Meituan

HKEX:3690

Earnings Call Transcript 2023-Q2

[Operator]

Thank you for standing by, and welcome to the Meituan Second Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to Scarlett Xu, VP and Head of Capital Markets. Please go ahead.

[Scarlett Xu, Vice President and Head of Capital Markets]

Thank you, Operator. Good evening, and good morning, everyone. Welcome to our Second Quarter 2023 Earnings Conference Call. Joining us today are Mr. Xing Wang, Chairman and CEO; and Mr. Shaohui Chen, Senior Vice President and CFO of Meituan. 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 unaudited non-IFRS financial measures that should be considered in addition to, and not as a substitute for, measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS 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.

[Xing Wang, Chairman and Chief Executive Officer]

Thank you Scarlett. Good evening everyone. And for the second quarter of 2023, our total revenue increased by 33.4% year-over-year to RMB58 billion. Adjusted net profit was RMB7.7 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 continue to help over 10 million merchants on our platform enhance their online operations. In addition to our shop 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 a better quality, more affordably priced, and more convenient goods 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 vehicles have also been more widely applied in more scenarios. This 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 success, 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 over year-over-year and potential phases. 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 effort, the price and quality of the supply on our platform has continued to improve. The number of newly on-boarded merchants in the second quarter is more than double what it was during the same period of last year, largely driven by higher growth from tier-count and city-tier-count merchants.

We have also continued to enhance our marketing tools during the second quarter. For example, we upgraded our monthly promotional event, Shen Quan Jie and we launched Shen Qian Shou in multiple cities. These events allow merchants to sell low-price, high-quality dishes through flash sales, live streaming’s, and short-form videos.

Through these events, participating merchants have realized a notable growth in both transaction volume and number of new customers. For these sellers, the benefits of selling mega-hit products by live streaming 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 shelf-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 Dianping app and provided special resources and traffic support to them.

We also released the “Must-Order List” YiDianBao [Ph] 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 launch 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 a better working experience.

In June, we launched a Summer Courier Care program in over 100 cities. We also optimised our delivery route algorithm to reduce couriers’ 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 career growth project, Qishou Zengzang Jihua [Ph] that aims to support couriers in their long-term personal development. The project encompasses professionals' career and educational development and supports employee opportunities.

Meituan Instashopping also maintained strong growth momentum during the second quarter. We 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 supply increased. Now a 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 and 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 foods, beverage, liquids and ice cream experienced greater system of demand. For the medicine category, we expanded our 24/7 smart pharmacy Xiǎoshí yàodiàn nationwide to ensure that consumers will have a timely access to medical consultations and medications for both emergencies and chronic illnesses. We collaborated with pharmacies and pharmaceutical companies and launched a yellow light project, XAO huáng zhèn J Ian kàng shǒuhù Lian mèng, to help bring medical resources to lower-tier markets and provide 24-hour medical services to more countries.

As offline consumption continues to recover, our in-store hotel and travel business maintained a strong growth in the second quarter. GTV increased by over 120% year-over-year. Annual active merchants and annual transaction users also reached a new high.

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 GTV 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 merchants better design set meals based on consumption data analysis and provided 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 continued to strengthen our capabilities in consumer hiring and content creation. We also expanded our marketing initiatives, such as Special Deals Tèjià tuángòu 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 iterated our operating strategies, improved our ability to create magazine products, and diversified our supply. Already, over 100 products have achieved 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, nián bì chī bǎng we increased our promotional efforts, expanded the coverage to more stores, and offered 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, Háizi jiātíng jì for holidays including Dragon Boat Festivals, Father's Day, and Mother's Day. This effectively boosts food meal consumption during family gatherings. In addition, we leveraged our platform capabilities to stimulate local consumption by collaborating with local governments to conduct specific events such as the Guangzhou Night Consumption Festival, Guǎngzhōu yèdiàn xiāofèi jié.

With the post-pandemic rebound of the domestic travel industry, our hotel and travel business continued 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 product ranges. These efforts solidified the consumer mindshare of Meituan as a platform that helps save money when booking hotels.

