Ladies and gentlemen, thank you for standing by and welcome to the Meituan Dianping Second Quarter 2020 earnings conference call. At this time, all participants are in listen-only mode, and after the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star and the number 1 on your telephone keypads. And please be advised that this call is being recorded today. I would now like to hand the conference over to our first speaker for today, Ms. Scarlett Xu. Thank you. Please go ahead, ma'am.
Thank you, Operator. Good evening and good morning, everyone. Welcome to our Second 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 Dianping. For today's call, Management will first provide a review of our second quarter 2020 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 numbers 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 Dianping's Second Quarter 2020 Earnings Call. Although we continue to see impacts from the outbreak of COVID-19 in the second quarter, our business demonstrated resilience and recovered at a good pace, with total revenue increasing by 8.9% year- over- year and 47.6% quarter- over- quarter to RMB 24.7 billion in the second quarter of 2020. Adjusted EBITDA increased by 12% year- over- year to RMB 2.6 billion, and adjusted profit improved to RMB 2.7 billion, increasing by 82% year- over- year. Our operating cash flow also turned to positive RMB 5.6 billion from the previous quarter, and annual transaction users on our platform increased to 457.3 million, up by 8.2% year- over- year, while annual active merchants increased to 6.3 million, up by 6.7% year- over- year.
As the leading e-commerce platform for local services, social responsibility is at the heart of what we do. During the quarter, we helped our merchants weather the storm, which created value for our vast community of consumers or merchants, and as a result, we stimulated the progressive recovery of the local service industry from the pandemic. At the same time, we further boosted the competitive advantage of our core businesses while enhancing our ecosystem during our business recovery process. In the second quarter, we utilized advanced digital operation tools to enable more merchants, enhanced our on-demand delivery infrastructure to better facilitate the digital lifestyles of consumers, and accelerated the online penetration and digitization of essential local services on both the demand side and the supply side. I will now provide an overview of our performance in each business segment for the second quarter of 2020.
Our CFO, Shaohui, will then talk about our second quarter financial performance in more detail. I'd like to first start with our food delivery business. During the second quarter, the gross transaction value of our food delivery business increased by 16.9% year- over- year to RMB 108.8 billion, while the daily average number of food delivery transactions increased by 6.9% year- over- year to 24.5 million. Despite the continuous impact of COVID-19, our transaction numbers returned to positive year-over-year growth in the second quarter, which yet again validated the critical need of both consumers and merchants for food delivery services, as well as the unique competitive advantage of our business model. In June, the new COVID-19 cases in Beijing led to a sharp drop in the number of transactions in Beijing, Tianjin, and Hebei Province.
Nevertheless, our immediate response to the situation showcased our increasing experience in managing the recurrence of COVID-19. To ensure the safety of our delivery riders and customers, for example, we immediately organized nucleic acid testing for all of our delivery riders in Beijing, expanded the use of intelligent lockers in the city, and further upgraded our contactless delivery process. For merchants, we also rolled out targeted support and commission rebate programs for our high-quality merchants in Beijing that were severely impacted by the new COVID-19 cases. We offered commission rebates between 3%-6% that could be used for online promotion and marketing on our platform. We also created a portal for merchants to upload their green COVID-19 testing results so as to provide consumers with extra food safety assurance.
Due to our immediate actions and thoughtful measures, the daily average number of food delivery transactions has recovered and stabilized by early July and has continued to maintain good growth momentum throughout the summer. The COVID-19 pandemic has brought us both new opportunities as well as new responsibilities as we plan for the future of the Meituan ecosystem. We will soon roll out a blueprint and developer program for more than one million merchants. In the next three years, we aim to assist this selected group of high-quality merchants in the holistic digital transformation of their business operations and to provide them with more incentives on the Meituan platform. We will equip these merchants with the ability to tackle the new challenges of online operations and ultimately help them achieve sustainable growth and innovative breakthroughs over the long term.
In the second quarter, we continued to roll out various promotional events to stimulate the recovery of our food delivery business. Most notably, we launched the June 18 Food Delivery Festival. Around 4,000 reputable restaurants and brands participated in the event to provide consumers with a wide variety of attractive promotions in the period. We were also spot on in identifying consumers' behavioral change and used targeted promotions to actively increase the consumption of afternoon tea and late-night snacks. During the quarter, for example, sales from drinks category grew by more than 50% year- over- year, while daily average orders for milk teas also achieved record highs of 2.4 million during the second quarter. We continued to ramp up the proportion of subsidy allocated to targeted repeat consumers through our effective membership program.
As a result, our number of monthly membership subscribers achieved a record high in the quarter, and we considerably improved the stickiness and transaction frequency of our membership subscribers. We believe that a highly efficient on-demand delivery network is essential to our businesses, especially in the context of the current environment. In addition, the functionality of a highly efficient on-demand delivery network also reflects the state of technology advancement of our society and of our lifestyle and well-being. I am delighted to say that our delivery capabilities and efficiencies continue to improve in the second quarter, and the importance of an on-demand delivery network as a critical component of society's broader logistics infrastructure was substantially elevated. Our delivery network helped to ensure continuity in people's daily lives during the pandemic and served as a stabilizing force for society by creating abundant employment opportunities.
