2024-08-07
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Text丨Zhao Yifan
Editor:Lu Zhen
Faced with the dual challenges of fierce competition in local life and the fact that Meituan’s own community group buying is not yet profitable, the strategy of overseas delivery of takeout is undoubtedly a new trump card that Meituan has placed its greatest hopes on.
In the past year, Meituan's overseas brand KeeTa has once again broken the long-standing stability of Hong Kong's food delivery market through its extreme cost-effectiveness and delivery speed. One year after entering Hong Kong, KeeTa has become the largest food delivery platform in Hong Kong by virtue of its market share in terms of order volume. After gaining a firm foothold in Hong Kong, Meituan has also accelerated its pace of going global.
In April this year, it was rumored that KeeTa would soon land in Riyadh, the capital of Saudi Arabia. As the first stop for Meituan's official overseas expansion, although the economy here is rich and the per capita GDP is as high as 30,000 US dollars, the hot and dry climate, the windy and sandy climate, the fasting tradition during Ramadan, and the emphasis on royal and family ties are all obstacles that Meituan must overcome in this desert.
Mirror Studio learned from people close to Meituan's overseas business that after months of preparation, "KeeTa has carried out a small-scale roadshow in Saudi Arabia from July 28 to 30. The main purpose is to test whether the overall business chain can run smoothly. Therefore, only a small amount of traffic was invested and recommended to a small number of users. The official business will still start in late August or September."
Compared with TikTok and Temu, among the major domestic companies, Meituan has also realized that its overseas business is a bit slow. Compared with Hong Kong KeeTa, which took 8 months to prepare, Meituan's progress in Saudi Arabia is faster, but it still continues the cautious strategy, with Riyadh as the core and a single point of breakthrough.
It is foreseeable that after Meituan has run its business model in Saudi Arabia, its goal will be the broader Middle East market. Even though the desert is full of dangers, it is one of the few places that can support Meituan's next growth story.
This article will focus on several questions about this desert: What is Meituan's strategic path to go global? Why is Saudi Arabia the first stop for Meituan's official overseas expansion? What new challenges does Saudi Arabia present? Can the experience accumulated in the mainland and Hong Kong still be used in Saudi Arabia?
As Meituan has made frequent successes in Hong Kong, the strategic level of food delivery overseas has been raised again within Meituan. However, unlike its high-profile strategy in China, Meituan has been very cautious in selecting and expanding overseas markets.
As early as 2016, Wang Xing visited Israel, San Francisco, Berlin, Jakarta and other countries and cities for inspection. Later, Meituan's overseas project team reached cooperation with many overseas hotel suppliers, using the hotel and travel business as the first warm-up attempt to open up overseas markets.
In the following years, in the face of a series of mergers and acquisitions in the food delivery market and fierce competition with Ele.me, Meituan did not invest heavily in overseas businesses, but only participated in the investment of several local life service platforms in Southeast Asia. Around 2019, Meituan planned to expand into the Hong Kong food delivery market, but the plan was shelved because electric vehicles were not allowed on the road in Hong Kong and food delivery capacity could not be guaranteed.
It was not until 2022 that the overseas expansion plan was put on the agenda again, and Meituan still chose Hong Kong as the "experimental area" for its overseas delivery.
Compared with other regions, the Hong Kong market is small, but it is close to the mainland in location, and its catering, culture and language are similar to those of the mainland. It also has a higher consumption level and a mature business environment, which makes it easier for Meituan to transplant its business model and operating experience to the Hong Kong market.
After entering Hong Kong, KeeTa did not rush to fully expand its services throughout Hong Kong, but chose the densely populated commercial center areas - Mong Kok and Tai Kok Tsui as pilot areas. Subsequently, KeeTa spent nearly half a year gradually expanding its service scope and finally achieved takeaway service coverage throughout Hong Kong.
This strategy of "piloting first, then gradually expanding" helps KeeTa concentrate resources in a limited area, quickly test and adjust its operating model, and reduce initial operational risks.
● Hong Kong Hung Hom, an advertisement for Meituan’s Hong Kong brand KeeTa. Image source: Visual China
One year after entering Hong Kong, KeeTa has become the largest food delivery platform in Hong Kong. The latest data released by market research firm Measurable AI shows that based on the number of orders in March 2024, KeeTa, Meituan's Hong Kong business, has a market share of 44%, while the other two platforms Foodpanda and Deliveroo have market shares of 35% and 21% respectively.
