Meituan
HKEX:3690
Meituan
In the bustling landscape of China's digital economy, Meituan has carved out a formidable presence as a multifaceted platform, central to the lives of millions. Founded in 2010 by Wang Xing, the company began its journey as a group-buying site, reminiscent of the early days of Groupon. However, it swiftly evolved, embracing a far-reaching vision to become the indispensable marketplace for local services. At its core, Meituan functions as a super app, weaving together a diverse array of offerings—from food delivery and restaurant bookings to hotel reservations and ride-hailing services. This strategic integration of services enables Meituan to attract a vast user base, entrenching itself deeply into everyday consumer transactions across China.
Financially, Meituan capitalizes on multiple revenue streams to fuel its growth. Its most prominent income sources are commissions from merchants and service providers, advertising fees paid by businesses eager to engage its massive audience, and delivery fees charged to consumers. These streams are complemented by Meituan's foray into emerging sectors like grocery delivery, which has seen a surge in demand. The company's business model thrives on the network effect; as more users flock to the platform, more merchants and service providers are drawn to it, creating a virtuous cycle of growth. The synergy of data analytics and AI-powered recommendations further enhances user engagement, optimizing service delivery and efficiency. This technological prowess, combined with strategic partnerships and consistent innovation, positions Meituan as a key architect in shaping China's digital consumer experience.
Earnings Calls
In the third quarter, Meituan showcased impressive growth, with total revenue rising 22.4% to RMB 93.6 billion and adjusted net profit soaring 124% to RMB 12.8 billion. The company’s core local commerce segment grew 20.2% year-over-year, fueled by enhanced marketing strategies and a successful membership program, Shen Hui Yuan. Meituan also launched initiatives including RMB 1 billion in merchant subsidies, aiming to strengthen its ecosystem. With over 100 million paying users in its Pin Hao Fan model, Meituan anticipates ongoing growth, particularly in lower-tier markets, and plans to enhance on-demand retail, highlighting substantial potential for the future.
Management
Xing Wang, also known as Wang Xing, is a prominent Chinese entrepreneur best known for founding Meituan, a leading e-commerce platform in China that offers services ranging from food delivery to hotel and travel booking. Born in 1979 in Longyan, Fujian Province, Wang Xing pursued his higher education at Tsinghua University, where he earned a degree in Electronics Engineering before furthering his studies in Computer Science at the University of Delaware. Wang Xing's entrepreneurial journey began with a series of internet ventures, including the social networking clone Xiaonei, which was similar to Facebook. This platform eventually became known as Renren. However, it was Meituan, founded in 2010, that brought him significant recognition and success. Under his leadership, Meituan evolved from a group-buying website into a comprehensive digital service platform, expanding its services to include food delivery, hotel and travel booking, movie ticketing, and more. Over the years, Wang Xing's strategic decisions and ability to adapt to market trends have solidified Meituan's position in China's highly competitive tech environment. His focus on user experience, strategic partnerships, and innovations in delivery logistics has helped the company become one of the largest of its kind in the world. Known for his low-profile lifestyle despite his success, Wang Xing is regarded as an influential figure in China's digital economy. His work has had a significant impact on the way services are consumed and delivered in China, marking him as an important player in the global technology and entrepreneurial landscape.
Mr. Rongjun Mu serves as the Chief Human Resources Officer at Meituan, a leading Chinese e-commerce platform that offers services spanning from food delivery to travel and entertainment. In his role, Mr. Mu is responsible for overseeing the company's human resources strategies, recruitment processes, talent management, and organizational development to build and maintain a productive and motivated workforce. Before joining Meituan, he gained substantial experience in human resources and management through various roles in different industries. With his expertise, Mu Rongjun plays a crucial role in aligning Meituan’s human resource policies with its broader business objectives, helping to foster a supportive work environment that drives the company’s growth and innovation.
Tao Zhang is a well-regarded business executive and entrepreneur known for his significant contributions to the technology and finance sectors. He co-founded Meituan, one of China's leading e-commerce platforms for services, in 2010. Meituan offers a wide range of services, including food delivery, hotel and travel bookings, and various lifestyle services, becoming a crucial part of China's internet services landscape. Before establishing Meituan, Tao Zhang was involved in various entrepreneurial ventures and gained substantial experience in the tech industry. His leadership and strategic vision have been instrumental in Meituan's rapid growth and success, helping it to expand and diversify its offerings to millions of users across China. Under his guidance, Meituan has also taken significant steps in integrating advanced technologies, such as AI and big data, to enhance service offerings and improve customer satisfaction. His work has earned him a reputation as an influential figure in the Chinese tech ecosystem.
