Zhongtai: Fulfillment forms suitable for Chinese soil, immediate retail potential may exceed expectations.

Zhongtai released a research report stating that due to high fulfillment costs, instant retail is still a niche market in its country of origin, the United States. However, in China, driven by strong convenience demand and significant cost structure advantages, instant retail has a high probability of becoming a mainstream retail model. MEITUAN-W(03690) has significant advantages in fulfillment systems and user mentality, and the development of instant retail business is expected to enhance its valuation potential. It is also recommended to pay attention to Dingdong (Cayman) Ltd. Sponsored ADR Class A(DDL.US), which has achieved profitability in its business and is poised to benefit from the overall industry trend. Key points from Zhongtai's report: The evolution of the retail industry in various countries is based on the same concept, but the optimal fulfillment form is influenced by factors such as population and urban morphology. Based on a comparative study of retail industry practices in different countries, we found that excellent retail companies all share a common concept: reducing transaction costs for consumers. However, the specific fulfillment forms vary under different national conditions. For example, in the United States, e-commerce fulfillment is suitable for warehouse distribution, while in China, express delivery is the main form. Offline retail, convenience stores originated in the United States, but are thriving in Japan. Instant retail originated in the United States, but is better suited for the Chinese market. Instant retail is a delivery service with a time frame of around 30 minutes. Its development in the United States can be traced back to the Webvan during the dot-com bubble period (1996), followed by Instacart and Amazon.com, Inc. However, due to high fulfillment costs, this model has always been a niche market. China explored instant retail much later than the United States, but the market size now significantly exceeds that of the United States. As a follower, Meituan-Shangou's order volume is already close to 12 times that of Instacart, with the gap widening. The Ministry of Commerce predicts that the instant retail market size will be close to trillions in 25 years, with the potential to exceed 2 trillion in the long term. Demand side: Chinese residents have a strong demand for convenient shopping. Unlike the "stock-up" shopping in the United States, Chinese shopping habits are more similar to Japan's, with a focus on small-scale, frequent purchases, leading to a higher demand for shopping convenience. As households become smaller, this trend will be reinforced. Compared to Japan, Chinese residents have less leisure time, which will further increase their motivation to use money to buy time (delivery services). Supply side: Delivery costs in China are systematically lower than in the United States, increasing the penetration potential. In terms of urban morphology, China's dense population distribution reduces delivery times for each order. In terms of social structure, the value of labor time for Chinese residents is low in wealth distribution, and there is a clear urban-rural dual structure. Therefore, China has a low-cost delivery system mainly made up of rural residents. By combining these two factors, China's delivery costs are significantly lower, with Meituan's average rider cost being 1/7 that of Doordash's. Considering the cost structure differences and strong demand for convenience, Japan achieves convenience through convenience store formats, while China may achieve it through more extreme home delivery formats. Efficient fulfillment is the key competitive advantage, as Meituan relies on a shared rider network with its food delivery business to achieve cost and stability leadership. Instant retail can be divided into pre-warehouse and platform modes, with the former closer to offline retail, where supply chain construction and operational capacity are key. The latter is more similar to time-sensitive local logistics businesses, where the stability of the fulfillment system is a core competitive point. Currently, platform-based instant retail is the focus of industry development, and sharing a rider network with food delivery services can effectively improve costs and fulfillment stability. Therefore, Meituan holds a significant competitive advantage in this business. Investment recommendations Meituan is expected to become the biggest beneficiary of the development of the instant retail industry, increasing its market value potential. Meituan has a comprehensive layout in the instant retail field, with a significant advantage in the platform-based market with its flash purchase business, while the pre-warehouse sector's Little Elephant Supermarket is catching up. Looking just at the flash purchase business, it currently does not contribute profits, but is expected to contribute around 16 billion in operating profits in the medium term, significantly increasing the company's value. It is also recommended to pay attention to Dingdong (Cayman) Ltd. Sponsored ADR Class A, as the company has established a significant order density advantage in the East China region, has achieved profitability in its business, and is poised to benefit from the overall industry trend. Risk warning: (1) Information lag risk; (2) Calculation assumption risk; (3) Sample bias risk; (4) Risk of macroeconomic demand decline.