Meituan (3690) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Meituan Second Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Scarlett Xu, VP and Head of Capital Markets. Please go ahead.

Thank you, operator. Good evening, and good morning, everyone. Welcome to our 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 the 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.

Thank you, Scarlett, and good evening, everyone. And for the second quarter of 2023, our total revenue increased by 33.4% year-over-year to RMB 68 billion. Adjusted net profit was RMB 7.7 billion, reaching the highest level in Q3. 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 at a local consumption market and deepened online penetration among merchants. Our Core Local Commerce segment achieved a significant year-over-year growth. During the quarter, we continued to help over 10 million merchants on our platform, enhance their online operations. In addition to our shelf and search-based business model, we have also piloted short-form videos and live streaming providing merchants with a more diversified set of marketing tools to reach consumers. In parallel, we also satisfied 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 generate the integration of digital technology with a real economy. In line with this commitment, we recently unveiled our next-generation unmanned area vehicle and our autonomous delivery vehicle has also been more widely applied in more scenarios. It is another step forward in building an end-to-end delivery network in modern cities. Going forward, we are confident that technology will further empower us to achieve greater success, and we will continue to pursue our mission to help people eat better, live better. Now let me walk you through each business in more detail. As the consumer spending continued to recover during the second quarter, our food delivery business experienced strong growth. This strengthens our supply and allocated more subsidy into holiday cross-city and late-night snack scenarios. This helps 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 brand have grown rapidly on a year-over-year sequential basis. Thanks to our optimized operational strategies, order volume grew further in a low AOV range. As the restaurant industry plays an important role in China's economy development and in people’s livelihoods, we remain firmly committed to helping merchants with the business recovery and digital operations. We believe that the key to high-quality growth in the restaurant business is to help restaurant improve the quality and efficiency of the operations. As a result of our continued efforts, the price and quality of supply on our platform has continued to improve. The number of newly onboarded 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 [indiscernible] 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 Qiang Shou in multiple cities. These events allow merchants to sell low-priced, high-quality dishes through flash sales, live streaming and short-form videos. Through these events, participating merchants have realized 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 events of the promotion. As consumers, we continue to repurchase up until those events end. Moreover, consumers usually add other dishes at checkout when they redeem their vouchers, enhancing cross-sell and boosting sales of share-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 tracked support to them. We also released the Must-Order List [Foreign Language] for food delivery in Beijing, Shanghai, Guangnianzhiwai in June. This program attracted more traffic for high-quality restaurants, provided a long distant delivery services that enable 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. The structure of China's neighborhoods continue 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 optimized our delivery route algorithm to reduce couriers exposure in high temperatures, offer them subsidies and ensure a stable income for individuals working in intense heat. During this year's July 17 Courier Festival, we launched a courier growth project, [Foreign Language]. That aims to support couriers in their long-term personal development. The project encompasses professionals, career and educational development and support employee opportunities. Meituan Instashopping also maintained strong growth momentum during the second quarter. We leveraged various promotional events and festivals to enhance consumer production of the diversity and convenience that we offer. Driven by growth in our user base and purchase frequency, the order volumes picked at 11 million orders for the second time in May. In addition, the quantity and variety of our supplies increased. Now 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 small and medium-sized merchants reach a broader consumer base. During major promotions like Labor Day and the June 18 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 strong growth throughout the second quarter. We actively explore product categories that will better satisfy the consumers' on-demand retail needs. For example, during the hot summer season, categories such as [indiscernible] and ice cream experienced greater physical demand. For the medicine category, we expanded our 24/7 Smart Pharmacy, [Foreign Language] nationwide to ensure that consumers will have timely access to medical consultations and medications for both emergencies and chronic illnesses. We collaborated with pharmacies and pharmaceutical companies along the Yellow Light Project, [Foreign Language] to help bring medical resources to lower-tier markets and provide 24-hour medical services to more counties. As the offline consumption continues to recover, our in-store hotel and travel business maintained a strong growth in the second quarter. GTV increased by 120% year-over-year. Annual active merchants and annual transacting users also reached a new high. And turning to our in-store businesses. With the arrival of the big consumption holiday season, the local services industry rebounded rapidly and demand continues to be strong. During the second quarter, in-store