Shaohui Chen currently serves as the Chief Financial Officer (CFO) of Meituan, a leading Chinese e-commerce platform for services. He joined Meituan, known for its comprehensive service offerings ranging from food delivery to travel services, bringing with him a wealth of experience in financial management and corporate strategy. Before joining Meituan, Shaohui Chen held significant roles in other major corporations. He worked at Alibaba Group, where he gained extensive experience in the internet and technology sectors. His expertise contributed to Alibaba's financial strength and strategic growth initiatives. Chen has an academic background that includes high-level qualifications in finance and economics, which have been fundamental in his role as a financial executive. His leadership style is characterized by a focus on strategic financial planning, operational efficiency, and innovation-driven growth. Under his financial stewardship, Meituan has continued to enhance its market position and navigate the competitive landscape of the tech industry in China. His work at Meituan involves overseeing financial operations, investor relations, and providing strategic guidance to ensure sustainable growth and profitability.
Chuan Zhang is a prominent Chinese business executive known for his role in Meituan, a leading technology company in China that offers a broad platform for local services and products, from food delivery to travel and entertainment services. As a crucial member of Meituan’s leadership team, he has played a significant role in the company's strategic direction and operational efficiency. Zhang has contributed to the rapid growth and success of Meituan by leveraging his extensive experience in the tech industry. His leadership skills and innovative approaches have helped Meituan expand its reach and maintain a competitive edge in the fast-evolving market of on-demand services in China. Beyond his responsibilities at Meituan, Chuan Zhang is recognized for his insights into the digital economy and often participates in industry discussions about the future of technology and service-based platforms. His strategic vision continues to influence Meituan's growth trajectory and adaptation to new consumer trends.
Puzhong Wang is a prominent executive associated with Meituan, a leading Chinese e-commerce platform that specializes in local services, including food delivery, hotel booking, and travel services. He has served in vital roles within the company, contributing significantly to its strategic growth and expansion. Wang's expertise in business development and operations has been instrumental in leading Meituan's initiatives to enhance user experience and operational efficiency. His leadership skills have been recognized as a driving force behind Meituan's ability to navigate the competitive landscape of the digital commerce industry in China. His role often involves overseeing key projects, optimizing service offerings, and implementing innovative solutions to meet consumer demands.
Yee Wa Lau is known for serving as the Chief Financial Officer (CFO) of Meituan, a leading Chinese e-commerce platform for services. Prior to her role at Meituan, Lau has amassed extensive experience in financial management, having held significant positions in major corporations. She worked at Goldman Sachs in both the Hong Kong and Beijing offices and later joined AIA Group Limited, where she took on various roles, including Group Head of Business Development. Her expertise in financial strategy and management has made her a key figure in Meituan's financial operations, contributing to the company’s growth and financial strategy in the competitive e-commerce space.
Ms. Sijia Xu is known for her role as the Chief Financial Officer (CFO) of Meituan, a leading Chinese e-commerce platform specializing in the delivery and sale of local consumer products and retail services, including food delivery, hotel and travel services, and other consumer offerings. Xu has been instrumental in steering Meituan's financial strategies and operational efficiencies. She joined Meituan with a wealth of experience in finance and capital markets, bringing valuable insights into corporate finance, investment strategies, and financial planning. Her leadership has been crucial in managing Meituan's financial health and navigating the complex regulatory and competitive landscape of China's tech industry. Sijia Xu's expertise extends beyond financial management; she has played a significant role in investor relations and has been active in maintaining transparent communication with stakeholders. Her strategic input has been vital in Meituan's continued growth and expansion in various service sectors. Throughout her career, Xu has been recognized for her analytical skills and strategic acumen, contributing significantly to Meituan's position as a major player in the global e-commerce market.
Thank you for standing by, and welcome to the Meituan Third Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Scarlett Xu, VP and Head of Capital Markets. Please go ahead.
Thank you, operator. Good evening, and good morning, everyone. Welcome to our third quarter of 2024 earnings conference call. Joining us today are Mr. Xing Wang, Chairman and CEO; and Shaohui Chen, Senior Vice President and CFO of Meituan. For today's call, management will first provide a review of our third quarter of 2024 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 the actual results in the future. This presentation also contains, unaudited non-IFRS accounting standard financial measures that should be considered in addition to and are not as a substitute for measures of the company's financial performance prepared in accordance with IFRS accounting standards. For a detailed discussion of risk factors and non-IFRS accounting standards measures, please refer to the disclosure documents in the IR section of our website.
Now I will turn the call over to Mr. Xing Wang. Please go ahead Xing.
Thank you, Scarlett. Hello, everyone. In the third quarter, we continued to achieve solid performance. Total revenue increased by 22.4% year-over-year. reaching RMB 93.6 billion. Adjusted net profit increased by 124% to RMB 12.8 billion. Annual Active Merchants and Transacting users and their purchase frequencies all grew healthily, breaking record highs.
And thanks to our industry insights and our continuous efforts in cultivating both supply and demand, we have become a reliable business partner for merchants across all operational scenarios and the go-to destination for consumers to discover local services and on-demand retail. We firmly believe that there is a big potential for digital transformation in China's local commerce industry, which will continue to bring both new challenges and new opportunities. We want to bring transformation in consumer lifestyle through innovation, incentivize demand and drive long-term industry growth.
