Meituan has elevated the importance of its retail business to a level comparable with its food delivery operations.

On June 1, Meituan-W (03690.HK) released its financial results for the first quarter of 2026. The company's losses for the quarter decreased as the intense "subsidy war" among major platform companies like Meituan, JD.com, and Alibaba showed signs of easing.

In Q4 2025, Meituan reported an operating loss of RMB 15.144 billion. This figure improved to a net loss of RMB 6.827 billion in Q1 2026, representing a reduction of RMB 8.3 billion. The operating loss for its core local commerce segment narrowed from RMB 10.046 billion to RMB 2.030 billion, with the operating margin recovering from -15.5% to -3.2%.

However, compared to the same period last year, the company remains under significant performance pressure. In Q1 2025, Meituan posted a profit of RMB 10.057 billion. The swing from a profit of tens of billions last year to a loss of nearly RMB 6.827 billion this year represents a gap of approximately RMB 17 billion.

Over the past year, Meituan has faced competitive pressure on multiple fronts, including Douyin's push into in-store services, JD.com's entry into food delivery, and Alibaba's efforts to combine Taobao Flash Sales with its food delivery and instant retail offerings. Following a subsidy war that lasted for most of the year, Meituan recorded a substantial annual loss of RMB 23.4 billion in 2025.

Entering 2026, with market regulators encouraging healthier competition, Meituan's CEO Wang Xing noted in the earnings call that "irrational subsidies in the instant delivery industry have moderated compared to the previous quarter."

Meituan has seen improvements in its costs and expenses. Sales and marketing expenses were RMB 22.969 billion, a decrease of RMB 8.757 billion from the previous quarter. Cost of sales was RMB 65.068 billion, down RMB 2.901 billion sequentially. The company is actively applying the brakes by reducing subsidy spending, optimizing marketing efficiency, and controlling peak rider costs.

Another key takeaway from the report is a change in Meituan's financial reporting structure. Previously, its revenue was segmented into "Delivery Services," "Commission," "Online Marketing Services," and "Other Services and Sales." Starting from Q1 2026, revenue is now categorized as "Delivery Services," "Merchant Services," "Product Sales," and "Other." Meituan explained this change is intended to "better reflect the strategic importance of the retail business." In the first quarter, product sales revenue reached RMB 21.0 billion, a year-on-year increase of 46.6%, accounting for 23% of total revenue.

Looking at the newly categorized revenue streams, while delivery service revenue fell 2.9% year-on-year in Q1, product sales revenue surged 46.6%. This suggests a structural shift: Meituan is increasingly allocating its delivery resources from food delivery towards product retail.

On the first trading day after the earnings release, Meituan's stock showed strong performance, leading gains in the Hong Kong tech sector. The stock opened significantly higher, with intraday gains reaching 9.58%. On June 2, Meituan closed at HK$85.5, giving it a market capitalization of HK$478.412 billion.

Elevated Role for Retail Operations

In its Q1 2026 report, Meituan implemented a major adjustment to its revenue disclosure framework, aligning it with its new "Retail + Technology" strategy.

The company's business structure remains divided into two core segments: Core Local Commerce and New Initiatives. The change lies in how revenue is presented. Starting with the Q1 report, revenue is now broken down into four distinct categories: Delivery Services, Merchant Services, Product Sales, and Other.

The new "Product Sales" category refers to the sale of goods, primarily from its grocery retail businesses (including Xiaoxiang Supermarket and Kuailehu) and other self-operated categories like pharmaceuticals and alcohol. Previously, this performance was hidden within the vague "Other Services and Sales" line item.

Following this adjustment, Product Sales now stands alongside Delivery Services and Merchant Services as a core business unit on par with food delivery and in-store services. This indicates that as Meituan's core food delivery business faces defensive pressure, its retail operations are being pushed to the forefront.

Product sales for Q1 reached RMB 20.972 billion, a 46.6% increase year-on-year. Revenue from the New Initiatives segment was RMB 17.989 billion, up 41%, while revenue from the Core Local Commerce segment (mainly self-operated pharmaceuticals and Waima Songjiu) was RMB 2.983 billion, surging 96%.

An instant retail expert noted that Meituan now operates multiple self-managed retail segments, including Xiaoxiang Supermarket, the "Squirrel Convenience" lightning warehouse brand, Waima Songjiu, and Kuailehu. Beyond its platform role, Meituan is beginning to resemble a retail company. The expert pointed out that a quarterly volume of RMB 20 billion is substantial, comparable to the scale of China's largest domestic offline retailers. For context, Yonghui Supermarket reported total revenue of RMB 13.367 billion in Q1 2026.

