Ladies and gentlemen, thank you for standing by and welcome to Meituan's third quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. After speakers' presentations, there will be a question-and-answer session. To ask questions during the session, you will need to press star one on your telephone. I would now like to hand the conference over to the first speaker today, Ms. Scarlett Xu, Vice President and Head of Capital Markets. Thank you. Please go ahead, ma'am.
Thank you, Operator. Good evening and good morning, everyone. Welcome to our third quarter 2020 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 third quarter 2020 results and then conduct a Q&A session. Before we start, we would like to remind you that our presentation is a forward-looking statement, which includes a number of risks and uncertainties and may differ from actual results in the future. This presentation is based on our management accounts, which have not been audited or reviewed by our auditor. 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.
Thank you, Scarlett. Hello, everyone, and welcome to Meituan's third quarter 2020 earnings call. During the quarter, as the outbreak of COVID-19 was effectively controlled in China, the economy and consumption steadily recovered across the country, and we continue to stick with our Food + Platform strategy, providing consumers with a more diverse and convenient set of service offerings, helping merchants recover and grow, and creating more job opportunities for society at large. As a result of our continuous efforts, we achieved positive growth in each segment while recording peak daily GTVs across our main businesses, including food delivery and in-store services. Moreover, in order to ensure that our growth remains holistic and sustainable, we increased investments in key new initiatives with significant long-term potential.
We are a beneficiary of an accelerant for the broader economic recovery experienced in our country as a result of the effective COVID-19 containments, and we will strive to continue creating unique value for both Chinese consumers and merchants. I will now provide an overview of our performance in each business segment for the third quarter of 2020, starting with food delivery. Our CFO, Shaohui, will then discuss our third quarter financial performance in more detail. So, in general, food delivery is a seasonal business, with the summer usually being one of its strongest seasons in terms of the number of transactions. In Q3, GTV and number of transactions for food delivery increased by 36% and 30% year over year, respectively. In August, our food delivery business had almost fully recovered from COVID-19, with the number of food delivery transactions reaching historical highs in that month.
Our main food delivery user metric also hit record highs, while key categories in that segment experienced strong growth and momentum during the quarter. During the quarter, we helped merchants grow their operations and accelerate consumer lifestyle change. We continued to optimize our food delivery supply, expand our high-frequency merchant base, and increase the diversity of restaurants. We also continued to enhance our operating systems, increase the level of operational granularity from individual restaurants to individual dishes, and cooperate with millions of merchants on several summer promotional events such as the Super Food Delivery Festival at Chaoji Waimai Jie . And during the summer, the popularity of different consumption categories such as late-night snacks and afternoon tea continued to increase, and we thus adopted more tailored and differentiated operations for this category by expanding our merchant supply, improving our product quality, and enhancing our category-specific marketing capabilities.
For example, after accurately identifying the growing consumer preference for bubble tea, we aligned our strategy to focus on cultivating such consumption habits in more consumers. Leveraging such festivals as Chinese Valentine's Day, as well as bubble tea-themed marketing events, we further expanded our bubble tea product offerings and also drove the growth of the number of transactions for the afternoon tea category during the quarter. For late-night snacks, beyond broadening our merchant and product selections, we also prioritized the exposure of late-night snack merchants at night to enhance their marketing efficiency and worked closely with the merchant to roll out a wider range of late-night snack menus. Moreover, we also adopted more innovative marketing solutions by working with several major online media platforms and utilizing new mediums such as live streaming during late-night hours.
As a result, the number of transactions for the late-night snack category also grew significantly in the third quarter. On the consumer side, we continued to improve our marketing efficiency by allocating more resources to repeat consumers, especially our membership subscribers, as well as improving our intelligent recommendation for consumers in different consumption scenarios based on their preferences. Our ability to attract and engage with high-potential consumers improved significantly during the quarter. The scale of our membership subscriber reached new highs, and our members contributed a larger proportion of orders to our total food delivery orders in the third quarter. Our number of monthly transacting users and repeat consumers' transaction frequency also grew to new record highs, driving the overall growth of our food delivery business.
Looking ahead, in light of our continuous efforts on both the demand and supply sides, we remain confident that we will be able to drive the food delivery industry's growth on a steady basis over the long term. In terms of our delivery network, the strong foundation of our on-demand delivery infrastructure enabled us to ensure the timeliness and quality of our delivery services throughout the busy summer seasons, as well as under more extreme weather conditions. More importantly, the safety and social well-being of our delivery riders remained of paramount importance to us, and we continued to work toward a better understanding of our riders' needs in the context of business growth. During the third quarter, we further upgraded our delivery dispatching system to provide our delivery riders with higher flexibility in terms of delivery time and task designation during unexpected situations such as bad weather and heavy traffic.
Furthermore, in order to develop algorithms and technologies capable of ensuring delivery rider safety, we also strengthened our R&D capability and plan to commit more resources on this front going forward. Additionally, by taking safety indicators and other comprehensive factors into account, we improved our rider assessment model, which has enabled our riders to obtain reasonable compensation while also ensuring their safety. Alongside these efforts, at this year's 717 Riders Festival, as Qi Yi Qi Qishou Jie , we expanded the scope of our Baby Kangaroo Charity Program, Daishu Baobei Gongyi Jihua, from healthcare to education support for our delivery riders' children. Going forward, we plan to continuously optimize our delivery network operations and improve our delivery riders' management to ensure their well-being.