"Currently, the Hong Kong business has become relatively stable, and the next step will be to focus on improving financial statements and profits," a Meituan internal employee revealed to the Mirror Studio. Although KeeTa has surpassed its competitors in terms of food delivery order volume, GTV has not yet become the champion.
On the one hand, this is attributed to the fact that Meituan has launched more low-priced products such as "one-person meals". On the other hand, Meituan has not yet opened up other categories besides catering. Both of these have limited the growth of its GTV to a certain extent.
Therefore, after becoming familiar with the Hong Kong catering delivery model, Meituan began to cautiously expand its business to other non-catering categories. According to Jiemian News, KeeTa will expand to the convenience store category in the near future. If the convenience store catering category operates well, KeeTa may support convenience stores to launch non-catering products in the future.
However, Hong Kong is only a "testing ground" for its overseas expansion experiments. Saudi Arabia, which is more than 2,000 times the size of Hong Kong and borders many countries in the Middle East, was chosen by Meituan as the "first battlefield" for its overseas expansion.
In terms of regional selection, Meituan chose Saudi Arabia rather than North America, Europe or Southeast Asia, which still shows Meituan's "caution" on the road to going overseas.
Competition in the North American market, which has a larger market space, is currently very fierce. The leading players have expanded their leading advantages through acquisitions. Even niche markets such as Chinese food delivery are already crowded with competitors. Southeast Asia, which is located in a similar location and has more similar culture and eating habits, has shown signs of sluggish growth in its food delivery market. Last year, the GTV of food delivery platforms only increased by 5% year-on-year. In addition, the low average customer price due to consumption levels makes it difficult to carry the market volume that Meituan expects.
Although Saudi Arabia is hot and dry all year round with rampant sandstorms, with the highest temperature in summer exceeding 50 degrees, it is also the largest economy in the Middle East, with extremely high consumption levels and considerable prospects for the takeout market. Coupled with a series of favorable policies proposed by the Saudi government to promote foreign investment, it has become the best choice for Meituan to "train" overseas.
It is worth noting that KeeTa adopted a similar strategy in Saudi Arabia as in Hong Kong, first landing in the capital Riyadh and then replicating the experience in surrounding areas."We are currently mainly using Saudi Arabia as a pilot. If the results are good, we will definitely expand our business to six countries in the Middle East in the future."The above-mentioned Meituan employee said.
Compared with Hong Kong, China, Saudi Arabia has a bigger market and stronger consumption power, so Meituan can make more money here. This is also the key reason why Meituan delivers food to the desert.
First, on the demand side, Saudi Arabia has mature users who have already formed the habit of ordering takeout, as well as a growing number of new users.
In terms of economic size, Saudi Arabia is currently the 19th largest economy in the world, with a total population of over 30 million and a per capita GDP of $30,000. This provides a broad space for growth in the food delivery market. According to Statista estimates, the total revenue of Saudi Arabia's food delivery market is expected to reach $11.74 billion in 2024, while the food delivery market revenue in Hong Kong, China is expected to be only $4.1 billion during the same period, less than half of Saudi Arabia's.
According to estimates by Statista, the user penetration rate of food delivery in Saudi Arabia will reach 44.2%, much higher than Hong Kong's 30%. China, the world's largest food delivery market, is expected to have a user penetration rate of 54.5%, while Southeast Asia's is even lower, at only around 16%.
● King Abdullah Financial District (KAFD) in Riyadh. Source: Visual China
What determines the penetration rate of food delivery users? It is the difference between the time value of the rider and the time value of the local food delivery users. In other words,The lower the rider delivery service fee, the higher the local user income, the more able they are to pay the delivery fee, and the more people will be willing to order takeout.
From this point of view, Saudi Arabia is more suitable for Meituan than Hong Kong. The income of Hong Kong riders is much higher than that of other local blue-collar groups, and even higher than the average income in Hong Kong. The high delivery cost has hindered the willingness of Hong Kong citizens to order takeout, making it difficult to continue to increase the penetration rate of takeout, and making the profits of takeout platforms thin.In Riyadh, Saudi Arabia, most food delivery riders are foreign blue-collar workers, and their income gap with the local consumer group is even greater. At the same time, Riyadh is one of the most densely populated areas in Saudi Arabia and even the Middle East, where every inch of land is valuable. Catering businesses are more willing to expand sales through food delivery and reduce rental costs, which makes Meituan more profitable.
