Source | Bohu Finance (bohuFN)

Recently, Meituan has made headlines again.

Some netizens revealed that a Meituan food delivery rider in Hangzhou got into a dispute with a security guard at a residential compound during peak hours. To avoid delaying order delivery, the rider decided to kneel down to calm the situation. After the incident, some local riders quickly went to the compound demanding an apology from the property management.

Meituan also responded urgently, stating that they would take responsibility for any unjust treatment faced by riders and cooperate with relevant departments to investigate according to riders' demands, effectively safeguarding their legitimate rights and interests.

Riders are trapped in algorithms, and Meituan is trapped in the endless war of local services.

In recent years, more and more players have established roots in this sector, including internet giants such as Ali Group, Pinduoduo, and short video platforms like Douyin and Kuaishou, which are aggressively expanding their local services businesses.

Faced with the rapid expansion of these new players, Meituan has continually counterattacked by strengthening sales and heavily subsidizing merchants, with projects such as special offer group buys and live streaming being launched one after another. Although Meituan has managed to maintain most of its business territory and turn a profit, with its share price recovering, Douyin has taken a chunk of Meituan's weaker market, with local services sales exceeding RMB 100 billion in the first quarter.

In the past two years, the competition between Meituan and Douyin has gone beyond simple confrontation, resembling a strategic game of Go. Both sides have continually sought each other's weaknesses, calculated the gains and losses of each step, and sought opportunities for victory in this contest of wisdom and patience.

01 Kuaishou and Meituan Join Forces for a Major Push

Recently, it was reported that Meituan and Kuaishou have renewed their strategic cooperation. Over the next three years, the two parties will expand their cooperation nationwide to cover "hundreds of cities and tens of thousands of stores" and deepen cooperation around "new customers" and "large supply".

In terms of scope, the geographical range of cooperation has expanded nationwide, meaning more users and merchants will benefit from this partnership. In terms of depth, the cooperation has also expanded from initial "group buy products" to include "voucher products," "flash sale products," "membership items," and more, catering to users' increasingly diverse needs. Notably, the two parties have also jointly provided merchants with "online digitization" solutions to help improve operational efficiency and reduce costs.

Although Meituan and Kuaishou compete in the local services sector, the reasons for their choice to cooperate are clear. The cooperation in the first half of this year has already yielded sweet results for both companies, especially in the integration of food delivery platforms and content platforms.

Data shows that in the first half of 2024, Meituan's monthly order conversion rate in Kuaishou live streams increased by 5 percentage points compared to the previous month. In the second quarter, issues encountered by Kuaishou users during the ordering process, such as cumbersome purchase processes and difficulty finding orders, decreased by more than 10 percentage points year-on-year. According to Kuaishou's data, Meituan merchants' total transaction value (GMV) on the Kuaishou platform increased by over 38 times year-on-year in June, with order volume increasing by over 10 times. Meituan's financial report also showed that during the May Day holiday period, customer traffic in small towns and lower-tier cities increased significantly, with local services consumption in these areas growing by 37% year-on-year.

This also indirectly proves that Kuaishou's spending power has boosted Meituan's performance.

For Kuaishou, choosing to cooperate with Meituan lies in its emphasis on Meituan's vast array of merchants and products. Meituan's high-quality group buy product supply chain can quickly fill Kuaishou's shortcomings. At the same time, Kuaishou can rely on Meituan in terms of fulfillment in local services. This allows Kuaishou to enter the market more quickly and expand its scale.

A Kuaishou executive expressed it quite directly: "Meituan has deep roots in the local services industry, linking a vast network of merchants while also having a profound foundation in supply, fulfillment, service, and other systems capabilities. The cooperation between the two parties will undoubtedly produce a '1+1>2' synergistic effect."

Another point of emphasis for both parties is the Downward market , which is also a crucial battleground in local services. Data shows that nearly 60% of Kuaishou users are from third-, fourth-, and fifth-tier cities and below. This user base provides a solid foundation for Kuaishou's local services business to expand into lower-tier cities.

Numerous previous cases, such as those involving Honey Snow Ice City, Zhaoyiming, and even Pinduoduo, have proven the feasibility of business models based on new-tier markets. These models can even penetrate into first- and second-tier cities by growing their profits and scale through deep roots in lower-tier cities.