Moving forward, we will adhere to our Meituan brand technology strategy is technology and innovation to drive industry growth and fulfill our corporate mission to help people eat better and live better. In this quarter, our on-demand delivery business continued to grow steadily. We broke 98 million daily orders on August 7. we actively improved our product formats while penetrating deeper into the supply chain to help merchants enhance operational efficiency. Our innovative business model, Pin Hao Fan has become a new trend for young consumers. It has over 100 million annual paying users, majority of which are 35-year old or younger.
This quarter, Pickup Now pay order volume of Pin Hao Fan was [indiscernible]. We continue to improve our efficiency in matching supply and demand across different time periods and scenarios to enhance user experience and incentivize demand in Pin Hao Fan. By now, over 5,000 brands nationwide have participated in Pin Hao Fan. Additionally, our Shen Qiang Shou program has gradually become a sales channel for mega-hit, high-frequency products, helping over 10,000 [ restaurant ] brands create better-selling items and stimulating consumers non-instant demand. We are rapidly expanding Branded Satellite Stores [indiscernible] a new food delivery business format that's customized for chain restaurants.
This new format can offer value for money products for consumers while ensuring profitability for merchants. with over 100 stores opening per week, Branded Satellite Stores are poised to become a new growth driver for chain restaurants. By the end of November, we have collaborated with over 200 brands, offering merchants full spectrum of online support such as store location selection, product selection and traffic conversion. The demand and market size of food delivery continue to expand. We will actively penetrate into the supply chain, explore diverse and efficient solutions, offer merchants more support and drive the high-quality development of food delivery industry together with our system -- ecosystem partners.
For example, after upgrading our merchant support program known as [indiscernible]. In September, we recently announced additional support initiatives. We will also offer subsidy to support merchants who focus on product development and business innovation with an initial total amount of RMB 1 billion. With the ongoing evolvement in retail, Meituan Instant Shopping continues to lead the rapid growth of on-demand retail. In the third quarter, average daily order volume surpassed 10 million. Both use base and purchase frequency posted double-digit growth. Qixi, that's the Chinese Valentine's Day, peak daily order volume reached 16 million.
Supply and consumption scenario of on-demand retail continue to expand and consumption time spent and regions also broadened. This shows that on-demand retail not only meets consumers instant and urgent needs but also becomes a new lifestyle. We have penetrated more deeply into the lives on the supply side consumer experience and target consumer habits, which generates more demand and in turn, promote further transformation on the supply side. In addition, Meituan InstaMarts our franchise income proved our continued progress on the supply side. During the third quarter, the number of Meituan InstaMarts and its order continued to increase, especially in the lower-tier cities and better consumer demand for long-tail products.
More importantly, large retailers are accelerating to embrace this new format. We recently announced our strategic partnership with MINISO for Meituan InstaMarts. They now have over 500 Meituan InstaMarts. Going forward, we want to empower more start-ups and branded merchants in location selection, store ramp-up, inventory management and more and help them generate higher growth through Meituan InstaMarts. In addition, the sustainable development of our On-demand business depends on the hard work of our couriers. In the third quarter, we introduced and improved a serious initiative to enhance courier protection and support. For example, we launched the Courier Friendly Community [ Qishou youhao shequ ] access solution, introduced the house of couriers on the courier app and piloted management mechanism.
In this new environment, flexible employment has become a very important form of employment. During the third quarter, the average monthly income for highly active couriers nationwide ranged from RMB 5,720 to RMB 10,855. In the third quarter, our in-store hotel and travel business recorded another stellar growth. Order volume increased by over 50% year-over-year. Annual transacting users increased by over 30% year-over-year.
Annual active merchants also reached a new high. We continue to leverage the synergies from core local commerce to enhance our competitive advantage and drive growth. Our in-store business has entered a new phase since this year. Our goal is to be a valuable partner for merchants, helping them operate under different scenarios and improve business cycles to achieve high-quality growth and high marketing ROI. We further enhanced our operational infrastructures and leverage specialties such as [indiscernible] on live streaming as well as personalized marketing strategies to help merchants enhance brand positioning and drive growth. We provided merchants with various solutions and tools such as product shots, consumer insights, review management and ranking list to help them refine business operation and accumulate digital assets.
Meanwhile, we continue to explore different fulfillment models and enhance internal collaborations within the platform. Our Pickup Now service, helps restaurant merchants expand fulfillment scope while meeting consumers' growing demand for efficiency when they pick up meals themselves from the store. Pickup Now has largely improved the users' self-pickup experience and restaurants operational efficiency. Additionally, we expanded our upgrade membership program, [indiscernible] to nationwide.
We have received positive responses and active participation from merchants with over 50% of our merchants joining the program. We optimized our subsidy strategy, which help merchants improve traffic conversion efficiency. User traffic directed from our high-quality food delivery members is quite effective with the number of new users of the in-store business continuously growing and purchase frequency of existing users increasing notably. Traffic and transaction volume from participating merchants also increased. In addition, we capitalized on the rising economy and [indiscernible] economy, [indiscernible] and the growing consumption for younger generations.