GTV increased month by month and achieved a significant year-over-year growth. During the quarter, we optimized our existing products enhance the consumer experience and expanded merchant services. For example, we helped the merchant better design Set Meals based on consumption data analysis and provided the delivery services. We also lowered the threshold of subscription-based services to more small and medium-sized merchants so that they can enjoy the benefits of online operations at lower cost. Meanwhile, we continue to strengthen our capabilities in consumer subscribing and content creation. We also expanded our marketing initiatives, such as Special Deals [Foreign Language] and live streaming, providing merchants with the new marketing tools and traffic acquisition channels. This not only boosts the merchants' marketing effectiveness, but also offer consumers more high-quality and affordably priced products and services. At the same time, we have continuously generated our operating strategies, improved our ability to create mega-hit products and diversified our supply. Already over 100 products have achieved the sales of over 100,000 units through live stream and Special Deals. We also optimized our content and expanded our coverage of existing consumption scenarios. Furthermore, we solidified consumer mindshare with using Meituan to select local stores and finer deals. During the quarter, we explored collaborations with third parties or traffic acquisition and integrated online and offline operations to further drive traffic growth. For our recently released 2023 Must-Eat -- Must-Eat List [Foreign Language]. We increased our promotional efforts, expanded coverage to more stores and offer the Must-Eat Set Meals and utilize the 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 Foody Family Season, [Foreign Language] for holidays, including Dragon Boat Festivals, Father's Day and Mother's Day. This effectively boost of meal consumption during family gatherings. In addition, we leveraged our platform capabilities to stimulate local consumption by collaborating with governments who can gather specific such incidents -- such as the Guangnianzhiwai Night Consumption Festival, [Foreign Language]. With the post-pandemic rebound of the domestic travel industry, our hotel and travel business continue to grow rapidly in the second quarter. We broadened our product offerings such as increasing live streaming frequency and diversifying special deals. We also expanded the supply of high-quality selections, suitable for different consumption scenarios and price 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 scenario 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 and additiveness. We also expanded joint marketing events, optimize the joint membership programs and improve the overall consumer experience. For Labor Day and Dragon Boat Festival, we expanded -- in both external traffic acquisition, internal cross-sells from other businesses. Live streaming is 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 broaden our outbound travel customer base. For alternative accommodations, we enhanced the experience for both consumers and landlords better match the demand with supply. We also launched the time-based marketing events to drive room night growth. Now let's move to our new initiatives. For Meituan Select [Foreign Language], GTV and revenue continue to grow year-over-year in the second quarter. Growth rate decreased due to slower-than-expected growth of the overall market. We believe the grocery digitization will continue and remain confident that our Meituan Select long-term potential despite the short-term difficulty in refining the business model. During the second quarter, we retained our position as the industry leader in terms of the 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 market share. 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 and lower cost. Our refined operations expanded the coverage of cold-chain logistics, smart warehouses helped our industry-leading fulfillment efficiency. We continue to solidify our capabilities in digital operations and supply chain management, facilitating the advancement of urban and rural supply chains. In addition, we help the farmers increase their incomes and promote the circulation of agricultural products on our platform and continue to create employment opportunities in lower-tier cities. Our Meituan Grocery, [Foreign Language] 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 warms up categories such as food and beverage showed a notable increase in on-demand delivery. We continue to diversify our product offerings and the proportion of GTV from standardized products and private label products continue to rise. User frequency further increased showcasing our effective occupation of consumer habits. However, 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 collaboration with suppliers and enhanced direct sourcing and procurement of fresh produce. Thanks to these efforts, we were able to offer consumer high-quality products while enhancing our price competitiveness. Looking ahead we will continue to responsibly undertake our operator role in facilitating and promoting social and economic development. Following the path of high-quality growth, we are committed to creating a greater number of opportunities, empowering the retail industry through technological innovations and accelerating the industry's digital transformation. With the help of innovations in our continued product durations, we can further elevate our consumer experience. Our goal is to become a smart assistant for consumers' daily lives and providing merchants with diversified services to support their online operations. We will leverage our proprietary research and external investment to explore the views of artificial intelligence and autonomous delivery and other cutting-edge technologies. Through these initiatives, we will drive innovation and support the development of the digital economy and the growth of the real economy. With that, I will turn the call over to Shaohui for an update on our latest financial results.