By maintaining our commitment and continuing to invest over the years, Meituan has built up a top-notch delivery network that covers over 2,800 cities and manages more than one million daily active delivery riders as of early August. In the first half of 2020, Meituan employed close to three million delivery riders in aggregate. In fact, the government also coined the term "Couriers for Online Orders" as the term for the new profession that Meituan delivery riders represent. The government also included this term in the latest PRC Professional Classification System this year. Meituan delivery riders are an excellent representation of our fast-evolving society, which continues to be advanced by the integration of internet and services. Meanwhile, we are also actively exploring autonomous deliveries and other key areas of future mobility. As many of you know, long-term thinking is part of our business philosophy.
As such, we will continue to invest wisely in our on-demand delivery network to further improve its operating efficiency and enlarge its capacity while striving to serve the needs of our merchants and consumers in more service categories. We are confident that our delivery network and logistical infrastructure will become the bedrocks of our society and help to facilitate the change in lifestyle during the new year. Next, turning to our in-store hotel and travel segment. In the second quarter, revenues declined by 13.47% year- over- year, yet increased by 46.8% quarter- over- quarter on the back of COVID-19. Although this segment was more impacted by the outbreak of COVID-19, the recovery of transaction volumes and advertising revenue in the quarter was on the right track.
As a leading platform for in-store dining and other local services, we cooperated with local governments to launch a Safe Consumption Festival at Anxin Xiaofei Jie in more than 60 cities and issue vouchers to consumers during the quarter, helping to stimulate local service consumption and restore local economies in turn. These vouchers were mainly for in-store dining initially, but we have since expanded them to cover hotels, shopping, and other local services. For example, we proactively worked with the Wuhan government from April to July to distribute vouchers to Wuhan citizens to support the recovery of restaurants, catering, and travel industries. We also worked with Shanghai government and provided substantial promotion during the 5th of May Festival, that is, Wu Gou Jie, to collaborate with over 10,000 merchants across in-store dining, travel, hotels, culture, as well as entertainment and shopping centers.
These promotions were all highly effective as the sales of participating merchants enjoyed substantial growth on a sequential basis during the promotion period. The list of cities that currently collaborated with us on this initiative is growing, and investments into this initiative are also increasing. We also launched a series of promotional campaigns in the second quarter. These promotional campaigns included Labor Day promotions, Dragon Boat Festival promotions, and the June 18 marketing festivals, through which we provided high-quality one-stop service solutions for consumers at highly attractive pricing. These events covered all aspects of our in-store services and helped to accelerate our collaborations with popular merchants to further improve our merchant base and offer consumers a wider variety of choices in turn. In particular, online transaction volumes for medical, aesthetic, and beauty products during the June 18 marketing festival grew by more than 130% year- over- year.
During the festival, around 200,000 medical, aesthetic products were offered on our platform, and approximately 12 million consumers participated. We adopted innovative channels such as live streaming, video conference appointments, and other new online mediums to better facilitate consumption. We also introduced the novel medical aesthetic doctors service to provide consumers with a trusted medical advice in real time. We believe the trend of online penetration and digital transformation for medical, aesthetic, and other local services will continue, and we also plan to roll out these new forms of online consumer interaction to other service categories. The hotel business has yet to fully recover to its pre-pandemic levels. Total domestic room nights in the second quarter were 78 million, down by 17% year- over- year.
Nevertheless, we did not stop increasing our partnership with more hotels via our Safe Stay Program at Anxin Zhu to provide travelers with accommodation options more conducive to their desires and the quarantine environment. In light of the increasing demand for intercity and short-distance local travel, we launched the Safe Travel Program at Anxin Chuyou Jie to help expedite the recovery of the industry. Our competitive advantages in local and short-distance travels continued to expand during the promotional period. Notably, the pace of development for our high-star hotel partnership also picked up, and we significantly increased our relationship with these types of hotels in the second quarter by increasing their non-lodging revenues through our Hotel Plus X program.
As a result, the contribution percentage of high-star hotel room nights to total domestic room nights consumed on our platform was more than 15% in the second quarter, representing an increase of 3 percentage points year- over- year. Now, moving to our new initiatives. Recovery across different businesses continued to make good progress in the second quarter. As a result, revenue from our new initiatives segment increased during the period, growing by 22.1% year- over- year and 35.2% quarter- over- quarter. COVID-19 was the catalyst for several of our new initiatives, and we saw a noticeable shift in consumers' online shopping behavior during the pandemic. In addition, the online penetration of traditional offline service businesses also accelerated, and we ramped up the expansion of our businesses that were key beneficiaries of this structural change, such as grocery retail.
Our marketplace model, as Meituan Instashopping, achieved a stellar year-over-year revenue growth during the second quarter as we expanded our product variety and SKU categories to grow its merchant base materially. Our self-operated model, Meituan Grocery, as Meituan Maicai, not only materially expanded its coverage in key cities such as Beijing and Shenzhen, but also began operation in such new cities as Guangzhou in July. In addition, by further optimizing our SKU selection and streamlining our operations, our daily average number of orders per store and total daily average numbers of orders grew on a sequential basis. During the quarter, we also established a new business division for community group purchase service called Meituan Select, Meituan Youxuan, and rolled out this service brand accordingly in the city of Jinan in Shandong Province in July. Meituan Select specifically targets lower-tier cities via its pre-order and self-pickup model.
Meituan Select offers carefully selected fresh produce and daily necessities at attractive prices for local consumers living in different communities. We appoint group leaders in each community to promote our discounted grocery products via WeChat groups. Group members can place orders through our WeChat Mini Program and pick up their products at self-pickup points located in nearby convenience stores the next day. We expect to roll out its operation nationwide based on our ongoing assessment of the business progress. As a mass market and high-frequency essential consumption scenario, bike-sharing business is strategically important to Meituan in the long term. It also represents tremendous market opportunities and supplements well to our existing high-frequency businesses on the platform. For traditional bikes, we replaced around 1.5 million old bikes with new Meituan Bikes during the quarter. The average turnover rate per bike improved incrementally, and the business's unit economics also improved.