We will continue to build our on-demand delivery network as a critical bedrock for the next generation infrastructure for our society, and we'll expand our delivery services from food to a wider range of goods to create more convenience for Chinese consumers. Next, turning to our in-store hotel and travel segment, during the quarter, segment revenues grew by close to 5% year over year, with both the number of transactions and GTV experiencing positive year-over-year growth. On the supply side, for in-store dining, synergies between our food delivery and in-store dining business grew during the quarter as we converted more food delivery merchants into in-store dining merchants. At the same time, we also continued to stratify our merchant base while expanding our coverage of high-quality merchants. On the demand side, we rolled out various promotional events to accelerate the recovery of industry growth.
As such, in August, our in-store dining business experienced breakthrough growth in terms of GTV, number of transactions and revenue, as well as the number of transacting users. For other local services, we launched a Season of Play, Wan Le Ji, and other marketing initiatives to accelerate our industry's revival and capitalize on peak user engagement during the summer holiday. Although social gathering activities such as karaoke and fitness had not yet fully recovered due to the continuous hygiene concerns, non-social events in categories such as beauty, parents and kids, and auto services all achieved positive year-over-year growth in the third quarter. Notably, the growth of a few categories that focus on consumption upgrades further accelerated in Q3. For example, the user scale of medical aesthetics ramped up significantly, with sales increasing by more than 80% year over year.
Sales for the pet care category also increased by more than 40% year over year. Meanwhile, certain service categories targeting niche demographics also experienced rapid growth, including the paid study rooms, interactive experiences, escape rooms, and more. Going forward, we plan to expand the variety of our services, diversify our merchant supplies, and provide consumers with a wider range of choices that better meet their new and emerging demands. In our hotel business, as a result of China's effective control measures and stronger traveling demands during the summer, both cross-city and business travel recovered well in comparison to previous quarters, while the growth of total domestic room nights consumed on our platform also turned positive on a year-over-year basis.
On the demand side, we saw that consumers' desire for leisure travel had mostly recovered, while consumers' preferred travel destinations shifted from overseas to domestic in the summer, which allowed us to leverage our competitive advantage in the domestic market. On the supply side, as we continued to increase our cooperation with the high-star hotels, the number of high-star hotels that we worked with increased by nearly 25% quarter over quarter. Our Hotel + X program also continued to expand as we utilized our differentiated value proposition to cover more hotel groups in that period. In addition, we increased our investments in customer service for consumers seeking low to high-star hotels by also setting up a special dedicated service team for consumers seeking high-star hotels, enabling us to better cater to each group's specific needs and improve our ability to serve a broader group of consumers.
Now, moving on to the new initiative segment. In the third quarter, we continued to ramp up our investments in new initiatives, especially in those areas that we believe to have promising long-term potential and fit well into our Food + platform strategy. As a result, revenues from our new initiative segment increased during the period, growing by 44% year over year and 46% quarter over quarter. Out of all of our new initiatives, we consider grocery retail to be our top priority. Meituan is an e-commerce platform focusing on food category. Grocery retail is an enormous market opportunity and can help us penetrate into the home cooking food consumption scenario, which is a natural and essential extension of our existing business. Currently, we are exploring grocery retail through three business models.
During the quarter, as a result of steady user traffic growth, strong momentum in key SKU categories, and improved marketing efficiency, Meituan InstaShopping, our marketplace model, achieved solid results, with its daily number of transactions increasing by more than 80% year over year. As a part of our aspiration to deliver everything to consumers' homes, we successfully expanded our category coverage while also growing our GTVs in key categories such as flowers and medicine, with medicine sales ramping up more than 230% year over year and flower sales increasing by more than 160% year over year during the quarter. In particular, we observed a structural change in the medicine vertical, where consumers increasingly preferred using online medical solutions and medicine delivery services in the post-COVID-19 period.
As such, by utilizing our online platform and on-demand delivery network, we aimed to provide more convenient solutions to consumers and create value within the medical system for our society at large. As of the end of Q3, the number of pharmacies operating on the Meituan platform approached 100,000. Moreover, by leveraging our instant delivery infrastructure, we were able to deliver medicines in a timely manner to better satisfy the increasing diverse healthcare needs of Chinese consumers, and then Meituan Grocery, that's our self-operated model, Meituan Grocery also continued to expand in the quarter as we launched its initial operations in Guangzhou and increased its intensity across those Tier 1 cities in which we were already active. Furthermore, we continued to focus on cultivating user habits, which helped to boost our GTV growth.
The number of transactions on Meituan Grocery increased by close to 120% quarter over quarter, with its quarterly transacting user also doubling on a quarter over quarter basis, and then there's Meituan Select, Meituan Youxuan. We successfully launched the community group purchase model in Q3 and remained focused on iterating its business operations and building key capabilities. To ensure the punctuality of our orders and higher consumer satisfaction, we explored different methods of improving our warehouse efficiency, logistics infrastructure, and group leaders' management capabilities, while also accumulating experiences with a wider variety of SKU products. At the same time, we leveraged our existing supply chain resources and offline business development capabilities to further accelerate our pace of expansion, improve our operating efficiency, and enhance our SKU management.