We accelerated the penetration into the lower-tier markets, providing local merchants with more traffic exposure and online operational tools and providing consumers with more high-quality value for money selections. As a result, our in-store business achieved much faster growth in lower-tier cities. In the third quarter, our domestic hotel room nights maintained steady growth. We have strengthened our collaboration with industry partners to provide mutual selection that meet consumer demands across scenarios and different price bands.
For high-star hotels, we launched new marketing IPs that effectively drive demand in certain popular categories. We also strengthened collaborations with hotel chains through membership programs, marketing campaigns and Hotel+X package reviews. On the lower star side, as demand rises in local accommodations [indiscernible], we further solidified our marketing positioning, thanks to our existing advantages in the lower-tier markets and younger generations. In the third quarter, our fully upgraded Shen Hui Yuan program has become our new growth driver. In the high-star domain, a new global high-star hotels brands have participated in Shen Hui Yuan.
For low-star hotels, we leveraged Shen Hui Yuan to cross-sell hotel room nights to our high-quality users, which effectively expanded our user base for the hotel business. For new initiatives, we continue to improve the operational efficiency across our grocery retail, hardware and software services and other initiatives. During the quarter, new initiatives maintained healthy growth and continue to narrow losses sequentially. New initiatives help us enhance our ecosystem because they provide a more comprehensive range of products and services, leading to higher user stickiness and merchant engagement.
We expect them to gradually unlock financial values in the future. And for international expansion, it remains an important strategy for us for this decade. On October 9, Keeta officially launched the Riyadh, Saudi Arabia, making -- marking a significant step in our journey from China to the global market. In the long run, we will bring our high-quality services and products to more merchants and consumers around the world and help more people eat better, live better. We firmly believe that local commerce has huge potential in digital transformation.
As the industry's leading player, Meituan will actively adapt to the ever-changing environment, continue to innovate and drive digital transformation of the whole industry. We will continue to satisfy consumer demand, empower and support merchants in their operations, provide more care for our couriers with career development support and deepen collaboration with all partners in our ecosystem. We will also uphold our social responsibility, navigate through cycles together with our ecosystem partners and create more value for the whole society.
With that, I will turn the call to Shaohui for an update to our -- on our latest financial results.
Thank you, Xing. Hello, everyone. I will now go through our third quarter financial results. During this quarter, our business sustained healthy growth with our total revenue increasing by 22.4% year-over-year to RMB 93.6 billion. Cost of revenue ratio decreased 4 percentage points year-over-year to 60.7%, primarily due to improved gross margin of our goods retail business and lower delivery cost as a percentage of revenue in our On-demand delivery business.
Selling and marketing expenses ratio decreased 2.9 percentage points year-over-year to 19.2%, thanks to our enhanced marketing efficiency. R&D expenses ratio decreased year-over-year to 5.7%, primarily benefiting from improved operating leverage. G&A expenses ratio was 3%, remaining stable on a year-over-year basis. Our focus on stimulating quality growth and improving operating efficiency drove substantial year-over-year growth in total segment operating profit and operating margin. Total segment operating profit increased from RMB 5 billion to RMB 13.6 billion, and total segment operating margin increased from 6.5% to 14.5%.
On a consolidated basis, our adjusted net profit increased significantly year-over-year, reaching RMB 12.8 billion this quarter. Turning to our cash position. As of September 30, 2024, we maintained our strong net cash position with our cash and cash equivalents and short-term treasury investments totaling RMB 134.2 billion. Cash generated from operating activities increased meaningfully year-over-year to RMB 15.2 billion. Now let's look at our segment results, starting with core local commerce.
Order volume growth for on-demand delivery maintained mid-teens year-over-year this quarter. Our expanded supplies, optimized operations and marketing strategy have effectively stimulate consumer demand during key marketing campaigns and holidays. We also successfully converted more food delivery users to Meituan Instashopping users and stimulate their purchase frequency on more nonfood categories. Our in-store hotel and travel business continued its rapid growth. Notably, demand for local services remained strong with in-store number of transactions surging nearly 60% year-over-year this quarter.
Categories such as sports, leisure and entertainment, shopping and et cetera, all experienced a rapid growth. Following the organizational restructuring, we have deepened collaborations and enhanced cross-selles among different business. Shen Hui Yuan, our first marketing scheme for integrating our marketing efforts in core local commerce has demonstrated initial success, driving frequency increase of our core users for in-store hotel and travel services. Meanwhile, as we refine our strategy for expanding into lower-tier markets, we have not only gained a better position, but also accelerate the number of transactions growth in our in-store business during the market cities.
Our core local commerce segment delivered strong year-over-year revenue growth of 20.2%, an acceleration from the second quarter, reaching RMB 69.4 billion. Evolving consumption trends continue to brought very varying degrees of impact on average order value, but we saw the decline in average order value of On-demand delivery continue to narrow this quarter. Delivery services revenue grew faster than the order volume of On-demand delivery on a year-over-year basis due to several reasons.
