Meituan Dianping Ord Cl B

Thank you for standing by and welcome to the May 1, second quarter 2023 earnings conference call. All participants are on a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press star, the key followed by number one on your telephone keypad. I would now like to turn the conference over to Scarlett Shue, VP and Head of Capital Markets. Please go ahead.

Thank you, Operator. good evening and good morning everyone welcome to our second quarter 2023 earnings conference call joining us today are mr xin wang chairman and ceo and mr shao huichen media vice president and the cfo of make one for today's call management will first provide a review of our second quarter 2023 results and then conduct a q a session before we start We would like to remind you that our presentation contains forward-looking statements which include a number of risks and uncertainties and may differ from actual results in the future. This presentation also contains an audited non-IFI financial measures that should be considered in addition to the not as a substitute for measures of the company's financial performance prepared in accordance with IFIs. For a detailed discussion of risk factors and non-IFIs measures, please refer to the disclosure document in the IR section of our website. Now I will turn the call over to Mr. Xin Wang. Please go ahead, Xin.

Thank you, Scarlett. Good evening, everyone. For the second quarter of 2023, our total revenue increased by 33.4% year-over-year to $68 billion. Adjusted net profit would remain the $7.7 billion, reaching the highest level in history. As offline consumption continued to rebound, China's local services market experienced a robust recovery. Leveraging our retail plus technology strategy, we made a significant stride in enhancing the efficiency of both goods retail and services retail, invigorated the local consumption market and deepened online penetration among merchants. Our core local commerce segment achieved a significant year-over-year growth. During the quarter, we continued to help over 10 million merchants on our platform enhance their online operations. In addition to our shelf and search-based business model, we have also piloted short-form videos and live streaming. providing merchants with a more diversified set of marketing tools to reach consumers. In parallel, we also satisfy the growing demands of our consumers by providing them with better quality, more affordably priced, and more convenient tools and services. Furthermore, we are dedicated to accelerate the integration of digital technology with the real economy. In line with this commitment, we recently unveiled our next-generation unmanned aerial vehicle, and our autonomous delivery vehicle has also been more widely applied in more scenarios. It is another step forward in building an end-to-end delivery network in modern cities. Going forward, we are confident that technology will further empower us to achieve greater and we will continue to fulfill our mission to help people eat better, live better. Now, let me walk you through each business in more details. As consumer spending continues to recover during the second quarter, our food delivery business experienced strong growth. It strengthened our supply and allocated more subsidy into holiday, cross-city, and late-night snack scenarios. This helped us effectively cover consumers' diverse range of needs, especially in the high AOV and high-quality brands. Additionally, both supply and demand in the low-price band have grown rapidly on a year-over-year potential basis. Thanks to our optimized operational strategies, order volume grew further in a low AOV range As the restaurant industry plays an important role in China's economy development and in people's livelihoods, we remain firmly committed to helping merchants with business recovery and digital operations. We believe that the key to high-quality growth in the restaurant business is to help restaurants improve the quality and efficiency of their operations. As a result of our continued efforts, The breadth and quality of the supplier on our platform has continued to improve. The number of newly onboarded merchants in the second quarter more than doubled what it was during the same period of last year, largely driven by higher growth from key account and super key account merchants. We have also continued to enhance our marketing tools during the second quarter. For example, We upgraded our monthly promotional event, and we launched in multiple cities. These events allow merchants to sell low-price, high-quality dishes through flash sales, live streamings, and videos. Through these events, participating merchants have realized a notable growth in post-transaction volume and number of new customers. For these sellers, the benefits of selling mega-hit products via livestreaming will outlast the length of the promotion, and consumers will continue to repurchase after the event ends. Moreover, consumers usually add other dishes at checkout when they redeem their vouchers, enhancing cross-sell and boosting sales of shell-based products. The combination of live streaming and shelf-based models is our unique advantage, bringing new growth potential for restaurant merchants. Beyond this, we have also actively onboarded high-quality merchants, which received a high ranking on the Yanting app and provided special resources and traffic support to them. We also released the must-order list for food delivery in Beijing, Shanghai, Guangzhou, Shenzhen, and Chengdu in June. This program attracted more traffic for high-quality restaurants, provided long-distance delivery services that enabled the restaurant to reach a broader consumer base. Going forward, we will continue to develop our ecosystem, strengthen our content capabilities, and launching more innovative marketing strategies for our food delivery business. As the structure of China's labor force continues to