Thank you, Xing. Hello, everyone. I will now go through our second quarter financial results. During the quarter, the recovery of local services has been much stronger than other sectors. Our total revenues increased by 33.4% year-over-year to RMB 68 billion. Cost of revenue ratio decreased 6.8 percentage points year-over-year to 62.6%, primarily due to the improved gross margin of our food delivery, Meituan Instashopping and the food 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. And the expenses ratio and the G&A expenses ratio both decreased year-over-year to 8% and 3.1%, respectively, primarily benefiting from improved operating leverage. Driven by our focus on high-quality growth and improving operating efficiency, total segment operating profit and operating margin increased remarkably to RMB 5.9 billion and 8.7%, respectively, compared to total segment operating profit and operating margin of RMB 1.5 billion and 2.9% for the same period of 2022. On a consolidated basis, our adjusted net profit increased significantly year-over-year, reaching RMB 7.7 billion this quarter. Turning to our cash position. As of June 30, 2023, we continue to maintain strong net cash position with our cash and cash equivalents and short-term treasury investments totaling RMB 120.2 billion. Cash from operating activities in the second quarter improved significantly year-over-year to RMB 10.9 billion. Now let's look at our second results, starting with Core Local Commerce. Our Core Local Commerce segment's revenue increased by 39.2% year-over-year to RMB 51.2 billion. Operating profit increased by 34.8% on a year-over-year basis to RMB 11.1 billion. Operating margin remained at around 22% this quarter. On-demand delivery achieved 31.6% year-over-year, order volume growth this quarter. For food delivery, we have seen strong recovery across off price and on the supply side since April. Thanks to our effective subsidy strategy and promotional events, [indiscernible] 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 show an accelerated recovery point since April. On the unit economic side, average order value declined year-over-year against last year's high base. The decline was a major result of the accelerated recovery of low-digit sized orders. At the same time, our strength and marketing efforts to stimulate consumer demand acquire new users led to a year-over-year increase in subsidy spending. However, we benefit from abundant supply of breweries. Order volume growth also drove economics of sale on the cost side. Meanwhile, the increase of marketing demand from merchant 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 Instashopping, [Foreign Language]. It's continuing to achieve strong order volume growth and accounted for more than 11% of our total on-demand delivery orders during the second quarter. Average order value declined year-over-year, mainly due to the high base last year. Unit economics remain at a similar level to that during the same period of last year, primarily due to lower AOV and our increased investment to drive business growth and strengthen user mindshare. Nevertheless, our advertising potential was further unleashed this quarter. With both the online marketing merchant base and merchants ARPU increased significantly. Online marketing revenue for this business grew by almost 140% year-over-year. We are glad to see that Meituan Instashopping has built up its core confidence 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 larger pool of top brand and KA merchants. Now let's turn to our in-store hotel and travel business. Business revenue resulted 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 investment to support merchants and incentivized 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 anything came from a five-star rebound in the scale of room night and 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 mindshare 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 acquisition, merchant incentives, user subsidy and other margin 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 initiatives segment. During this quarter, revenue in this segment improved by 18.4% year-over-year to RMB 16.8 billion, mainly due to the development of our goods retail business. The segment's operating loss increased slightly to RMB 5.2 billion from RMB 5 billion in the first quarter of this year. For Meituan Select, costly 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 product mix change. For the other new initiative, 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 continue to improve. In summary, we are pleased to see that our Core local commerce segment has delivered another set of strong results this quarter, riding on the recovery of local service consumption. We are confident that the digitization of local services in China will continue to benefit our platform. Meanwhile, we will continue to proactively adapt to evolving consumer behavior and merchant needs. Our confidence in the medium and long-term growth for the Core local commerce segment remains unchanged. At the same time, we will continue to pursue high-quality growth and optimize operating efficiency for our new initiatives. With that, we are now open for Q&A.

