MEITUAN-W Phone Meeting Summary: Offline stores performed poorly, travel and accommodation sector suffered the most, flash sales surged, and consumer vouchers remained effective.
Below is the summary of the conference call for the first quarter of 2022 for $MEITUAN-W.HK. For a review of this quarter's financial report, please refer to the article "Is Meituan Back on Track? 'Rapid Recovery' is the Key" (https://longbridgeapp.com/topics/2713642).
The management statement did not provide any additional information, and Dolphin focused on recording the Q&A session with analysts.
Q: Can you discuss the impact of the pandemic on the second quarter's food delivery business? Will there be a greater focus on improving user loyalty? In the current macro environment, will there be any adjustments to the subsidy strategy? How do you foresee the performance of the food delivery service for the full year of 2022?
A: Our food delivery service has shown great resilience, especially during the Chinese New Year in January and February when transaction volume significantly increased. However, starting from March, the Omicron variant broke out in many cities, particularly in major cities like Shanghai, Shenzhen, and Qingdao. From April, various control measures were implemented, and these cities, which account for a large proportion of our food delivery service, experienced a significant decline in orders. For example, Shanghai, which implemented strict lockdown measures at the end of March, saw a 90% decrease in order volume in April compared to pre-pandemic levels.
However, now that the pandemic has been effectively controlled in many regions, we have observed a clear upward trend in overall business volume in the past two weeks, with May already showing a noticeable increase. Cities like Shanghai and Beijing have gradually resumed production and work. We believe that there will definitely be a significant increase in total volume in June.
During this period, we will focus more on high-quality growth, especially the transaction volume of our medium to high-frequency users. At the same time, we will optimize our operations and control subsidies. We also hope that the operating profit margin and operating profit can achieve year-on-year growth for the full year of 2022.
Looking ahead, we remain confident in the food delivery business. We have also introduced a community group meal model, which complements the traditional food delivery model. In Beijing alone, we have delivered over 400,000 meals to approximately 9,000 communities, increasing delivery demand by 30% and providing long-distance delivery services for high AOV and long-distance orders at the city level. This has led to a surge in orders. In May, the order volume for the first two series increased by 30% compared to the same period in Beijing, and long-distance orders across cities increased by 40%. After the pandemic is under control, we are confident in stimulating consumption and driving growth in food delivery orders.
Q: Can you share the current situation and future development trajectory of automated delivery? At what stage can we better increase GMV?
A: We are pleased to announce that since early 2020, Meituan's automated delivery has delivered nearly 2.2 million orders. They have been used multiple times in COVID-affected areas, assisting local governments. This time, we have deployed our vehicles in Shenzhen, Shanghai, and Beijing, and from early April to May 24th, we have delivered a total of over 700,000 orders.
In the future, we hope that the delivery area and ADV can complement the existing delivery network, thereby improving the user experience and structurally enhancing our delivery efficiency and unit economic benefits. This will help us ultimately achieve automation to fulfill our mission of helping people eat better and sleep better. In the short term, we will pilot this technology in more consumer scenarios, including universities, residential communities, and surrounding areas. We will also strive to improve our operational efficiency in different environments. We will also make efforts to mature our technology through internal research and development or external investment.
I believe this will be a long-term endeavor. The development of our ADV started at the end of 2016, so it has been over 5 and a half years. Now, we have hundreds of outstanding individuals engaged in internal research and development. I believe this vision is great, but it will not be realized immediately. We will take it step by step.
Q: What impact did the epidemic have on in-store and travel businesses?
A: The first quarter performed strongly in January and February, especially driven by consumption during the Spring Festival holiday period. GTV for in-store services increased by as much as 30% YoY, and hotel room nights increased by nearly 15% YoY. However, in March, some other cities were affected by the outbreak of Omicron, and more high-tier cities were also affected, resulting in spillover effects. Offline traffic and travel were significantly reduced, and high-tier cities accounted for a large portion of our in-store revenue. Therefore, it severely affected the revenue of the entire sector.
The impact of the epidemic on this part is essentially more severe than on food delivery. The good news is that in the last two weeks of May, GTV began to steadily recover, and Shanghai and Beijing gradually resumed work at the end of May. However, given the significant negative impact in April and May, I believe that in the second quarter, in-store and travel revenue will experience a considerable YoY decline. Due to the uncertainty in different cities and the pace of recovery, it is difficult to predict the performance for the whole year. Business recovery largely depends on the development of the epidemic and future policies.
As the epidemic recovers, we will assist the government in stimulating demand for local service consumption, and we believe that our in-store business will return to a healthy growth track. For example, after the Shenzhen government issued consumption vouchers on our platform, GTV for in-store dining and other in-store services increased by 50% and 30% respectively. May also showed a healthy YoY growth trend.
