Meituan

HKEX:3690

Earnings Call Transcript 2022-Q4

[Operator]

Thank you for standing by, and welcome to the Meituan Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Scarlettt Xu, Vice President and Head of Capital Markets. Please go ahead.

[Scarlett Xu, executive]

Thank you, operator. Good evening, and good morning, everyone. Welcome to our fourth quarter and fiscal year 2022 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 fourth quarter and fiscal year 2022 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, executive]

Hello, everyone. 2022 was a challenging year. But after fully upgrading our corporate strategy as Retail + Technology, we significantly expanded our goods retail business and further strengthened our services retail businesses. We continue to provide consumers with a rich product and services mix and further applied innovative technology to our operations.

Consumers increasingly recognize the convenience of food delivery, and our ability to deliver a broader selection of goods directly to their doorstep boosted consumer management and our brand image. Both our food delivery and in-store businesses helped merchants to effectively generate income and improve their online operations.

At the same time, Meituan Grocery, Meituan Maicai, Meituan Select, Meituan [ distribution ] played an active role in ensuring a steady supply of daily necessities and promoting the digital transformation of the agriculture industry. We remained fully focused on supporting our ecosystem partners, creating more value for society and for building our mission to help people eat better, live better.

For the full year of 2022, our total revenue increased by 22.8% year-over-year to RMB 220 billion. We continue to innovate and leverage technology to provide the consumers with more diverse and higher-quality services. Despite the impact of COVID and the macro impact, our annual transacting users stood at 678 million by the end of 2022. And the average number of transactions per transacting user increased to 40.8x in 2022, up from 35.8x in 2021.

Now let me walk you through each business in more detail. And despite the negative impact from the macro environment, our food delivery business continued its steady high-quality growth in 2022, with our peak daily order volume surpassing 50 million in the month. Transacting users and order frequency continued to increase as we iterated our business model and optimized our operations to meet the broader consumer demand.

In December, when demand for food delivery increased significantly due to the spread of COVID, we introduced various initiatives to ensure supply and delivery capacity while also meeting consumer demands. As a result, order volume in December posted a strong recovery versus November. Thanks to our continuous effort, food delivery has become an increasingly indispensable service in consumers' lives and our consumer mindshare has strengthened.

We also spent the past year refining our operations and enhancing our marketing programs across different consumption scenarios, allowing us to meet a more diverse array of consumer needs. For example, we launched a promotional campaign centered around the World Cup that incentivized the food delivery orders during the game. These promotions included extended merchant business 2 hours, discount package deals from high-quality brands and provision of a variety of late-night snacking options.

On the first day of the World Cup, late-night snacks such as barbecue, burger and hot pot iterate a 40% order growth compared to same day of the previous week. Thanks to our refined marketing campaigns, user stickiness from high-quality consumers and order contributions from high-frequency users both grew over the past several quarters.

In particular, transaction frequency of membership subscribers continued to increase during 2022 as we iterated our operations and product strategy of the membership program across user base and ensured the rights and interests of membership subscribers during the pandemic, leading to an improvement in both subsidy efficiency and user stickiness.

We also deepened our efforts to support our merchants and help them overcome operating difficulties, generating more revenues and optimized our efficiencies. By the end of 2022, we provided favorable commission rates for over 300,000 small- and medium-sized restaurants merchant to help them overcome their COVID difficulties. We offered our Food Delivery Manager program, [Foreign Language], free of charge to a wider range of merchants. And these merchants saw a significant increase in their average monthly income with the help of our solution.

At the same time, we have focused on developing new merchants and accelerating the digital transformation of high-end catering and top-quality restaurants, helping them operate more efficiently, increase revenue and better meet consumers' quality [ needs ]. And we are delighted to see that our apps, merchants, users and delivery networks as well as our operation and profitability further solidifying our industry leadership.

The Meituan Instashopping has expanded from its initial role of security emergency demand to cover a broad matrix of goods categories that range from food to daily necessities. We have fully leveraged our years of experience in on-demand delivery and our efficient and location-based operational capabilities to satisfy growing consumer demand for e-commerce.

During the pandemic, consumer mindshare of Meituan Instashopping has been able to deliver almost everything to the doorstep was further strengthened. In 2022, annual transacting users of Meituan Instashopping increased by nearly 30% year-over-year and over 50% of annual active users from the [ food delivery ] business were converted to Meituan Instashopping users. Daily order volume peaked at over 11 million in December.

On the demand side, we effectively met consumer needs across various scenarios. For example, we facilitated that delivery of last-minute gifts for Mother's Day, Valentine's Day and other festivals, and then Spring Festival special purchase, [Foreign Language], directly to consumers' home or as new year gift to their friends and families.

During the height of the pandemic, we urgently delivered consumers' essential medications and launched a city-wide medication search function, and that expanded our effective delivery distance from 3 to 5 kilometers through the entire city. In addition, we partnered with the local governments and medical equipment companies to ensure a stable supply of medications and medical equipments at fair prices, and worked with many local pharmacies for certain COVID-19 drugs and provided 24x7 fever consultation services for consumers.

Thanks to our continuous effort, we successfully cultivated the consumer habits to purchase medicine on our platform and further enhance consumer mindshare. As a result, daily order volume for medicine category peaked at 5.8 million in the fourth quarter.