As a result, we were able to promote our unique brand awareness with both consumers and group leaders as we ramp up our operations. We will continue to focus on enhancing our key competencies while expanding our business scale. We will invest to build our long-term foundation to cooperate with a diverse group of local business partners across different functions on this exciting journey ahead. We will continue to make this business stay open and inclusive and very much see this business as a win-win situation for our ecosystem partners. We aim to help the industry impact on our path of accelerating online penetration and thus improve the efficiency of all participants in this ecosystem, and we aspire to create more unique values, not just for our consumers, but also for our business partners, who we will enable to grow alongside this unprecedented growth opportunity.
Overall, with COVID-19 well controlled and the economy firmly back on track in China, growth across all of our main businesses accelerated in the quarter on a sequential basis, while the daily number of transactions reached new highs during the summer period. Furthermore, we have also identified new business opportunities with a strong potential in the post-pandemic period, and we will commit to develop these new businesses, especially for grocery retail. Over the long term, we believe that our main business has plenty of room for continuous and sustainable growth, while our new initiatives also have the potential to further expand our user base, enhance user engagement, and provide consumers with increasingly convenient, holistic, and high-quality local services. We will remain focused on our consumer and merchants, stay patient for long-term growth, embrace changes, see ahead in digital transformations, and continue to expand our core capabilities going forward.
Most importantly, we will have corporate social responsibility at the heart of everything we do in order to optimize our delivery network, create millions of job opportunities, and further build out the next-generation infrastructure for society at large. We will also continue to assist millions of small local merchants that improve their marketing efficiency by promoting the digitization of the local services industry. We are delighted to see that during the COVID-19, our delivery network products and offerings have helped millions of Chinese people obtain their daily necessities and have enabled millions of merchants to resume their operations. Going forward, we will continue to focus on leveraging technology to create more value for our consumers, merchants, and many other stakeholders, always fulfilling our mission to help people eat better and live better. With that, let me now turn over to Shaohui to discuss our financial results.
Thank you, Xing. Hello, everyone. I will now go through our third-quarter financial results. In the third quarter, total revenue increased by 28.8% year over year to CNY 35.4 billion, primarily driven by the solid revenue growth of our food delivery business, steady recovery of our in-store hotel and travel business, and robust revenue growth of our new initiatives. Meanwhile, total revenue increased by 43.2% quarter over quarter as we continue to recover from COVID-19, enjoying the benefits of positive seasonality and expanding into other new initiatives at a rapid pace. Cost of revenue increased to CNY 24.6 billion in the quarter, which represented an increase of 37.3% year over year and an increase of 22.2% quarter over quarter. Cost of revenue, as a percentage of total revenue, was 69.4% in this quarter, increasing from 65.1% in the previous year period and then 65.3% in the second quarter.
The year-over-year increase of 4.3 percentage points was mainly due to the increase in delivery rider costs resulting from the government's temporary VAT exemption policies granted to our delivery partners. The quarter-over-quarter increase of 4.1 percentage points was primarily attributable to the lower gross margin of our food delivery business, driven by the seasonal and temporary incentives paid to our delivery riders in this period. Selling and marketing expenses increased to CNY 5.8 billion in this quarter from CNY 5.6 billion in the same period of 2019 and CNY 4.2 billion in the last quarter. This significant increase on a sequential basis was primarily attributable to the increased marketing spending for consumer campaigns as well as the expansion of new businesses.
Selling and marketing expenses as a percentage of total revenue were also kept under control, declining to 16.5% in this quarter, which represented a year-over-year decrease of 3.9 percentage points and a quarter-over-quarter decrease of 0.4 percentage points. Importantly, the year-over-year decline was mainly a result of our improved marketing efficiency. R&D expenses as a percentage of total revenue were 8.4%, increasing from 7.8% in the previous year period. This increase was mainly driven by the increase in our R&D headcount resulting from our expansion of new business as well as our higher share-based compensation. The quarter-over-quarter decrease of 1.2 percentage points was a result of our improved operating leverage. G&A expenses as a percentage of total revenue were 4% in this quarter, remaining flat on a year-over-year basis and decreasing by 0.7 percentage points on a quarter-over-quarter basis due to our improved operating leverage.
Operating profit was RMB 6.7 billion in this quarter, increasing from RMB 1.4 billion in the previous year period and RMB 2.2 billion in the second quarter. This significant increase was due to the RMB 5.8 billion in fair value gain and investment in retail entities, especially the one-off mark to market gain for the IPO of Li Auto. On a consolidated basis, both adjusted EBITDA and adjusted net profit experienced year-over-year growth, improving to RMB 2.7 billion and RMB 2.1 billion, respectively. However, both adjusted EBITDA margins and adjusted net profit margins decreased on a year-over-year basis to 7.6% and 5.8%, respectively. It was mainly attributable to the decrease in the operating margin of our new initiatives resulting from our business expansion efforts and partially offset by the increase to the margins of our core businesses.
On a sequential basis, the decrease of both adjusted EBITDA margin and adjusted net margin was mainly due to the decrease of our food delivery business operating margin. Now, moving to our segment reporting for the quarter, starting with food delivery. During the third quarter, although the number of active food delivery merchants near university campus had recovered and was, in fact, even higher at the end of September than its pre-pandemic level, the strict lockdown policy of many Chinese universities continued to negatively impact the recovery of our food delivery transaction volume for college students. Nevertheless, the growth in both our number of monthly transacting users and repeat user transaction frequency was further stimulated by favorable seasonality, our enhanced consumer marketing efficiency, effective food delivery membership program, and promotional events during this quarter.