Take the delivery revenue of Saudi food delivery listed company Jahez as an example. The delivery revenue of an order on the platform is about US$3, which is basically paid by users. In 2023, the company's delivery revenue has exceeded the delivery cost, and the delivery cost is still declining, which also means that the platform will earn more.
The economic strength of the "Middle East tycoons" is also reflected in the extremely high average order value of food delivery in Saudi Arabia. According to statistics from Measurable AI in 2021, the average order value of other food delivery platforms in Saudi Arabia can basically be maintained at more than US$15 (RMB 100). In comparison, Meituan's average order value in China is around RMB 50. With a high average order value, the platform's profit per order will naturally increase.
Most importantly, Saudi Arabia's food delivery market not only has a group of old customers who are accustomed to ordering food delivery, but also a steady stream of new users. Thanks to the "young" Saudi population dividend and high Internet penetration rate, the younger generation in Saudi Arabia prefers food delivery rather than dining in physical stores.
According to data from the U.S. Department of Commerce Census Bureau, the median age of Saudi Arabia's population in 2023 will be only 32 years old, while the median age of China's population will be nearly 40 years old. In addition, the proportion of young people under 30 years old in Saudi Arabia in 2023 will be as high as 45%, nearly half of the total population. This young population structure is undoubtedly a huge advantage for the food delivery industry, which mainly relies on young people as its customer base.
Secondly, from the supply side, the number of catering businesses in Saudi Arabia has increased rapidly, and more and more restaurants have begun to provide take-out services.
The report shows that the Saudi catering market is expected to reach approximately US$49.6 billion by 2030, and the number of food delivery apps operating in Saudi Arabia has increased by more than 460% in the past two years. These positive data show that food delivery services are rapidly becoming mainstream in Saudi Arabia, and also lower the threshold for Meituan to enter.
● The design plan for the "THE LINE" urban project announced by the Saudi Crown Prince. Source: Visual China
In addition to the business itself, in the current volatile and complex geopolitical situation, Saudi Arabia, with its stable economy, open policies and active capital market, is also the best choice for Meituan to advance its internationalization strategy and seek success in the capital market.
In 2016, the Saudi government, which was in deep financial crisis due to the continuous decline in oil prices, announced a national transformation plan called "Saudi Arabia Vision 2030". This plan, known as the Saudi version of "reform and opening up", also provided foreign-funded enterprises with unprecedented opportunities and preferential conditions.
Meituan may have also seen this possibility. If KeeTa is split in Saudi Arabia in the future and seeks to go public, or if the AI projects in which Meituan participates require financial support, Saudi Arabia's active investment environment can provide more opportunities.
Although the desert is full of business opportunities, it is also full of challenges. For Keeta, how to learn from the experience of the mainland and Hong Kong markets and adjust to the Saudi market environment is the key to its foothold in the desert.
In Hong Kong, the first stop before going overseas, Keeta identified the pain points of riders, merchants and users, and made targeted adjustments in algorithms and strategies, so that it took only one year to reach the top.
Unlike the flat terrain of most mainland cities, Hong Kong has mountainous terrain and uneven roads. Therefore, Hong Kong food deliverymen are divided into two types: "cavalry" and "infantry". Food deliverymen are also allowed to work part-time across platforms and serve on multiple platforms at the same time. Keeta has made further adjustments on the delivery side based on the habits and characteristics of Hong Kong food deliverymen.
● KeeTa's "infantry" riders in Hong Kong. Source: Visual China
In terms of algorithms, KeeTa will reduce the number of long-distance orders assigned to riders, and will provide additional subsidies if there are any. If the delivery is on time, the platform will have an on-time bonus of about HK$3. In addition,Deliverymen can also freely reserve delivery times on the App, and KeeTa can optimize order distribution based on the riders' reservations to ensure that there are enough riders in each time period to meet delivery needs.
In terms of rider induction and training, a "reward activity" was launched. KeeTa evaluates deliverymen based on their online rate, order acceptance rate, punctuality rate and other standards within a certain period of time. The higher the ranking, the higher the reward. This has also become a way for Meituan to train riders.
The core idea is to increase the income of deliverymen through rewards and subsidies, which ensures KeeTa's delivery capacity and enables it to cope with the rapid increase in orders.
