Meituan's Huiwen Wang: Stick to Doing the Right Thing, the Payoff Comes Sooner Than You Think

The industry widely agrees that Meituan's success was inseparable from its "offline iron army." At Source Code Capital's 2017 Ma Hui, Huiwen Wang, then president of Meituan's dining platform, reflected on whether Meituan truly embraced "encircling the cities from the countryside" as gospel during the group-buying wars, and whether Meituan's success stemmed from strategic persistence or tactical adaptability. Meituan's experience deserves reflection from every entrepreneur.

The following is the full text of Huiwen Wang's speech at Source Code Capital's 2017 Ma Hui:

There was a legend in the industry that Meituan had a strategy during the group-buying era called "encircling the cities from the countryside." I'm sure many of you here have heard of it. In 2013, 2014, and 2015, the main competitors in the group-buying market were Meituan, Dianping, and Nuomi. At the time, Meituan operated in roughly 100-plus cities, while Dianping and Nuomi were in basically 20–30 cities. Because Meituan had far more cities than Dianping and Nuomi, it was widely perceived by outsiders as pursuing "encircling the cities from the countryside."

If this were indeed a deliberate strategy, it would have been highly effective. Because of the urban coverage gap between Meituan and its rivals, many of Meituan's tail-end cities were profitable. Those profits could then be funneled into head-to-head competition in top-tier cities against Nuomi and Dianping, putting those two at a significant disadvantage. Now that Meituan and Dianping have merged, and Nuomi has largely vanished, the final numbers make Meituan's strategy look like a resounding success.

What I want to talk about today is the thinking process behind, origins of, execution of, and real-time adjustments to the so-called "encircling the cities from the countryside" strategy.

1. "Encircling the Cities from the Countryside" Was a Misunderstanding

I joined Meituan at the end of 2010. At that time, my understanding of group-buying was fairly limited, so I asked a question: how many cities can this business actually expand to? Hearing this, the team analyzed what the group-buying business model actually looked like, what user behavior was like, and what the operating costs would be to launch a city.

After listening, I told everyone that I thought my hometown of Wafangdian could support a launch. If you ranked cities at the county level and above, Wafangdian would fall somewhere around 300th or 400th.

From late 2010 to early 2011, every group-buying company, whether proactively or reactively, had to make a choice about city expansion. Although it was called the "thousand-group war," there were really only about a dozen or so competitive players. By the end of 2011, Dianping, Nuomi, DidaTuan, and Manzuo had each launched in about 25–30 cities; Lashou, Wowotuan, 24Quan, and Tuanbao had launched in roughly 150–300 cities, with Tuanbao publicly claiming 324 cities—the most of anyone.

Notably, among these nine competitors, the first four I mentioned had 25–30 cities, while the next four had 150–300. Meituan had 94. Pay attention to that distribution—Meituan was the only one in the 90s. Meituan's choice on city count was completely different from everyone else's: not among the fewest, not among the most. I suspect that for a long time, people believed Meituan's strategy was "encircling the cities from the countryside" because Tuanbao, 24Quan, Lashou, and Wowotuan faded away earlier. The later competition became Meituan versus Dianping and Nuomi. Imagine if, instead, the later competition had been Meituan versus Wowotuan and Lashou—people might have summarized Meituan's strategy as "victory through the head." So the description of Meituan's strategy was an after-the-fact interpretation.

So the name "encircling the cities from the countryside" was a later misunderstanding based on how the competitive landscape played out. Then why did Meituan open in 90-something cities rather than 150 or 25? This was an absolutely critical strategic choice. Meituan spent a long time discussing this. Imagine it as a coordinate system, with one horizontal and one vertical axis. Each city is a point on the horizontal axis, and city size is on the vertical axis. Rank the largest cities first and the smallest last, and the chart would look something like this.

(Illustration: City size distribution chart)

2. "Meituan Just Opened Cities While Running the Numbers"

How many cities should we choose? What dimensions should we consider? What factors mattered? When I joined Meituan, the company had just launched 28 cities, but our assessment was that 300 cities was ultimately viable. The key was how many to open and when. The main consideration at the time was: at what point in time would this group-buying competition reach a rough decisive outcome? To formulate a high-quality strategy, you first need a judgment about the industry—you can't be passive.

1. The Art of Trade-offs

At the point where a winner and loser emerge, if a competitor can't keep up with the competitive pace, their first survival instinct will be to control spending. A very common way to control spending is "closing cities." Then the question becomes: which cities do they shut down? Two possibilities. One is shutting down head-tier cities; the other is shutting down tail-end cities. Meituan's judgment at the time was that they would stop tail-end cities, and indeed, that's what the vast majority of competitors ended up doing. Because head-tier cities are larger and consume less management resources per unit of volume, and because no one can lock up all the merchants in a head-tier city and prevent competitors from talking to them, opportunity always exists. In other words, when winners and losers are decided, competitors will retreat from small cities.

On the other hand, in any competition, you either monopolize supply or monopolize demand. In cities like Beijing and Shanghai, monopolizing merchants is extremely difficult. But in small cities, because there are fewer merchants, monopolizing them is easier. So in small cities, "defeating the enemy" means "routing the enemy"; in large cities, "defeating the enemy" doesn't mean "routing the enemy." If you can rout the enemy, you have a profitable base. Meituan's judgment at the time was that when winners and losers were decided, competitors would close their tail-end cities, while Meituan would be making money in those same tail-end cities.

