Meituan, founded in 2010 in China, is a two-sided digital company serves as a food delivery platform. Meituan has developed a user-friendly application and efficient delivery system that connects customers with a vast restaurant network. Consumers place orders on their mobile phones, and delivery personnel pick them up from the restaurant and deliver them to consumers’ homes. The positive network effect has helped Meituan quickly gain strong influence in China. At the end of 2020, the number of active merchants and annual transaction users on Meituan have increased to 6.8 million and 510 million respectively1.
Meituan has defeated its competitors by adopting an envelopment strategy to expand its services into multiple areas such as travel booking, ride hailing, and e-commerce. Recently in 2023, Meituan launched its supermarket brand ‘Xiaoxiang Supermarket’, marking an important step into the physical retail sector. Meituan has several advantages in entering the supermarket retail industry. Firstly, Meituan has a huge customer base who is accustomed to the convenience of online shopping and delivery. They have an increasing demand for purchasing groceries and daily necessities online. Secondly, the large amount of data and advanced algorithms accumulated by the company make market analysis more accurate. By combining digital platforms with physical stores, Meituan aims to provide a seamless shopping experience for consumers.
Image: Employees of Xiaoxiang Supermarket are sorting products2
Meituan’s strategic initiatives have raised questions about the future growth trajectory of digital platforms. Is entering physical retail a sign of digital platforms reaching their growth limit and prompting companies to explore the real economy? Or is it a strategic diversification aimed at increasing customer engagement and loyalty? Both of these factors may exist. Entering the retail sector is a move to further achieve supply-side economies of scale, while the comprehensive functionality of the platform may make Meituan “too big to fail”, increasing consumers’ switching costs and loyalty.
Actually, Meituan is not alone in taking strategic move towards the retail sector. Amazon has acquired Whole Foods and run the Amazon Go stores successfully, which demonstrates that digital giants can thrive in the supermarket sector. On the contrary, the difficulties encountered by Google in entering the smartphone market with its own Pixel phone indicate that not all digital enterprises’ expansion into the real economy will be smooth.
With the continuous development of digital platforms, the boundary between the digital and physical domains has become blurred. In the future, we may see more digital native enterprises like Meituan exploring innovative ways to combine their digital advantages with the real economy.
Interesting blog post! Digital and platform companies are indeed expanding their business to the physical business models but not all are successful. These companies can leverage their vast amount of data quite easily and because their entry can be real good. However it depends on the market in which they are entering. The retail market has relatively low switching cost as people get their groceries at the most convenient place. However the phone market is completely different where switching cost between IOS devices and Android are massive.