evolve, flexible workers have become an important part of the workforce. As we provide a large number of job opportunities for food delivery couriers, we are committed to enhancing their welfare and providing them with better working experience. In June, we launched a summer courier care program in over 100 cities. We also optimized our delivery route algorithm to reduce courier exposure in high temperatures, offered them subsidies, and ensured a stable income for individuals working in intense heat. During this year's July 17th Courier Festival, we launched a courier growth project that aims to support careers in their long-term personal development. The project encompasses professionals' career in educational development and support employee opportunities. Median InstaShopping also maintains strong growth momentum during that second quarter. It leveraged various promotional events and festivals to enhance consumer perception of the diversity and convenience that we offer. Driven by growth in our user base and purchase frequency, daily order volumes peaked at 11 million orders for the second time in May. In addition, the quantity and variety of our supplies increased, and our number of annual active merchants increased by over 30% from the same period last year. We continue to empower merchants through online operations, providing traffic, subsidies, and access to various marketing tools, including live streaming. These initiatives enhance product exposure and help the small and medium-sized merchants reach a broader consumer base. During major promotions like Labor Day and the June 18th Shopping Festival, many product categories achieved a notable growth. For instance, electronics in home appliances saw accelerated online penetration in lower tier cities, while daily necessities, beauty and personal care, and mom and child products encountered a strong growth throughout the second quarter. We actively explore product categories that will better satisfy the consumer's on-demand retail needs. For example, during the hot summer season, categories such as fruits, beverage, pickles, and ice cream experience greater physical demand. For the medicine category, we expanded our 24 by 7 smart pharmacy, , nationwide. to ensure that consumers will have timely access to medical consultations and medications for both emergencies and chronic illnesses. We collaborated with pharmacies and pharmaceutical companies and launched the Yellow Light Project to help bring medical resources to lower the market and provide 24-hour medical services to more counties. As offline consumption continues to recover, our in-store hotel and travel business maintained a strong growth in the second quarter. GDP increased by over 120% year-over-year. Annual active merchants and annual transaction users also reached a new high. And turning to our in-store businesses, with the arrival of the peak consumption holiday season, The local services industry rebounded rapidly and demand continued to be strong. During the second quarter, in-store GGV increased month by month and achieved significant year-over-year growth. During the quarter, we optimized our existing products, enhanced the consumer experience, and expanded merchant services. For example, we helped a merchant at the design set meals based on consumption data analysis and provided the delivery services. We also lowered the threshold of subscription-based services to more small and medium-sized merchants so that they can enjoy the benefits of online operation at lower cost. Meanwhile, we continue to strengthen our capabilities in consumer and content creation. We also expanded our marketing initiatives, such as a special use and live streaming, providing merchants with new marketing tools and traffic acquisition channels. This not only boosts merchants' marketing effectiveness, but also offers consumers more high-quality and affordably-priced products and services. At the same time, We have continuously created our operating strategies, improved our ability to create a magazine products, and diversified our supply. Already, over 100 products have achieved the sales of over 100,000 units through live streaming and special deals. We also optimized our content and expanded our coverage of existing consumption scenarios. Furthermore, we solidified consumer mindshare by using Meituan to select local stores and find deals. During the quarter, we explored collaborations with third parties for traffic acquisition and integrated online and offline operations to further drive traffic growth. For our recently released 2023 must-eat list, we increased our promotional efforts, expanded coverage to more stores, and offered a must-eat set meals, and utilized live streaming to offer consumers more recommendations and discounts. We also stimulated consumption. by organizing themed activities based on holiday travel scenarios. For instance, we launched the foodie family season for holidays, including Dragon Ball festivals, Father's Day and Mother's Day. This effectively boosts food consumption during family gatherings. In addition, we leveraged our platform capabilities to stimulate local consumption by collaborating with travelers who can get specific such as the Guangzhou Night Consumption Festival. With the post-pandemic response of the domestic travel industry, our hotel and travel business continues to grow rapidly in the second quarter. We broadened our product offerings such as increasing live streaming frequency and diversifying special views. We also expanded the supply of high-quality selections suitable for different consumption scenarios and price ranges. These efforts solidified the consumer's mind-share of Meizhuang as a platform that helps save money when booking hotels. In addition, we enriched our hotel plus X activity for leisure travel and vacation scenarios during the peak demand season. On the higher staff run, we onboarded more hotel brands and