In Saudi Arabia, where KeeTa is about to be officially launched, in addition to the hot, dry, sandy weather, there are also huge religious and cultural differences. In Saudi Arabia, which is a Muslim country, believers need to complete the "Five Pillars" every day, that is, five scheduled prayers, each of which takes about 20 to 30 minutes. In addition, there is a "Ramadan" every year, when believers fast all day from dawn to sunset. Obviously, this religious custom has a significant impact on catering demand and takeaway service models.
Faced with a completely new environment, KeeTa needs to make adaptive adjustments to its algorithms similar to those in Hong Kong to adapt to the local climate and religious customs and reduce the impact on food delivery.
For example, due to extremely strict labor policies, the local food delivery platform industry all relies on third-party human resources companies, and Meituan is no exception. In this case, KeeTa can also adopt subsidies or rewards to focus on training a group of more "professional" food delivery drivers. If employees need to pray or catch up with Ramadan, they can also enable a flexible mode for riders to make their own appointments to fill the vacancies of riders in a certain period of time, ensuring that there are sufficient delivery resources at any time.
"One-person canteen" is KeeTa's special solution to the user pain point of high delivery fees in Hong Kong. It "exchanges" "customized" items through traffic subsidies and communication with merchants. This "localization" strategy not only meets the needs of single-person work meals, but also drives revenue growth for merchants. In terms of average order value, KeeTa Hong Kong is far lower than its competitors foodpanda and deliveroo. In addition, many SKUs are free of delivery, which has led to a surge in KeeTa's order volume. Hong Kong has a dense population. When the algorithm plans the route and the order volume is large, the rider's income per unit time may be higher, and the shortened delivery time also brings a better experience to users.
Drawing on this successful localization experience, KeeTa may be able to expand this concept to the Saudi market and launch a "family package" service that suits local family eating habits.
Whether it is the delivery end or the user end, Meituan’s strategy in Hong Kong still follows the mainland’s “burning money for scale” approach of the past. First, increase the number of orders and expand the incremental growth. After achieving scale, reduce the delivery costs of riders or increase the commission ratio by providing advertising services to merchants.But whether this approach will work in Saudi Arabia remains to be seen.
For example, Jahez, a competing platform, has launched a membership system in Saudi Arabia. Users pay 95 riyals (about 190 yuan) per month and enjoy a variety of benefits, including free shipping. In addition, in the case of using foreign workers as the main force of delivery and strong consumption power of local Saudi users, it is difficult to put a lot of pressure on competitors by burning money to subsidize. The marginal benefits of price wars are not high. Instead, more efforts need to be made in service quality. Meituan needs to launch more targeted and local content to attract more merchants and users and win more business opportunities in this desert.
People who know the language and understand the market are the basis for launching localized services."Currently, there are about several hundred employees working in Saudi Arabia," a person close to Meituan's overseas business told Mirror. "But the local office buildings are not particularly large, so there is still a large gap and urgent demand for people with overseas experience."
● Job information posted by Keeta on a recruitment website. Image source: Recruitment website
The shortage of talent can be seen in the recruitment advertisements released by Meituan. Recently, Meituan has released recruitment information on multiple platforms around the direction of going overseas, including business development experts, engineers, strategic operations, business development and other positions, mainly responsible for maintaining merchants, formulating rider operation rules and product operations.
So far, KeeTa has not received support from local Saudi capital, nor has it carried out high-level cooperation with local Saudi companies. This means that KeeTa needs to invest more time and resources to enter the local market, especially in Saudi Arabia, which attaches great importance to the royal family, family and connections.
As the Chinese market dividend peaks and local life competition becomes increasingly fierce, Meituan has turned its attention to overseas, which has become a key step for it to achieve growth. Even though the desert is full of dangers, its relatively friendly geographical relations and potential market prospects have painted a hopeful future for Meituan.
References:
"Research on the Overseas Delivery of Catering Industry in 2024: Competition Landscape and Market Space in the Middle East and Hong Kong", GF Securities
"21 Survey | Hong Kong's Takeaway War Is Still Intense", 21Tech
"Meituan's first overseas stop: an expedition to Riyadh, Saudi Arabia", 36Kr Overseas
"Delivering takeout food to Saudi Arabia: Meituan faces three challenges", Tech Planet
"Meituan enters the desert", Huxiu
"Meituan Enters the Middle East", Photon Planet
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