In addition, we enriched our “Hotel+X” package deal for leisure travel and vacation scenarios during the peak demand season. On the higher-star brand, we onboarded more hotel brands and deepened collaboration with high-star merchants and solidified our price competitiveness. We also expanded joint marketing events, optimized 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 cost sales from other businesses. For live streaming, besides leveraging our Meituan 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 broadened our outbound travel customer base.

For alternative accommodations, we enhanced the experience for both consumers and landlords and better matched the demand with supply. We also launched the theme-based marketing events to drive room-night growth.

Now let's move to our new initiatives. For Meituan Select, Meituan Youxuan, GTV 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 market. We believe the growth with digitization will continue and remain confident of Meituan Select's long-term potential despite the short-term difficulties 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 the coverage of cold-chain logistics and smart warehouses powered our industry-leading fulfilment 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-case cities.

Our Meituan Grocery, Meituan Maicai, also experienced solid growth on a year-over-year basis in the second quarter, despite a high base last year. 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 continues to rise. 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 the 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 job opportunities, empowering the retail industry through technological innovations, and accelerating the industry's digital transformation.

With the help of innovations in our convenient product iterations [Ph], we can further elevate our consumer experience. Our goal is to become a smart assistant for consumer's 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 use of artificial intelligence and autonomous delivery and other cutting edge technologies. Through these initiatives, we will drive innovations and support the development of digital economy on the growth of real economy.

With that, I will turn the call over to Shaohui for an update on our latest financial results.

[Shaohui Chen]

Thank you, Xing. Hello, everyone. I will now go through our second quarter financial results. During this quarter, the recovery of local services has been much stronger than other sectors. Our total revenues increased by 33.4% year-over-year to RMB68 billion.

Cost of revenue ratio decreased 6.8 percentage points year-over-year to 66.2% primarily due to the improved gross margin of our food delivery, Meituan Instashopping, and the 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.

R&D 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 RMB5.9 billion and 8.7% respectively, compared to total segment operating profit and operating margin of RMB 1.5 billion and 2.9% in 2022. On a consolidated basis, our adjusted net profit increased significantly year-over-year reaching RMB7.7 billion this quarter.

Turning to our cash position, as of June 30, 2023, we continued to maintain a strong net cash position, with our cash and cash equivalents and short-term treasury investments totaling RMB120.2 billion. Cash from operating activities in the second quarter improved significantly year-over-year to RMB10.9 billion.

Now, let's look at our segments results, starting with core local commerce. Our core local commerce segment revenue increased by 39.2% year-over-year to RMB51.2 billion. Operating profit improved by 34.8% on a year-over-year basis to RMB11.1 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 strong recovery across [Indiscernible] and on the supply side. Thanks to our effective subsidy strategy and promotional event, high-tier cities, medium to high frequent users and high AOV orders continue to grow healthily. Demand from lower tier cities, lower frequency users and low AOV orders has also showed an accelerated recovery in growth.

On the UniqueNOT [Ph] 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-sized orders. At the same time, our strengths and marketing efforts to stimulate consumer demand acquired new users led to a year-over-year increase in subsidy spending. However, with benefits from an abundant supply of couriers, order volume growth also drove economics of scale on the cost side.

Meanwhile, the increase of marketing demand from merchants drove strong growth in online marketing services revenue this quarter. These favorable factors helped to offset the increase in subsidy and lower AOV. Notably, operating profit per order continued to increase on a year-over-year basis.

Turning to Meituan and State Shopping, Meituan Shangguo, 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 pace last year. Unit economics remained at similar level to that during the -- 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 in the quarter with online marketing merchant space and merchants ARPU increased significantly. Online marketing revenue for this business grew by almost 140% year-over-year. We are glad to see that it makes one instance [Indiscernible] 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 pay merchants.

Now let's turn to our in-store hotel and travel business. Business revenue rebounded 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 a diverse range of marketing formats and solutions.