Additionally, we also launched more than 290,000 e-bikes. During the quarter, the average turnover rate per e-bike was much better than the traditional bikes. We believe e-bikes have a bigger total addressable market and better unit economics as compared to traditional bikes. Its performance in the second quarter has already demonstrated a clear path to profitability in the near term. We have decided to proactively step up CapEx for e-bikes going forward and aim to be a leading player in this field. The global COVID-19 situation continues to evolve with many uncertainties ahead, and global supply chain also faces ongoing disruptions, which inevitably put the Chinese economy in recovery under pressure. Considerable efforts and resources are still required to fully recover local consumption.
As a leading e-commerce platform for services, Meituan will continue to fulfill our social responsibility, especially in supporting merchants further recovery via operational digital transformation and sustainable growth, and in upgrading consumer experience with better products and restored confidence. We will help to further boost consumption growth and to recover local economies to the best of our ability despite the uncertainty and challenges in the next few quarters. We believe that our philosophy of focusing on the long-term growth and rewards will continue to yield positive results for all participants in the Meituan ecosystem. With that, let me now turn over to Shaohui to discuss our financial results for the quarter. Please.
Thank you, Xing. Hello, everyone. I will now go through our second quarter financial results.
In the second quarter, total revenue increased by 8.9% year-over-year to RMB 24.7 billion, primarily driven by the steady recovery of our core business and robust revenue growth of our new initiatives. It increased by 47.6% quarter- over- quarter on the back of gradual recovery from COVID-19 across different revenue streams sequentially. Core revenue increased to RMB 16.1 billion in the quarter, which represented an increase of 9.4% year-over-year and an increase of 39.7% quarter- over- quarter. Core revenue, as a percentage of total revenue, was 65% in the quarter, remaining flat on a year-over-year basis and decreased from 69% in the first quarter of 2020.
The quarter-over-quarter decrease of 3.7 percentage points was mainly due to the improved gross margin of our food delivery segment, the improved operating leverage of our in-store hotel and travel segments throughout the pandemic recovery period, and the change in revenue mix for our new initiatives. Selling and marketing expenses increased to RMB 4.2 billion in the quarter from RMB 4.1 billion in the same period of 2019 and RMB 3.2 billion in the last quarter. The significant increase on a sequential basis was primarily attributable to higher transacting user incentives for all major businesses and increased spending on promotion and advertising during the recovery period. Selling and marketing expenses as a percentage of revenue were kept under control in this quarter and dropped to 16.9%, representing a decrease of 1.4 percentage points from the same period of 2019 and a decrease of 2.2 percentage points from last quarter.
R&D expenses as a percentage of total revenue increased to 9.6% in the quarter from 9% in the previous year period, mainly driven by increases in headcount and share-based compensation. The decrease of 4.1 percentage points from last quarter was driven by our improved operating leverage. G&A expenses as a percentage of revenue were 4.7% in this quarter, remaining flat on a year-over-year basis and decreasing by 1.7 percentage points on a sequential basis as a result of our improved operating leverage. Operating profit turned to positive RMB 2.2 billion in this quarter, compared to an operating loss of RMB 1.7 billion in the last quarter. Meanwhile, operating profit increased by 95.5% year-over-year, while operating margin increased from 4.9% in the previous year period to 8.8% in this quarter.
On a consolidated basis, our projected EBITDA improved on both the year-over-year basis and the quarter-over-quarter basis, reaching RMB 2.6 billion in this quarter, while Adjusted EBITDA margin further increased to 10.6% in the quarter, from 10.3% in the previous year period and 0.2% in the last quarter. Adjusted net profit turned to positive RMB 2.7 billion in this quarter, compared to an adjusted net loss of RMB 216.3 million in the last quarter. At the same time, adjusted net margin further improved to 11% in this quarter, from 6.6% in the previous year period and negative 1.3% in the last quarter. Those sequential improvements to adjusted EBITDA and adjusted net profit were mainly due to our steady business recovery and improved operating margins across all business segments. Let's now take a look at our segment reporting, starting with our food delivery segment.
During the second quarter, the emergence of COVID-19 cases and the restrictive measures such as delayed temporary openings continued to negatively impact the recovery of our food business. However, the combination of our ROI-focused subsidy strategy, effective food delivery membership program, and the various promotion campaigns effectively stimulated the recovery of consumer spending during this quarter. We also continued to see more merchants shift online, which helped to provide consumers with a more diversified and high-quality supply. As a result, the order volume of our food delivery business delivered positive year-over-year growth in the second quarter, with the daily average number of food delivery transactions increasing by 6.9% year-over-year to 24.5 million. The average order value was RMB 48.8 in this quarter, representing a year-over-year increase of 9.4% and a quarter-over-quarter decrease of 6.1%.
Year-over-year increase was mainly due to the increased contribution from high-ticket size orders, and in particular, those orders from branded restaurants. The quarter-over-quarter decrease was mainly due to more small and medium-sized restaurants resuming their operation during this quarter. Food delivery GTV increased by 16.9% year-over-year to RMB 108.8 billion in the quarter. Meanwhile, the continuing recovery of merchant operations and consumer consumption led to a strong demand for marketing solutions from merchants during this quarter. The pandemic has accelerated the speed at which restaurants are digitalizing their operation process, and Meituan had to increase the mix of high-quality supply on our platform during the period. Notably, the number of newly onboarded branded merchants increased by more than 110% in the second quarter as compared to the previous year period.