deepened the collaboration with the high-star merchants and certified our price competitiveness. We also expanded joint marketing events, optimized the joint membership programs, and improved overall consumer experiences. For Labor Day and the Dragon Boat Festival, we expanded efforts in both external traffic acquisition and internal cross-sell from other businesses. For live streaming, besides leveraging our MainTrend Hotel channel, We also collaborated with the in-store and food delivery businesses to sell hotel vouchers during their live streaming sessions. Furthermore, we successfully capitalized on the recovery in outbound travel by increasing the supply of overseas hotels and broadening our outbound travel customer base. For alternative accommodations, We enhanced the experience for both consumers and landlords and better match the demand with supply. We also launched the theme-based marketing events to drive room-line growth. Now let's move to our new initiatives. For Meitan Select, Meitan Youquan, QTD and revenue continue to grow year over year in the second quarter. Our growth rate decreased due to slower than expected growth of the overall markets. We believe the growth rate digitization will continue and remain competent on a trans-select long-term potential despite the short-term difficulty in refining the business model. During the second quarter, we retained our position as an industry leader in terms of business scale. Our accumulated transaction users have reached 470 million by quarter end. Transaction frequency of existing users increased as we further enhanced our consumer mindshare. During the quarter, we diversified the supply and established a long-term partnership with more suppliers. providing consumers with wider selections of high-quality products at lower cost. Our refined operations expanded coverage of cold-chain logistics and smart warehouses powered our industry-leading fulfillment efficiency. We continue to solidify our capabilities in digital operations and supply chain management, facilitating the advancement of urban and rural supply chains In addition, we help the farmers increase their incomes and promote the circulation of agricultural products on our platform, and continue to create employment opportunities in lower-scale cities. And our Meizan Grocery, Meizan Mai Cai, also experienced solid growth on year-over-year basis in the second quarter. despite a high base last year. And market share also improved steadily. As the weather warmed up, categories such as food, liquor, and beverage saw a notable increase in on-demand delivery. We continue to diversify our product offerings and the proportion of GTV from standardized products and private label products continue to increase. User frequency further increased, showcasing our effective cultivation of consumer habits. Moreover, we increased the density of front-end warehouses in the major cities that we operate in, leading to continuous improvements in delivery efficiency and user experience. At the same time, we deepened our collaborations with suppliers and enhanced direct sourcing and procurement of fresh produce. Thanks to these efforts, we are able to offer consumer high-quality products while enhancing our price competitiveness. Looking ahead, we will continue to responsibly undertake our corporate role in facilitating and promoting social and economic development. Following the path of high-quality growth We are committed to creating a greater number of opportunities, empowering the retail industry through technological innovations and accelerating the industry's digital transformation. With the help of innovations and our continued product iterations, we can further elevate our consumer experience. Our goal is to become a smart assistant for consumers' daily lives. and providing merchants with diversified services to support their online operations. We will leverage our proprietary research and external investment to explore the views of artificial intelligence and autonomous delivery and other cutting-edge technologies. Through these initiatives, we will drive innovations and support the development of the digital economy and the growth of the real economy. With that, I will turn the call over to Shaohui for an update on our latest financial results. Thank you, Xin. Hello, everyone. I will now go through our second quarter financial results. During the quarter, the recovery of local services has been much stronger than other sectors. Our total revenues increased by 33.4% year-over-year to RMB $68 billion. Cost-to-revenue ratio decreased 6.8 percentage points year-over-year to 62.6%, primarily due to the improved gross margin of our food delivery, maintenance and shopping, and goods retail business, as well as the increased contribution of online marketing services revenue. Selling and marketing expenses ratio increased 3.8 percentage points year-over-year to 21.4%, mainly due to our increased promotions, advertising user incentives, and employee benefits to stimulate consumption and solidify our competitive advantage. Time to expenses ratio and the G&A expenses ratio both decreased year-over-year to 8% and 3.1% respectively, primarily benefiting from improved operating leverage. Driven by our focus on high-quality growth and improving operating efficiency, total segment operating profit and operating margin increased remarkably to RMB 5.9 billion and 8.7%, respectively, compared to total segment operating profit and operating margin of RMB 1.5 billion and 2.9% for the same period of 2022. On a consolidated basis, our adjusted net profit increased significantly year-over-year, reaching RMB 7.7 billion this quarter, turning to our cash position. As of June 30, 2023, we continue to maintain still net cash position with our cash and cash equivalent and short-term treasury investments totaling RMB 120.2 billion. Cash from operating activities in the second quarter improved significantly