On the supply side, we continue to grow and diversify our merchant base with a number of annual active merchants increasing by over 30% year-over-year. We have traditional off-line retailers digitize their operations and leverage the experience and capabilities we accumulated from higher-tier cities to replicate our success in a wider range of lower-tier cities.

We also onboarded a large number of chain supermarkets to our platform and initiated strategic collaborations with hundreds of selected brands. Some traditional e-commerce categories such as electronics, beauty and personal care, mother and child supplies and pet care, they all experienced significant growth during festival promotions and marketing campaigns. And we are very confident that Meituan Instashopping has high growth potential, and we will continue to help brick-and-mortar retailer and brand owners upgrade their digital operations and with continued development of the digital economy.

And our delivery network plays a fundamental role in food delivery as well as Meituan Instashopping and has always been our competitive advantage. We proactively responded to the government's call to stabilize employment and provide flexible employment opportunities. When delivery capacity was tight, we expanded recruitment and stabilized rate capacity through cross-region order dispatches and additional subsidy for couriers.

Meanwhile, we continue to improve our couriers' benefits and advocate for their interests. We further enhanced our courier support services during the peak of the pandemic, providing free accommodation and services station for couriers affected by local control measures and increasing supplies of personal protective equipment for COVID at our service stations.

We introduced the courier assistance program and implemented measures to improve their career development through promotions and job rotations and continuing education courses. We continuously optimize our performance assessment and order dispatch system while strengthening safety and protection policies. We partnered with government authorities to pilot the occupational injury insurance program. And we will continue to invest in the safety and welfare of our delivery couriers to ensure a better working environment.

Now moving to our in-store, hotel and travel businesses, which were more negatively affected by repeated COVID outbreaks and prolonged pandemic control measures throughout the year. And despite the COVID challenge, our annual active merchant and annua transacting users for in-store, hotel and travel, growth remained stable. On the supply side, we enhanced the quality of our supply, captured the evolving consumption trends and expanded our services category.

For example, with the emergence of the silver economy, we quickly penetrated into the elderly market and onboarded merchants that provide benefits, including [ budding ] photography for parents, [Foreign Language], and housing renovations for the elderly, [Foreign Language]. And we also explored evolving consumption demands among young people with categories such as fitness, medical care and pet care, all maintaining solid growth.

In addition, we continue to stratify our merchant base and assist the merchants in digital operations. In the fourth quarter, we launched a special initiative to help, Time-honored Brand, [Foreign Language], to digitize and modernize their operations. We offered these brands, specially tailored tools, which allow them to upload attractive building content to our platform and broaden their customer acquisition channels.

As we refined our self-pickup service, in combination with the merchant traffic support and joint marketing programs, we further helped merchants overcome difficulties during the pandemic. Beyond this, we gradually developed the capability to deliver packaged meals to consumers and enhance synergies and cross-sell with other business within our ecosystem, and help our merchants broaden their revenue streams.

On the consumer side, we have a promotion to celebrate various holidays and special events, such as Spring Festival, [Foreign Language], the World Cup and [ U.S. Day ]. These promotional events boosted local consumptions and further optimized supply and content presentation on our platform based on different consumption scenarios.

Going forward, we will continue to enhance our supply quality, diversify our content offerings to better address the new consumer bases and consumption habits and further incentivize transactions. We believe that our rich category and product matrix, along with our strong consumer mindshare, will allow us to solidify our core advantages in this business.

And the domestic travel industry faced a number of headwinds during 2022. The repeated COVID outbreaks occurred throughout the year as well as throughout the country, and strict travel controls remained in place for most of the year. Regarding prolonged depression of demands, in the face of these external challenges, we responded by leveraging our competitive advantage in local accommodation and short-distance travel scenarios and further optimized our products, services and marketing strategies.

For example, we diversified our Hotel+X packaged tours and launched joint marketing events with theme parks and major IP attractions, and collaborated with the hotel groups through promotional and membership program. For high-star hotels, we continuously enhanced supply, optimized our pricing strategy and improved the quality of our service.

On the low-star front, we solidified our market leadership, [ expanded ] supply and provided merchants with better online and off-line solutions such as room renovation and marketing tools. As the pandemic control was lifted in December, travel demand and domestic room nights immediately posted a rapid recovery.

We are delighted to see that the growth trends sustained in the first 2 months of 2023, and we have full confidence in the prospects for the travel industry in China. And in 2022, our new businesses continued to grow steadily, with annual revenue increasing by 39.3% year-over-year, and achieved a significant improvement in operational efficiency.

And now let's turn to Meituan Select, [Foreign Language]. And after upgrading our brand positioning to Next-day Supermarkets, [Foreign Language], we further enhanced our nationwide next-day logistics network, which not only facilitated the circulation of fresh produce and agricultural products, but also strengthened consumer perception of Meituan Select as a source of convenient, value-for-money products.

By the end of December, we have accumulated over 400 million transacting users. We maintained our market leadership, implemented strategy for high-quality growth and continued to improve our operational efficiency by optimizing our supply chain and upgrading our procurement system.

During the pandemic, we actively responded to the government's call to issue supply chain and logistics stability. At the same time, we widened our distribution channel for agricultural products. Through our continued effort, we helped the farmers increase their incomes and offered the consumer more quality SKUs and a diverse selection of fresh groceries.