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

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

Thank you, Ronald. Yes, we are very pleased to see that our GTV for in-store, hotel and travel grew by over 120% year-over-year. Annual active merchants and annual transaction users for this business also reached new highs. During this quarter, we captured off-line consumption recovery and actively expanded our traffic. We also diversify our content offerings and enhance our marketing tools and services. Thanks to our strong mindshare on the merchant side and our operational capability, we help merchants leverage our off-line traffic recovery trend and satisfy the growing consumer demand through diversified services. We further solidify our competitive advantage and maintain our market leadership through a series of merchants. For the in-store business, market had seen strong growth potential, and we fully leverage our offline operational capabilities. And we also further strengthen the business development efforts. We stratified our merchant operational tactics based merchant categories and merchants tiers. We met merchants diversified operational needs and deepened program operations. For example, we offer merchant incentives and do 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 simplify the merchant onboarding process for small and medium-sized merchants. In addition, we expand our direct sales teams to more cities, especially as we penetrate further in the lower-tier city market. Through these measures, we are able to ensure the diversity of supply and the price competitive on our Meituan platform. On the content and product side, we launched a series of product optimization measures. These measures not only strengthen the mindshare of share-based offerings, [Foreign Language] also help promote max heat product, and enhance our marketing and product [ recognization ] capability. In April, we have primarily completed great expansion of our special deals to adapt on go. We offer multiple entry points in the Meituan in the Dianping app. Through this special deal sections, we offer participating merchants new marketing tools, direct additional traffic to [ remain ] and help them sell max heat products. For the consumers we provide products at very attractive prices and meet their stockpiling needs. Our special deals section effectively solidify consumer mindshare of Meituan as a platform that offers the best deals. We also continued to accelerate and improve our live streaming events to make consumers non-instant demand. We increased the frequency of our live stream event and work with local government and launch city-wide live streaming event to stimulate local consumption. As a result, daily average number of live stream event increased significantly through which we provide consumer 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 focus on holidays such as [Foreign Language], Labor Day and Dragon Boat Festival and use subsidy to enhance pricing. We also increased the number of live streaming sessions of hotel and travel. Specifically, we increased our live streaming frequency from weekly session to daily session and launch an AI virtual human live streaming tool. We further optimized our hotels package deals on small merchants and diversify our offerings. In particular, we optimized the supply of hotel room night plat timing, attraction, ticketing and local tools and realize more synergies through cross selling. Thanks to these measures, we solidify consumer mindshare of having low price on Meituan and incentivize consumers' to book hotels our platform. During this quarter, we strengthen our confidence on the overall potential of its local service space. Online platform has become an important channel for all merchants to acquire new customers and grow their business in the post-pandemic period. We will continue to achieve our operational services to help the merchants benefit from the industry digitization process and bring convenience and value to our consumers.

Please go ahead.

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

Yes, certainly. The next question does come [Technical Difficulty]

We lost you again. Operator?

This is the operator. Can you hear me?