As many restaurants realized the potential for synergies between food delivery and in-store dining to reach consumers and execute effective online marketing campaigns, more restaurants adopted our online marketing services, and many of them used the commission rebates that we offered to purchase our advertising products during the pandemic period. These factors helped to drive the rapid growth of our online marketing services during the period, which increased by 62.2% year-over-year and accounted for 12.3% for our total food delivery segment revenue in the period, as compared to 8.6% in the previous year period. Meanwhile, our monetization rate decreased by 0.4 percentage points to 13.4% in the period as a result of higher user subsidies and the higher portion of orders from branded restaurants on our platform, some of which may have certain discounts or commission rates.
As a result, food delivery revenue in the quarter increased by 13.2% year-over-year to RMB 14.5 billion. On the cost side, sufficient delivery capacity, favorable seasonality, and higher delivery efficiency allow us to reduce our delivery cost per order in the second quarter on a sequential basis. As compared to the first quarter, the lower average order value and higher user incentives in the second quarter were partially offset by the lower delivery cost and increased contribution from online marketing revenue. As a result, operating profit for our food delivery business turned to positive RMB 1.3 billion in the second quarter, compared to an operating loss of RMB 70.9 million in the first quarter, while operating margin turned to positive 8.6% in the quarter from negative 0.7% in the first quarter.
Operating profit for our food delivery business in this quarter increased by 65.7% during the year, while operating margin in the quarter improved by 2.7 percentage points year-over-year. This year-over-year improvement was mainly due to the higher average order value and increased contribution from online marketing revenue, slightly offset by higher subsidies for transacting users that were disputed to drive order volume growth. Now, heading to our second segment, in-store hotel and travel, in which revenue was down by 13.4% year-over-year in the second quarter. Overall, our in-store business continued to recover at a slower pace than net of food delivery business due to the ongoing presence of pandemic precautionary measures, as well as the lack of sufficient consumer confidence for certain discretionary in-store consumption. As such, commission revenue for our in-store segment continued to experience negative year-over-year growth.
However, the year-over-year decline in commission revenue for our in-store segment narrowed significantly from the first quarter as a result of our efforts to develop, innovate products, organize various promotional campaigns, and distribute e-vouchers through our collaboration with local governments. Meanwhile, we also saw the online marketing demand of our in-store merchants gradually pick up during the recovery process. In particular, those non-discretionary categories of consumption, which do not involve large gatherings, enjoyed strong growth momentum. As a result, the online marketing revenue from our in-store segment was flat as compared to the same period last year. Meanwhile, the pandemic continued to have a significant impact upon our hotel business, which still lagged behind several of our other in-store service categories as the number of domestic room nights consumed on our platform increased in the quarter by 17% year-over-year.
In addition, as hotels stimulated consumption by increasing discounts during the second quarter, our average daily rate per room night decreased on both the year-over-year and quarter-over-quarter basis. Operating profit for our in-store hotel and travel business was RMB 1.9 billion in this quarter, representing a decrease of 11.9% year-over-year and an increase of 178.1% quarter-over-quarter. Meanwhile, operating margin increased by 0.7 percentage points year-over-year and 19.6 percentage points quarter-over-quarter to reach 41.6% in this quarter. The quarter-over-quarter improvement was mainly due to the improved marketing efficiency and operating leverage. The year-over-year improvement was primarily attributable to the year-over-year decrease of 4.5 percentage points in sales and marketing expenses as a percentage of revenue, which resulted from a decrease in user incentives primarily for hotel booking and was partially offset by the increase in research and development expenses. Let's now turn to our third segment, new initiatives and others.
The majority of our new initiatives formed the brunt of the pandemic's impact in the first quarter and gradually recovered during the second quarter, with segment revenue increasing to RMB 5.6 billion in this quarter, up by 22.1% year-over-year and 35.2% quarter-over-quarter. Notably, during the second quarter, our B2B food distribution services achieved a revenue growth of more than 30% year-over-year. Meituan Instashopping achieved a revenue growth of more than 40% year-over-year, and Meituan Grocery achieved revenue growth of more than four times that of the previous year period. Operating loss for our new initiatives and other segments descended by 7% to negative RMB 1.5 billion in the quarter from negative RMB 1.4 billion in the last quarter, while operating margin improved by 6.8 percentage points on a quarterly basis to negative 25.9% in the quarter.
This quarter-over-quarter improvement was mainly attributable to the decrease in provision for impairment losses on financial assets, as well as the improved operating leverage. On a year-over-year basis, segment operating loss narrowed by 11.3% in the quarter, while operating margin in the quarter improved by 5.8 percentage points. This year-over-year improvement was primarily attributable to the improved operating margins of our bike-sharing business, restaurant management system business, and the micro loan business. Now, moving on to our cash position, operating cash flow turned to positive RMB 5.6 billion in the second quarter of 2020 from negative RMB 5 billion in the first quarter of 2020. As of June 30, 2020, our cash and cash equivalents and short-term investments totaled RMB 58.5 billion, increasing from RMB 56.5 billion as of March 31, 2020.