In the fourth quarter, GTV contribution from a centralized procurement increased notably, and sales of agricultural products accounted for over 50%. Moreover, the number of pick-up stations in lower-tier markets exceeded 1.1 million, showcasing our persistent effort to provide employment opportunities and upgrade our logistics network in rural areas.

Meituan Grocery, [Foreign Language], recorded robust growth in the fourth quarter of 2022, with GTV order volume increasing by 128% and 76.1% year-over-year, respectively, while operating efficiency also improved, thanks to a surge in demand. We expanded our product supply and continued to enhance consumer mindshare.

Today, consumers not only use our platform to buy fresh produce, but also, increasingly, shop for categories, including snacks, daily necessities, personal care, and prepared meals through Meituan Grocery. And ticket size and order frequency continued to rise as we have cultivated our customers' consumption habits.

During the pandemic, we did our utmost effort in ensuring supply for people from affected regions through direct product sourcing, supply chain expansion and advanced preparations. In addition, we established in-depth collaborations with the local governments and farmers from our products' places of origin and continued to develop our locally sourced selected product, [Foreign Language]. These initiatives diversified our platform supply while helping farmers further grow their income.

During 2022, we ensured consumers access to a stable supply of food and daily necessities, helped the local consumption recover from pandemic headwinds and created opportunities for employment. We have begun a one-stop platform of services for consumers and have helped millions of merchants enhance their operating efficiency and generate income.

Backed by the development of the on-demand delivery network, our food delivery business became a reliable source of goods for a large consumer base during the dynamic. And besides goods, on-demand delivery has evolved into a new norm across new categories, including groceries, daily necessities, medicines and more, and it has become an important source of employment opportunities.

As of 2022, over 6 million couriers have earned their income from our platform. Furthermore, we have built a nationwide next-day logistic network that penetrated deeply into counties and villages, supporting the integration of agricultural products and providing convenient, cost-effective products for consumers across the country.

And as a tech company, we have continued to optimize our autonomous delivery technology and in broad implementation across different scenarios. We will keep working hard to innovating and providing our users with better services and continue to fulfill our mission to help people eat better, live better.

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

[Shaohui Chen, executive]

Thank you, Xing. Hello, everyone. I will now go through our fourth quarter financial results.

During the quarter, total revenue increased by 21.4% year-over-year to RMB 60.1 billion against the backdrop of directly evolving pandemic. Cost of revenue ratio decreased by 4 percentage points year-over-year to 71.8%, primarily due to the improved gross margin of our food delivery, Meituan Instashopping, and goods retailing business. On a sequential basis, the slightly increase in the cost of revenue ratio was mainly due to higher couriers' incentive as a result of the pandemic, partially offset by the improved gross margin of our goods retail business.

Selling and marketing expenses ratio remained flat sequentially but decreased on a year-over-year basis, reflecting our improved marketing efficiency and the disciplined cost control. R&D expenses ratio and G&A expense ratio decreased on a year-over-year basis to 8.7% and 4.1%, respectively, primarily benefiting from scaling and improved operating leverage.

Driven by our focus on high-quality growth and improved operating efficiency, total segment operating profit and operating margin increased year-over-year to RMB 850.2 million and 1.4%, respectively. On a consolidated basis, our adjusted EBITDA and adjusted net profit were RMB 3,829.1 million for this quarter, turning from a loss position to profit on a year-over-year basis.

Turning to our cash position. As of December 31, 2022, we continue to maintain a strong net cash position with our cash and cash equivalents and the short-term treasury investments totaling RMB 112 billion. Cash from operating activities were RMB 4.1 billion, up by RMB 2.5 billion compared to a year ago.

Now let's look at our segment results, starting with core local commerce. Our core local commerce segment revenue increased by 17.4% year-over-year to RMB 43.5 billion. Operating profit increased by 41% on a year-over-year basis to RMB 7.2 billion. Operating margin for the segment increased by around 3 percentage points year-over-year to 16.6%.

On-demand delivery achieved 13.6% year-over-year order volume growth this quarter. For food delivery, order volume growth started to pick up in late November as user demand for food delivery gradually resumed following the easing of COVID restrictions. However, the recovery was limited by the sharp decline in supply and the fulfillment capability as the surge in infections result in fewer merchants opening their business and fewer couriers available to work.

Thanks to our proactive response to effectively safeguard sufficient delivery capability and support supply recovery, order volume quickly [ attained ] a steady growth trajectory, achieving double-digit year-over-year growth in December. Year-over-year growth of food delivery revenue far outpaced order volume growth.

On the one hand, our subsidy spending remained at a low level in response to the pandemic, and we focused on promoting the purchase frequency of medium and high-frequency users. On the other hand, larger-ticket-sized orders such as [ family ] orders, long-distance orders and orders from premium restaurants significantly increased due to the pandemic. Higher average order value also drove the year-over-year increase in commission and delivery service revenue.

Operating profit and operating margin for our food delivery business both increased meaningfully on a year-over-year basis, primarily due to the reduction in user incentives and a favorable order mix change. The sequential decrease in operating profit and operating margin were mainly attributable to the impact on COVID.

