On July 5, Meituan's "Supreme Membership" made another significant announcement, covering various categories including dining, entertainment, shopping, and travel for the first time, essentially realizing applications across various consumption scenarios both for home delivery and in-store visits. Taking Chengdu as an example, the benefits of Supreme Membership have expanded from takeout services to group purchases, marking the completion of Supreme Membership's full coverage of Meituan's retail business lines. As of July 4, the number of merchants participating in Meituan's "Supreme Membership" has reached 5 million.

This is Meituan's another major move after nearly a year of integrating its coupon system and membership program. Since May this year, the "Supreme Membership" that connects dining, entertainment, shopping, and travel services has been piloted in 17 cities, aggregating platform subsidies, merchant discounts, and expanded amounts, effectively enhancing user experience and merchant participation enthusiasm. With both giants in local life services firing on all cylinders and a share of the in-store business being taken, Meituan obviously wants to regain ground through its "Supreme Membership".

On the community group buying front, Meituan needs to compete with Pinduoduo to achieve profitability, while in-store services face challenges from Douyin and Xiaohongshu.

From the newly launched products, users who join "Supreme Membership" can enjoy discounts on "Supreme Membership" when ordering takeouts, group purchases of food, foot massages, bathing, beauty salons, housekeeping, hotel bookings, etc. Through the expansion of coupons, they can obtain greater discounts. Here, we can clearly see Meituan's two-pronged approach, namely, engaging in a price war with Pinduoduo and competing with Douyin for users' consumption time.

From a market perspective, one of the reasons for Wang Puzhong's introduction of Supreme Membership operations may be the stalemate in the citywide battle. In the first quarter of 2024, Douyin's local life services (primarily in-store dining, comprehensive in-store services, and hotel and travel businesses) had pre-verification sales exceeding 100 billion yuan, while Meituan's in-store business sales have remained stable at around 200 billion yuan over the past two quarters. Although there is still a gap, Douyin has already achieved considerable scale.

Meituan's first-quarter financial report for 2024, released on June 6, showed that its quarterly revenue reached 73.3 billion yuan, a year-on-year increase of 25%. After organizational restructuring, revenue from the core local commerce segment was 54.6 billion yuan, a significant year-on-year increase of 27%. In the current competitive landscape for market share, such a high-profile approach to refined membership operations clearly aims for more than just organizing activities.

So, what are the reasons behind Meituan's actions?

The Emergence of Supreme Membership

Early on, Supreme Membership was not a combined entity but was divided into two parts: Meituan's Supreme Coupon and the membership system.

In May 2023, Meituan Flash introduced the marketing IP "Divine Price Day" to create a product image of "affordable, convenient, and no hoarding," aiming to help merchants increase conversions, promote transactions, and boost repurchases through "best-selling products." From the merchant side, the conversion rate of Divine Price Day was astonishing, with the order volume of merchants' core best-selling products increasing by 33 times in just six months compared to the beginning of the year.

According to a report by Nanbao News, taking Shanghai's small and medium-sized merchant Huanqiugou Lifestyle Supermarket (Lujiazui Store) as an example, during the "Divine Price Day" monthly promotion in October, the order volume increased by nearly 60% compared to the previous week, with orders brought by Divine Price Day accounting for nearly 25% of the total orders. It is reasonable to infer that it was the outstanding performance of Divine Price Day that ultimately led Meituan to decide to pilot the "Supreme Membership" system of Supreme Coupons plus membership on a large scale.

In terms of coupon package composition, "Supreme Membership" is mainly divided into two sections: free Supreme Coupons and Supreme Membership Wallet Saver. The former is distributed for free, while the latter is a paid coupon package. Both have an expansion mechanism, allowing Supreme Coupons to offset higher amounts.

The upgraded "Supreme Membership" offers Wallet Savers with 6, 12, and 20 different red envelope specifications. After joining the "Supreme Membership" service, consumers can choose the expansion scenarios for 5-yuan threshold-free Supreme Coupons as needed, with different experience scenarios and expansion denominations up to 100 yuan.

In practical operation, the discounts are considerable, and it is also intuitive to see that many merchants are participating. Spending 0.01 yuan can obtain three threshold-free 5-yuan merchant Supreme Coupons, while 0.99 yuan can obtain six of the aforementioned Supreme Coupons. The coverage of this time's Supreme Coupons is extensive, and Meituan confidently launched the slogan "Usable for Dining, Entertainment, Shopping, and Travel," covering a total of 13 services, with a maximum expansion discount of 100 yuan, making it highly attractive.