Overall, we believe a strong set of results, along with the recovery during the second quarter, which is a testimony to the resilience of our business model, our ability to better serve merchants and stimulate consumption through strong operational capability, our consistent efforts to improve our own operating efficiency, and our long-term monetization potential. Nevertheless, profitability is not our short-term focus, and we remain committed to investing in the ecosystem so as to help merchants endure the challenges of the post-pandemic period, drive industry recovery, and foster long-term growth. Based on our ROI assessment from a long-term perspective, we also plan on actively exploring those new business opportunities that we believe will benefit from the trend of accelerated digitization, have promising market size potential, and favorable long-term returns. Going forward, for example, we plan on stepping up our investment in both grocery retailing and e-bikes.
We believe that we are well-positioned to capitalize on attractive opportunities in the local service space, generating increasing value for consumers and merchants, and delivering lasting value for our shareholders over the long term. With that, we are open for Q&A.
Thank you, ladies and gentlemen. We'll now begin the question- and- answer session. And for your questions, please press star and the number 1 on your telephones in waiting to be announced. To cancel the request, it is the pound or hash key. Once again, it is star and the number one on your telephones. First question is from the line of Ronald Keung of Goldman Sachs. Please go ahead.
Thank you. Thank you, Xing Wang, Shaohui, Scarlett, and team. So congratulations on the strong results and particularly on the solid food delivery profitability, around CNY 0.60 of EBIT per order this quarter.
So, particularly when we're kind of over this recovery process in the second quarter from COVID. So could you share just is there a contribution from a decrease in delivery rider costs? And how should we think about this rider cost trend from here, given that we have kind of different drivers here that the ample labor supply, as you mentioned, kind of three million riders as China's workforce shifts from the old economy to now into the new economy. And the second drop of rider cost, can you share on autonomous vehicles in the future? How should we think of profit per order, particularly in the delivery rider cost trends? Thank you.
Thank you, Ronald. Yeah, you are right. As you point out, delivery cost per order decreased was a very important driver for the jump of our operating profit this quarter. Well, there are several points.
First, food delivery has a strong seasonality. Delivery cost per order in Q2 is usually the lowest compared to other quarters. This year, weather condition, well, usually every year, weather conditions are favorable across the nation in Q2, which will lead to less incentive paid to delivery riders for working under extreme weather conditions. Food segment profitability in Q2 was usually well expected. Second, this year, our operational capability for delivery network has been further strengthened. Specifically, we further optimized the order dispatching process and made the mobilization of riders across different districts more flexible. That means we can do dispatch and routing in a bigger area that can create a more economy of scale. That increased the overall delivery efficiency in Q2.
Third, due to the COVID-19 negative impact to the job market, delivery rider supply was abundant in the second quarter. That contributed to some cost savings based on demand and supply dynamics. These positive factors helped mitigate the higher cost associated with virus containment and the government's temporary VAT exemption policies granted to our delivery partners. As a result, our delivery cost per order decreased slightly on year-over-year basis. Actually, as you probably know, I don't really like to talk about quarterly numbers. Yeah, we would like to focus more on longer term. I will explain what's going on here. In the second half of this year, delivery cost per order will fall on the same seasonality as the previous year, and will go up as compared to Q2.
Our efficiency improvement will help offset one of the additional costs associated with the pandemic. In the longer term, as we continue to grow the scale of our food delivery business, we will improve the operational capabilities and optimize the algorithm of our dispatching system. We believe we could still further enhance our delivery efficiency and further lower the delivery cost per order. I'm not sure it will be very significant, but I think there's still some room. In addition to that, we have been developing our autonomous delivery technology for several years that I think, once adopted, will likely have the most meaningful impact to effectively improve our delivery efficiency and structurally lower delivery cost per order. We are working on that. We have been working on that for several years. We believe it's coming, but not anytime soon. That's for the long term.
So we need to be patient. I think in the coming quarters, in the coming years, I think we are going to be able to continue to lower the cost, either by better routing, dispatching algorithm, or by ultimately the autonomous delivery technologies. So just be patient. Thank you.
Thank you.
Thank you. Next question is from the line of Thomas Chong of Jefferies. Please go ahead.
Hi, good evening. Thanks, Management, for taking my questions and congratulations on a strong set of results. My question is about the food delivery business. The AOV of food delivery has likely decreased from the high level in Q1. How should we expect the further trend of AOV? On the monetization side, any room to take up the restaurant take rates in second half and beyond?
If offline remains under pressure into 2021, could we choose to limit the take rate increase to help merchants and to prevent any backlash? Will it continue to limit the overall profitability improvement? Thank you.
Hi, Thomas. Thank you for the question. Yeah, AOV in Q1 was elevated by the increased number of branded and high-profit restaurants, as we discussed in our last earnings call. In Q2, many of the smaller restaurants that shut down or closed during the peak of the pandemic reopened in Q2. So as a result, AOV was lowered with influx of these recovered orders. So this decrease in AOV actually was a sign of the expected recovery of our core food delivery business, and we think merchants' expectations. In Q2, only around 30% of the merchants' orders recovered due to COVID-19 containment policies.
It is likely that AOV will further decrease from the current level and normalize as a greater portion of the smaller restaurants, as well as low-ticket size tempers orders, come back online in the second half of 2020. However, it was noted that the overall trend on AOV is structural. The post-pandemic level will likely be relatively higher than the pre-pandemic level because, on the supply side, food delivery merchants based on food delivery merchant base on our platform will continue to be upgraded as more established in the chain restaurants open up online delivery channels. On the demand side, more consumers have also demonstrated their willingness to pay premium for higher quality, larger-ticket size order food items from more established restaurants and for more consumption scenarios. Yeah, I think it's good that you raised the question about the monetization rate for food delivery and the profitability for food delivery.