The structural shift is evident: as delivery service revenue declined, product sales revenue surged. The same riders are delivering different items. However, the gross margin for product retail is significantly lower than the commission-based model for food delivery. The expert explained that retail is a low-margin business involving inventory, loss, and various operational costs.

Instant retail has become a priority for major internet giants. Comparing disclosed Q1 results, the strategies and situations of Meituan, Alibaba, and JD.com differ. JD.com's retail operating margin rose to a record high of 5.6% in Q1. Its instant retail relies on "Seconds Delivery" and its logistics network, focusing on full-category instant delivery, with its food delivery business synergizing with its main platform to increase purchase frequency by 2%-3%.

Alibaba's instant retail revenue for the fiscal year ending March 2026 was RMB 78.5 billion, growing 47% year-on-year, a pace far exceeding Meituan's. Alibaba has integrated Ele.me, Taobao Flash Sales, and Fliggy into the "Alibaba China E-commerce Business Unit," attempting to leverage e-commerce traffic for its local services business. However, the food delivery battle caused this segment's profit to shrink by RMB 10.3 billion, and Alibaba did not separately disclose the profitability of its instant retail operations.

Among the three, Meituan's commitment to instant retail appears the heaviest and most urgent. Xiaoxiang Supermarket expanded to 55 cities in Q1, with the proportion of private-label products continuing to rise, and average order values in mature markets like Beijing and Shanghai showed "significant growth." Wang Xing provided a specific long-term target in the call: for Xiaoxiang Supermarket to achieve "sustainable low single-digit profit margins." He expressed the hope that it would become "one of the most popular online fresh food brands in the future."

Ongoing Investment in AI and Overseas Expansion

In the report and earnings call, Meituan also dedicated significant discussion to AI (Artificial Intelligence) and overseas expansion. These topics represent a technological narrative and a growth narrative, respectively, both crucial pieces of Meituan's attempt to convince capital markets that it is "more than just a food delivery platform."

Regarding AI, Meituan has been active. Its Q1 R&D expenses were RMB 7.0 billion, a 22% year-on-year increase, which the company explicitly attributed to "increased corporate-level investment in AI."

During the call, Wang Xing introduced the consumer-facing "Xiaotuan" assistant, now placed in the center of the bottom navigation bar in the Meituan app, with updated smart search functions. The merchant-facing "Smart Shopkeeper" serves over 700,000 F&B merchants, and "Digital Employees" support over 300,000 service retail merchants. Meituan also announced an upcoming collaboration with Tencent's AI robot "Yuanbao," where user requests for local services within Yuanbao will trigger smart interactions with Xiaotuan.

However, some industry observers remain skeptical about the tangible impact of these initiatives. One founder of a research firm questioned whether the market has perceived any significant momentum. They view Meituan's AI efforts as tool-based applications within existing business lines, stating that AI's enabling role within its business framework currently appears insufficient and far from transforming its business model or efficiency.

Meituan's AI endeavors extend beyond large language models and tool applications. Drone delivery for food was once highly anticipated, but the former head of Meituan's drone business mentioned that while drones have achieved some gross profit in the medical field, the highly competitive food delivery sector remains challenging for profitability in the short term.

Overseas expansion, represented by Keeta, is another area of focus. The Hong Kong market achieved unit economic breakeven in Q4 last year, and efficiency in the Saudi market continues to improve. However, Wang Xing noted that Meituan's overseas strategy for 2026 prioritizes "operational optimization over expansion into new markets."

Observers note that overseas expansion faces immense capital expenditure pressure. From an ROI perspective, it represents a significant capital outlay, and for many investors, the prospects for Meituan's overseas business remain unclear.

In the secondary market, Meituan is in an awkward position. Since 2025, its stock price has generally trended downward with volatility. After reaching a high of HK$189.60 in early 2025, it entered a prolonged decline. The continuous drop in share price has led to a significant contraction in market capitalization.

Analysts point out that the consumer sector Meituan operates in inherently has limited growth potential. Food delivery is a tough, low-margin business where efficiency and costs have been pushed to their limits. In this view, the real value of Meituan's AI may lie more in marginal improvements to operational efficiency. Whether these improvements can translate into the valuation premium the capital market is willing to assign remains a question for time to answer.