According to the "2023 China Instant Delivery Industry Trends White Paper" released by Frost & Sullivan, with the deepening of retail digital transformation, the online penetration rate of social consumer goods retail is expected to increase to 35.3% by 2028, with the online channel share of local retail continuing to rise. Digital retail models such as instant retail and community group buying have thresholds for efficient same-city logistics fulfillment capabilities.

Ultimately, instant retail disperses the field and time of retail, bringing consumption closer to users' residences, a form of proximity consumption in disguise. The logic behind the launch of Meituan's Supreme Membership is clearly to save users time and effort. By inquiring and booking through online platforms and consuming offline, a complete retail closed loop is formed. This broad sense of instant retail differs from the narrow sense of retail that only involves takeout delivery and is also one of the important reasons for integrating Supreme Coupons and the membership system.

Supreme Membership was initially established to serve as a bridge. At that time, many merchants on Meituan's platform had their own coupons, and the platform itself also had various promotional coupons. These coupons had complex rules, greatly compromising convenience and practicality. This led to a phenomenon where users stored coupons in their card packs but had low usage rates. Previously, Meituan's takeout membership system emphasized monthly card recharges, which seemed redundant for obtaining platform card packs since the price of monthly membership was similar to that of card packs.

Not long ago, Douyin aimed at the large-scale hotel and high-end homestay market by increasing hotel commission rates to 8%, which is a traditional area of advantage for Meituan. This series of actions has stimulated Meituan, making it more aggressive in its strategies.

Battling with Douyin in Local Life Services

With the online market becoming saturated, expanding into local life services is a clear goal for large companies. Meituan has been laying the groundwork for many years, starting with the acquisition of Dianping. By injecting traffic, Meituan successfully revitalized Dianping. According to estimates from GF Securities, Dianping's daily active user count reached 18.9 million in 2023, a year-on-year increase of 81%, indicating that it has come to the harvest season after years of accumulation.

At the beginning of 2024, Meituan initiated its largest organizational restructuring since going public, entrusting Senior Vice President Wang Puzhong with the management of the originally independent home delivery and in-store business groups, as well as the Meituan platform and basic R&D platform. Outsiders believe that behind the organizational restructuring is Meituan's intention to use a cluster model to consolidate its forces and strategically confront the increasingly formidable Douyin in the local life services sector.

Meituan's first-quarter financial report released in June showed that the group's net profit for the first quarter of 2024 was 5.368979 billion yuan, a year-on-year increase of 59.86%. Meituan disclosed in its financial report that its instant delivery business achieved strong growth in the first quarter, with the number of annual active users for its takeout business increasing to nearly 500 million, and the transaction frequency of medium-to-high-frequency users further increased year-on-year. Driven by this, the number of instant delivery orders on the platform increased by 28% year-on-year to 5.46 billion in this quarter.

During the same period, Meituan Flash's daily order volume reached 8.4 million, with both the number of annual active users and transaction frequency achieving strong year-on-year growth.

On the Douyin side, the organizational structures of the Douyin Local Services department and the commercial sales department underwent significant changes, with some middle-level personnel from both businesses rotating positions bidirectionally.

The three parallel departments of Douyin Local Services – in-store dining, in-store comprehensive services, and hotel and travel – were reorganized into three regional divisions (North, Central, and South) and an NKA department serving national chain merchants. This needle-to-needle organizational restructuring within three months could be clearly felt as a sign of impending competition.

Instant retail and in-store consumption share the same pain point, relying on marketing means to form profit zones at the end. Therefore, platform-based enterprises can better complete profitable actions through tools such as Dianping and Meituan Takeout APPs. The cake is enticing, and players are therefore extra attentive.

According to QuestMobile statistics, in 2023, the user overlap rate between Dianping and Meituan reached 75.8%, and the daily active user scale of the former was not affected. 20.6% of Meituan's daily active users also use Dianping simultaneously. For the platform, this is an astonishing resource and a clear signal, indicating that Dianping and Meituan can directly connect their businesses. Even if it's 20% of Meituan's daily active users, it's still an extremely large number.

Taking a median of 40 million as an example, the number of dual-end users reaches 8 million, which is the most solid foundation for implementing Supreme Membership and also Meituan's confidence. Currently, there are three main traffic entry points for local life services: Dianping, Douyin, and Xiaohongshu, all following the target search path. The demand chain is not lengthy, with users generating demand, starting a search, discovering recommended stores, and consuming offline as the main links, quickly generating commercial value.