Despite short-term fluctuations, we are confident in the TAM and long-term growth of this sector. Our strategy remains unchanged. For in-store services, we will help accelerate the digital transformation of the local service industry through GTV as a key KPI. We will also improve our product content, supply, and transportation, increase the penetration rate in low-entry segmented markets, and focus on local tourism. For small and medium-sized local service providers, we will actively introduce different measures to help businesses recover and overcome difficulties. We will also assist local governments in stimulating consumption recovery, as we have done in Shenzhen. Q: Under the impact of the epidemic, what changes can be expected in the shopping habits or shopping content of Meituan Shansong users in the first and second quarters? Looking ahead to the performance of the whole year 2022 and the future growth potential?
A: Although the lockdown has had a negative impact on Meituan Shansong, overall, the impact is much smaller compared to food delivery. The reasons are as follows:
Firstly, before the lockdown, consumers rushed to stock up on groceries and daily necessities. For example, in Shanghai, compared to the last week of February, the daily order volume and GTV (Gross Transaction Value) in the week of March 21st increased by about 80% and 29% respectively.
Secondly, traditional logistics networks experienced delays and restrictions in some cities. Considering the time sensitivity and new control measures, consumers prefer instant delivery, and supermarkets and convenience stores play a more crucial role in meeting daily needs. The transaction volume and GTV in the first quarter increased by over 70% and 80% respectively compared to the same period last year. The average daily order volume in the first quarter is also expected to be RMB 3.9 million.
At the same time, we have further improved the conversion of user traffic on the platform, and our competitive advantage in merchants has also been strengthened. More merchants have joined our platform, and categories such as flower shops, convenience stores, and other new merchant categories have accelerated significantly. The epidemic has prompted many consumers to rely on on-demand delivery.
Therefore, I hope that Meituan Shansong can now benefit from smooth sailing, as we have increased consumer mindshare and expanded the range of SKU (Stock Keeping Unit) choices. Therefore, I have great confidence in the long-term growth potential of Meituan Shansong.
In 2022, we will continue to increase investment in Shansong, allocate more resources to capture consumer mindshare, and drive growth in our key categories.
Q: Please share some details about customer choices in the retail business. How might the profitability of the business be affected by the epidemic? Are there any plans for greater cost reduction, or have any other strategies been implemented?
A: In the previous quarter, we focused on improving our supply chain capabilities and effective marketing. We achieved steady growth by offering high-quality and value-for-money products before the Spring Festival. So far, the order volume in the second quarter has been negatively affected. However, we have seen gradual improvement in some regions, and we hope that fulfillment and logistics will begin to recover.
In the current environment, we have enhanced our ability to handle emergencies and urgent situations. We will focus on ourselves, build our foundation, ensure high quality and competitive products, offer more SKU varieties, provide instant delivery, and deliver a good experience to consumers.
Overall, we are improving operational efficiency and reducing costs. In terms of marketing expenses, we will reduce customer acquisition costs in areas with low conversion rates. In terms of expenses, we also see room for reduction.
We will find a good balance between cost reduction and business growth. We are confident in its long-term potential and future prospects.
Q: During the Shanghai epidemic, what are the details of Meituan Youxuan's operations and new models? What is the long-term strategy? A: First, we designed and implemented an emergency plan. To ensure that we have sufficient inventory, we immediately contacted all suppliers, expanded the supply warehouse, and placed purchase orders. We obtained the goods directly from the manufacturers in the distribution centers. We also increased the inventory of each brand's distribution center accordingly, iterating the fulfillment process, and increasing the number of delivery vehicles and frequency.
Second, under government guidance, we quickly launched a group buying model, effectively addressing the explosive demand for purchasing groceries. Therefore, we prioritized areas with high levels of control, high community density, and strong delivery capabilities for this model. Residents can make group purchases, and the goods are delivered to the community by drivers using vehicles instead of riders. This is an effective method when delivery capacity is limited. By the end of May, we had delivered nearly 400,000 group buying orders.
Third, we maximized the capacity of our staff and supplemented the autonomous driving vehicles sent from Beijing to Shanghai. Our autonomous delivery vehicles have also adjusted their situations based on contact requirements and delivery efficiency.
We have iterated our business to adapt to public control measures. As a result, our average order value (AOV) has significantly increased. Moreover, with more consumers using the 30-minute delivery service for group buying, overall order density and performance efficiency have improved with the introduction of iterations and new models.
In 2022, we will continue this operational model and strengthen the focus on front-end delivery, with a key emphasis on optimizing skill management, user management, and procurement. We hope to bring better user retention, higher AOV, and increased order density. We will gradually improve our supply chain and product capabilities, increase SKU, and dynamically optimize procurement costs. Finally, we will intensify efforts to improve efficiency, reduce fulfillment costs, and other expenses.
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