GTV for in-store hotel and travel grew strongly and drove a robust year over increase in our transaction-based service revenue this quarter. The revenue growth rate for hotel and travel was particularly significant benefitting from a faster rebound in the scale of room nights and a significant increase in ADR.

We are also pleased to see that merchants' willingness to market online is also rising. However, revenue growth was slower than GTV 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 in lower-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 subsidies, 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. During this quarter, revenue in this segment increased by 18.4% year-to-year to RMB16.8 billion, mainly due to the development of our goods retail business. The segment's operating loss increased slightly to RMB5.2 billion from RMB5 billion in the first quarter of this year.

On Meituan Select, quarterly loss expanded on a sequential basis. This was primarily due to a larger business scale, our increased subsidy to drive growth, our expenditure on cold chain and logistics in response to the upcoming hot weather during the upcoming season, and the product mix 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 a 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 market 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&A.

[Operator]

[Operator Instructions] And the first question comes from Ronald Keung with Goldman Sachs.

[Ronald Keung, Goldman Sachs]

Thank you. Thank you, Xing, Shaohui 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.

[Xing Wang, Chairman and Chief Executive Officer]

Thank you, Ronald. Yes, we are very pleased to see that our GTV for in-store hotel and travel grew by over 120% year-to-year. Annual active merchants and annual transaction users for this business also reached new highs. During this quarter, we captured offline consumption recovery and actively expanded 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 have merchants leveraged our offline traffic recovery trend and satisfied growing consumer demands through diversified services. We further solidified our competitive advantage and maintained our market leadership through a series of mergers.

For the in-store business, the market has 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 offered merchant incentives and joint marketing events to strengthen our relationship with core merchants. For certain categories from lower-tier cities, we lowered the threshold of subscription-based service and simplified the merchant onboarding process for small and medium-sized merchants.

In addition, we expanded our direct sales team to more of these cities, especially as we penetrate further into lower-tier city markets. Through these mergers, we are able to ensure the diversity of supply and attract competitors on our Meituan platform. On the content and product side, we launched a series of product optimization measures. These measures not only strengthen Meituan’s share-based offerings, but also help promote mega-hit products, helping and enhance our marketing and product recommendation capabilities.

At Aetro [Ph] we have primarily completed the upgrade extension of our “Special Deals” Tèjià tuángòu. We offer multiple entry points in the Meituan and Sianting [Ph] apps. Through these special deal sections, we offer participating merchants new marketing tools, direct additional traffic to them, and help them sell mega-hit products.

For the consumers, we provide products at very attractive prices and meet their stockpiling needs. Our special deal sections effectively solidify consumer mindshare on Meituan as a platform that offers the best deals. We also continue to accelerate and improve our live-streaming events to meet consumers' non-instant 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 consumers a 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 nights 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 Dragon Boat Festival and used subsidy to enhance pricing. We also increased the number of live-streaming sections 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 hotel plus tax package deals, embodied more merchants and diversified our offerings

In particular, we optimize the supply of hotel room night plus dining, attraction, ticketing, and local tours, and realize more synergies through cross-saving. Thanks to these measures, we solidify consumer mindshare of having low price on Meituan and incentivize 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 achieve our operational services, help the merchants benefit from the industry digitization process, and bring convenience and value to our consumers. Thank you.

[Ronald Keung, Goldman Sachs]

Thank you. That’s very helpful. Thank you.

[Operator]

Thank you.

[Xing Wang, Chairman and Chief Executive Officer]

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

[Operator]

Yes, certainly. The next question does come from...

[Xing Wang, Chairman and Chief Executive Officer]

We lost you again. Operator?

[Operator]

This is the operator. Can you hear me?

[Xing Wang, Chairman and Chief Executive Officer]

Yes, we can hear you now. Can you repeat?

[Operator]

Yes, certainly. I apologize. The next question comes from Gary Yu with Morgan Stanley. Please go ahead.

[Gary Yu, Morgan Stanley]

Hi, thank you. I have a follow-up question for the in-store segment. Looking ahead to the peak season in the 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.