Undoubtedly, as a major internet platform targeting new-tier markets, Kuaishou boasts a vast user base, which gives it a natural advantage in local services. This is precisely what Meituan envies most. Therefore, it is not surprising that the two parties have reached a cooperation agreement and are further upgrading their partnership.

02 Low Prices and Penetration into Lower-Tier Cities

When the overall environment catches a cold, those within it will sneeze; when the environment warms up, new trends will emerge swiftly.

In 2023, although China's economic recovery was evident, consumer excitement remained muted due to cautious demand release and an inversion between demand and excess capacity in some industries.

Local services were an exception.

As online traffic growth peaked and became a common topic of discussion, local services, as a relatively underpenetrated sector, catered to the needs of younger generations represented by post-95s and post-00s, who are willing to pay for time-saving and convenient lifestyles. Local services leveraged their strengths in fulfillment timeliness and scenario flexibility, gaining popularity among an increasing number of consumers.

In particular, the continuous release of demand for instant delivery has driven the continuous growth of the local services market.

According to the "2023-2024 China Local Services Industry Market Monitoring Report" released by iiMedia Research, the online food delivery market is expected to reach RMB 1,746.9 billion by 2025, the fresh food e-commerce market RMB 540.3 billion, and the internet community services market RMB 345.5 billion. By 2025, the local services market will exceed RMB 2.5 trillion in size.

In comparison, the nationwide real estate development investment in 2023 was "only" RMB 11 trillion.

Clearly, from an industry perspective, China's local services market offers immense potential, making it an incremental sector in and of itself. Incremental growth represents business opportunities and Deterministic opportunity . Large-scale incremental demand cannot be overlooked by any enterprise.

It is not difficult to observe that almost all well-known internet companies have ventured into local services in recent years. Previously, the local services market was dominated by the duopoly of Meituan and Ele.me. However, in the past few years, with the entry of content platforms like Douyin, Kuaishou, and new challengers such as Xiaohongshu and WeChat Video, this large market pie will be further divided.

Faced with increasingly fierce market competition, the local services market has also witnessed waves of price wars in recent years, with Meituan, Ali Group, Douyin, and Kuaishou all strengthening their low-price advantages in the hopes of quickly capturing more market share through high cost-performance offers.

Taking Meituan, the industry leader, as an example, it has launched campaigns such as "Daily Divine Coupons," "Lightning Deals," and "Special Offer Group Buys" for food delivery and group buying, offering substantial subsidies to attract more merchants and encourage consumer orders, ultimately driving up order volumes.

Similarly, Douyin and Kuaishou also emphasize low prices in their strategies.

From a page setup perspective, Douyin has established special offer group buys, live streaming selections, free trials, and popular lists within its group buy section. The "Special Offer Group Buys" section showcases numerous discounted group buy products with price subsidies ranging from RMB 0.1 to several hundred yuan. Kuaishou, on the other hand, has launched the service brand "Dare to Compare Prices," with official subsidies ranging from RMB 1 to RMB 850 for local services products on its platform, with some products receiving subsidies exceeding RMB 500. In terms of content, Douyin and Kuaishou are virtually identical to Meituan.

On the other hand, in search of more incremental space, internet giants are competing fiercely for the lower-tier market.

For instance, Meituan has changed its operational model in lower-tier cities from an agency model to a direct model, enabling it to better understand the needs of merchants and users and meet their demands. In September last year, Douyin Life Services announced the implementation of a "regional service provider" model in 100 covered lower-tier cities, collaborating with high-quality regional service providers to help merchants operate more effectively.

Unlike Meituan and Douyin, the lower-tier market is Kuaishou's main battlefield, which is conducive to the expansion of its local services business in these cities. Building on this foundation, Kuaishou's local services division has launched the "Flying Bird Plan," providing creators with traffic and cash incentives to spur their growth, generate more quality content, and boost local services business growth.

As Senior Vice President and Head of Kuaishou's Local Services Division Xiao Gu stated, many brands are now moving downward because the upper market is saturated, and brands are competing fiercely for lower-tier markets.