I think providing merchant support and driving industry recovery in times of continued uncertainty is and will continue to be our top priority. Given monetization, not profitability will be our focus right now. We may continue to provide various forms of support to selected restaurants in the cities impacted by the concurrence of COVID-19 in the second half of 2020. We will continue to bring more popular, diversified, and high-quality supplies, especially established chain restaurants, to our platform, which in turn may have a slight negative impact on our monetization rate. In addition, we will continue at high levels to drive order volume growth and continue to drive the online penetration rate. As we have talked many times before, we remain very confident around the monetization potential of food delivery business, and we remain very confident on the food delivery's long-term growth potential.
We also remain very confident of our further solidified leading position in this food delivery business. But we will be more patient in terms of further increasing monetization rate. As we discussed earlier, seasonality has also been an important reason in improved profitability in this quarter. So you should not expect the same level of profitability during the rest of this year. Q2 usually is the best in terms of the unit economics in food delivery. In the longer term, monetization rate improvement will be a major result as we continue to create unique values for our consumers and merchants. Thank you.
Thank you.
Thank you. Next question is from the line of Eddie Leung of Bank of America Merrill Lynch. Please go ahead.
Okay. Good evening. Thank you for taking my questions. A couple of questions on your food delivery business.
Number one, should we expect the growth trend kind of like get back to normal in the upcoming quarter? We have seen order recovery pretty nicely in the second quarter, but still below last year, kind of like 40% GMV growth. And then number two, besides order growth, any other key area or metrics you would focus on for your food delivery business going forward? For example, would diversification of categories or AOV be a metric? And then finally, could you also comment a little bit on the competitive dynamics? It's interesting to see one of your peers starting to work pretty closely with fintech affiliate. And it seems like you guys are also talking about driving your fintech business. So any color on competitive dynamics as well as strategy would be helpful. Thank you.
Thank you, Eddie. So in Q2, there were some new COVID-19 cases in Beijing.
That triggered renewed restriction measures by local government. And immediately, order volume dropped in Beijing and surrounding areas thanks to the quick responses and very effective various containment measures. Our food delivery business in Beijing stabilized within one month. Overall, the impact in Beijing was non-material. In terms of further recovery, the number of active food delivery merchants was more than 10% higher than its pre-pandemic level. Food delivery order volume was more than 5% higher than the pre-pandemic level at the end of June. In August, the daily peak of our total on-demand delivery orders, including both food and non-food categories, exceeded 40 million. That was a record high. I remember last July, last year, we exceeded 30 million. In early August this year, we exceeded 40 million. We expect the volume to grow bigger and bigger.
In Q3, we expect food delivery business to keep good growth momentum on a year-over-year basis. Given the COVID-19 is under good control quarter to date, and we only see the recurrence happen in very few cities such as Dalian and Urumqi, where order volume is limited anyway. However, in Q4, the growth of food delivery volume may still have uncertainties. We may see negative impacts on order volume if COVID-19 happens in higher-tier cities or lasts longer. So we should be prepared. Nobody knows for sure. And on competition, our leading position was further solidified during this quarter. The short-term market share fluctuation is not our focus. We think the competition will be more rational in the long term, and all players will eventually focus on higher quality growth. But meanwhile, we also remain very confident in our competitive advantages.
And because we are the leading player in terms of consumer base, merchant base, delivery network, and overall operational capabilities, we have both better technology and more data. We will continue to build our fundamental capabilities and create more values for both consumers and merchants and continue to drive the industry growth from a long-term perspective. So now, food delivery has proven to be the essential needs of many people's daily life, and it has evolved into a real mass-market business. And we will further increase the variety and quality of supplies to improve the consumer's experience. And we will also continue to help merchants improve online operations to optimize their efficiency. And adopting more cutting-edge technology and innovating more new operating models to lead a revolution of the whole industry. And we will focus on that in the future.
But during this accelerated process of digitization for both supply and demand side of the industry, we have become more and more confident that food delivery service will become the new infrastructure service for China's urban population. And there will be ample room for growth, not just for food delivery, but also for other service extension in the long term. And we remain confident that we are going to keep growing the volume of online food delivery. And I think we are going to get to 100 million orders per day in a few years. So yeah, we remain focused on this, and we are confident about this, and we will keep working on this. So thank you.
Xing Wang. Thanks.
Thank you. Next question is from the line of Alicia Yap of Citigroup. Please ask your question.
Hi. Thank you. Good evening, management. Congratulations on the strong quarter.
Thanks for taking my question. My question is related to your in-store business. While the business scale of the in-store segment has yet to be fully recovered as we actually see year-over-year decline in the second quarter, however, the operating profit has rebounded to a comparable level, even slightly better than last year's level. Could you share more details on the driver for this performance, and how should we expect further recovery of this in-store business into the second half and overall profitability trend for this business? Thank you.
Thank you for the question, Alicia. So for in-store business, firstly, advertising revenue in Q2 has almost returned to the same level of last year. However, the revenue from transaction-based products, there will be more time to fully recover. And the hygiene-related concerns from consumers, as well as crowd restrictions from local government, continue to impact the pace of recovery.