year-over-year to RMB 10.9 billion. Now let's look at our second results. starting with core local commerce. Our core local commerce segments revenue increased by 39.2% year-over-year to RMB $51.2 billion. Operating profit increased by 34.8% on a year-over-year basis to RMB $11.1 billion. Operating margin remained at around 22% this quarter. On-demand delivery achieved 31.6% year-over-year order volume growth this quarter. for food delivery, we have seen joint recovery across all price ends on the supply side since April. Thanks to our effective subsidy strategy and promotional event, high TSTs, median to high-frequency users, and high AOV orders continue to grow healthily. Demand from lower TSTs, lower frequency users, and low AOV orders has also shown an accelerated recovery trend since April. On the unit north side, average order value declined year-over-year against last year's high base. The decline was a natural result of the accelerated recovery of low ticket size orders. At the same time, our strength and marketing efforts to stimulate consumer demand acquired new users led to a year-over-year increase in subsidy spending. However, we benefit from abundant supply of queries. Also, volume growth also drove economics of scale on the cost side. Meanwhile, the increase of marketing demand from merchants drove a strong growth in online marketing services revenue this quarter. These favorable factors helped to offset the increase in subsidy and lower LV. Notably, operating profit per order continued to increase on a year-over-year basis. Pending to maintain shopping, It continued to achieve strong order volume growth and accounted for more than 11% of our total on-demand delivery orders during the second quarter. Average order value declined year-over-year, mainly due to the high base last year. Unignomics remained at a similar level to that during the 70th of last year, primarily due to lower AOV and our increased investment to drive business growth and strengthen user mindshare. Nevertheless, our advertising potential was further unleashed this quarter, with both the online marketing merchant base and merchant app pool increased significantly. Online marketing revenue for this business grew by almost 140% year-over-year, We are glad to see that SMA Twine Instant Shopping has built up its core competence and become the largest on-demand retail player in China. We have become a key channel for small and medium-sized retailers across many categories to generate online sales and market their products. We also cooperate with a larger pool of top brands and K-8 merchants. Now let's turn to our in-store hotel and travel business. A business revenue without it significantly on a year-over-year basis. We continue to benefit from a strong demand recovery for local service consumption and travel. In addition, we set up investments to support merchants and incentivize consumers through diverse range of marketing formats and solutions. GTV for Enso Hotel & Travel grew strongly and drove a robust year-over increase in our transaction-based service direct in this quarter. The revenue growth rate for Hotel & Travel was particularly significant. Anything came from a faster rebound in the scale of room nights and significant increase in AER. We are also pleased to see that merchants' willingness to market online is also rising. However, revenue growth was slower than PTV growth. First, merchant incentives and user incentives to enhance the price competitiveness and strengthen consumer mindshares negatively impacted the revenue. Second, we lowered the threshold of subscription-based services for selected categories and lowered tier cities to encourage more merchants to join our platform. This dragged down the growth of online marketing service revenue On the profitability side, it is worth mentioning that the second quarter was a peak season for local service. We think it's really important for us to have sufficient investment in this quarter to further stimulate consumption recovery and help us solidify our competitive advantage, as well as to enhance consumer mindshare. As a result of our investment in traffic, application, merchant incentives, user subsidy, and other marketing and branding activities, operating profit declined quarter over quarter. Operating profit achieved positive growth on a year-over-year basis, mainly due to a recovery in business scale. Let's now turn to our new initiative segment, Ewing Needs Quarter. Resilience in this segment increased by 18.4% year-to-year to RMB 16.8 billion, mainly due to the development of our goods retail business. The segment operating loss increased slightly to RMB 5.2 billion from RMB 5 billion in the first quarter of this year. costly loss extended on a sequential basis. This was primarily due to a larger business scale or increased subsidy to drive growth or expenditure on cold chain and logistics in response to the upcoming hot weather during the upcoming season and the product exchange. For the other new initiatives, most of them have made good progress in improving operating efficiency and financial results. For example, our bike-sharing business achieved a positive operating profit for the first time in history, and our B2B food distribution operating margin continued to improve. In summary, we are pleased to see that our core local commerce segment has delivered another set of strong results this quarter, riding on the recovery of local service consumption. We are confident that the digitization of local services in China will continue to benefit our platform. Meanwhile, we will continue to proactively adapt to evolving consumer behavior and merchant needs. Our confidence in the medium and long-term growth for the core local commerce segment remains unchanged. At the same time, we will continue to pursue high-quality growth and optimize operating efficiency for our new initiatives. With that, we are now open for Q&As.