Meanwhile, by strengthening our operating capabilities, we also continue to boost the variety and quality of our platform's food delivery supply, helping us to further expand our consumption scenarios for a larger pool of consumers. In line with these growth drivers, our food delivery business order volume has maintained a healthy growth momentum since July, with the daily average number of food delivery transactions increasing by 30.1% year over year to 34.9 million in this quarter. At the same time, the average order value was RMB 47.4, representing a year-over-year increase of 4.5% and a quarter-over-quarter decrease of 2.9%. The year-over-year increase was mainly due to the fact that lower ticket-sized campus orders had yet to fully recover, as well as a greater contribution from higher ticket-sized orders, which included orders from quality brand restaurants and the main snack category in particular.
The quarter-over-quarter decrease was mainly due to more small and medium-sized restaurants resuming their operations in this period. Food delivery GTV increased by 36% year over year to RMB 132.2 billion in this quarter. Notably, we have continued to see a growing wave this year from merchants to acquire traffic online, and our advertising merchant base increased by almost 50% year over year in this quarter. As such, our online marketing services maintained their rapid growth, increasing by 60.1% year over year. Meanwhile, our monetiization rate decreased by 0.3 percentage points year over year to 13.6% in this period, mainly due to our increased spending on marketing to accelerate our order volume growth. As a result, our food delivery revenue increased to RMB 20.7 billion in the third quarter, representing an increase of 32.8% year over year.
On the cost side, the impact of VAT exemption policies granted to our delivery partners continued to weigh on our delivery costs per order, especially offsetting the contributions from our enhanced delivery network efficiency and refined delivery network operations. As a result, our delivery costs per order increased on a year-over-year basis as well as on a sequential basis, the latter of which was due to the fact of seasonality and temporary incentives paid to delivery riders. Meanwhile, as a result of the lower average order value, increased marketing spending, lower contributions from online marketing revenue, and higher delivery rider costs as compared to the second quarter of 2020, our food delivery business operating profits and operating margins declined on a sequential basis to CNY 768.5 million and 3.7%, respectively.
Similarly, on a year-over-year basis, our food delivery business operating profit and operating margin increased by 132.2% and 1.6 percentage points, respectively, mainly due to our improved marketing efficiency and higher contributions from online marketing revenue, both of which were partially offset by the increase in delivery rider costs. Now, moving on to our second segment, in-store hotel and travel, in which our year-over-year revenue growth rate turned to positive 4.8% in this quarter. Benefiting from the effective containment of COVID-19 and favorable seasonality, local services in China experienced a strong recovery in this period, and our in-store business continued to gradually ramp back up.
During this quarter, for example, our in-store business transaction volume and GTV achieved positive year-over-year growth thanks to our continued efforts to expand our services variety, diversify merchant supply, as well as launch various festivals and promotional campaigns, which helped merchants to both increase their exposure and better incentive consumer spending. As a result, the year-over-year growth of our in-store segment commissioned revenue turned positive in this quarter. Moreover, in regards to the recovery of advertising demand, we continue to see that merchants prefer spending their advertising budgets on products that yield higher user transaction conversions with more certainty. In support of this observation, subscription-based advertising maintained its healthy growth momentum. CPC advertising revenue experienced positive year-over-year growth, and our CPC merchant adoption rate continued to ramp up during this quarter. The regular resumption in marketing demand from local merchants helped the segment advertising revenue to achieve 10.4% year-over-year growth.
With respect to our hotel business, both our hotel booking business and the broader industry's recovery continue to experience ongoing improvements in this quarter as the year-over-year growth rate of domestic nights consumed on our platform turns to positive 3.7%. More specifically, local accommodations and intercity travel maintained their healthy growth momentum, while the year-over-year decline in cross-city travel narrowed substantially from the previous quarter, the latter of which was due to China's effective control of COVID-19 and the uptick in hotel booking demand during both the summer period and the period leading up to China's National Day holiday. Finally, contributions from high-star hotels also continued to increase on a year-over-year basis, driven by our efforts to further strengthen our collaboration with hotels in this segment.
Operating profit for our In-store, hotel and travel business was RMB 2.8 billion in quarter, representing an increase of 19.5% year over year and 47.4% quarter of quarter. Meanwhile, our operating margin improved to 43%, representing an increase of 5.3 percentage points year over year and 1.4 percentage points quarter of quarter. The year-over-year improvement was primarily attributable to our increased marketing efficiency and higher contribution from online marketing revenue, while the quarter-over-quarter improvement was mainly due to our improved operating leverage. Let's now turn to our third segment, new initiatives and others. During this period, revenue in this segment increased to RMB 8.2 billion, representing an increase of 43.5% year over year and 46.1% quarter of quarter.
Such growth was mainly due to the increase in revenue from our B2B food distribution services, grocery retail services, and bike-sharing services, as each business continued to recover from the outbreak of COVID-19 and also we further accelerated our business expansion efforts. Operating loss for our new initiatives and other segments was negative CNY 2 billion in this quarter, representing an extension of 39% from negative CNY 1.5 billion in the previous quarter. The loss extension was mainly due to our increased business expansion efforts and the resulting uptick in operating loss from grocery retail services. Meanwhile, on a sequential basis, operating margin improved by 1.2 percentage points to negative 24.7% in this quarter. This sequential margin improvement was mainly due to the improved operating leverage of some new initiatives, partially offset by the decrease in the margin of our grocery retail services.