We saw divergent results across different in-store service categories in Q2. The recovery for some lifestyle services was better than that of in-store dining. Categories such as medical, aesthetic, healthcare, and pet care showed more resilience, and the stellar AOV growth in Q2. However, services that involve big crowds of gatherings, such as offline education, KTV, and fitness, are still recovering at a much slower pace and showing clear negative year-over-year growth. For in-store dining, we continue to see the recovery of formal meals and gathering dining lag behind the recovery of fast casual meals, which had a negative impact on its GTV recovery. In addition, in-store dining was more impacted by the new cases of COVID-19 in Beijing. For hotel booking, the recovery progress still lags behind other in-store service categories.
In Q2, efforts continued to optimize our operation and product to deal with the tough situation and stimulate consumption recovery. We further stratified our merchant base category and scale and rolled out more tailored service to them. Our upgraded product and service will meet the different online marketing needs. So we think in the longer term, the whole COVID-19 situation actually could help merchants build more urgency of building a strong online business. And we also have a positive impact for consumers when they are using more online service during this period. In Q3, as the COVID-19 was well controlled, we expect to see further recovery for most service categories. And second revenue is likely to tend to slightly positive year-over-year. We will continue to roll out various promotional campaigns, strengthen the collaboration with local governments, and provide more tailored product and services for merchants.
For the longer term, there is still uncertainty. We will keep an eye and update you. In terms of profitability, the blended margin of in-store services declined year-over-year due to the negative impact from COVID-19. The year-over-year margin improvement of the entire segment was mainly due to the control of user incentives for hotel business, as well as a much lower revenue contribution from hotel booking and attraction ticketing, which usually have lower margins than other in-store services. In the second half of 2020, we plan to step up our user incentives for hotel booking to stimulate volume recovery and may also increase our overall branding and marketing expenses for our in-store service. We expect the overall margin for this segment may decline from the back of Q2. On the longer term, we still have room for margin improvements for this segment. Thank you.
Thank you.
Thank you.
Next question is from the line of David Dai of Bernstein. Please go ahead.
Thank you. Good evening, Management Team. Congratulations on a good set of results, and thanks for taking my questions. My question is regarding the hotel business. Can you please update the status of recovery for long-distance trips as well as business travel? And what is the recovery trend that you have been observing in the summer? And during the recovery process, is there any opportunity for Meituan to gain some market share in the hotel booking industry? Thank you.
Yeah. Thank you. What a question, David. As we talked last quarter, hotel booking probably is one of the most affected industries during the pandemic period. Also, it was one of the slowest in terms of recovery.
As of the end of June, the daily number of domestic room nights booked on our platform was over 80% of the pre-pandemic level. To share with you a few observations for Q2 and for recent months. First, hotel booking for intercity travel recovered the fastest and achieved over 25% year-over-year growth already, which contributed to the fast recovery of our hotel booking business compared to other players. Second, the recovery of hotel booking for long-distance cross-city trips has not gone back to our expected level due to consumers' hygiene concerns. Third, lower-tier cities, which were less affected by the pandemic, recovered faster than Tier 1 and Tier2 cities, and room nights booked in lower-tier cities in Q2 are already back to the same level as Q2 in 2019. In recent numbers that we are tracking, overall hotel room nights growth has tended to be positive on our platform.
Summer traditionally has been the peak season for hotel booking, and we expect to see this ongoing improvement on hotel booking on our platform. Given the structural advantage, our domestic room night growth may turn positive on a year-over-year basis in the whole Q3. In terms of market share and competition, while hotels choose to work with us in various aspects and were eager to extend their sales channel, we provide hotels across the nation with an efficient online channel to access wider groups of consumers during the recovery, especially to younger generations who are more active during their recovery. Meanwhile, we also help them to cross-sell non-lodging services as a one-stop service platform. As a result, the percentage of room nights from high-star hotels on the platform reached a record high of over 15% in Q2.
We believe that the trend will continue, and we have a good opportunity to further solidify our leading position in terms of domestic room nights. In the longer period of time, we are also very confident that we will build leadership in our hotel booking, GMV, and hotel booking revenue. Thank you.
Thank you. Next question is from the line of Kenneth Fong of Credit Suisse. Please go ahead.
Thank you very much, Management, for taking my question and congrats on the very strong set of results. Recently, Meituan has made a significant investment in Li Auto, and we totally understand about the big potential for this electric car industry in the future. However, given the very limited synergy it could expand with existing Meituan business, could Management share with us more about the rationale for this investment? Thank you.
Okay. Thank you, Kenneth. So I'll then explain this way.
First, I'll explain why I believe Li Auto is a good investment, and then I'll explain why it's a good investment for Meituan. So okay. Now, Li Auto has gone public, and most investors will think they understand the big potential of this industry. I would say most investors still underestimate the potential of this industry and this company, just as most people underestimated Tesla half a year ago or one year ago. Here, I think Li Auto is going to be a very, very good investment because the market is huge, just huge. Also, the founder, Li Xiang, is a top-tier entrepreneur. They have a very good product. They focus on only one product, Li ONE. I drive a Li ONE every day, and I like it every minute. It's a very good product.
I think it's going to be a very, very big success in the next year. And also, I think most people underestimate the founder, Li Xiang. So I think finally we are going to see a top-tier Chinese tech entrepreneur who has never gone to college. So he's capable of thinking different. I really mean it. He can think different. So he understands startups. He understands cars, and he understands EV. So I think he's a visionary entrepreneur who can go down to earth and manage many details. So I'm very confident in this entrepreneur and the team he has built and the product they have designed and manufactured and delivered. So in one sentence, I believe Li Auto is going to be a very, very successful company. So I think that's going to be a very good investment.