Yes, thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you're on a speakerphone, please pick up the handset before asking the question. And the first question comes from Ronald Kung with Goldman Sachs.

Thank you, Xin Ge, Xiaohui, and Scarlett. I want to ask about our in-store hotel and travel business. We have seen a good growth trend in the second quarter. Can you elaborate on the progress and effects of relevant measures, strategies, as well as the current competitive landscape? Thank you.

Thank you, Ronan. Yes, we are very pleased to see that our GTV for in-store hotel and travel grew by over 120% year-over-year. Annual active merchants and annual transacting users for this business both reached new highs. During this quarter, we captured offline consumption recovery and actually extended our traffic. We also diversified our content offerings and enhanced our marketing tools and services. Thanks to our strong market share on the merchant side and our operational capability, we helped merchants leverage our offline traffic recovery trend and satisfy the growing consumer demand through diversified services. We further solidified our competitive advantage and maintained our market leadership through a series of mergers. For the in-store business, markets had seen strong growth potential, and we fully leveraged our offline operational capabilities And we also further strengthened the business development efforts. We stratified our merchant operational tactics based on merchant categories and merchant tiers. We met merchants' diversified operation needs and deepened cooperation. For example, we offer merchant incentives and geomarketing events to strengthen our relationship with core merchants. For certain categories from lower tier cities, we lower the threshold of subscription-based service and simplify the merchant onboarding process for small, medium-sized merchants. In addition, we extend our direct sales team to more cities, especially as we penetrate further in a lower tier city market. Through these measures, we are able to ensure the diversity of supply and attract competitors on our Metam platform. On the content and product side, we launched a series of product optimization measures. These measures not only strengthen the market of our shelf-based offerings, Huojia Gongji also helps promote max-heat products, helping enhance our marketing and product recommendation capability. By April, we have primarily completed the ongoing expansion of our special deals, Kejia Chuan Gou, We offer multiple entry points in the MateOne and the DMP app. Through these special deal sections, we offer participating merchants new marketing tools, direct additional traffic to them, and help them sell max-heap products. For the consumers, we provide products at very attractive prices and meet their stockpiling needs. Our special deal sections effectively solidify consumer mindshare of MateOne as a platform that offers the best deals We also continue to accelerate and improve our live streaming events to meet consumers' known and spent demands. We increase the frequency of our live streaming events and work with local governments and launch citywide live streaming events to stimulate local consumption. As a result, the daily average number of live streaming events increased significantly through which we provide consumer broad selection of local deals in the in-store dining, leisure and entertainment, hotel and travel, and many other categories. For our hotel business, we see strong growth in the room life and ADR as travel demand continues to rise. During this quarter, we optimized our marketing strategy and increased branding promotions. We focused on holidays such as Qingming, Labor Day, and draggable festivals and use the subsidy to enhance pricing. We also increased the number of live streaming sessions for hotel travel. Specifically, we increased our live streaming frequency from weekly sessions to daily sessions, and launched an AI virtual human live streaming tool. We further optimized our HotelPlusX package deals, embodied more merchants, and diversified our offerings. In particular, we optimized the supply of hotel room nights plus dining, attraction, ticketing, and local tours, and realized more synergies through cross-selling. Thanks to these measures, we solidified consumer measures of having low price on MateOne and incentivized consumers to book hotels on our platform. During this quarter, we strengthened our confidence on the overall potential of this local service space. Our platform has become an important channel for all merchants to acquire new customers and grow their business in the post-pandemic era. We will continue to attribute our operations and services to help the merchants benefit from the industry digitization process and bring convenience and value to our consumers. Thank you.

Thank you. That's very useful, Xiaohui. Thank you.

Thank you. Please go ahead.

Operator, it seems that we didn't hear you just now. Can you repeat?

Yes, certainly. The next question does come

We love you again. Operator?

This is the operator. Can you hear me?

Yeah, we can hear you now.

Can you repeat? Yeah, certainly. I apologize. The next question comes from Gary Yu with Morgan Stanley. Please go ahead.

Hi, thank you. I have a follow-up question for the in-store segment. Looking ahead to the peak season in third quarter, how should we anticipate the growth of the core local commerce? If competition becomes more intense in the in-store, hotel, and travel industry, would the profit margin decrease further from the second quarter level? Thank you.