During this quarter, segment reporting loss expanded by 68.8% year over year. At the same time, operating margin decreased by 3.7 percentage points year over year, mainly due to the change in our revenue mix and the decreases in operating margin for both Meituan Instashopping and Meituan Select, which effectively offset the margin improvements of our RMS services, B2B food distribution services, and bike-sharing services. More notably, on both a year-over-year and a quarter-over-quarter basis, our bike-sharing services operating loss narrowed sharply, while the operating margin improved substantially. Bike-sharing services accounted for the majority of our CapEx during this quarter. We believe that our continuous investment in bike-sharing services has the potential to further promote our total user frequency, increasing our total user engagement and creating more cross-selling opportunities.
Going forward, we will launch more e-bikes, a category in which we have observed better unit economics and turnover rates than that of traditional bikes. Now, moving on to our cash position, operating cash flow decreased to RMB 3.3 billion in this quarter from RMB 5.6 billion in the second quarter of 2020. This decrease was mainly due to the RMB 2 billion increase from working capital change. As of September 30, 2020, our cash and cash equivalents and short-term investments totaled RMB 53.4 billion, decreasing from RMB 58.5 billion as of June 30, 2020. In summary, benefiting from the healthy revitalization of the broader economy in China and our improved operating efficiency, we achieved a robust operating result during the third quarter.
Specifically, we continue to showcase our value in improving the convenience of online consumption for consumers and enabling merchants to accelerate their digitization to resume their business growth. We feel more confident about the long-term growth potential of our core business. More importantly, we continue to see promising opportunities in the digitization of food-related consumption across a broader range of lower-tier cities in the post-COVID-19 period, especially in the grocery retail area. Similarly to our food delivery business, early and heavy investment in this vertical will be essential to our long-term success. In fact, over the next few years, we believe that our growth grocery retail business will be one of our most important areas for future investment. From a broader perspective, we will continue allocating our resources towards those areas capable of widening our economic moat and bolstering our competitive advantage.
As always, we will continue to follow our philosophy to prioritize long-term rewards over short-term profitability, which we think will eventually maximize long-term value for our shareholders. With that, we are open for your questions.
Operator, we can open for Q&A.
Certainly. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad with your name to be announced. The first question comes from the line of Ronald Keung. Please go ahead.
Thank you. Thank you, Xing Wang, Shaohui, Scarlett, and team. My question this quarter will be on your new initiatives given your key focus on groceries. We can see that Meituan increased focus on Meituan Select and competed in this segment very actively, as we could see. So could management just give us some updates on the progress, what Meituan Select has achieved, say, in the past few months, and what do you think are the competitive advantages compared with other players in this business and your expected level of investment? Thank you.
Thank you, Ronald. Actually, Meituan Select is something very new. We officially launched the Meituan Select in the beginning of July. That's a new product in this quarter. It's kind of hard to believe, only a little more than one quarter. But we sent a lot of people into this market. In the past quarter, we have actively expanded the Meituan Select business. We have witnessed very rapid growth in both the number of orders acquired by users. In the past few months, we focused more on establishing our core competence.
So because this is something new to us, we are trying to figure out how to make it work. So we are not the first mover in this market. Actually, I would say we are one of the latest movers. I think this is something we definitely want to do because of our mission. And the mission of Meituan is to help people eat better and live better. So there are several ways for people to eat better. You can either go out to a restaurant to eat, or you can order food online, and we will deliver it to you. But there are still a lot of people who want to buy groceries and cook for themselves for whatever reasons. So actually, the majority of all people still buy groceries and cook for themselves.
That's a huge market, and we want to find a way to help them. In the past three years, we have tried several models. Finally, we see Meituan Select seems to be a very efficient model to penetrate the bigger market, especially for lower-tier cities. We have been doing this for, well, less than five months. A lot has happened in the past five months. Now we don't know who will be the final winner, but we just want to iterate as fast as possible. In the past few months, we made a lot of investment in warehouses, and we continue to improve our logistics capabilities to make sure we can deliver the products on time. That's not easy, especially when you are growing super fast.
We are fine-tuning our approach to new city launches and further iterate the compensation incentive plan for all the group leaders. Meituan Select continued the growth momentum in October and November, and we expect to expand to more than 1,000 cities and counties before the end of this year. That's very fast. Meituan Select is the top priority for our businesses. Geographic coverage is the top priority for Meituan Select. Overall, well, I don't want to pretend that I have all the answers. I know you have a lot of questions, and I also have a lot of questions. All that I can say is that we will move fast. We will try to learn as fast as possible and iterate and build a team that can learn and iterate.
So I think ultimately, that's a competition about how well you can organize your talent, your people, and how well you can identify the needs of the customer, the market, and how well you can organize all the existing resources to make sure there's going to be a win-win situation in the end. So of course, we have several advantages. For example, we know how to do offline business development. We know how to manage a big local sales force. And that way, we can quickly onboard and work closely with our community group leaders. And also, because in the past, we have been running some related business, such as our Meituan Grocery, the Meituan InstaMart. And another example is our B2B food distribution service that's quite mature. So we have some existing knowledge and know-how about the supply chain.
