What's Meituan's trump card for selling hotel rooms?
Meituan is targeting cross-selling of hotel accommodation, a low-frequency service, by capitalizing on stickiness for often-bought services such as food delivery and in-store dining.
ChinaTravelNews, Ritesh Gupta - Meituan Dianping's service-focused model is being keenly followed in the travel sector, as the indigenous e-commerce platform accounted for over 200 million domestic hotel room nights in China in 2017.
The company reportedly targeting a $60 billion valuation in its forthcoming initial public offering only started offering hotel booking service in 2013.
The company's duel with Ctrip and other players in the travel e-commerce sector is being scrutinized. China's mobile commerce category has unique aspects, such as the size of the market, the pace of growth and innovation, the fact that the market over indexes in mobile payments, and a message-driven culture rules. So it is important for foreign travel companies to be spot on with their assessment of how China’s consumption economy is coming along and how the role of the likes of Ctrip, Tencent, Alibaba and companies such as Meituan in shaping up.
So what has resulted in Meituan Dianping's share rise in the travel sector?
The company served over 300 million transacting users, and one of the core strengths of Meituan Dianping is how it continues to play a role in consumer's lives. There were 206 million transacting users at the end of 2015.
Meituan's platform usage frequency isn't in the league of the category of messaging or social networking apps (such as WeChat). The top business segment is food delivery, which contributed over 60% of total revenue last year.
Meituan has managed to count on areas such as on-demand food delivery and dining services to eventually garner hotel bookings. It is expecting this cross-selling pattern to continue for a bigger share in the travel e-commerce, since the most frequented product category - food delivery - in consumers' daily lives is expected to more than double up in the next five years from the current online penetration of 14% or so. Private consumption is expected to grow at a CAGR of 8% from 2017 to 2023.
Kevin Guo, VP of Meituan, a speaker at TravelDaily's 2018 China Hotel Marketing Conference held in Hangzhou, acknowledged the fact that over 80% of new hotel bookers were converted from food delivery and in-store dining last year.
Kevin Guo, Vice President of Meituan
A strength of Meituan lies in its use of data and algorithms to come up with relevant recommendations and enabling discovery of services. Overall, the company is targeting sustained booking of services across various categories as it strengthens its multitude of services by offering the store + home + travel + local transportation concept. The plan is to add more categories under the services e-commerce model. In the last two years, the company has added - car-hailing, on-demand grocery delivery and bike-sharing related services. In the future, there is also a plan to introduce a membership program to maximize the lifetime value of each user of Meituan's platform.
The team follows the principles of being agile, places a great emphasis on the user experience and stays nimble to be "user-driven", rather than being transaction-oriented or placing the services offered over the user, shared Guo.
The timing of Meituan's focus on services that fall in the category of essentials along with external factors such as the continuous development of mobile commerce that has gradually gone beyond the top cities has resulted in the offering gaining traction in China. The team is expanding further in more lower-tier cities and towns. As per the information provided by the company, Meituan's on-demand food delivery offering had served over 2500 cities and towns in China at the end of last year.
Attractive proposition for hotels
Meituan's listing included 340,000 hotels at the end of last year. The number of room nights booked in the domestic market grew by 55% or so in 2017, in comparison with 2016.
Guo indicated that the network of upscale hotels has been on the rise owing to the fact that purchasing power of transacting users is coming into play. Meituan expects the millennials group to become the leading force of future consumption. Their annual consumption growth rate is 11%, twice that of consumers aged over 35.
Meituan also hopes to count on the expertise of Booking Holdings. The US-based online travel company had chosen to invest $450 million last year. Post this deal, Meituan signed a commercial deal with Agoda.