofan strategy to meet consumer demand for delivery efficiency. In this statement, Pinhaofan was no longer exclusively targeted at lower-tier markets but rather became a manifestation of Meituan's price competitiveness in catering takeout.

Bank of Communications International analyzed that in 2023, Pinhaofan had a total order volume of 1.16 billion, accounting for 6% of Meituan's takeout orders. Compared to the 300-400 million new users acquired by community group buying, it is difficult to say that Pinhaofan helped Meituan activate the demand of people in lower-tier markets. Some catering industry insiders believe that the core demand is not price-driven; people in fourth- and fifth-tier cities usually dine out or cook at home.

In Phase 3.0, Meituan's focus in lower-tier markets shifted to group buying services. Compared to the new user acquisition through community group buying in Phase 1.0, which primarily involved an e-commerce model for fresh food purchases, local group buying still revolves around tapping into the business potential of Meituan's first curve. Moreover, based on its LBS advertising business attributes, local group buying can effectively facilitate user activation and conversion after acquisition.

This point was already made clear by Guan Mingsheng, former President of Alibaba: "The thousand-group war was essentially an offline advertising war. If targeting merchants, no matter how good the ads are, they are no match for a capable ground promotion team. If targeting consumers, online performance ads far surpass offline brand ads."

For merchants, the partnership with Focus Media in elevator media for the lower-tier market leverages precise geographical conversion effects and online franchisee ground promotion, which are its strong competitive advantages. For consumers, the introduction of more group buying product formats through cooperation with Kuaishou is also a form of advertising that can reach lower-tier populations more frequently.

02 Will Penetration into Lower-tier Markets Break the Price War?

From the perspective of Meituan's own development, the benefits of continued penetration into lower-tier markets are self-evident, whether it's to achieve higher business penetration rates or break through the growth ceiling of local group buying services.

However, compared to the company's own business direction, from an industry competition perspective, penetration into lower-tier markets may be more of an offensive move by Meituan.

In the past, Meituan's leadership in the local group buying sector primarily stemmed from its merger with Dianping following the thousand-group war, complementing each other's strengths.

During the thousand-group war, Meituan's core competitiveness was not traffic or capital but rather user experience optimization and long-term, patient execution of the right strategies. Therefore, Meituan is often ridiculed as the "last man standing" in the final outcome of the thousand-group war.

However, group buying is essentially a low-barrier online CPS advertising model. Like other online advertising, group buying can direct online traffic to offline stores. By redeeming coupons, merchants can clearly calculate the traffic generated by marketing, and the coupon discount is the cost per unit of traffic, similar to the CPC advertising principle where advertisers pay per click.

When larger C-end traffic platforms join the fray, and the B-end market supply has already been matured by Meituan, Douyin's entry into the market means that Meituan now faces different competition. Over the past few years, facing competitive pressure from Douyin in the group buying market, Meituan has launched live streaming marketing IPs and low-priced group buying products, primarily adopting a defensive strategy of following the competition.

Under this defensive posture, both parties have become embroiled in a price war for local group buying in first-tier cities. In this new context, how to break the deadlock of price competition and expand the local life services market through penetration into lower-tier markets has become Meituan's choice.

From an enterprise development perspective, Meituan's past successes in multiple competitions can be attributed to its ability to surprise opponents through penetration into lower-tier markets.

During the expansion of its takeout business, Meituan emerged victorious as an underdog, defeating the previous market leader Ele.me. Xu Xin, an investor in Meituan, once summarized that Wang Huiwen, a key member of Wang Xing's team, understood the game in just six months. Taking advantage of the window period when Ele.me had not yet accelerated its penetration into third-tier cities, Meituan quickly launched a hundred-city offensive, surpassing Ele.me in market share.

This takeout battle has been widely interpreted as a classic example of the "rural surrounding the city" strategy in China's Internet business wars. In the earlier group buying market, Dianping's downfall was largely due to its slow moves in lower-tier markets, leading to its eventual merger with Meituan, which remains the most successful reconciliation in the Internet industry to date.

If the lower-tier market represents a vast basic foundation for Pinduoduo, for Meituan, penetration into lower-tier markets is a surprise move that helps it escape from existing intense competition. Facing the competitive pressure from Douyin in the group buying market over the past few years, whether Meituan can achieve another surprise victory by breaking through in lower-tier markets has become the biggest highlight.

03 Low-risk Growth Replaces the Second Curve

In the past, Meituan's approach to breaking growth bottlenecks primarily involved finding new businesses and creating a second curve. From group buying to takeout, from takeout to instant retail, and from local life services to community group buying e-commerce, this has been the case. This is also known as Wang Xing's rule of infinite games, making Meituan a boundaryless enterprise. This early-stage competition is also referred to as the "T-shaped" innovation strategy. However, as Meituan has gradually developed into China's largest local life services platform and strives to become a new-type e-commerce platform that delivers "everything to your doorstep," when horizontal expansion has already encompassed everything, digging deeper into the potential of old businesses has become a new direction for Meituan. Not just Meituan, many platform-based enterprises with diverse businesses have also begun to slow down their expansion into new businesses and instead focus on optimizing their existing operations. Over the past six months, Alibaba has successively optimized and revamped its Taobao web version, Taobao TV version, and upgraded 1688 and other old e-commerce businesses. ByteDance, known as the "App factory," has also slowed down the launch of new applications over the past year, instead allocating more businesses to its mainstay platform, Douyin. During the heyday of the mobile Internet wave, the second curve growth theory advocated a paradigm shift in growth paths, emphasizing that radical changes are sometimes necessary for businesses to move forward, meaning blazing a completely new trail that requires people to view familiar problems from a fresh perspective. At that time, market growth logic was all about the future. Under the new growth logic, the era of sacrificing profits for growth has passed, and how to grow while profiting has become the new proposition for all Internet enterprises today.

Some Internet commentators believe that compared to venturing into new businesses and exploring new curves, tapping into new markets is often less challenging. Not only in lower-tier markets but also in e-commerce, the recent wave of Alibaba and Pinduoduo expanding overseas is essentially replicating past successful experiences into lower-dimensional new markets, realizing a new path of low-risk growth. On the one hand, going overseas can help old businesses find global growth and break through the growth ceiling of the Chinese market; on the other hand, penetrating lower-tier markets can help old businesses find new user groups and further improve local life services penetration rates. Currently, raising the ceiling of old businesses through new markets and replacing paradigm-shifting second curves with low-risk growth has become the steady theme for Meituan. A more mature Meituan can maintain its composure in the face of competitive pressure from platforms like Douyin. However, compared to its growth stage when it dared to challenge Alibaba, today's Meituan carries the additional burden of "not being able to lose money while increasing revenue." Under this adult burden, how much of its youthful vitality Meituan's strategic execution can activate will become the key to determining where its growth ceiling lies.