[Xing Wang, Chairman and Chief Executive Officer]

Thank you, Gary, for the question. I will take that. 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 be more resilient than other consumption-related sectors. We have seen some short-term headwinds due to macro economy and extreme weather conditions. So far in Q3, on the 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 returning to a more normal balance, maybe after one or two quarters. On the other hand, the change of consumption power due to the current macro environment will impact demand for food delivery to a certain extent, especially for some price-sensitive consumers in certain discretionary consumption scenarios.

In addition, extreme weather also brings challenges to our business. For example, some regions, including Beijing, Guangzhou, Albino, [Ph] and Fujian, experienced heavy rainfall this summer. Many merchants had to suspend their business, while consumers chose to stock higher packaged food instead of ordering fresh food delivery. In some cities, food delivery was even suspended in order to ensure quarterly safety.

Also, order volume in Q3 last year was a relatively high base, but we think a temporary slowdown in order volume growth is due to external factors. We will continue to activate our product and operational strategy to better capture the demand and stimulate the recovery. We remain confident on the long-term growth of our food delivery business.

For in-store hotel and travel, we expect that the GTV and revenue will continue to post strong year-over-year growth and also a two-year cadre in Q3. We launched a series of marketing campaigns and continue to improve them and optimize our strategy. These measures make consumer demand to stock higher coupons and solidify consumer mindshare in our value-for-money product offering.

Now we have Meituan platform live streaming, regional live streaming, and merchant live streaming. We also diversify our marketing formats and promotional scenarios under the share-based model. We are pleased to see that the transition volume for both in-stock dining and other in-stock services through live streaming events during Chinese, Valentine's Day, have all broke new highs. Our Integrated live streaming and share-based models even provide consumers with more diverse selections at a more affordable price and offer merchants more marketing tools.

In addition, we co-opt with the merchant categories during the consumption recovery trend and explore opportunities in online penetration of those new categories. In June, we launched the 2023 Must-Eat List 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 work with the participating merchants and collectively invested over RMB1 billion in advertising and subsidies with which we target to drive additional RMB10 billion 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 foods when traveling abroad. For hotel and travel, summer is usually the peak season, so we expect our roadmap to continue to grow robustly in Q3.

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 Hotel+X package deal offerings to 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 businesses, such as our food and stock services in the Meituan Instashopping

In terms of the margin [Ph] 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 marketing 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 mindshare. We not only want our consumers to enjoy broad selection and good deals, but also want our merchants to benefit more from a digital education. 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 active 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 upcoming 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 mode. We believe the industry still has a large potential to grow from online penetration compared to physical local [Ph] commerce. So we will continue to accelerate our operation under the new competitive environment and help accelerate the digitization process. Thank you.

[Gary Yu, Morgan Stanley]

Thank you.

[Operator]

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

[Thomas Chong, 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.

[Xing Wang, Chairman and Chief Executive Officer]

Thank you, Thomas. We believe the negative impact from the macro has its own negative impact. It's only temporary. We remain confident in China's economy growth and the consumption in the agency 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 ING [Ph]. So we have a broad range of categories and price events and consumption scenarios. And our platform supply effectively satisfied the diverse needs of consumers. And as we continue to refine our operations and focus on high quality growth, we strengthened 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-sticky-side orders recovered rapidly. We proactively adapted to the shift in consumption power by onboarding more high-quality, low-sticky-side supply.

And our highly efficient first-party delivery network also allow us to capture more demand in a lower price range. And for example, we further expanded our Tǐnèi-hǎo-fǎn model to more cities and continue to refine our strategy and efficiency. Our sky-side iteration and efficiency optimization under the Tǐnèi-hǎo-fǎn model allow us to offer more value-for-money news to consumers.

So as a result, order volumes from Tǐnèi-hǎo-fǎn grew very rapidly in Q2. And we believe order with ALB below 15 IMV has large growth potential in the future. Additionally, we continue to use live streaming to encourage consumers to stockpile coupons and stimulate non-instant demand. And 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 than this year compared to other consumer sectors. And in the longer run, I think 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 mergers. 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 network, we have lowered the delivery cost per order to a level that can better cope with the medium and low ticket size orders and effectively meet such demand.