We could leverage our existing resources to have quicker access to suitable products and logistics in some areas. And also, as a technology platform, we have a good R&D capability to develop the relevant system and online products for optimized user experience. And also, specifically, over the years, we have built out quite good capability for developing and operating a nationwide AI-based dispatching system. I would say in this aspect, we are second to none globally. And the experience in forging innovative logistics infrastructure technology will be a very exciting challenge we would like to take on. And I think that will give us an advantage in critical features of this business. And also, overall, our experience and know-how in the O2O area can also help us continue to iterate and improve offline operations and efficiency.
So looking ahead, we will continue to prioritize our resources and invest very actively in Meituan Select. And we will need to make investments in supply chain and fulfillment infrastructure and provide incentives to cultivate consumer habits and expand our group leader basis. So all this investment will lead to significant expansion of operating loss of our new initiative segment for the next few quarters. But we would like to evaluate our investment from a very long-term perspective in terms of the long-term ROI and strategic value. So we believe our investment will be successful in the end and will bring us long-term rewards and create a lot of values for the society at large. But it's not going to be a quick win. So yeah, we are going to be focused on this.
I think we are going to learn more and I can answer more questions, hopefully, in a few quarters. Thank you.
Thank you, Xing. That's very clear. Thank you.
Thank you. We have a next question from the line of Eddie Leung. Please go ahead.
Hey, good evening, guys. Also, a follow-up question on your grocery business. So we have seen multiple models under Meituan. And some of your peers are also doing multiple models, right? So just wondering if Xing can talk about what could be the long-term vision for the industry. Do you see the existence of multiple business models? For example, for Meituan, do you see someday in the same city, you will have multiple business models, or you keep your different business models for different geographical locations, as an example? So this is my first question.
And then just a quick question on Meituan Select. Wondering if, Shaohui, you can help us to understand on the accounting side, how you guys account for Meituan Select? For example, would you book so-called gross revenue or net revenue? How do you account for the compensation for the group leaders, etc.? Thank you.
Okay. So thank you, Eddie. So it seems everybody is very interested in online groceries. So that's no surprise because we are also interested in this. That's why we have been trying for several years, and we have been trying several models. So okay, although we think the community group purchase, the Shequ Tuangou , has a big potential to widely penetrate into this market, we also believe an online grocery market is unlikely to be dominated by only one single business model.
It's large enough and diverse enough for multiple players and businesses to co-exist. We have identified and will continuously iterate our three grocery models with different SKU pools and different discussion scenarios. The first one is Meituan Select. Meituan Select will mainly focus on lower-tier cities where consumers focus more on price. They are more price-sensitive. This model is able to provide a next-day delivery for less developed areas. Our current physical goods e-commerce players currently cannot deliver next-day. Therefore, we can leverage this model to rapidly penetrate into lower-tier cities, not just lower-tier cities, but also very deep into counties and towns in some cases. Also in this model, we only offer selected, limited SKUs at attractive prices to provide extreme value for money goods for consumers. It's going to be a very sharp business model.
The second is Meituan Insta-Shopping, Meituan Shangou. That's our marketplace model. We believe it has both the potential in higher-tier cities and lower-tier cities. It is well-positioned to cover a wide range of categories. We could also leverage and buy the largest food delivery network for on-demand grocery orders in a timely manner. Using traffic growth of Meituan Insta-Shopping, the traffic of Meituan Insta-Shopping was steady in Q3 on the back of improved marketing efficiency and with very strong momentum in certain SKU categories such as medicine and flowers. Daily number of transactions increased by more than 80% year over year. The third, we also have a self-operated model that's Meituan Grocery or Meituan Maicai at Qianzhicang.
With this model, we could better control the supply chain and also provide an on-demand delivery around 30 minutes. Very convenient. That way, we can guarantee a consistent user experience on quality and convenience. So I'm a user of Meituan Waimai. Actually, I don't use Meituan Waimai to buy grocery. I use Meituan Waimai to buy fruits and some snacks when we will have a very long meeting. So the user experience is very good. But with this model, the unit economics is a challenge. Anyway, we believe this model has better potential in higher-tier cities as it incurs high upfront costs for warehouses and labors. So that way, it needs higher AOV and gross margin to break even.
This quarter, we further enhanced our front distribution warehouse density with over 100 new ones opened in Q3 and made further operational improvements, including further expanding our SKU selection to potentially improve average order value and increasing our investment in the supply chain and SKU management and digitization infrastructure. It's not easy. It's a very demanding job. Overall, we will deepen our operations on all three business models and the online grocery. At the current stage, we will allocate more resources in Meituan Select given this model has great potential to rapidly penetrate into a wider range of lower-tier cities or even less developed regions and can help us gain access to a wider base of new consumers. It's very clear Meituan Select is the key. That's my answer.
Hi, Eddie. On your question on the revenue booking, for now, we booked the Meituan Select commission as the revenue, not the total GMV. This was confirmed with our auditors, but you should know that this model is still very early, and the whole industry is still evolving, so we will continue to monitor this and in close discussion with our auditors. If we have any new change, we will update you accordingly.
Thank you. We have our next question from the line of Thomas Chong. Please go ahead.
Hi. Good evening. Thanks, Management, for taking my questions. I noticed that our monthly transacting users reached record high this quarter. Despite the food delivery business, we still recovering in July in Q3. The overall number of orders achieved over 30% year-on-year growth. What should we expect the order growth going forward and for next year? And my second question is, what's your goal on transacting users and transaction frequency in the long term? And what strategies do we have to achieve that? Thank you.