On one hand, user incentives deducted from delivery service revenue decreased as a result of the national rollout of Shen Hui Yuan. On the other hand, a growing number of merchants who previously fulfilled their costs using their own fleet or other channels switched to Meituan's delivery service due to our higher cost efficiency. Additionally, the proportion of long distance, nighttime and large-sized orders continue to increase, which further boosted the growth in delivery service revenue given the higher delivery cost.
Commission service revenue maintained healthy growth, primarily driven by the rapid order growth, partially offset by the decline of AOV across various categories. In-stock commission services revenue saw a much faster year-over-year growth than On-demand. As a result of its stellar growth of transaction orders, the growth for hotel travel lagged behind due to last year's high base as well as more balanced supply and demand. With respect to online marketing service revenue, we are pleased to see more delivery and instant shopping merchants opting for our advertising services.
This is due to our improved marketing solutions that meet their growing needs and enhance their marketing efficiency. However, online marketing services revenue growth for in-store hotel travel continued to trail behind mainly due to the change of subscription service charge. Core performance segment operating profit and operating margin both improved significantly on a year-over-year basis to RMB 14.6 billion and 21%, respectively.
We continue to benefit from the abundant supply of tourists and optimized delivery capacity structure. On top of that, as the scale of Pin Hao Fan increased, we also benefit from the efficient group delivery model of Pin Hao Fan. Meanwhile, we improved marketing and operating efficiency across all core local commerce businesses. As a result, we further optimized cost and expenses this quarter. As the business scales up, we also realized greater operating leverage. The sequential decline in core local commerce operating margin was due to seasonality.
We provided more incentive to queries working in hot season and extreme weather conditions in summer. We also spent more user incentives, promotion and advertising expenses to stimulate demand during summer season and enhance consumer awareness of new products, especially through Shen Hui Yuan.
Turning to our new initiatives segment. During this quarter, revenue in this segment increased by 28.9% year-over-year to RMB 24.2 billion, mainly due to the development of our goods retail businesses, particularly from Kuailv and Xiaoxiang Supermarket. In time, the segment's operating loss and operating loss ratio both narrowed on a quarter-over-quarter and year-over-year basis to RMB 1 billion and 4.2%, respectively. Meituan Select continued to narrow loss on a sequential basis.
For the other new initiatives, excluding Meituan Select, we continue to realize efficiency improvement while maintaining healthy growth and continue to make profit on a collective basis this quarter. With regards to our buyback progress, year-to-date, we have repurchased about 4.2% of the total shares outstanding. The company's total outstanding shares have significantly decreased this year.
To conclude, our core local commerce showed healthy growth alongside improvement in profitability. At the same time, our focus on efficiency improvement in our new initiatives has resulted in ongoing reduction in losses. Moving forward, we will maintain our focus on quality growth strategy while consistently enhancing our operating efficiency. We also anticipate increased synergy among our coal business in the future. Overall, we remain confident in the strength of our business fundamentals and our long-term growth prospects. With that, we are now open for Q&A.
[Operator Instructions] Your first question comes from Ya Jiang with Citic Securities.
My question is about food delivery business and we noted that Meituan announced a series of initiatives at the catering conference held in September to support industry development and help merchants better withstand the current challenges. And can you please share more details on these initiatives and will the company increase investment going forward. And given the large scale for the delivery business currently, how should we project future growth?
I think I believe that the consumer demand evolves is very important for the whole food service industry to adapt to those changes in order to achieve sustainable growth. Under this new environment, we are committed to being a trusted partner for restaurant merchants to enable their growth. We want to support the merchants in growing their customer base and better managing their customers relationships through the business cycles together with our ecosystem partners we aim to drive the healthy and sustainable growth for the food industry -- food service industry and the food delivery industry.
To achieve that, we upgraded our Merchant Support Program known as Shen Hui Yuan. We introduced initiatives to promote industry innovation, unlock market demand and boost the merchant confidence. To address merchants' concerns on the industry's over competition, we streamlined our merchant marketing tools to make sure that our traffic distribution mechanism remains reasonable and fair during marketing campaigns. Regarding ecosystem development support, we now offer 6 to 12 months commission rebates for Branded Satellite Stores [indiscernible].
We already provide AI-powered location selection services to over 500 brands, which operate -- which opened Branded Satellite Stores. And we also launched measures on food safety together with our merchants to enhance their food safety management capability and help them mitigate food safety issues that may raise consumers' concern. As we recently announced, we will also offer a subsidy to support the merchants who focus on product development and business innovation with an initial total amount of RMB 1 billion.
We will provide cash and other type of subsidies to help merchants optimize supply chain, enhance service quality and launch more value for money products, thereby helping them improve efficiency. In addition, we will support our mass merchants to explore new supply and innovative business formats and encourage high-quality brands to tap into the lower-tier markets. We will also provide time-owned brands [indiscernible] with 3 online operating tools and services assisting their online operations and marketing.