Thank you, Gary, for the questions. I will take that. Yeah, while the growth has been very strong in Q2, in Q3 I would like to elaborate a little bit on different segments. For our food delivery, we expect the Q3 or the volume will slow down, but still it will be more resilient than other consumption-related sectors. We have seen some short-term headwinds due to macroeconomy and extreme weather conditions so far into three. On one hand, offline traffic and travel demand continue to recover rapidly. Consumers pent up demand for offline consumption is further released, and this will lead to a temporary squeeze on food delivery transactions as people go out more often. Within the online and offline consumption demand, we are returned to a more normal balance, maybe up to one or two quarters. On the other hand, The change of consumption power due to the current macro environment will impact demand of the delivery to a certain extent, especially for some quite sensitive consumers in certain discretionary consumption scenarios. In addition, extreme weather also brings challenges to our business. For example, some regions, including Beijing, Guangzhou, Beijing, and Fujian experience heavy rainfall this summer. Many merchants had to suspend their business, while consumers chose to stockpile packaged food instead of ordering fresh food delivery. In some cities, food delivery was even suspended in order to ensure query safety. Also, order volume due through last year was a relatively high base. But we think the temporary slowdown in order volume growth is due to external factors. We will continue to activate our product operational strategy to better capture the demand and stimulate the recovery. We will remain confident in the long-term growth of our food delivery business. For the infant hotel travel, we expect that the GTV and revenue will continue to post strong year-over-year growth and also a two-year trigger in Q3. We launched a series of marketing campaigns and continue to improve them and optimize our strategy. These measures make consumer demand to stockpile coupons and solidify consumer mindshare in our value-for-money product offering. Now we have made one platform live streaming, regional live streaming, and merchant live streaming. We also diversify our marketing format and promote promotional scenarios under the share-based model. We are pleased to see that the transaction volume for both in-store dining and other in-store services through live streaming events during Chinese Valentine's Day broke new highs. I anticipate live streaming and share-based models can provide consumers with more diverse selections at a more affordable price and offer merchants more marketing tools. In addition, we co-opt with emerging categories during the consumption recovery trend and explore in online penetration of those new categories. In June, we launched the 2023 Must-Eat League. Each month, over 2,000 restaurants from 61 cities were selected. We also launched the Must-Eat Festival for the first time in history. We worked with the participating merchants and collectively invested over $1 billion in advertising and subscription. with which we target to drive additional 10 billion RMB of food service consumption. This will not only help merchants increase income, but also allow consumers to experience high-quality restaurants at a more affordable price. Additionally, the proportion from regional restaurants on our list has increased notably, providing consumers with more delicious and affordable choices. This year's list also includes around 90 restaurants from four overseas cities, Tokyo, Osaka, Bangkok, and Singapore, allowing consumers to explore local food when traveling abroad. For hotel and travel, summer is usually the peak season, so we expect our room might continue to grow robustly in two weeks. In addition, we spend our efforts in marketing and branding in summer and improve our traffic acquisition capability from both internal and external channels. Around the summer vacation theme, we further increase our Hotmail Plus X package deal offerings. We enhance our user acquisition efficiency from external channels and improve the user retention rate. on the internal cross-selling front. We focus on cross-selling from other high-traffic volume business, such our food and stock services. And then we try enter shopping. In terms of the market trade, as we mentioned before, we will continue to focus on the growth and focus on building a healthy ecosystem. We will dynamically assess our market efficiency and improve our ROI. while continuing to put the user experience and merchant experience as the top priority. Our goal is to allocate budget that can truly bring investment, improvement in products and services, and enhance our consumer mind share. We not only want our consumers to enjoy broad selection and good deals, but also want our merchants to benefit more from the digitalization. We are still in the early stage of development for certain capabilities. there is a big room for improvement. As summer vacation and national holiday are peak season, we will continue to invest during those seasons. Similar to what we did in May and June, we will dynamically adjust our strategy based on the outcome and market competition. Our current investment strategy may be focused on enhancing our brand awareness and mindshare. In addition, we want to improve our long-term stability and solidify our competitive models. We believe the industry still has large potential to grow from online penetration compared to physical goods commerce. So we will continue to accelerate our operation under the new competitive environment and help accelerate the digitization process. Thank you.

Thank you. Thank you. Thank you. And the next question comes from Thomas Chong with Jefferies.

