Meituan (03690) Wang Puzhong talks about the battle of takeout: calling for four months, the industry is still in an irrational state.

"The largest subsidy war in the history of China's internet" is raging in the food delivery sector. JD.com (09618) and Alibaba (09988) have announced that they will invest a total of 80 billion RMB, forcing Meituan (03690) to join the battle and reaching its highest daily order volume in history. On July 16th, according to "LatePost" report, Wang Putong, the CEO of Meituan's core local business, publicly responded for the first time to the recent fierce competition in the food delivery market. In the interview, which totaled 13,000 words, Wang Putong talked about the various participants in the food delivery war and mentioned the current phenomenon of excessive ordering volume, calling for a return to rationality. He bluntly stated, "Excessive orders are meaningless and harmful to the industry." "Meituan doesn't want to play this game, but cannot afford not to fight back." Passive defense, self-protection, and sticking it out to the end were the three key words that Wang Putong mentioned when talking about Meituan's participation in the war. "If others attack you irrationally, you are forced to fight back. If we don't participate in our main business, we won't even have the opportunity to turn to AI." Wang Putong said. In his view, Meituan doesn't want to get involved in meaningless price wars, but has to fight back to protect itself. He pointed out that competitors hope to quickly grab market share through high subsidies, but this strategy is not sustainable. Additionally, when Meituan responds to competition, it uses a more efficient and lower-cost strategy, for example, optimizing order structures through methods like self-pickup in-store to reduce ineffective subsidies. He also mentioned that Meituan's system capabilities can accurately distribute subsidies, avoiding resource waste, while competitors face higher loss risks due to inadequate system capabilities. "We not only can keep up, but we are using much fewer resources than them." Wang Putong mentioned the logic behind Meituan reaching a peak of 150 million daily orders last weekend (July 12), stating that it is meant to reveal the truth about ordering tactics in the industry - "how many orders you want to make, I can tell you how many orders you can make, and do it at a lower cost." Order numbers are just figures, Wang Putong believes that currently, in the instant retail industry, "the majority is a bubble.' For example, buying 12 bottles of water for 1 RMB, buying tissue paper for 0.01 RMB, and using a "0 discount coupon" that offers 16 RMB off when spending 16 RMB do not bring much value to the industry. According to Wang Putong, the share of Meituan's high average order value orders (above 30 RMB) remains stable at over 70%. He believes that the most important thing is valuable orders or GMV market share after removing the water. He said Meituan is "good at fighting, not just fighting." No winner in irrational business wars "No matter how fierce a business war is, if it does not promote progress, or even goes against commercial logic, then there are no winners in this battlefield," Wang Putong said, emphasizing that Meituan has been calling for an end to internal deterioration in the industry for four months. He cited an example of the most intense battle in a city - Suqian. According to statistics, compared to before the food delivery war, the local food delivery order volume in Suqian has increased four times. Currently, there are no dine-in customers in Suqian's fast-food restaurants, only delivery orders. A bowl of noodles costs 18 RMB for dine-in customers, but only 6 RMB for delivery orders - this huge price distortion is unsustainable. "So we knew at that time, after this wave of food delivery wars, there had not been much truly valuable increment." Wang Putong believed. For the catering industry, the side effects of subsidy wars are becoming clearer. Wang Putong pointed out that from delicious food to milk tea and coffee, the long-established price mindset is being broken by subsidy wars, leading to new problems - when subsidies stop, can this mindset recover? Additionally, for most dine-in brands, food delivery subsidy wars affect the normal operation of dine-in services and are unsustainable. Goldman Sachs estimates that Meituan, JD, and Alibaba may collectively spend up to 25 billion RMB in a single month. Wang Putong believes that the phenomenon of three companies running out of cash will not happen, as each company has its main battlefield. He stated that every company will have to consider issues such as not participating in Singles' Day sales, continuing investments in AI, and expanding overseas markets. However, Meituan will engage in the battle with much lower losses than industry players. Food delivery is a detailed and low-profit business model After six months of the food delivery war tug-of-war, many industry insiders have pointed out that the food delivery business model is vulnerable and faces the need to "plug the leaks" in fierce competition. Wang Putong believes that the food delivery model does have its characteristics of low profit margins, with profits from each order only a little over 1 RMB. This leads to a delicate balance between the four parties involved in the food delivery network - merchants, delivery riders, platforms, and users. Everyone must find a clever balance point for all to be satisfied. Therefore, "this business model cannot be approached in an idealistic or too simplistic and crude manner." Currently, Meituan's OPM (operating profit margin) is about 3%, compared to high commission rates charged by American food delivery company DoorDash, which collects 16% - 18% from merchant's self-delivery, and users also have to pay hefty delivery fees and tips to riders, and may only make a little profit in such a scenario. The food delivery market has limited scale and profit margins. Last year, the food delivery industry had a total profit of 30 billion RMB, with profit margins ranking at the bottom of the internet industry. In contrast, e-commerce has a profit of 600 billion RMB. At the same time, the food delivery industry employs more merchants and delivery riders, leading to conflicts of interest and increasing skepticism towards the industry. As a large platform with 14.5 million active merchants and an average of 3.36 million connected delivery riders per month, Meituan has faced increasing controversies in recent years. During the interview, Wang Putong also addressed the controversies that Meituan faces in the public domain. Wang Putong stated that the public attention Meituan receives far exceeds the profit generated by its business, "Every e-commerce company's profits are higher than ours, they even have to spend money to attract attention." Regarding the development of the industry ecology, Wang Putong said, "Over the years, we have been holding various forums and discussions with delivery riders, merchants, and others. My colleagues and I also regularly go out to make deliveries ourselves. We quickly make improvements wherever things are not going well or need immediate change." For example, last year the company established an Ecological Partner Department, which spent a lot of time communicating with merchants on issues such as how to combat internal deterioration, how to support traditional brands, and how to provide guarantees to delivery riders. In addition, Meituan began cooperating with the Ministry of Human Resources and Social Security on new forms of employment-related occupational injury insurance, among others, "Due to this fierce competition, attention has shifted away from these areas." How the outside world perceives and understands Meituan is also a question that Wang Putong believes the company needs to reconsider. "We need to clearly and clearly explain and communicate a business model with a long chain of interests, a complex model, and a not very profitable business to the outside world, including to the government, the public, delivery riders, merchants, and employees. The company's overall communication abilities need to be enhanced, we cannot just talk to ourselves." Returning to the current industry competition, Wang Putong believes that the current food delivery war has an unprecedented amount of bubbles, and calls on all sectors of society to discuss and reflect on whether the excessive ordering practices have any positive impact on society and whether they are meaningful for the sustainable development of the industry. "I believe that in this current environment, there is definitely no support for this kind of irrational war."