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 a high-quality brand, we will continue to onboard more quality restaurants and extend our delivery distance to accommodate broader consumption scenarios. But I believe the potential is still huge.

If you look at the number of meals consumed by the total urban population in China, there's still a huge room for further 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, despite all the challenges, peak orders exceeded 78 million in August on the first day of fall. With milk tea alone, contributing over 21 million orders on that day. Yes, that's a mind-boggling number. 21 million orders for milk tea alone on that day. But this further elevates our growth potential across various categories. The on-demand delivery, which includes food delivery and maintenance and shopping, achieved a milestone of over 85 million orders 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, 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, will continue to grow for many years to come. Thank you.

[Operator]

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

[Alicia Yap, 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 Meituan InstaShopping? Will it also be affected by the consumption power change? How do we view the growth potential for Meituan InstaShopping? Thank you.

[Xing Wang, Chairman and Chief Executive Officer]

Thank you. Thank you. I'm very glad you mentioned the InstaShopping Meituan. Because this is a business that the management team feel very excited about and feel, feel very confident of its growth potential. As you have seen since the beginning of this year, Meituan InstaShopping has delivered strong growth. Actually, we don't see much impact from the macro environment to this business. I think mainly because many product categories are still benefiting from deeper online penetration in broader geography regions. So the growth of Meituan InstaShopping is significantly higher than the overall e-commerce. We collaborate with an increasing number of regional speciality brands and emerging brands and onboarded more small and medium-sized merchants from lower tier cities. Meanwhile, we explore an iterative new supply format to effectively supplement traditional offline suppliers.

For example, Meituan InstaMart has attracted lots of external partners and merchants to collaborate with our platform. In Q2, order volume continues to grow robustly and strengthens its potential to win a higher value share from consumers. As such, we think order volume of Meituan InstaShopping will grow much faster than it did in Q3 and full year of 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 Meituan InstaShopping has gradually switched from demand-driven to supply-driven. Traditional offline retailers and brands actively embrace the rising on-demand delivery channel and the reform strategy in partnership with more and more brands. This will help us further diversify supply and monetize on advertising.

In Q2, we see offline retailers increasingly more willing to allocate money and budget onto our platform resting on Meituan InstaShopping outpaced the order volume growth, meaning steep growth of advertising revenue. Going forward, we will address more merchant brands with digital operations and supply chain transformation. We believe this effort will progressively help improve consumer experience.

In Q2, nearly 60% of food delivery users have become Meituan InstaShopping users, yet there is still much more room for online penetration across different categories. Meituan InstaShopping and food delivery continue to create more synergy and user base in marketing and in fulfilment. In August, we further integrated it with our food delivery membership program. We expect more synergy in marketing going forward. In the future, we believe that on-demand retail will create a self-sustaining loop in which demand and supply strengthen each other. We are very confident that Meituan 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.

[Operator]

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

[Yang Bai, CICC]

Thank you management. Thanks for taking my question. Recently, we have seen the official release of your first-generation phone. Could management share insight on the positioning of your autonomous delivery, including the UAV and the autonomous delivery vehicle? What are the prospects and investment plans in this area? It’s low altitude and logistic network and the autonomous delivery are upside on a larger scale [Indiscernible] optimize our autonomous delivery efficiency and reduce delivery cost? Thank you.

[Xing Wang, Chairman and Chief Executive Officer]

Okay, thank you. So aerial vehicles -- UAV insured and autonomous delivery in vehicles rather than 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 business in Beijing and Shenzhen. By the end of this June, the accumulated number of orders for 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, hardware, and overall operations. And as delivery volume goes up, we expect cost 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 couriers and selectively establish an 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 big 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 future, 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 problems, 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.

[Operator]

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

[Scarlett Xu, Vice President and Head of Capital Markets]

Okay it’s no more questions. And thank you for joining this call. And we look forward to speaking with you next quarter.

[Operator]

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