Meituan Wang Xing: all takeaway riders will be insured. Anti monopoly will not damage competitive advantage

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Key points:
Antitrust supervision will bring benefits to the development of the whole Internet industry. Meituan has specially set up a team to assist the investigators in all aspects.
Meituan will prohibit the signing of exclusive cooperation contracts and establish a more transparent merchant reporting and monitoring system. It has not been impacted to a great extent and will not damage our competitive advantage.
In the near future, meituan will actively cooperate with the government on the purchase of employees’ work injury insurance, and will insure all takeaway riders and ensure their safety during their work.
In the first quarter, the profit per order of meituan takeout was 0.38 yuan. The cost of meal delivery is the major part of meituan’s cost. Sometimes meituan can’t cover the cost by charging the merchants.
Tencent technology released its first quarter financial statements as of January 31, 2021 on Friday. According to the financial report, meituan’s total revenue in the first quarter was 37.016 billion yuan, a year-on-year increase of 120.9%; Among them, the revenue of catering takeout was 20.575 billion yuan, up 116.8% year on year.
Wang Xing, chairman and CEO of meituan, and Chen Shaohui, senior vice president and chief financial officer, attended the financial report conference call to interpret the key points of financial report and answer questions from analysts.
Meituan’s first quarter revenue was 37 billion yuan, and the catering takeout business made a profit of 1.1 billion yuan [meituan released the latest performance topic]
Analyst: I’d like to ask about takeout regulation. China’s State Administration of market supervision and Administration (samr) is investigating the potential monopoly behavior of meituan recently, including signing exclusive contracts with merchants. How will this affect meituan? On the merchant side, what impact will this bring to meituan’s competitive advantage? What adjustments have you made in the recent self-examination phase? What will be the impact of the new social security policy for migrant workers in the near future?
Wang Xing: this question is very important! The government’s supervision of monopoly behavior will bring benefits to the development of the whole Internet industry, which will bring more fair competition and avoid the occurrence of violations. In response to this investigation, we have specially set up a team to assist the investigators in all aspects. We will review the current business strategy and internal management team, and improve the compliance standards, which is the top priority of the whole company. We conduct a comprehensive assessment of the products sold in the past, including the impact on merchants, regulatory announcements, media reports, etc.
We will fully respect the decision of merchants, prohibit the signing of exclusive cooperation contracts, and establish a more transparent merchant reporting and monitoring system. In the future, we will continue to cooperate with regulators on a large scale and fully respect the independent decisions of merchants. As far as our daily operation is concerned, we are not impacted to a great extent, and we don’t think it will damage our competitive advantage. In fact, our competitive advantage does not come from our exclusive contracts in the past few years. Instead, we focus on providing high-quality takeout services, a full range of digital operation tools and online solutions for merchants to improve their efficiency and create value for them.
Restaurants choose to cooperate with meituan because our platform can understand their business pain points, help them carry out their business more effectively and reach more and higher-level consumers. In addition, we have not only profound insight in the takeout industry, but also rich field experience. Our team will further consolidate and strengthen our competitive advantage.
With regard to social security and welfare, as reported by the media, the government plans to launch a set of pilot schemes for work-related injury insurance for temporary workers. This is a package jointly launched by various takeaway platforms and insurance companies and the government, which also includes takeaway riders, aiming to make them work more safely and provide appropriate insurance. Unlike traditional work-related injury insurance, our takeaway riders are currently protected by commercial insurance, which covers accidents during working hours. In the near future, we will actively cooperate with the government on the purchase of employees’ work injury insurance. We will insure all takeaway riders and ensure their safety during their work.
According to the relevant regulations and guidelines issued by the government, riders are very important partners for us, which is worth emphasizing repeatedly. We will continue to improve our support for riders to ensure that they are satisfied with their work.
In addition, the social security policy of temporary workers will be further changed in the future. Temporary workers are still a relatively new concept in China. They also have different characteristics due to different industries. They also have a unique social structure. We will continue to support their development and meet their emerging new needs. We will implement this better social security system in accordance with the government’s guidelines, which will perfectly meet the unique needs of the new occupation of riders and other temporary workers, and it will also promote the healthy and long-term development of this industry.
Analyst: regarding takeaway business, you have launched a new rate model. Can you share your early feedback? How will it affect the business? In addition, under such a regulatory environment, what level do you think the monetization rate and unit economic benefit will reach in the long run?
Chen Shaohui: in the past, we charged merchants a fixed fee for all the services we provided, which is different from many other platforms. The cost of food delivery is a big part of our cost. Sometimes the fees we charge the merchants can’t cover the cost. For example, in the first quarter, the profit per order was 0.38 yuan. In fact, in the past few years, our original rate model has not brought us balance of payments in this quarter. We have to continue to invest in the delivery network, because we want to provide services for more small and medium-sized restaurants that do not have the ability to deliver their own meals. In this way, we can improve the diversity of our platform options, and help more merchants develop their businesses while bringing more value to consumers.

In this quarter, as the merchants better understood the services we provided, we began to adjust our rate model and split the platform service fee into technical service fee and meal delivery service fee. In each city, technical service fee is fixed, including information fee and transaction fee. Our meal delivery service fee will cover the cost of meal delivery, including the training and management of riders. The amount of the fee is related to the order value, meal delivery distance and meal delivery time. The adjusted rate model will be gradually implemented in various cities.
The adjusted rate model enables the merchants to clearly see the rate calculation formula, including two separate service fees and another meal delivery fee. This will enable the merchants and consumers to better understand our business structure, which will also help optimize the operation of the whole takeout industry and bring structural changes to it.
Let me give you an example. According to the old rate model, merchants will accept orders of less than 30 yuan or even 20 yuan in the middle of the night, which are far away. From the economic point of view, it doesn’t make sense for riders and platforms. Consumers also have to wait longer. In addition, the long-distance orders of high-quality merchants will better reflect consumers’ attention to high quality, so the average unit price of such consumers will also be higher, which will bring more economic value to high-quality merchants.
We believe that such rate adjustment will better match demand and supply, and promote the development of market-based rate. With the new rate model, merchants can choose whether to choose our service or not based on their average price. And our delivery distance search function, they can also choose whether to use our delivery service according to the delivery distance and delivery time. After switching to the new rate model, the cost of short-distance meal delivery will be reduced, which will help those small and medium-sized businesses with shorter delivery distance and lower average price of single item.
In general, our adjustment to the rate model will make our charging model more transparent, while our business model will not be affected. We will continue to communicate with merchants to understand their business pain points and help them complete the digital transformation of their business. We will also further improve operational efficiency. In the short run, improving the monetization rate is not the focus of our takeout business, but the most important thing is to continuously invest in the takeout ecosystem to achieve more sustainable long-term development.
Our expectations for the takeout business remain unchanged, and our expected monetization rate will remain unchanged in the long run. In the future, the improvement of monetization rate will come from advertising and other value-added services. The new meal delivery technology and mode and economies of scale will also have a positive impact on the reduction of meal delivery cost and help us further optimize our operation.
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