Now, I will explain why I think Li Auto will be a good investment for Meituan. Here, I think there are two keywords. The first is mobility, and the second is long-term. So when I say long, we have repeated many, many times we like to think long-term. But here, by long-term, we don't mean several quarters. We don't even mean one year or two years. We mean at least five years, 10 years, if not decades. So I understand not every investor can stand with us for that much long time. I think that's the way we are going to operate the company. So here, we think it's a long-term. So Li Auto is working on autonomous driving, and they are working on mapping technology. And also, they are working on mobile human-vehicle interaction, including voice recognition and many others.
So all these efforts are expected to have synergies with Meituan in the future. Not now, not next quarter, probably not even next year, but they are going to have synergies with us in the long-term future. And also, mobility. So remember that the mission of Meituan is to help people eat better, live better. So we are very focused on helping people eat better. Actually, we don't grow food. We don't cook food. We don't prepare food. What we do is to deliver food. So essentially, Meituan is a mobility company. So that's what we do. So we deliver something. So vehicle is important for us. Now, we are at a very unusual time when vehicles are switching from internal combustion engines to electric motors. So EV is going to be a really huge trend that changes everything, every industry.
Most people don't understand that the reason, one of the most important reasons that Meituan can build such a big scale of online food delivery business is because of e-bikes. So in the U.S., they initially drive four-wheel vehicles to deliver lunch boxes. That just doesn't make sense. Here, we can use one very small EV. There are also vehicles. So they are not electric cars. They drive electric bikes. So that's very efficient, and that's very cheap. So in some sense, Meituan is already a big beneficiary of the EV revolution. We would like to double down on this. We believe EV, and not just e-bikes, but also electric cars are going to be the future. So we want to be part of that future. So that's why we don't hesitate to invest in Li Auto. So I hope people can understand why we do this because of mobility.
That's what we do. And because of long-term. So that's the reason. Thank you. Very clear. Thank you very much, and congrats again. Thank you. Our last question is from the line of Jerry Liu of UBS. Please ask your question. Hi. Thank you. Thank you, Management. Actually, that was very interesting comments on EV, and I wanted to maybe ask about also your long-term outlook and strategy, but in this case on the groceries delivery business because investors are very interested in the new initiatives increasingly. And the groceries business in particular because this is probably the most important one in the segment and also a very important business post-COVID. And it's also very nascent, and there are a lot of competitors today. So we'll love some clarification, some color on how you're looking at the opportunity. Thank you. Thank you, Jerry. So you're absolutely right.
The grocery retail will be very important for us. So it has always been a very strategically important new initiative for us. So we all know market potential is tremendous in China. Okay. Again, remember that the mission of Meituan is to help people eat better and live better. So there are several ways people can eat. The first, they can go out, find a good restaurant, sit down to have a good dinner. So we have Dianping to help people find good restaurants. And second, people would like to order prepared food, prepared meals delivered to them. So we have Meituan Waimai, so delivering about 30-40 million meals per day. But there are another way people can eat. Some people still like to order to buy produce, buy grocery, and then prepare food for themselves. So that's another market that we need to address.
We have been doing online grocery for, well, several years, where we try several models at the same time. We have Meituan Instashopping. That's part of Meituan Waimai in the beginning. We will further invest to better leverage the marketplace model. Also, we have already the largest and the most efficient on-demand delivery network. We are going to enable more diversified merchants, providing a variety of goods to our consumers. This business will have a very wide geographic coverage nationwide because that's a marketplace model. Second, for the self-operated Meituan Maicai, we will focus on increasing warehouse density in 15 cities because for a self-operated model, it's very important to have density because higher density means better unit economics. We are going to improve our supply chain capability.
That means we are going to operate big warehouses. And while it's not easy, but we are going to do what we need to do in order to win that market. So we are going to produce, provide high-quality fresh produce to communities in mostly top-tier cities. So this business will also leverage our on-demand delivery network. And last but not least, we have a new model that's Meituan Select, Meituan Youxuan. It will use a community group purchase model to provide value for money, selected groceries to communities in lower-tier cities. So given the enormous market opportunity in this grocery business, so various business models have evolved with multi-players emerging. So you are totally right. It's a very competitive market. Many people are trying. There are already several startups that do online grocery that has been valued at billions.
And also, all other big e-commerce players are getting into this market, including Alibaba, JD, and potentially PDD, and many others. But well, as a company, Meituan has never been afraid of competition. So we believe this is what we need to do because our mission is to help people eat better. So online grocery is a very important business for us, potentially the most important initiative for us. In the past several years, I think we are already winning the online food delivery market. So online grocery is the next market that we are determined to win. So we are determined to allocate sufficient resources in this industry. We are going to put our best team on that, and we are going to try multiple models. But we will assess our investment from a long-term perspective.
We are going to improve the efficiency of various business models along the journey. So I think in one sense, we are very determined to win the online grocery market. So I think we will see in the next several quarters, we are going to see the progress in the next several years. I believe it is going to be a very exciting business with many people trying. The business will eventually cover hundreds of millions of people. So yeah, we are very excited about online grocery. We are going to, well, go all in to win this market. Thank you.
Got it. Thank you.
Thank you. Ladies and gentlemen, that concludes our question- and- answer session. For closing remarks, I would like to hand the conference back to Ms. Scarlett Xu. Please go ahead. Okay. Thank you for joining our call.
We look forward to speaking with everyone next quarter. Thank you.
Thank you. Ladies and gentlemen, that concludes our conference for today, and thank you for participating. You may now all disconnect.