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

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

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, Gary, for the questions. I will take that. Yes, while the growth has been very strong in Q2. In Q3, I would like to elaborate a little bit in different segments. For our food delivery, we expect the Q3 order volume will slow down, but still will be more resilient than other consumption-related sectors. We have seen some short-term headwinds due to macro economy and extremely weather conditions so far in Q3. On the one hand, off-line traffic and travel demand continued to recover rapidly. Consumer pent-up demand for off-line consumption is further released, and this will lead to a temporary squeeze on food delivery transactions as people go out more often. Within online and off-line consumption demand, we will return to a more normal balance, maybe after 1 or 2 quarters. On the other hand, the change of consumption power due to the current macro environment will impact demand for food deliveries 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, [Foreign Language] experience heavy rainfall this summer. Many merchants had to sustain 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 a quality safety. Also, order volume in Q3 last year was a relatively high base. But we think the temporary slowdown in order volume growth is due to external factors. We will continue to activate our product operational strategy to better capture the demand and stimulate the recovery. We remain confident in the long-term growth of our food delivery business. For the in-store, hotel & travel, we expect that the GTV and revenue will continue to post strong year-over-year growth and also a 2-year CAGR in Q3. We launched a series of marketing campaigns and continue to improve them and optimize our strategy. These measures make consumer demand to stockpile coupons and solidify consumer mindshare in our value for money product offering. Now we have made platform live streaming, regional live streaming and merchant live streaming. We also diversified our marketing formats and promotional scenarios under the share-based model. We are pleased to see that the transaction volume for both in-store dining and other in-store services through live stream events during Chinese [indiscernible] new highs. Integrate live streaming and share-based models, we can provide consumers with more diverse collections with more affordable price and offer merchants more marketing tools. In addition, we go up with emerging category during the consumption recurring trade and export opportunities in online penetration of those new categories. In June, we launched the 2023 Must-Eat List , [Foreign Language]. Our 2,000 restaurants from 61 cities was selected. We also launched the Must-Eat Festival for the first time in history. We worked with the participating merchants and collectively invested over RMB 1 billion in advertising and subsidy with target to drive additional RMB 10 billion of food service consumption. This will not only help merchants increase income also allow consumers to experience high-quality restaurants at more affordable price. Additionally, the proportion from regional restaurants, while our lease has increased notably providing consumers with more delicious and affordable choices. This year's lease also includes around 90 restaurants from 4 overseas cities [indiscernible] Osaka, Bangkok and Singapore. While consumer to explore local food when traveling abroad. For hotel and travel, summer is usually the peak season. So we expect our room night continue to grow robustly in Q3. In addition, we expand our efforts in marketing and branding in summer and improve our traffic acquisition capability from both internal and external channels. Around the summer location team, we started increased our hotels packaged offerings to enhance our user expedition efficiency from external channels and improve user retention rate. On the internal cross-selling stand, we focus on cross-selling from other high hit volume business, such as our food and store services in the Meituan Instashopping. In terms of the margin trend, as we mentioned before, we will continue to focus on the growth and focus on building a healthy ecosystem. We will balance the effect in our market efficiency and improve our ROI, while continuing to put the user experience and merchant experience as the top priority. Although it's 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 collection and good deal. I also want our merchants to benefit more from the digitalization. We are still in the early stage of development for certain capabilities. There is a big room for improvement. The summer vacation and national holiday uptick season, we will continue to invest during those seasons. Similar to what we did in May and June, we will directly address our strategy based on the outcome and market competition. Our current investment strategy mainly focused on enhancing our brand awareness and mindshare. In addition, we want to improve our long-term capability and solidify our competitive mode. We believe the industry still has a large potential to grow from online penetration compared to physical e-commerce. So we will continue to accelerate our operation under the new competitive environment and help accelerate the digitization process.

And the next question comes from Thomas Chong with Jefferies.

If the change in 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, Thomas. We believe the negative impact from the macro is only temporary. We remain confident in China's economic growth and the consumption in relation to the government. And overall, food delivery is an affordable consumption. If you look at our AOV, average order value, it's only between RMB 30 to RMB 40. So we cover a broad range of categories and price bands and consumption scenarios. And our platform supply effectively satisfy 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 work of life return to work. So both supply and demand of low digit size orders recovered rapidly. We proactively adapted to the shift in consumption power by onboarding more high-quality low-digit size supply. And our highly efficient first-party delivery network will allow us to capture more demand in the lower price range. And for example, we further expanded our Time-honored Brand model to more cities and continue to refine our strategy and efficiency. Our supply side iteration efficiency optimization under the Time-honored Brand model allows to offer more valuable money news to consumers. So as a result, other volumes from Time-honored Brand grew very rapidly in Q2, and we believe further with AOB below RMB 15 at large growth potential in the future. Additionally, we continue to use live streaming to encourage consumers to stock our coupons and stimulate non-instant demand. And going forward, we will leverage diverse supported formats to make food delivery in the defensible service. With the measures I just mentioned, we are confident that our Food delivery business will grow more healthy this year compared to other similar factors. And in the longer run, I think the growth potential of Food delivery remains unchanged. We believe supply will continue to recover and grow, and it will drive the whole industry growth, especially, we are confident in the resilience of small and medium-sized merchants. They represent the vitality of the Chinese economy and their recovery will enable us to penetrate deeper into lower ticket-size supply and serve a broader population. And thanks to our continuous iteration in delivery networks, we have lowered the delivery cost for our -- per order to a level that can better propel 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, this demand is more in the high-quality end. We will continue to onboard more quality restaurants and extend our delivery distance to accommodate broader consumption scenarios. So I believe the potential is still huge. And if you look at the number of news can do the total urban population in China, so that's still a huge room for the penetration. Not to mention there are afternoon tea, coffee, snacks and other consumption scenarios beyond the regular 3 meals per day. For example, so despite all the challenges, peak daily orders exceeded 78 million in August from the first day of food -- with milk, tea alone contributing over 21 million orders on that day. Yes, that's a mind number, 21 million orders for milk, tea alone on that day. And this further validates our growth potential across various categories, the own market delivery, which include food delivery and Meituan Instashopping achieved a milestone of over 85 million on that day. So overall, we have the confidence in the long-term potential of food delivery business. So I think because now that the world is changing fast, let's not forget what's going to -- what's not going to change. I think the people always need to eat. That's not going to change. So people always need to eat, young people don't want to cook. I think that's an opportunity for food delivery. So in longer term, I think the penetration rate of food delivery will continue to grow, it will continue to grow for many years to come.