Hi, good evening. Thanks, management, for taking my questions. If the changing consumption power has negative impact on food delivery, what measures can we take to drive order volume growth? Will the short-term pressure affect our medium and long-term order volume growth? Thank you.

Thank you, Thomas. We believe the negative impact from the macro is only temporary. It remains competent in China's economic growth and the consumption stimulated from the government. And overall, food delivery is an affordable consumption. If you look at our AOV, average order value, it's only between 30 to 40 RMB. So we have a broad range of categories and price bands and consumption scenarios. And our platform supply effectively satisfies the diverse needs of consumers. And as we continue to refine our operations and focus on high quality growth, we strengthen user stickiness from high frequency users. In Q2, growth of high frequency users and their purchase frequency once again outpaced the average. At the same time, more small and medium sized merchants resumed operations. And people from all walks of life returned to work. So both supply and demand of low ticket size orders recovered rapidly. We proactively adapted to the shift in consumption power by onboarding more high quality low ticket size supply. And our highly efficient first party delivery network also allowed us to capture more demand in the lower price range. For example, we further expanded our Ping Hao Fan model to more cities and continue to refine our strategy and efficiency. Our sky-side iteration and efficiency optimization under the Ping Hao Fan model allows us to offer more valuable money meals to consumers. So as a result, all the volumes from Ping Hao Fan grew very rapidly in Q2, and we believed Order with AOB below 15 RMB has large growth potential in the future. Additionally, we continue to use live streaming to encourage the consumers to stockpile coupons and stimulate known instant demand. Going forward, we will leverage diverse supported formats to make food delivery an indispensable service. With the measures I just mentioned, We are confident that our food delivery business will grow more healthy this year compared to other consumer sectors. And in the longer run, I think that the growth potential of food delivery remains unchanged. We believe the supply will continue to recover and grow, and it will drive the whole industry growth. Especially, we are confident in the resilience of small and medium-sized merchants. They represent the vitality of the Chinese economy, and their recovery will enable us to penetrate deeper into lower ticket size supply and serve a broader population. And thanks to our continuous iteration in delivery networks, we have lowered the delivery cost per hour per order to a level that can better cope with the medium and low ticket size orders and effectively meet such demands. So we believe food delivery can be an affordable alternative to home cooking for more people, regardless of the current macro environment. For high-frequency users whose demand is more in the high-quality end, we will continue to onboard more quality restaurants and extend our distance to accommodate broader consumption scenarios. I believe the potential is still huge. If you look at the number of meals consumed by the total urban population in China, that's still a huge room for food penetration. Not to mention there are afternoon tea, coffee, late night snacks, and other consumption scenarios beyond the regular three meals a day. For example, So despite all the challenges, 80 orders exceeded 78 million in August on the first day of fall, with milk tea alone contributing over 21 million orders on that day. Yeah, that's a mind-boggling number, 21 million orders for milk tea alone on that day. But this further validates our growth potential. across various categories. The on-demand delivery, which included food delivery and retail and store shopping, achieved a milestone of over $85 million on that day. So overall, we have confidence in the long-term potential of food delivery business. So I think because now the world is changing fast, But let's not forget what's not going to change. I think people always need to eat. That's not going to change. So people always need to eat, but young people don't want to cook. I think that's an opportunity for food delivery. So in longer term, I think the penetration rate of food delivery will continue to grow. It will continue to grow for many years to come. Thank you.

Thank you. And the next question comes from Alicia Yap with Citigroup.

Hi, thank you. Good evening, management. Thanks for taking my questions. I wanted to follow up on the InstaShopping. So can management comment on the recent performance of MateOne InstaShopping? Will it also be affected by the consumption power change? How do we view the growth potential for MateOne InstaShopping? Thank you.