With all these methods, we hope to help merchants seize market opportunities and become industry front runners. Additionally, for newly onboarded small- and medium-sized merchants, we already extended our free traffic support period from 7 days to a maximum of 14 days, helping them to ramp up their business steadily. Our food delivery business has reached a relatively mature stage of high-quality growth. Nevertheless, we believe it's inevitable that food away from home offered by restaurants will address more household dining needs and will continue to expand in scale.
As an essential component of food away from home, food delivery is becoming a lifestyle choice for an increasing number of people and has significant potential for future growth. We are the go-to platform for food in China with a large base of high-frequency users. We are well positioned to benefit from this industry growth. the younger generation entering and starting their careers, the user base of our food delivery business is set to expand naturally.
Additionally, we see good growth trends in both consumption frequency and ARPU among our mature cohorts. Notably, the initial frequency and ARPU of new cohorts are higher than those of mature cohorts and their growth rates are also faster. This dynamic will drive the long-term sustainable growth of our food delivery business. Overall, we believe the food service industry can achieve long-lasting growth with significant potential.
We are confident that our food delivery business can sustain steady growth even at its current scale. During the current transformation phase of the industry, we will work closely with restaurant merchants to turn challenges into opportunities. Building a healthy and mutually beneficial ecosystem takes time, and our recent initiatives are just the beginning. Moving forward, we will enhance our support for the industry, helping merchants better navigate cyclical challenges and achieve sustainable and healthy growth together. Thank you.
Your next question comes from Ronald Keung with Goldman Sachs.
So I want to ask about core local commerce with quite a few stimulus policies that we've seen introduced recently, has Meituan seen any momentum pickup in your business so far? And as we look into next year, how should we project the growth of core local commerce next year? And how we balance growth and profitability?
Thank you, Ryan, for the question on core local commerce. Yes, we noticed that from the end of September onwards, various monetary and fiscal stimulus measures have been announced. We think these measures aim to restore consumer confidence and realize the huge potential of consumption in China. On our own platform, we also noticed that consumption in hotel travel during the National Day holiday pickup. In October, year-over-year decrease in the average order value of our food delivery business narrowed compared to the past few months.
While it will take some time for the positive effect to fully materialize and to further pass on to more consumption categories, we are confident that this policy will gradually provide more support for a real economy and incentivize consumer spending, bringing more growth opportunity for our business. We have also actively adapted to the changing consumption trends to better meet consumer demand and merchant needs since the beginning of this year.
We penetrate deep into the industry supply chain and explore new supply formats such as Pin Hao Fan, Branded Satellite Stores, and Meituan InstaMarts. By leveraging our platform advantage and promotional campaigns, we refined our content capability, improved marketing schemes for Mac hit products and effectively enhance our pricing competitiveness.
Additionally, we captured the rise of count economics [indiscernible] and younger consumers and accelerate the penetration of our in-store business into lower-tier markets. As a result, merchant base, consumer base and transaction volume all increased significantly in the lower-tier markets. As we continue to integrate and upgrade our Shen Hui Yuan program, we achieved more cross sales among core local commerce and thus enhance the purchase frequency and consumption categories of our core consumers.
These proactive measures enable us to grow resiliently in the first half of the year as well as the third quarter. Regarding your question on the growth next year, we will continue to implement and iterate these strategies and strengthen our brand awareness. We are confident that our core local commerce will maintain healthy growth.
Although changes in consumption trends may pose challenges, we believe our on-demand retail business will continue to grow steadily from the current scale. In particular, Meituan Instashopping will benefit from the online digital transformation and our continuous efforts on both supply side and demand side. Its growth will continue to significantly outpace food delivery growth.
We will facilitate more cross-sell between food delivery and Meituan Instashopping and boost purchase frequency from existing users. For the in-store business, there is a large potential as consumption trends continue to evolve and considering the vast opportunities from accelerating online penetration in lower-tier markets.
Therefore, we expect healthy growth to continue in the coming years. Meanwhile, we will further accelerate our Shen Hui Yuan membership program, explore more ways to cross-sell and penetrate more synergies among core local commerce. About the question between growth and profitability. We continue to believe growth is our top priority. But at the same time, we will focus on profitable growth or high-quality growth. We will also pay attention to maintain a healthy ecosystem. Under the current environment, merchants on our platform needs more support.
Therefore, we will continue to invest into our ecosystem. A healthy ecosystem will also lead to stronger long-term competitive moat for us. During this process, we will focus on efficiency as well. Our goal is to generate high-quality growth, achieve strategic targets and ensure steady and sustainable profit growth year-over-year. Thank you.
Your next question comes from Gary Yu with Morgan Stanley.
I have a question on Instashopping. How should we size the eventual penetration of quick commerce on online retail goods for sales? And how will InstaMarts play a role in accelerating the instant shopping penetration? How are the potential new categories that we have not yet penetrated that have good growth potential?
Thank you, Gary. I'm glad you raised the question on interactive shopping because we do believe that this is a high potential area for the company. In the last few years, we have seen that on-demand retail has profoundly changed people's lifestyle. It also transforms the whole retail industry. Now consumers believe that everything could be delivered to your doorstep within 30 minutes. The industry has developed a highly efficient and dynamic flywheel. It will play a crucial role in the retail sector in the future.