Thank you. In Q3, food delivery business gradually recovered in July and fully recovered in August. And daily number of food delivery transactions and also monthly transacting users, as well as transaction frequency of repeat users, all reached historical highs in Q3. And our food delivery business remained the lowest post-COVID-19. And we are very positive about the industry long-term growth. Now, online food delivery platforms only penetrate about less than 2.5% of the urban meal consumption in China. And we think there's a significant upside to come in the future, which will continuously drive order volume growth.
Moreover, the pandemic has brought a positive structural change to the food delivery industry and may accelerate the behavior shifts on both consumers and supply side. We expect the MTU of our food delivery business has the potential to increase to 300 million in the long run while transacting frequency keeps steady growth at the same time. In general, the longer consumers stay on our platform, the more frequently he or she transacts. Meanwhile, supply-side operation and structural change are key to further uplift the frequency of mature cohorts. We will continue to diversify the selection on our platform and expand the available hours and delivery distance of our supply. We will continue to provide a wider range of solutions and work closely with restaurants to help them digitize their operations. We will also make further investments for the exploration of new supply and diversify delivery models.
We will continue to upgrade our product offerings and fine-tune intelligent recommendations for our consumers. And our membership program also further demonstrates its effectiveness in increasing the purchase frequency of high-potential consumers in Q3. And we will continue to allocate sufficient resources with continuous innovation. Also, we will further acquire new transacting users onto our platform as we continue to penetrate into lower-tier cities and older populations with more service categories and consumption scenarios. And we will dedicate ourselves to continuing to upgrade our delivery network infrastructure, the digitization of the whole restaurant industry, and focusing on identifying and catering to the evolving demands of our consumers. We remain very confident on the long-term growth potential for our food delivery business. And I think we are on track to achieve our long-term goal of delivery orders. Thank you.
Thank you.
Thank you. We have the next question from the line of Jerry Liu. Please go ahead.
Yeah. I wanted to touch on the in-store business, specifically on travel. We also saw a recovery in travel in hotels in the third quarter. So I'm just wondering, what kind of competition environment is Meituan seeing? Is it intensifying, especially in the low-star hotels, as we see a recovery? And also in high-star hotels, I noted the comments earlier in the press release about some of the new developments here. So just wanted to get maybe a little bit more color on your strategy. What are some of your updated development plans post-COVID? Thank you.
Yeah. Thank you. So we continue to solidify our leading position in the lower-tier city and low-star hotel segment in this quarter.
During the recovery from COVID-19 in China, recovered demands for hotels have been entirely shifted inward domestically, which further benefits us. So we think the overall competitive environment actually is beneficial to us. Hotel booking recovery continues to be faster in lower-tier cities. Local accommodation, in which we have structural advantages, continues to outperform and remain robust year-over-year growth. In Q3, we have become the world's largest online platform for hotel booking in terms of room nights. In the mid to long term, we think hotel booking business in lower-tier cities still has good potential for substantial growth and more scalable monetization, especially in many rapidly developing regions where consumption power and need for travel is going to be rising over the long run. Online penetration among low-star independent hotels is still less than 25% in China.
There is still a lot for us to do to digitize the industry in this market and increase the penetration. We will continue to focus in these lower-star markets and to create more value for consumers and merchants. For high-star markets, we also see the recovery on five-star and four-star hotels were also strong during the summer. And we are also allocating more resources into capturing the growth of high-star hotels in Q3. We provide better value-for-money products for consumers and integrate these services into hotel merchants. In Q3, more high-star hotels were willing to work with us to get access to a wider younger generation consumer base because we have a much broader consumer base and a broader coverage and also a much higher frequency interface with local consumers. We believe we provide a very new and strong growth driver for these high-star hotels.
With a dedicated service team set up, the quality of our customer service capability for high-star hotels is also improving over the past quarter. We continue to improve the quantity and quality of our high-star hotel supply. And we will also continue to upgrade our consumer service capability to improve user experience. And we are very confident that we will continue to penetrate into the high-star hotel and high-star hotel consumers to strengthen our overall leadership in the hotel and travel space. Thank you.
Thank you.
Thank you. We have the next question from the line of Kenneth Fong. Please go ahead.
Hi. Good evening. Thank you, Management, for taking my question and congrats on the very strong set of results. I have one quick question, please. Do you have any initial comment on the draft antitrust rules that were released recently? And how do you expect this to impact your overall business? Thank you.
Oh, thank you, Kenny. So we have reviewed the recently released consultation papers and are very closely monitoring the situation. It's an important guideline, not just for us, but for the whole internet industry. As internet platforms become bigger and more important to the economy, regulation frameworks will also evolve. We have observed that this is a natural outcome globally. And we think that the new antitrust consultation paper is supportive of the healthy development of internet and the whole technology industry in the long term and aim to prevent misconducts. It helps to promote fair competition within the industry, reinforce regulation, further promote industry innovation, and ensure balance of interest is achieved for all stakeholders. Continuous encouragement of innovation from the government has benefited our business growth in the last decades.
We are still confident and optimistic for the vitality of the internet industry in China and the revolution of regulatory policies, so staying open and achieving win-win will continue to be an essential principle of our platform and business. We are currently in constructive dialogues with the regulatory authority to better understand the spirit of the consultation paper. We will further accelerate our product's innovation, improve the openings of our platform, fine-tune our business operations, and aim to actively follow regulatory guidance and continue to comply with regulatory requirements. That's all. Thank you.