Turning to Meituan Instashopping. Consumer demand for on-demand retail service was particularly high during this quarter, especially from early December. As the pandemic evolved, demand for fresh goods, grocery and COVID-related medical supplies surged.

Daily average order volume for Instashopping reached a historical high during this quarter, accounting for around 12.4% of our total on-demand delivery orders, a significant acceleration in year-over-year growth. In addition, average order value increased subsidy, generally because of heightened consumption demand for daily necessities and medicine as well as increasing demand for high-ticket-sized known essential products such as [indiscernible] electronics products.

The business unit economics showed significant improvement on both a year-over-year and a sequential basis due to an increase in AOV and our tighter control over user incentive spending and other marketing expense. The year-over-year improvement in UE was also driven by a rapid growth in online marketing revenue, probably stemming from the expansion of our online marketing merchant base and the merchants' increased ARPU, especially from top brands.

Let's now turn to our in-store, hotel and travel business. In the fourth quarter of 2022, the year-over-year decrease of the in-store, hotel and travel revenue due to the negative impact of the pandemic was a similar extent as that of the second quarter. Alongside the nationwide spread of COVID starting in December, both consumption demand and supply for offline local services were highly suppressed. Offline in-store traffic, as a result, was greatly reduced.

More specifically, GTV in categories such as pets, live services and other essential in-store services still maintained positive growth. However, other consumption categories were negatively affected during this quarter. Since the beginning of January, we have seen a gradual recovery in users' willingness to spend on in-store services with the growth rates of both the transaction volume and the GTV of our in-store service picking up.

However, the recovery of online marketing revenue lagged behind that of a transition-based service revenue as merchant willingness to spend on marketing and advertising need longer time to resume. The recovery of domestic travel activities and hotel bookings started towards the end of December and accelerate from January onwards. As a result, operating profit and operating profit margin for our in-store, hotel and travel business declined on both a year-over-year and quarter-over-quarter basis due to the impact of pandemic.

For our new initiatives segment, during the quarter, revenue in this segment increased by 33.4% year-over-year to RMB 16.7 billion, mainly due to the development of our group's retail businesses. Operating loss and operating margin both narrowed sequentially to RMB 6.4 billion and a negative 38.2%, respectively.

For Meituan Select, both operating loss and operating loss as a percentage of GTV continued to narrow sequentially. During the quarter, fulfillment became more challenging and expense across the entire industry. In response, we implemented a series of cost control and efficiency improvement initiatives. At the same time, our improved pricing mechanism, supply chain management and the product mix drove a sequential increase in price markup.

On Meituan Grocery, both operating loss and operating margin continue to improve on a sequential basis. It was driven by the increase in AOV given consumers' certain demand for grocery, the decrease in delivery costs on an order basis as a result of our improved operating efficiency and our improved marketing efficiency.

Our B2B food distribution services, Meituan Kuailv, continue to solidify its leading position with GTV growing 36% year-over-year in 2022. In the fourth quarter, we further diversified and expanded our product offerings, improved our fulfillment and optimized operating efficiency. The business achieved nationwide city-level profitability in December, showcasing our robust operating capability. On a sequential basis, operating loss continued to narrow during the fourth quarter.

For other new initiatives, operating loss from bike sharing and e-moped sharing increased from a sequential basis due to seasonality and COVID. However, our bikes have now been profitable for 3 consecutive quarters and have delivered very healthy growth and generate synergy with our in-store businesses.

We insist on high-quality growth and an ROI-driven strategy for development of our new initiatives. We have recently made adjustments on our ridesharing business. After evaluating the ROI for this business, we decided to wind down our resources allocation in both capital and human resources for ridesharing business and carry on the business with a pure marketplace model.

To conclude, I want to emphasize that the local service industry has gone through many challenges during the past 3 years. Nevertheless, the industry know-how we have built up over the years, combined with our strong capability to flexibly adjust and execute our business strategy, resulted in our significant progress in pursuing high-quality growth and operating -- operational efficiency improvements.

We achieved positive adjusted EBITDA and adjusted net income for full year 2022, and we are also pleased to see that our free cash flow turned positive this year, earlier than expected. Our core local commerce segment performed resiliently and reached a number of impressive milestones. More importantly, our various business has created tremendous social value by working together with merchants and couriers during challenging times.

With China emerging from its COVID-related disruptions and business activity resuming at an unexpectedly rapid pace, we firmly believe that the positive external environment will drive our core businesses back onto a normal growth trajectory. Looking ahead, we have full confidence in the long-term growth potential of China's local service and the retail industry.

With that, we are now open for your Q&A.

[Operator]

[Operator Instructions] Your first question will come from Ronald Keung of Goldman Sachs.

[Ronald Keung, analyst]

So my question would be that we've seen the other shops on virtual platform setting quite aggressive goals in the local services sector this year. And there are also news reports that this competitor will further expand geographical coverage of the food delivery business.

So how do -- how does management view the competition with Meituan in food delivery and in-store, respectively? And what are Meituan's core competence and strategy ahead in this competitive environment?

[Xing Wang, executive]

Ronald, yes, first of all, I would like to emphasize that the food delivery business has 2 very important features. First is location-based and second is on-demand, and that brings a rather high entry barrier to this business when it is much higher than the in-store business.

