Meituan's organizational adjustment may affect the advancement of its local life strategy

On February 2nd, MEITUAN CEO Wang Xing announced through an internal email that MEITUAN will undergo organizational restructuring.

This adjustment mainly focuses on two aspects. First, there is a significant integration of core local businesses, including the Home Business Group, the Store Business Group, the MEITUAN platform, and the basic research and development platform. They will report to MEITUAN Senior Vice President Wang Puzhong together. The Dianping, SaaS, Cycling, and Power Bank businesses will be led by MEITUAN Senior Vice President Zhang Chuan. Other organizations remain unchanged.

The last time MEITUAN made such a large-scale structural adjustment was in 2017 when the Store Business Group was established in December of that year, with Zhang Chuan as the head. Since then, MEITUAN has been operating with two major business groups: the Store Business Group, which focuses on group buying models based on consumer scenarios, and the Home Business Group, which focuses on core businesses such as food delivery and flash sales.

The outside world sees MEITUAN's adjustment this time as an upgraded defensive measure against the competitive landscape, especially against ByteDance.

According to data from Haitong International Research, ByteDance's local life GTV (Gross Transaction Value) is expected to reach 200 billion yuan by 2023, which is about one-third of MEITUAN's GTV. The majority of this data is generated by the Store Business Group. According to media reports, this number exceeds MEITUAN's internal expectations.

At the beginning of the new year, Zhang Chuan released an internal open letter that was 4,200 words long and had strong wording. The words "battle" and "war" appeared more than 10 times in the letter. Zhang Chuan reminded MEITUAN employees, "This is not a short-term war, but a brutal and grueling trench warfare."

However, a month later, Zhang Chuan was transferred from the Store Business Group, highlighting that MEITUAN's decision-making level, or Wang Xing, is eager to confront ByteDance's invasion through organizational restructuring.

MEITUAN hopes to concentrate its superior resources for more efficient decision-making and implementation. First, the integration of the Home and Store Business Groups. According to a source close to MEITUAN in a 36kr report, group buying and food delivery have a high degree of overlap on the supply side, and the company has been trying to promote synergy between the store and home businesses.

Second, in order to better mobilize resources and improve organizational efficiency for Wang Puzhong, MEITUAN CEO Wang Xing will also be responsible for the MEITUAN platform and the basic research and development departments, which were previously led by the S-team members, MEITUAN Senior Vice President Li Shubin and MEITUAN Vice President Han Jian. They will now report to Wang Puzhong.

In the past year, the frequent strategic adjustments in MEITUAN's store business have shown that in order to compete with ByteDance, defense must be turned into offense.

In February of last year, MEITUAN launched "Special Discount Group Buying" to compete with ByteDance's "Special Offer Group Buying." In July of last year, MEITUAN officially opened a primary entrance for live streaming. In August, a "Video" tab was added to the center of the homepage's bottom menu bar, increasing the weight of the short video entrance. At the same time, MEITUAN has not relaxed its defense. According to media reports, MEITUAN has provided significant traffic support or rent reductions to businesses that are willing to delist from ByteDance's "discount group buying" or offer lower prices.

As a result, MEITUAN has incurred higher costs. The Q3 2023 financial report shows that MEITUAN's commission income has decreased from 47% to 31%; sales and marketing expenses reached 16.9 billion yuan, a year-on-year increase of 55%; the marketing expense ratio reached the highest level in nearly 7 quarters, at 22.1%.

In Zhang Chuan's internal memo, signs of a major strategic adjustment by MEITUAN can already be seen. Zhang Chuan stated that MEITUAN used to consider offline promotion as a barrier and invested in building a stable offline supply system and a moat for food delivery. But now, the situation has changed.

The key is that MEITUAN's e-commerce system is mature, and consumers have developed a mindset of "finding products." On the other hand, ByteDance's algorithmic distribution of public domain traffic has stronger control over user attention and content consumption, leading to the concept of "finding people for products."

With the help of massive traffic and push mechanisms, ByteDance has achieved a closed loop from "planting seeds" to "harvesting."

The rise of platforms like Xiaohongshu and ByteDance confirms that traffic can be converted into purchasing behavior. This recommendation mechanism based on "entertainment + randomness" happens to be in contrast to MEITUAN's strong purpose.

This contrast is reflected in the different values provided to businesses: ByteDance is more attractive to high-frequency, low-decision-making products, while MEITUAN is a heavyweight in low-frequency, high-decision-making products.

In a previous article, we mentioned that if ByteDance adopts MEITUAN's approach, it can essentially extend from high-frequency, low-decision-making products to low-frequency, high-decision-making products. The so-called mismatched competition is only temporary. ByteDance will not be satisfied with 20 yuan group buying for a cup of milk tea, as it does not generate much commission and advertising revenue. Expanding into offline stores and travel is the vast ocean.

However, on the supply side, ByteDance has not yet established a strong offline promotion and merchant layout.

But Zhang Chuan also mentioned in an internal memo at the beginning of the year, "In the past, we served search and shelf users, but in the future, we will serve users who search for low prices across the entire network. With changes in supply, we need to constantly communicate with merchants on pricing and promote competition among merchants. The product model will shift from being centered around POIs (Points of Interest) to being centered around SKUs, using new organizational capabilities such as offline promotion and WeChat groups to spread the concept of everyday low prices and drive user growth."

This indicates that although MEITUAN's offensive is centered around the concept of low prices, it has given up the "store" in specific logic and instead adopted a "product" centered approach similar to ByteDance.

On the other hand, because ByteDance lacks the concept of "store" and has a single method of attracting traffic, it has not yet established a clear user mindset and a long-term repurchase behavior that helps merchants accumulate operating assets and form a positive business cycle. However, this may change in the future. Using the low-price mindset, ByteDance is expanding outward with search as its core. Once search volume increases, it means that ByteDance's "people finding goods" model has been established.

According to media reports, ByteDance is strengthening its marketing capabilities through tactics such as traffic pools, precision targeting, video "seeding," and "store exploration." This is equivalent to encroaching on Meituan's supply side. Once ByteDance achieves supply diversification at the "store" level, repeat purchases and user mindset will not be far behind.

However, with Zhang Chuan's departure and Wang Puzhong taking over, it remains to be seen whether Meituan will continue to progress according to this logic.

Source: Decode, original article titled "Meituan's Organizational Adjustment May Impact Local Life Strategy Progress"