Very clear. Thank you, Xing Wang, and congrats again.
Thank you. We have the next question from the line of Alex Yao. Please go ahead.
Thank you, Management, for taking my question. For your in-store business, it looks like certain categories outperformed the industry peers during the recovery period from the COVID impact. Could you talk us through the growth outlook for different service categories in the coming quarters? And then secondly, from a segment margin perspective, I noticed your operating margin for the in-store business was a record high this quarter. How should we think about the margin outlook for this segment going into the next couple of quarters? Thank you.
Thank you, Alex, for your question. So on the first part of the question about the growth and recovery for in-store, so we are very happy to see the overall recovery of the in-store business in Q3. The accelerating growth was especially notable in certain categories such as medical, aesthetic, healthcare, pet caring, auto services, and household-related services, which reflect the consumption upgrade trend in China. It's encouraging to see the healthy resumption of people's usual lifestyles and the strong demand during the summer season.
Not only was this reflected on strong transaction volume growth across both dining and other in-store services, but also merchants are willing to allocate more budgets into advertising on our platform. In order to drive substantial growth of our in-store business going forward, we will continue to onboard quality merchants and strategize different types of merchants, innovate our product, and event operations to improve the marketing efficiency of different merchants in different service categories. We expect the consumer demand for in-store services will continue to grow. So identifying and essentially pairing to their emerging needs for different service types is very important to us. We think this is reflecting the overall trend of digitization of people's lives, especially urban people's lives in China. And we, as a platform for local services, will continue to benefit from this. And we will continue to invest for our infrastructure to drive the growth.
On the second part of the question on operating margin, yeah, it's good you noticed that we have a record high margin. For the second segment, the margin increased on a year-over-year basis on the back of effective marketing budget control and higher advertising revenue contribution, and the increase of OPM on quarter-over-quarter basis is mainly due to the increased operating leverage, given GTV and commission revenue resumed healthy growth since Q3, while advertising revenue remained good growth momentum, but at the same time, I want to mention that this in-store business is a very good business model. We like it, and we are very confident for the growth, but the margin improvement is not our priority for now. We consider this quarter is more a natural result when more merchants appreciate the value of our product rather than a proactive strategic move by the company.
We continue to focus on developing the business, increasing developing more transaction-based products and also advertising solutions suitable for different merchants. We will also penetrate into more lower-tier cities and expand our service categories, which we expect will incur more sales and marketing expenses in the near term. But those investments are necessary, and I think will be valuable to us and to the industry in the long run. Overall, we expect these in-store services will maintain healthy margins, and we'll continue to generate healthy cash flow for our platform. Thank you.
Thank you. We have the last question from the line of Binnie Wong. Please go ahead.
Hey, Xing Wang, Shaohui Chen, Scarlett, and team. Congrats on another strong quarter. And thank you for taking my question. Last quarter, you mentioned about the bike sharing, especially in e-bike. It's also an important new initiative that you focus on this and the coming year. Given the potential large or huge CapEx, can you comment on your investment plan and economics for this e-bike sharing business? And will you increase the CapEx as well? And then, I guess, overall, if you look at the synergies, as Meituan is tapping into every aspect of life, how do you see the cross-selling ratio across your multiple categories? Or how do you measure this internally? Thank you.
Yeah. Thank you, Binnie, for the question. We invested over RMB 4 billion CapEx in total in Q3. For bike sharing business, we continue to realize and explore its strategic values on our platform and have made good progress in this quarter. The turnover rate of the traditional bikes increased by more than 30% in Q3 on a quarter-over-quarter basis.
Bike-sharing business continues to supplement well to the short-distance commuting needs for more and more consumers in more and more cities and help us to acquire new users at low cost and create more cross-selling opportunities, as you mentioned. For e-bikes, we have observed that they have better user experience, and many consumers are willing to pay premiums to use e-bikes. With longer traveling distances under the same timeframe, we further enlarged the TAM or bike-sharing to replace the demand for some traditional local transportation like bus and taxi. E-bikes also have better unit economics than traditional bikes, with higher turnover rate and higher price per ride. Standalone profitability could be achieved as we further increase the scale of this service in the medium to long term.
In the future, we will allocate more resources to e-bikes than traditional bikes, and we will plan to launch more e-bikes in more cities next year. We have a very cautious assessment, and we believe that the CapEx of e-bikes could be fully covered by the cash flow generated in its lifespan and e-bike business has strategic value in addition to its positive financial returns. Meanwhile, our goal is not just about expansion of this business, but also to continue the operating efficiency improvement and the user experience improvement. We think this continued introduction of new service categories on our platform not only expands our service offerings, but also strengthens our brand awareness and our brand mind shares for consumers when they are in search of different local services. The cross-selling takes time to realize. It takes time for consumers to use more categories.
But our cohort has shown very healthy and strong results that the longer the consumers stay with us, the more they will purchase. And the more categories they purchase on us, the more sticky and higher lifetime value they will bring to our platform. So we will continue to stick to the Food-plus platform strategy. And we are confident that we are also able to continue to improve the operating leverage of the new service introduced to our platform. Thank you.
Thank you. Thank you, Shaohui Chen. That's very clear. Thank you.
Thank you. I would now like to hand the call back to Scarlett Xu for any closing remarks.
Okay. Thank you, everyone, for joining our call. We look forward to speaking with you next quarter. Thank you.
Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect now. Thank you.