When consumer makes orders, they need to browse for selections, make sure it's safe and then place order in a very short period of time. Merchant will have to receive orders, prepare meals and contact the nearby couriers in an orderly manner, especially during peak hours. We complete each transaction with the efficiency. It requires [ they have ] order procurement system. And we have accumulated a strong competence in all 3 pillars of the food delivery business, which are consumer base, merchant base and delivery network.

It's not easy for other players to break through, regardless of existing players or newcomers like short form video platforms. Currently, the other short form video platform mainly provide the group meal delivery using third-party service providers. This model has a limited impact on us. if you think on the consumer perspective, our food business effectively meet their daily consumption needs across all price range and across different consumption scenarios.

We provide cost-effective and on-demand and very diverse food delivery options for consumers. In comparison, the business model of short form video platforms traverse unlimited consumption scenarios for people who want less but time-tested. In addition, the on-demand issue of food delivery determines that the conversion rate and transaction efficiency of short form video products are quite low for this business.

Also from a merchant's perspective, we empower small and medium-sized merchants in their daily operations. Well, the competitors in short form video and broadcasting formats are more suitable to satisfy the rt-term advertising needs for chain restaurants. So for millions of small and medium-sized restaurants, it's not very economic to operate on short-form video platform for food delivery considering the cost of traffic and the cost of delivery.

On the procurement side, we have built the world's largest on-demand delivery network with extensive delivery capacity. And that allows us to dispatch orders with high efficiency to meet the consumer demand across various scenarios, even during peak hours. And our platform-operated delivery network is far more reliable and efficient than third-party delivery service providers.

Overall, the food delivery market still has a large growth potential in [indiscernible]. We welcome new players to explore and expand the total addressable market together with us. We have confidence in maintaining our leading position. We will continue to strengthen our competitive advantage in consumer base, merchant base and delivery network. And we will continue to optimize our marketing strategy, user acquisition strategy and the ability to generate [ necessary ] products as part of the team to better satisfy consumer needs and help the merchants improve their operational efficiency.

Then for competition in the in-store business, unlike e-commerce, currently, the online penetration rate of local service is still quite low. New market participants such as short-form video platforms will help accelerate the growth of the industry. Obviously, we have a unique and differentiated competitive advantage compared to short form video platforms. And after operating for over a decade, our platform has accumulated a larger space of high-quality merchants that cover the broad-based local service categories.

We have also accumulated massive high-quality local service consumer base with a strong mindshare. We provide consumers with the most comprehensive selection of merchants and most updated information that can efficiently help them find local stores by the discounts and make purchase decisions.

For merchants, our business model is more suitable to satisfy their daily operational needs. And it's easy to use efficient and low cost. We have a better-quality consumer base with a higher repurchase ability. Particularly, our platform has unparalleled advantage in small- and medium-sized merchants with a higher -- high-usage [Foreign Language].

Last year, the pandemic has brought a negative impact to our in-store business because we are a research-based platform and off-line activities were largely restricted. And this year, the economy and off-line consumption recovery within consumer demand and consumer behavior of searching for local services based on RDS will increase rapidly. Therefore, the improved online operation capability and the user reviews that the merchant accumulated on our platform will result in better operating results for the merchants. And that's our advantage in efficiency on both the merchant and consumer side will be further reviewed.

In response to the new competitive environment, we are going to enhance our BD coverage and service quality for the merchants. We will iterate our merchant incentive schemes to increase merchant stickiness, accelerate the penetration into lower-tier cities and attract more merchants to onboard our platform. And we will also enhance our product and service coverage with more depth and breadth and continue to improve our algorithm to help merchants operate with higher efficiency and better online content.

Most importantly, this year we will focus on more synergy between [indiscernible] and in-store. We are going to leverage the platform capabilities to solidify our leading position. We are confident to maintain our leadership in the long run and remain optimistic about the growth potential of our in-store business. Thank you.

[Operator]

Your next question will come from Thomas Chong of Jefferies.

[Thomas Chong, analyst]

After the pandemic, control was lifted in China, and soon, the domestic infection cases surged and then peaked. Can you please share about the latest recovery for the core local commerce segment in the last 2 months post reopening? Have you seen a very rapid rebound? And how should we think about the growth trend of this segment in 2023?

[Shaohui Chen, executive]

Thank you so much for your question. Yes. I think you agree with me that the overall China's reopening policy and the passing of infection peak came much faster than people expected. During the process, we see different recovery pace for different business. After December, we opened food delivery recovery more notably than installed. The year-over-year order volume growth during the Spring Festival was slower than that of December. This was primarily due to the high base last year.

As a result of a state-put policy for Chinese New Year, [Foreign Language], last year, consumer demand for food delivery and merchants' wellness to operate during the holiday season was quite high last year. In comparison, control measures were lifted before this year's Chinese New Year, many people returned to their home town earlier than before, while many merchants were not open for business during this period. This was particularly evident in high-tiered cities while supply and demand do quite rapidly.

But after the Lantern Festival, [Foreign Language], as people gradually return to work, both supply and demand picked up notably. The year-over-year growth of daily order volumes steadily returned to normal level and reached double-digit growth in early February. And the recovery pace of mid- to high AOV orders were particularly high in the first 2 months.