We believe in the long run, on-demand retail will account for at least over 10% of the total e-commerce market. Over the past 3 years, we continue to broaden supply of Meituan InstaMarts, aligning more closely with consumer needs in on-demand retail. We upgrade our technology and infrastructure and penetrate deeper into the supply chain. These efforts have scaled up market demand, particularly in the lower-tier markets. Currently, there are over 30,000 Meituan Aster Mart across various categories, including over 10,000 on-demand decade convenience stores.
More importantly, large retailers are now partnering with us. In , the MINISO is a standout example, surpassing our expectation in the InstaMart extension. With its strong product capability, 30% of its InstaMart products are now online exclusive, but seek set to grow with more products categorized for On-demand retail. We anticipate more large retailers will join us in the future because Meituan InstaMart provides an efficient growth model for them. Their participation will enhance our product variety and quality and elevate user experience. Overall, we see growth opportunity for Meituan InstaMart in every city and town where our food delivery services is available. It helps accelerate on-demand retail penetration.
We also recently launched a supporting program known as to provide comprehensive support and resources for our Meituan InstaMart merchants and related parties. We are confident that Meituan InstaMart will reach a GTV scale of over RMB 200 billion by 2027 with over 100,000 stores covering all categories in broader regions. There are numerous new categories in On-demand delivery with very low penetration. Going forward, we plan to introduce more brands and merchants and continue to allocate resources to drive growth. Beyond convenience stores, Meituan InstaMart covers a wide array of categories, catering to every aspect of consumer life.
We have Meituan InstaMart that dedicates to electronics and home appliance, mom and child products, daily necessities, apparel, beauty products, pet care, roof cup, flowers, medical equipment and more. In the future, Meituan InstaMart will continue to expand and penetrate deeper into lower-tier markets, enhancing the supply of long-tail product categories.
Your next question comes from Thomas Chong with Jefferies.
My question is about the in-store hotel and travel segment. So for in-store hotel and travel, could you share some more about the recent progress in Shen Hui Yuan in the lower-tier cities? And how has the competitive landscape evolved? What is our expectation for the operating margin next year and in the long term as the landscape stabilize?
Thank you, Thomas. In July, we expanded the Shen Hui Yuan program to key categories of our core local commerce and roll out to national-wide scale. Since then, we have made notable progress across product, merchant and consumer sites.
For in-store hotel travel, the number of participating merchants has surpassed 50% with an increasing portion of orders using Shen Hui Yuan. Our integrated marketing scheme and services has enhanced consumer awareness in Shen Hui Yuan's value for money offerings. We aim to gradually direct over 100 million Shen Hui Yuan members from food delivery to in-store hotel and travel services. Currently, Shen Hui Yuan has directly increasing traffic to in-store hotel travel with continuously improved impact of acquiring new users engaging in active users and increasing transaction frequency. Looking forward, we will continue to expand Shen Hui Yuan category coverage and iterate our product offerings.
We will continuously enhance conversion rate through refined and customized operations, which will also help merchants efficiently acquire traffic and increase transaction volume as well as enhance user and merchant engagement with the platform. For in-store business, we have potential for digital transformation in lower-tier markets. This year, we accelerate merchant onboarding in this market by leveraging our platform's traffic and online operational tools we support merchants in their rapid expansion, especially for restaurant merchants, leisure and entertainment merchants, trying to penetrate into the lower-tier markets.
Our diversified offerings enable local consumers to enjoy the discount and convenience brought by online penetration. Additionally, we captured on new opportunities in [indiscernible] tourism, addressing diverse tourist needs such as special group tours, travel photography, to experience, spa services in China, [indiscernible]. As a result, our in-store business achieved higher growth in low-tier markets. Regarding competition, our primary focus remains the long-term healthy development of our business. In the local commerce industry, we differentiate from our major competitors in the business models and operating strategy, and we have differences in category mix, merchant type, merchant scale and marketing efficiency.
We hold a strong market share in our core categories. Recently, the industry has become more rational and efficiency oriented. The merchants are increasingly focusing on the ROI of their daily operations and marketing spending due to the current competitive environment. Our easier to use and higher ROI marketing tool, combined with our comprehensive services across all business cycles, scenarios and product types will help us further solidify our supply side advantages. We will provide merchants with more cross-business traffic and comprehensive services through our integrated operations.
We will continue to monitor the progress of our competitors closely, but we will also focus on how to innovate our product formats, refine our operations and invest efficiently. We remain highly confident in our long-term competitive strength in the in-store hotel and travel business. As mentioned earlier, following our organizational restructuring, our in-store hotel travel business will prioritize order volume and user base expansion because they are key drivers for GTV growth. Regarding your question on profit, we focus on operating profit growth rather than operating margin since the blended operating margin is impacted by various GTV competition across categories and city tiers and also seasonalities.
