Summary of Key Points
Meituan’s financial report for the first quarter of 2026 includes a new category: “Commodity Sales Revenue,” with Xiaoxiang Supermarket being the main contributor to this revenue (accounting for 86% of new business contributions), showing a year-on-year increase of over 40%, outperforming the industry. However, the new businesses are still in the red (with a loss of 2.1 billion yuan), although the loss margin has narrowed. Xiaoxiang Supermarket has shifted from a strategy of “expanding at all costs” to one focused on profitability, through measures such as expanding its delivery stations, developing its own brands to increase gross margins, and opening physical stores. The company also acquired Dingdong Maicai (the acquisition is not yet finalized). Nevertheless, it faces challenges including high costs associated with its delivery stations and intense competition. Its long-term goal is to achieve a low single-digit profit margin.
I. Why Has Xiaoxiang Supermarket Suddenly Become Such an Important Asset for Meituan?
Meituan’s core businesses (such as food delivery and in-store services) are experiencing slower growth, so it needs new initiatives to sustain profitability. The strategic importance of Xiaoxiang Supermarket is evident; the inclusion of “Commodity Sales Revenue” in this report is a clear indication of this. In Q1 2026, new business contributions amounted to 17.989 billion yuan, accounting for 86% of total commodity sales, with most of this coming from Xiaoxiang Supermarket. Management states that Xiaoxiang’s growth is faster than that of its competitors, aiming to show the market Meituan’s capability in the retail sector and its potential for additional growth.
II. The Three Key Drivers of Xiaoxiang Supermarket’s Rapid Growth
1. Expanding Delivery Stations: By the end of Q1, Xiaoxiang Supermarket covered 55 cities, an increase of 16 compared to the end of 2025, which naturally attracted more customers.
2. Growing Profits from Own Brands: The company has three own brands: “Xiaoxiang,” “Xiang Dachu,” and “Xiang Huasuan,” which now account for a larger proportion of total transaction volume (GTV). These brands, such as Xiaoxiang-branded milk and semi-finished dishes from Xiang Dachu, have higher gross margins (by 10-15 percentage points) compared to competing brands. This not only attracts customers but also generates more profits.
3. Increasing Average Order Value in Mature Markets: In established markets like Beijing and Shanghai, customers are spending more on each purchase. Management attributes this to the addition of higher-quality, cost-effective products, as well as the peak sales season during the Spring Festival, which boosted sales.
III. The Transition from “Expanding at All Costs” to “Making Money”
Meituan is now eager for Xiaoxiang Supermarket to become profitable due to the pressure on its core businesses. The changes in Xiaoxiang’s strategy are evident:
- Raising Barriers to Entry: The free shipping threshold has been raised to 35-39 yuan, and there is a minimum purchase requirement of 20 yuan for self-pickup services. Some customers have complained about the increased cost, but this is aimed at reducing unprofitable orders.
- Opening Physical Stores: Meituan opened its first physical store in Beijing at the end of 2025 (4,500 square meters with a daily turnover of over one million yuan) and plans to open 20 more stores in 2026. The rationale includes the need for customers to see fresh products in person and the potential to sell high-value items like steak and king crab, which can increase profits.
- Turning Positive Unit Economic Models (UE): In key cities, each order is now profitable. The company plans to expand this model to more areas.
IV. Major Challenges Faced by Xiaoxiang Supermarket
1. High Costs of Delivery Stations: These stations, located near customers’ homes, offer fast delivery but incur high rental and labor costs. If the number of orders is insufficient, they may not be cost-effective.
2. Intense Competition: Competitors like Hema and Hema NB have already achieved profitability through a combination of physical stores and online delivery services. Xiaoxiang, relying solely on online delivery stations, may face challenges in terms of brand recognition and customer attraction.
3. Integration with Dingdong Maicai: Meituan spent over 700 million US dollars to acquire Dingdong Maicai, but the integration (including supply chains and customer bases) is still unresolved, which could pose a risk.
4. Success of Physical Stores: Hema’s model of combining fresh products, dining, and delivery has been successful, but whether Xiaoxiang’s physical stores can attract and retain customers and generate profits remains to be seen.
V. The Future of Xiaoxiang Supermarket
Xiaoxiang is shifting from a focus on speed and scale to quality and profitability. To achieve a low single-digit profit margin, it needs to:
- Control the costs associated with delivery stations and make more units profitable in various cities.
- Strengthen its own brands to increase gross margins.
- Differentiate its physical stores to avoid copying Hema’s model.
- Successfully integrate Dingdong Maicai’s strengths (such as its supply chain).
The success of these efforts will depend on Meituan’s ability to balance expansion and profitability. Given the thin profit margins in the fresh food industry, any misstep could undermine its progress.