In the recent weeks, we see order volume growth further accelerated. We were continuing to onboard more merchants to our platform to diversify supply and incentivize consumer demand using more efficient marketing strategy this year. We are confident that the growth of food delivery orders will return to normal pace in 2023.

For Meituan Instashopping, demand was extremely strong during COVID infection period. Our consumers started to return to off-line shopping post the pandemic. Combined with the high home retaining effect of Spring Festival, the average daily order volume in January was actually lower than the 12 December last year.

However, as work redeemed after Spring Festival, consumer demand also recovered. Furthermore, the recovery of business travel scenarios benefit our Meituan Instashopping. Therefore, we see order volume increase actually starting from early February and return to its high-growth trajectory. We expect that Meituan Instashopping will maintain its high growth rate in 2023.

For the in-store business, [indiscernible] Spring Festival, group gathering and final trips stimulate new consumption scenarios. Transaction volume of multi-person sign-ins, [Foreign Language], increased significantly year-over-year. The home returning activities and holiday travel during Chinese New Year led to rapid growth in the cross-city consumption scenario.

And we collaborate with high-quality local merchants to launch promotional events to incentivize consumption during Chinese New Year and the distributed vouchers to consumers in Sanya, Chengdu and other popular tourist cities, which effectively have merchants recover post the pandemic.

We also noticed some new and niche consumption categories emerged on our platform, such as [indiscernible], [Foreign Language], lantern tours, [Foreign Language] settling, [indiscernible] and some other traditional Chinese activities. In addition, as off-line consumption recovered, the healthiest-based search demand for consumers increased immediately. Thanks to our strong consumer mindshare and diverse supply, consumers are keen to find local stores and look for deals and discounts on our platform.

As a result, the year-over-year growth rate of [indiscernible] has returned to over 30% in February, and we expect to grow further in March. We expect the online penetration of in-store business will accelerate significantly this year, and we expect notable GTV growth for our in-store business in 2023.

Also, after the pandemic, local tours remained popular among consumers and the demand for cross-city travel surged, which effectively drove the growth of our hotel and travel business. Overall speaking, with the lifting of control measures and the economy in-recovery, we think GTV of the hotel and travel business will rebound notably in 2023. Thank you.

[Operator]

The next question will come from Ya Jiang of Citic.

[Ya Jiang, analyst]

I understand that the marketing-related expense of your local core business will increase after pandemic. So how should we think about the operating margin of the core local commerce segment this year?

[Shaohui Chen, executive]

Thank you for the question. As just mentioned, this year, as consumption recovers rapidly, we will take business recovery and growth as our top priority for our core local commerce segment. The marketing expenses is expected to increase compared to last year, which will bring negative impact on the segment operating margin.

For food delivery, we will invest more in marketing and user necessities to stimulate demand while focusing on high-quality growth of the business. We will continue to improve our subsidy efficiency through accelerations of the membership program and coupon packages and optimization of subsidy strategy. We will continue to optimize operating efficiency. As order volume goes up, operating leverage will further release. So we think unit economics for 2023 will remain stable for food delivery compared to last year.

For Meituan Instashopping, 2022 was a high base as we benefit from consumers' stockpiling behavior and demand surged during the pandemic last year, which was favorable to unit economics, and it was one-off. In 2023 we remain committed to Meituan Instashopping and expect to increase investment to further enhance our consumer mindshare and drive the growth of our key categories.

Now we think OP margins for 2023 will remain stable compared to last year, driven by efficiency improvement and economy of scale. For our in-store, hotel and travel business, I want to emphasize that the 2022 is a special year as both the supply and demand of local service were restricted to varying degrees during the tough times. In this context, we primarily focus on cost control and efficiency improvement. So the 2022 operating margin is abnormally high.

Also, we will gradually resume investment in marketing and other incentives for in-store, hotel and travel business in 2023, particularly to further solidify our market share and strengthen our consumer mindshare in today's competitive environment. We will accelerate the merchant on volume process and business expansion in lower-tier cities and conduct more operating explorations in marketing and operational activities.

For example, we will expand our business development team, [ achieving ] merchant incentive program with flow-of-traffic collaboration with external parties, accelerate the development of our video-related products and et cetera. These measures will require a certain level of investment. And we will bring significant impact operating margin of in-store, hotel and travel business in the short term.

But they will also help us enhance the competitive advantages, accelerate our GTV growth, and thus, benefit the long-term development of our platform. In the long run, we are feeling confident that as we reinforce our competitive advantage and stabilize our market share, operating margins of our in-store and hotel and travel business may gradually recover to a normalized level. Thank you.

[Operator]

Your next question will come from Gary Yu of Morgan Stanley.

[Gary Yu, analyst]

My question is related to your travel and hotel business. So we've seen that travel rebounded, was significantly up after the pandemic control was lifted. Can you please share some of the recent performance of your hotel and travel business? And also, what is the business development plan for 2023 and, in particular, your strategy for the five-star hotels?

[Shaohui Chen, executive]

Thank you, Gary, for the question. After the pandemic control was lifted, we noticed that the demand for travel recovered robustly during this year's Spring Festival. Popular tourist destinations like Sanya, Wuhai and Xiamen all experienced significant surge in visitors. Our domestic room nights grew by over 40% compared to the Spring festival of last year and in 2019.