As you have seen in the last few quarters, we have been able to maintain a relative healthy and continue to improve we are confident that in scale potential of the market and the sustainable growth of our business as the competition stabilize in the medium- to long-term and more synergies emerge from the integrated commerce, we steady improve the operating efficiency of in-store hotel travel.
Your next question comes from Kenneth Fong with UBS.
I have a question on the overseas expansion. How is Keeta expansion progress in Saudi Arabia? Will the expansion beyond Saudi take a gradual pace? Or will you expand it to the other Middle East city fairly quickly? How do we assess the advantage and disadvantage in the Middle East market? And what's our plans for the overseas investment?
Thank you, Kenneth. Thank you for paying attention to Keeta. Keeta is still so small and so early stage. So first come to the fact we -- on October 9, we officially launched Keeta in Riyadh, the capital city of Saudi Arabia. And so we are less than 2 months old in Riyadh. And actually, 1 month before that, in the beginning of September, we tested water in a small city near Riyadh [indiscernible]. So in total, we have been operating in Saudi Arabia for 2 months. So I think it's still in a very early stage.
But so far, I would say we have seen a very encouraging progress, very encouraging results because we have get some support from both consumers and local merchants. So when we go there, we see very positive feedback from both consumers and merchants and also the local delivery partners. And also, in general, Arabic people are very nice people and they are all very positive about the future of their economy, about their country. So that's very encouraging. So when we go there, we believe we can bring value to local customers and local ecosystems. We understand that it's not an empty market, it's not a greenfield market.
There are already several local players, but we believe Meituan and Keeta can bring some new value proposition. So I think in Keeta, the message is very clear. We want to convey that message loud clear to all customers. Keeta is faster, because we don't process the food, we take the orders, we take online orders and we deliver food. So our value proposition is very clear. Keeta is faster. So I believe that's what consumers want when they order, especially in Riyadh, such a big exploring city. So speed is very important. And because of our operational know-how and our technology platform developed in China over the past 10 years, we know how to organize the delivery network. We know how to deliver food faster. I think that's what consumers want.
So because we are still in very early stage, so I think it doesn't make sense for us to talk about plans beyond Saudi Arabia. So we are only operating in 1 major city. And Saudi Arabia is a big country with many other cities. that we would like to get to. So for the time being, we focus on Saudi Arabia. And even in Riyadh, I think because Riyadh is growing quickly right now approaching 10 million population. I think there's a lot of room for growth for us there. But in the longer term, of course, Meituan wants to become a global company or a company with a global presence. We want to bring our product and services to a bigger audience. And the mission of our company is to help people to eat better, live better. It's not limited to Chinese people.
So we would like to go to other markets where we believe we can create value for both consumers and local merchants. And so -- and it is very clear, global expansion will be our long-term strategy. And we are going to stay very open-minded to all kind of opportunities in all regions. But at the same time, we are not going to rush into any decisions. So we will be very patient and we want to make sure we are -- every decision we make is well informed, and we don't want to rush into the market. We now know local culture with local ecosystem or without the support of local regulators.
So here, I think it's very important for us to show respect to every party in the whole ecosystem. And we want to make food delivery a utility for more consumers I think it's very important to make food delivery become a daily habit rather than occasional convenience for selected population. We have seen that become a reality in China. We believe there's a potential to make that a reality in many other countries -- many other markets. But at the same time, we know it will take more time. So we are not going to rush. So yes, stay tuned.
Your next question comes from Charlene Liu with HSBC.
I'm speaking on behalf of Shelly. With the recent USD 2.5 billion senior notes issuance and a strong free cash flow generation, what does management see as an optimal annual shareholder return as a percentage of free cash flow or profit going forward? And will the company be more opportunistic in buybacks going forward?
Thank you. From the beginning of September to the date before the blackout period, we have repurchased over USD 600 million worth of shares -- and year-to-date, we have repurchased around 4.2% of total shares, more than the combined ESOP grant from 2021 to 2023 that significantly reduced our total outstanding shares. As we mentioned before, we aim to enhance long-term shareholder returns through business growth opportunity and balanced capital allocation. In September, we issued USD 2.5 billion in senior notes after our credit rating further upgraded by three rating agencies. The proceeds will be used primarily to repay our maturing senior notes and convertible bonds that are subject to early exercises of options in the coming years and for general corporate purposes.
After the issuance of the senior notes, we now have more offshore cash reserves to support our overseas expansion and future shareholder return initiatives. Going forward, we will dynamically assess our capital allocation strategy and shareholder return. Share buyback remains to be the primary approach at this stage. We will offset ESOP dilution through share buybacks and seek opportunity to further reduce total shares outstanding. At this stage, we cannot commit to a fixed proportion of cash to be used in shareholder returns each year, but we will remain flexible in the amount and execution and make our decision based on business development needs, investment plans, offshore cash reserves, debt repayment and stock performance. Thank you.
There are no further questions at this time. I'll now hand back to Sijia Xu for closing remarks.
Okay. Thank you for joining our call today. We look forward to speaking with you next time. Thank you for your support, as always.
That does conclude our conference for today. Thank you for participating. You may now disconnect.