And the next question comes from Alicia Yap with Citigroup.

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. I'm very glad you mentioned Instashopping [indiscernible] because the business that the management team feel very excited about and feel very confident of its growth potential. As you has 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 region. So the growth of Meituan Instashopping is significantly higher than the overall economics. 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 supply formats that will effectively set manage the traditional off-line suppliers. For example, Meituan Instamart has attracted lots of external partners and merchants to collaborate with our platform in Q2. Other volumes continued to grow robustly and strengthen its potential to win a higher value share from consumers. As such, we think order volume of Meituan Instashopping will grow much faster to deliver in Q3 and full year of 2023 and maybe continued in the following years, despite it already has a high base from last year. After over 5 years of business development, the growth driver of Meituan Instashopping has gradually reach from demand-driven to supply driven, traditional offline retailers and brands actively embrace the rising on-demand delivery channel and we formed strategic partnership with normal brand. It will help us further diversify supply and monetize on advertising. In Q2, we see off-line retailers are increasing more willingly to allocate invest into our platform, working on Meituan Instashopping outpaced the order volume growth, mainly the static growth of advertising revenue. Going forward, we will arise more merchant brands with digital operation and supply chain transformation. We believe these efforts will proactively 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 in user base in marketing and in fulfillment. In August, we further integrated it with our food delivery membership program. We expect more synergy and marketing going forward. In the future, we believe that on-demand retail will create a [indiscernible] in which demand supplies strengthen each other. We are very confident that Meituan Instashopping 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.

And the next question comes from Yang Bai with CICC.

Recently, we have seen the operational release of your first-generation product. Could management share insight on your positioning of the autonomous delivery, including the UAV and the autonomous delivery vehicle? What are the prospects and the investment plan in this area? It's low altitude logistics network and autonomous delivery are applied on a larger scale. How will this optimize overall delivery efficiency and reduce delivery costs?

So unmanned area vehicle, UAV in short, and autonomous vehicles represent the autonomous capability of Meituan. And they are good examples of the synergies and integrations between retail and technology. That's our corporate strategy, retail class technology. So we -- again, autonomous delivery vehicles since the end of 2016. Now we test the business in Beijing and Shenzhen. By the end of this June, we accumulated the number of orders fulfilled by our autonomous delivery vehicles has reached 3.3 million orders. So during the pandemic, our autonomous delivery vehicles were dispatched to Shanghai and other cities to help deliver daily necessities to people in residential communities, campuses and hospital areas. In addition, we actively optimized our software and hardware and overall operations. And as delivery volume goes up, we expect cost per order for autonomous delivery to decrease infusion. Also as we continue to iterate this technology and continue to invest, we hope to integrate autonomous delivery with the couriers and selectively establish efficient hybrid on-demand delivery network at city level. In the long run, the autonomous delivery vehicle will not only enhance delivery efficiency, but also provide supplementary capacity when there is a courier shortage. And for UAV or Jones, 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. So in July, we launched our fourth generation UAV in Shanghai. The safety, economics and environmental capability 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 swap delivery capacity constraints during big hours, especially in some urban areas with high population density. In addition, UAV enable delivery in certain scenarios where traditional delivery formats are incapable to do, such as in tourist attractions. The theme parks, for those natural theme parks. And for very long distant delivery, currently, we explore and developed our autonomous delivery from a very long-term perspective. In fusion, we think the autonomous delivery vehicle and UAV will form an urban delivery network that integrate aerial and ground transportation, together with couriers. So we believe they can enhance operational efficiency, address delivery capacity shortage program and meet consumer demand across various scenarios. We will continue to develop this technology and use this technology to drive the long-term development of our own demand delivery market. Because there are a lot of technical challenges and also a lot of regulatory policy issues. So basically patience. We have been doing this for 6 or 7 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. And this concludes the question-and-answer session. I would like to turn the call back to Scarlett Xu for closing comments.

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

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