Although in the first 2 months of 2023, the year-over-year growth of hotel GTV extended 60%, partially driven by a significant increase in average daily rate. We continue to solidify our competitive advantage in local accommodation and short-distance travel scenarios.

Thanks to our improvement in product supplier service quality, the optimization and resources allocation as well as operating capabilities, we further solidify our competitive strengths and accumulate deeper know-how. This allow us to rapidly capture the post pandemic recovery and effectively meet the increasingly diverse demand from consumers.

In 2023, we will keep implementing our high-quality growth strategy and strengthening our core competence. On the consumer side, we will closely follow the latest consumption trends, hence train further in a high-quality consumer base, facilitate transaction conversion and expand the efforts in both offline and online traffic acquisitions.

On the product side, we will continue to optimize and diversify our product format, including broadcasting, short-form videos and package deals, launch joint marketing collaboration with business partners and leverage holiday events to raise our brand awareness among consumers.

On the merchant side, we will keep optimizing supply, provide merchants with better online tours and off-line solutions and help merchants improve efficiency. In the high-star hotel domain, we are going to leverage our platform advantage to effectively match supply with demand.

Actually, our Hotel+X product can create more synergy between the hotel business and other business lines such as [ best of ] dining. This will not only drive our room night growth, but also help hotel merchants cross-sell their products and services on our platform, especially for certain high-star hotels with extensive service categories on unique characteristics that are trending online. We have full confidence in the growth potential of the domestic travel industry and we believe in our ability to seize this opportunity and satisfy more consumer demand post the pandemic while continuing to enhance our overall efficiency going forward. Thank you.

[Operator]

Your next question will come from Yang Bai of CICC.

[Yang Bai, analyst]

We noticed that the performance of Meituan Instashopping in Q4 was very strong. And the take daily order volume exceeds 11 million. Can you share the development strategy of this business? And in particular, what was the latest strategy for your medicine category? Will you revise the long-term growth target and the profit expectation?

[Shaohui Chen, executive]

Thank you, Bai Yang, for the question. Yes, I agree with your notice that Meituan Instashopping, Meituan Shangou has achieved very strong growth, and we are very confident for its growth potential. Back to 2018 during our IPO, we shared with the market that we believe our food delivery, Meituan Waimai food delivery will reach 100 million transitions a day as our mid- to long-term target. I think we are on good track to achieve that. We maintained a very healthy growth for food delivery with Meituan Waimai.

At that time, we already knew that Meituan Instashopping will be growing also very fast alongside with food delivery, and leverage the capability yield from food delivery. And I want to say that during the last few years, since then, we actually strengthened our confidence for Meituan Instashopping. We really feel the online delivery network we have built can extend to multiple categories under their meals and food, and can really satisfy the growing demand of consumers' needs for quick commerce.

We believe it will be a meaningful share of food delivery and will maintain a relative high growth rate. As we mentioned earlier, in Q4, the peak daily order volume broke 11 million for Meituan Instashopping. Despite benefiting from the short-term surge in demand during pandemic, it also shows that consumer mind share of on-demand delivery for everything to their doorstep was further strengthened. [Foreign Language] the pandemic has helped cultivate consumer behavior, and we are very positive in the long-term growth potential of Meituan Instashopping.

In 2022, we not only enhanced coverage in supermarkets and convenience stores, we also made notable progress in categories such as electronics, pet and liquor and beverages. Evidently, purchase frequency and [indiscernible] both increased. In 2023, we remain committed to optimize supply across various categories, and we will launch supply with demand with hype and better efficiency.

We are also devoted to empower more offline retailers using digital technology and continuing to explore new supply formats, such as Instamart, [Foreign Language]. Going forward, we believe that we can reinforce our competitive advantage, strengthen our leading position in the on-demand retail industry and enhanced consumer mindshare.

For on-demand retail of medicine, during the pandemic, we actively co-oped with a surge in demand for online drug purchases and offer convenient online solutions to consumers. Consumer mindshare of buying medicines from Meituan Instashopping enhanced significantly Meituan [ Maya ], and will remain as a go-to platform for on-demand medicine purchase for many people.

We see consumer needs for on-demand delivery of medicine and demand for online medicine consult patient service continue to rise, so we have full confidence in our growth potential. Going forward, we will focus our product diversity for the quality and cost effectiveness of our supply and optimize our 24x7 medical consult patient service program.

We want to facilitate the digital transformation of the pharmaceutical industry, provide consumers with more convenience through professional medical advisory and drug purchase services. Needless to say, the pandemic has brought profound changes to people's lives and habits. We have full confidence in the growth potential and the future penetration of on-demand retail.

Our unparalleled advantages and fulfillment, merchant base and the consumer base will allow us to maintain the leading position. We are very optimistic about achieving our medium-term growth target. And the fact that we have already reached the 11 million peak daily orders has proved the potential of this business.

For instance, the peak daily order volume of flowers broke 6 million and the peak daily order volume of magazines reached 5.8 million on the profitability side. Because currently, monetization is not a priority, we are going to focus more on cultivating consumer behavior and mindshare. This will help solidify our leading position in on-demand retail industry.