Essentially, the game of reaching customers and fulfilling orders involves four parties: the platform, consumers, merchants, and delivery services. Each of the major players has its strengths and weaknesses. In an increasingly competitive era, going it alone is clearly not a wise choice. Partnering up at least offers the hope of breaking through. With Meituan under siege, it has quickly assembled its team.

Therefore, by partnering with Kuaishou, Meituan seeks new growth points, particularly in the lower-tier market. Especially facing competition from upstarts like Douyin, Video, and Xiaohongshu, Meituan urgently needs to break through its own ceiling and maintain its leading position in the local services market. Kuaishou's large user base and new user groups formed through its deep roots in the lower-tier market are precisely what Meituan desires. Through cooperation with Kuaishou, Meituan can not only further expand its market share but also achieve faster growth by leveraging Kuaishou's traffic advantages.

03 The Endless War in Local Services

At the beginning of the year, Douyin adjusted its life services division, shifting from a sectoral division by industry to a regional division. The regional system has the advantage of improving sales efficiency and increasing merchant supply.

In June, Douyin announced that from June 15, it would no longer accept new merchant sign-ups for its existing "Group Buy and Delivery" service. Simultaneously, the Douyin Store's home delivery platform would be launched. From July 15, the Group Buy and Delivery service would be migrated to the Douyin Store's home delivery platform, with no impact on merchant self-delivery mini-program orders.

This means that Douyin's home delivery business in local services has been fully integrated into Douyin E-commerce.

Subsequently, on July 16, Douyin E-commerce announced the launch of its first commission-free campaign for all categories in the fresh produce industry: Merchants specializing in fruit and fresh produce on Douyin E-commerce who successfully register and complete low-threshold tasks that month will enjoy real-time commission-free status for settlement orders generated from the sale of "seafood and processed products," "meat and egg chilled products," and "fruits and vegetables" the following month. This means that a 2% commission on transactions across various fields will no longer be charged, with only a 0.6% technical service fee deducted.

Evidently, to address changes in the competitive landscape of the local services market, Douyin has once again restructured its life services business, pursuing differentiation. Previously, Pu Yanzi, the head of Douyin Group's commercialization, internally commented on the store-visit and home delivery businesses: "Store-visit services are the life services we currently invest in continuously. For home delivery services, simply replicating traditional delivery models will hardly bring incremental growth and business changes to the industry."

Douyin's previous disadvantage in home delivery lay in fulfillment and delivery, areas where Meituan's 7 million riders and sophisticated algorithms are difficult to surpass in the short term. However, Douyin's vast traffic can undoubtedly bring more incremental value to merchants. The high frequency of fresh produce categories helps drive consumption frequency, form consumption habits, and contribute to new growth for Douyin E-commerce.

With home delivery services now integrated into Douyin E-commerce, Douyin Life Services can clearly focus on store-visit services.

Ali Group is also shifting strategies. In 2023, Amap announced its official merger with Koubei. Ali Group clarified that it would transform Amap into a "destination services platform" centered around map tools, integrating "search, discovery, transaction, and fulfillment" into a complete link and launching a series of marketing initiatives. For example, Amap joined forces with Starbucks China to launch the "Street Pick-up" service, allowing users to order and pay through the Amap app before picking up their orders at nearby Starbucks stores.

Video is also exploring this area.

On April 23, 2023, Video officially released the "Video Store - [Opening a Store] Guide - Local Services Industry," allowing local services industry merchants to apply for entry, marking the full launch of Video's local services industry to the outside world.

It is understood that Video's local services business is still in the recruitment stage, and the showcase rules are still under consultation. However, according to the information released, Video has only opened two first-level categories for local services: catering and travel. Among them, catering merchants must be chain stores, while travel categories such as hotels, scenic spots, and passenger transport support single-store entry.

On the Video platform, "Local Services" is located under the secondary entry of the "Shopping" section. Currently, most accounts are brand merchants, such as official catering and travel accounts like Wallace, Haidilao, and Ctrip, apart from store exploration accounts like "Discover Nearby."

04 Conclusion

At the beginning of this year, Zhang Chuan, then President of Meituan's Store Business Group, described the competition between Meituan and rivals like Douyin in a new year message to employees as a "war," not a short-term conflict but a brutal and grueling trench warfare.

Even now, this battle is far from its midpoint.

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