Deciding winners and losers, bluntly put, comes down to comparing scale and financial position. If your scale is large but you're bleeding money, it's hard to win. If your scale is large and you're losing roughly the same amount as competitors, then you have a chance. Comparing scale and financials means comparing input-output ratios. Meituan's assessment in the first half of 2011 was that the group-buying market would reach a decisive outcome in one year. So we needed to look at which cities would have sufficient scale at that decisive moment to affect overall market share. Seen this way, cities ranked 150th and below, even 100th and below, were essentially useless. These cities wouldn't affect your overall victory or defeat, and you needed to shed them. The downside of not making this trade-off was continued capital investment and management costs. So Lashou and Wowotuan consumed enormous management and capital resources in tail-end cities without generating business volume large enough to move the market.

2. Timely Strategic Adjustments

In early 2011, every competitor in group-buying was terrible at city management, Meituan included—nobody was particularly strong. Because there's a limit to how many cities you can manage. As your management span widens, your input-output ratio drops, and your financial position suffers accordingly. At the time, Meituan didn't have a clear sense of its own capabilities in opening and managing cities. We first felt that 28 cities was wrong and needed to expand, but how many cities would tip the input-output ratio into negative territory? We had to test.

So we kept opening, monitoring as we went. When we reached 90-something cities, one day Xing Wang told me: I think something's off. At that point, it wasn't a planned expansion from the #1-ranked city down to the #100-ranked city. We had opened a city called Chifeng, which ranked somewhere around 200th. So we quickly discussed whether, given our management situation and the problems that had surfaced, we had opened some cities in error.

We promptly stopped to examine which cities were mistakes. After discussion, we concluded about 4 cities had been opened in error. But the thornier question was: if they were wrong, should we close them? We debated at length and ultimately decided to close them. I believe this was an absolutely critical decision.

3. Persisting in "Doing the Right Thing"

From late 2014 to the first half of 2015 was basically a massive internet bubble in China, and many entrepreneurs fell into deep pits. One reason they fell was their inability to cut businesses and their lack of courage to do so. Of course, I understand. Take Meituan at the time: after closing already-opened cities, what if investors questioned us? What about team morale? And Meituan was still fundraising then—all these were real issues. But this is the critical difference between "doing the right thing" and "doing the easy thing." Meituan closed 4 cities at the time: Longyan, Ma'anshan, Yulin, and Chifeng. This was enormously challenging for Meituan. Competitors planted negative stories saying Meituan's capital chain had snapped, it was closing cities, the team was finished. But Meituan weathered it.

By now you probably understand: throughout this entire process, Meituan never talked about "encircling the cities from the countryside," nor did we talk about a "head-tier strategy." We just opened cities while running the numbers, and one day when things felt off, we stopped immediately. That's all.

3. Persisting with the Right Strategy Pays Off Faster Than You Think

Many people probably don't know that Meituan's total fundraising in the group-buying industry was relatively low. Lashou had very strong fundraising capabilities—they ultimately raised $165 million. Wowotuan's total capital invested exceeded $165 million. But Meituan had only raised $62 million. Money was tight, so we had to ensure our resource input-output ratio was strong enough.

So Meituan's resource allocation was weighted, and in fact, Meituan invested more in cities ranked 25th to 94th than in head-tier cities. For example, in cities at the level of Xiangyang and Handan, we deployed more than 10 business personnel each. During the same period, Beijing had 80 people and Shanghai had 60. If you compare the scale of Beijing and Shanghai versus Handan and Xiangyang, Meituan's resource investment in Beijing and Shanghai was far from sufficient. Of course, the allocation of personnel across cities wasn't entirely our deliberate planning. But we knew that in cities like Beijing and Shanghai, even if you won, you couldn't rout the enemy. This directly led to the rapid decisive outcomes in cities ranked 25th to 94th—once competitors retreated, we could hold our ground and profit. This was the point in time when what people call the "encircling the cities from the countryside" strategy took shape.

This strategy itself carried numerous challenges. One of them was the board of directors. For a long time, I really didn't want to attend board meetings, because the directors all lived in Beijing and Shanghai. Because our resource investment in Beijing and Shanghai was insufficient, we were lagging there. Sometimes investors would tell me: I bought from Nuomi again today—look, when I open Meituan in my neighborhood, there are no merchants I like. Series A and B investors don't have the time or energy to analyze every single city. So we always had to explain: Meituan is doing great in other cities, look at the overall numbers. Of course, there was another option: pour massive resources into Beijing and Shanghai. Then investors would feel great, but that would become "to VC" rather than "to C."

Even when you make the right strategy, execution brings countless challenges. These come from investors, from the sales team, from management, and from your own internal fears. So when pursuing the right strategy, you have to make choices. Persisting in doing the right thing is demonstrated through repeated choices about resource allocation, product iteration, and direction. And if you persist in doing the right thing, the payoff cycle for that persistence is often much shorter than people imagine.

For example, Meituan closed 4 cities in April 2011. This created significant anxiety in the sales team, and Meituan was still fundraising at the time. But by September, Lashou and Wowotuan couldn't sustain it and began layoffs. The team then understood that Meituan was more farsighted and had deeper industry insight, and would ultimately prevail. In 2012, we had to explain to investors why we were behind in Beijing and Shanghai. By 2013, investors recognized the power of the "encircling the cities from the countryside" strategy and endorsed the team's strategic choice.

That's my share for today. I hope it offers some inspiration. Thank you, everyone!