More colloquially, this is the reason why the local life services segment can continue to be profitable. From the moment people step out of their homes, consumption becomes an inevitable event. As more merchants join Dianping, consumers will eventually enter one of them for consumption. This makes the recommendation mechanism nearly 100% successful.

The value lies in the platform's ability to kill two birds with one stone, advertising for merchants while also allowing consumers to complete coupon purchases, putting it in an almost unbeatable position. Therefore, competition in the local life services sector is even fiercer than that in the takeout platform sector, especially for Meituan Flash and other home delivery and in-store group purchase services that are increasingly replacing takeout services as more profitable businesses.

Competitors, of course, have also seen this link and have begun to find ways to squeeze into the race.

Douyin, which claims to deliver takeouts, feinted and plunged into local life services.

Merchants and Bottlenecks

Recently, Pu Yanzi, head of commercialization at Douyin Group, set a sales target of 600 billion yuan for local life services, aiming for double-digit growth. On the Kuaishou side, the platform has successively launched official local life service mini-programs, B-end merchant apps, and a basket of support plans. In the fourth quarter, Kuaishou's total gross merchandise volume (GMV) for local life services increased by more than 25 times year-on-year, and the number of daily paying users increased by nearly 40 times year-on-year.

Xiaohongshu added a floating button to support links to real-time maps, which display nearby attractions, food, and other rich notes based on users' geolocation.

From a user experience perspective, Xiaohongshu and Douyin may be strong competitors for Meituan in the future, as evidenced by internal speeches at Meituan. Meituan believes that its current competitors have become stronger, all being all-around players with formidable traffic. Xiaohongshu has an advantage in image and text search, able to mimic Dianping's functions, while Douyin has taken a different path by covering local life services through its unique video format.

In the first quarter, Meituan's advertising revenue grew at a year-on-year rate of 33.1%, exceeding the 24.6% growth rate of delivery services and the 26.7% growth rate of commission revenue. A significant portion of this growth came from increased demand for merchant advertising after expanding live streaming scenarios.

Local life services and group buying businesses are simultaneously considered as a means to underpin money-losing community group buying. In competition with Pinduoduo, Meituan's Preferred Plan aims to control its full-year loss in 2024 at 10 billion to 12 billion yuan, reducing losses by 8 billion to 10 billion yuan compared to the previous year.

PDD Buy, on the other hand, plans to cut its labor costs in half in 2024, from 4 billion yuan to around 2 billion yuan. Regardless of how one looks at it, PDD Buy has established a local advantage.

Meituan urgently needs to find a profit breakthrough beyond its peak takeout business to cope with normalized competition. However, it is worth noting that Supreme Membership coupons, originally built on the merchant system, are not a panacea. From the merchant side, large merchants with financial strength can afford the cost of activities and obtain good data. However, many small and medium-sized merchants perceive Supreme Membership more as a platform profit-making mechanism.

They believe that Meituan's move is more like forcing merchants to increase their customer order prices, and most low-order category merchants face a dilemma when participating in activities. Not participating will exclude them from the traffic pool, while participating can be unrewarding and even loss-making, leading to articles like "XX ways to cope with losing money on a certain platform."

Actions such as adjusting full discounts, downgrading Supreme Coupons, applying for subsidies, and only recommending the launch of budget meals are eroding the value of Meituan's Supreme Membership and consumer satisfaction.

According to Zhongtai Securities' estimates, search-based Meituan has a search verification rate of over 90%, higher than the 50%-60% range of content-based platforms. This is because users who place orders on content platforms may not have an immediate intention to consume offline. In fact, this is a double-edged sword. Fast in-store visits mean that feedback speeds are doubled in case of poor experiences.

When consumers who want to satisfy their Supreme Membership desires encounter merchants who want to break even smoothly during activities, conflicts inevitably arise, which is also the bottleneck of the entire campaign.

Merchants are also divided into different tiers. Those with strong marketing capabilities do not actually need Supreme Membership, while those who need Supreme Membership for exposure cannot afford the high cost of activities. In the next step, Meituan may need to bear more costs, as what is expanded is real money.

Overall, the Supreme Membership business seems more like a phased measure hastily implemented in anticipation of a confrontation with Douyin in the same city. On the one hand, it stabilizes the basic plate of citywide services by popularizing the concept of Supreme Membership among users. On the other hand, it differentiates a portion of capable merchants who struggle to find suitable marketing means from those already on Douyin's platform.

However, some merchants have to worry about how to adapt to the rules, and whether Supreme Membership is as "divine" as rumored remains to be seen.