But we will continue to optimize the unit economics.. We think that our past operating results in food delivery has proven that profitability potential. We think as the Meituan Instashopping has more flexibility than the food delivery business if you take high AOV and advertising potential into consideration. So we are confident we will reach at least RMB 1 profit per order, if not higher. Thank you.

[Operator]

Your next question comes from Alicia Yap of Citigroup.

[Alicis a Yap, analyst]

I have a question on new initiatives segment. So the loss reductions of new initiatives in 2022 is not as significant as in 2021. So will you make more efforts to reduce loss in 2023? So why did the company adjust the operations of ridesharing business? Does it mean you will increase the efforts in cost reductions and efficiency improvement in the future. .

So what is your rationale for adjusting or even shut down the new initiatives? So from a long-term perspective, which new business will contribute more to financial return for Meituan? So also, could you share more about your global expansion plans in 2023? So what is your plans around the investment and expected business scale and outlook?

[Xing Wang, executive]

Thank you, Alicia. So yes, I totally understand that investors care a lot about loss reduction given the macro environment. I agree with that. But as a CEO, I care more -- I care more about more. So I care about -- and when I look at the new initiatives, I care about their long-term strategic values and also growth and loss reduction. So that's how I look at the things.

So in the fourth quarter, we continue to adhere to our high-quality growth strategy here for our new initiatives. So quarterly operating loss narrowed significantly year-over-year. And also, it's also optimized quarter-over-quarter. Our goods retail businesses, including Meituan [indiscernible], and Meituan Maicai and also B2B food distribution service, that's Kuailv, and ultimately, experienced rapid growth in 2022. Unit economics also improved notably.

So in particular, Kuailv achieved a nationwide city-level profitability in December. I would say that's a major milestone. So in the past, we didn't talk much about Kuailv, but it's not a new -- it's not a really new initiative for us. So we launched Kuailv in August -- in the autumn of 2015. So we have been operating this for more than 7 years, yes, 7.5 years.

So finally, we have been very patient. And now Kuailv has its 4 general managers. So there's a lot of effort and a lot of resources put into building Kuailv. So finally, last December, we had achieved a nationwide city-level profitability, and also it's undisputed #1 in that market. So I think I would say that's a major milestone, and our patience and our investment finally pay off.

And the other hand, Kuailv, a few other new initiatives have made a good progress in profitability improvement. For example, smaller business, our shared [Foreign Language], this business has become profitable for the full year of 2022. And also our ridesharing business recorded a positive free cash flow for 2 consecutive years. And also, with our market share growing.

And I want to emphasize that all our investment in new initiatives are based on the expectation of being able to achieve a stand-alone financial profitability in the medium to long term, especially we believe that through continuous improvement in operations and supply, our investment in goods retail will therefore be put in the long run, and we implement an ROI-driven strategy and simply assess the progress we are making. And we integrate our operational strategy according to the latest development of each new business.

Once we think the growth pattern of our business is inconsistent with our formal judgment for quite some time, or this business shows a very limited strategic value and is incapable of making standalone profit in the long run, we will make necessary adjustments. The recent adjustment we made to the ridesharing business is just one example.

We have maintained a quite a prudent investment to this business for 2 years. But after we accepted ROI and the current market situation, we decided to wind down our resource allocation in both capital and human resources. Specifically, we decided to stop running the platform-operated model and shifted fully to the aggregator model.

And so going forward, we'll still offer the ridesharing service. We will deepen our collaboration with third-party service providers. We are going to be an aggregator. And that way, we'll continue to provide the ridesharing service to consumers through a very cost-efficient and light asset business model.

And looking ahead to 2023, we will continue to invest around our retail technology strategy. While this retail is our strategic focus, we will maintain an ROI-oriented approach and do our best to achieve fast growth scale while improving unit economics to a large extent. And with the long-term financial returns, we are also quite confident about the strategic value it brings, such as new acquisitions and enhanced user stickiness and improved transaction frequency.

So for other new initiatives, we will control the scale expansion to a reasonable level and continue to reduce losses. Our target for the new initiative is to achieve significant operating loss reduction, substantially improve operating margin for the full year 2023. So for the coming year, the loss will be less and also the margin will be better.

The last question about the offshore business. Hong Kong is our first step. Currently, we do not have other plans, so we are going to be patient in this. So we choose Hong Kong because it is a multilingual and multicurrency, but also, on the other hand, it shares a similar eating habits for the culture within Mainland China. So it's a very reasonable place for us to explore as the first trial for international expansion.

And we believe that the key to success in each market size in strong local operating capabilities and deep understanding of the local market and business model. And therefore, in the Hong Kong market, we will polish our products and improve our overseas operation capability for the food delivery business.

And also, I would like to emphasize that we will remain disciplined when conducting the offshore business, so it will have very limited impact on the corporate P&L this year. So in the long run, we may see the launch in the food delivery business in other markets with more commercial value. But it's not a focus at this stage. So -- and also, we start to launch our operation in Hong Kong very soon, so stay tuned. Thank you.

[Operator]

Thank you. There are no further questions at this time. I'll now hand back to Scarlett Xu for closing remarks.

[Scarlett Xu, executive]

Okay. Thank you for joining our call today. We look forward to speaking with everyone next quarter. Thank you for your support.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now disconnect.