Thank you. Thank you. I'm very glad you mentioned the mainstream shopping with Hansheng Gold because this is a business that the management team feel very excited about and feel very confident of its growth potential. As you have seen, since the beginning of this year, mainstream shopping has delivered strong growth. Actually, we don't see much impact from the macro environment to this business. I think because many product categories are still benefiting from deeper online penetration in broader geography regions. So the growth of mainstream shopping is significantly higher than the overall . We collaborated with an increasing number of regional specialty brands and emerging brands and onboarded more small and medium sized merchants from lower tier cities. Meanwhile, we explore supply format to effectively supplement traditional offline suppliers. For example, has attracted lots of external partners and merchants to collaborate with our platform. In Q2, all the volume continues to grow robustly, demonstrating its potential to win a higher body share from consumers. As such, we think all the volume of MedFind Instant Shopping will grow much faster than it did in 2023 and may be continued in the following years, despite it already has a high base from last year. After over five years of business development, the growth driver of MedFind Instant Shopping has gradually switched from demand-driven to supply-driven. Traditional offline retailers and brands actively embrace the rising-on-demand delivery channel, and we formed drastic partnerships with more and more brands. This will help us further diversify supply and monetize our advertising. In Q2, we see offline retailers are increasingly more willing to allocate money and budget onto our platform. Resting on Meituan Entity Shopping outpaced the order volume growth, mainly driven by the systemic growth of advertising resting. Going forward, we will address more merchant and brands with digital operations and supply chain transformation. We believe this effort will progressively help improve consumers' experience. In Q2, nearly 60% of food delivery users have become Meituan Entity Shopping users. Yet, there is still much more room for online penetration across different categories. Metro-Atlantican shopping and food delivery continue to create more synergy and user base in marketing and in fulfillment. In August, we further integrated with our food delivery membership program. We expect more synergy and marketing going forward. In the future, we believe that on-demand retail will create a self-sufficient import loop in which demand and supply strengthen each other. We are very confident that Medline will really be the brand for everything now to help consumers enjoy on-demand delivery services across more and more categories. It will penetrate more categories and more regions and more user groups. Thank you.

Thank you. And the next question comes from Yong Bai with CICC.

Thank you very much for taking my question. Recently, we have seen the official release of your first-generation phone. Could management share insights on the positioning of your autonomous delivery, including the UAV and the autonomous delivery vehicles? What are the prospects and investment plans in this area? If low-altitude logistic networks and autonomous delivery are applied on a larger scale, how will this optimize overall delivery efficiency and reduce delivery costs? Thank you. Okay, thank you. So unmanned aerial vehicles, UAV in short, and autonomous delivery vehicles, represent the autonomous delivery capability of Meituan. And they are good examples of synergies and integrations between retail and technology. That's our public strategy, retail plus technology. So we began autonomous delivery vehicles since the end of 2016. Now we test the business in Beijing and Shenzhen. By the end of this June, the accumulated number of orders fulfilled by our autonomous delivery vehicles has reached 3.3 million orders. So during the pandemic, our autonomous delivery vehicles were dispatched to Shanghai and other cities to help deliver daily necessities to people in residential communities, campuses, and hospital areas. In addition, we actively optimized our software and hardware and overall operations. And as delivery volume goes up, we expect cost per order for autonomous delivery to decrease in future. Also, as we continue to iterate this technology and continue to invest, we hope to integrate autonomous delivery with the couriers and selectively establish efficient hybrid on-demand delivery network at city level. In the long run, the autonomous delivery vehicle will not only enhance delivery efficiency, but also provide supplementary capacity when there is a courier shortage. And for UAV, or drones, we started our in-house proprietary research and development in 2017, and officially launched our operation in Shenzhen in 2021. Since then, we have produced nearly 170,000 orders. In July, we launched our fourth generation UAV in Shanghai. The safety, economics, and environmental adaptability have significantly improved for this new model. It's now more user-friendly and provides a better delivery experience for consumers. We believe unmanned UAV can solve delivery capacity constraints during peak hours, especially in some urban areas with high population density. In addition, UAV can enable delivery in certain scenarios where traditional delivery formats are incapable to do, such as in tourist attractions, big theme parks, or those natural theme parks. And for very long-distance delivery, currently we explore and develop our autonomous delivery from a very long-term perspective. In fusion, we think the autonomous delivery vehicle and UAV will form an urban delivery network that integrates aerial and ground transportation together with couriers So we believe they can enhance operational efficiency, address delivery capacity shortage problem, and meet consumer demands across various scenarios. We will continue to develop this technology and use this technology to drive the long-term development of our on-demand delivery market. Because there are a lot of technical challenges and also a lot of regulatory policy issues. So please be patient. We have been doing this for six or seven years. I think it's just getting started. So we are very patient in this development. I would like to ask investors also to be patient in this. Thank you.

Thank you. And this concludes question and answer session. I would like to turn the call back to Scarlett Shue for closing comments. Okay, thank you.

Okay, if no more questions, thank you for joining this call, and we look forward to speaking with you next quarter.

Thank you. This does conclude our conference for today. Thank you for participating, and you may now disconnect.