Hello, and thank you for standing by, and welcome to the Meituan Second Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Scarlett Xu, Vice President and Head of Capital Markets. Please go ahead.
Thank you, operator. Good evening and good morning, everyone. Welcome to our second quarter 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 second quarter 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 results in the future. 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 the second quarter 2022 earnings call. Our various businesses delivered a stable operating result in Q2. Our total revenue increased by 16.4% year-over-year to RMB 50.9 billion. Annual transacting users on our platform increased by 8.9% year-over-year to 648.7 million, while the number of annual active merchants increased to 9.2 million. The average number of transactions per transacting user increased to 38.1 for the trailing 12 months of 2022, compared to 32.8 x for the trailing 12 months of 2021. Adhering to our upgraded company strategy, retail plus technology, we never cease to provide the consumers with diverse and high-quality services and daily necessities, necessity supplies during the COVID resurgence.
Since April, Omicron spread to more regions in China, impacting the offline food service industry and people's daily lives. First of all, I would like to extend my gratitude to all our ecosystem partners, including our couriers, merchants, suppliers, and our employees working on the front line. They closely cooperated with each other, responded to the government's call swiftly, and worked through these difficult times to help meet people's basic needs during the COVID resurgence. The supply chain, which we've been developing, our extensive on-demand delivery network, and our safe and efficient autonomous delivery technology all played important roles during this difficult time. Meanwhile, we empowered merchants by digitizing their businesses and expanding their sales channels, which enabled them to run business despite external challenges.
As things recovered since June, we helped to efficiently connect consumers with local merchants with effective strategy and cooperated with the government to help boost consumption demand recovery with various initiatives. This further boosted our brand mindshare as a result. Back to financial reporting. We adjusted our segmentation disclosure this quarter from the previous three segments. That is, food delivery, in-store hotel and travel, and new initiatives and others to the two new segments of core local commerce and new initiatives. We think the new segmentation better reflects our business strategies and development status of different businesses, and better aligns with our resource allocation. Under the new segmentation, core local commerce now includes food delivery, in-store hotel and travel, as well as Meituan Instashopping. That is, Meituan Shangou, and alternative accommodations and transportation ticketing.
Through years of operations, food delivery and in-store hotel and travel have both achieved industry-leading positions with proven scale models. Meituan Instashopping, as a natural extension of our food delivery business, leveraged our large user base and existing on-demand delivery network. It has clear path to profitability and similar unit economic models as food delivery, has already achieved a respectable scale and industry-leading position. Alternative accommodations and transportation ticketing are similar to other in-store hotel and travel businesses in nature with a mature business models. They were also recently reorganized into the other hotel and travel businesses.
The current segment, second segment, new initiatives includes businesses such as Meituan Select, as Meituan Youxuan, and also, Meituan Grocery, as Meituan Maicai, and our B2B food distribution business as Kuail v, and also, ride sharing, bike sharing, the mopeds sharing, our bank and our restaurant management system and other new initiatives. That is core local commerce. New initiatives still requires more iterations on business models and need more resources given their development stage. Management will periodically review these initiatives development and allocate resources adjust the strategy accordingly. Now I would like to provide an overview of our Q2 performance for the two new segments. In the second quarter, core local commerce segment revenue increased by 9.2% year-over-year despite COVID impact on HPD. Since April, our food delivery business was negatively impacted by Omicron and related control measures.
Shanghai, Shenzhen, Beijing, and other high-tier cities, which contributed to a significant percentage of our overall order volume, were directly affected. With spillover effects to other regions, food delivery volumes in April and May were hence materially affected. However, in June, we saw swift recovery as COVID was effectively contained in several regions. Food delivery, as an essential consumption category dedicated to people's daily needs for meal, proved to be resilient despite external challenges. To customize and refine our operation strategy for cities at different stage of the pandemic controls and optimize our marketing incentive while pursuing high-quality growth. High-frequency user engagement further improved with larger scale, higher order frequency, and higher percentage of overall orders. By leveraging our effective execution and flexible organizational adaptability, we launched the multiple measures to secure supply and deliver the packages nationwide in June.
We did our best to fulfill consumers' daily demands and needs in COVID-affected regions. In Shanghai, during COVID, we took the lead to launch our community group meals and emergency helper services. When in-store dining was suspended in Beijing, we immediately increased our delivery capacity and ensured cross-city deliveries. We also continued to accelerate the digital transformation for traditional offline restaurants. A greater number of fine dining and high-end restaurants launched their delivery services on Meituan. Delivery has become an important revenue driver for these merchants even after COVID subsided. In Guangzhou, more than half of the city's five-star hotels started a delivery option with us. While in Beijing and Shanghai, we launched our must-order list for delivery to meet the consumers craving for quality dining at home.
We continued to provide supporting measures, offering commission discount to small and medium-sized merchants who have experienced difficulty in business operations due to the pandemic. As of the end of June, we launched four batches of supporting measures, helping more than 700,000 merchants so far in total. We also helped many small merchants in need with the food delivery manager program at Waimai Guanjia, to help them better operate food delivery and online operations. In addition, we collaborated with a certain restaurant to leverage their non-employee as couriers, ensuring their income while supplementing delivery capacity. As an extension of the food delivery, Meituan Instashopping continued its fast growth, with the daily average orders reaching 4.3 million in Q2. User base and transaction frequency both increased in the second quarter.
With its annual transaction users, the main growth driver for overall order volume growth, increasing meaningfully year-over-year. We continued to expand and deepen the categories with supermarkets, convenience stores, flower shops, and non-food specialty stores and more registering fast growth. The number of newly onboarded merchants increased by more than 30% year-over-year this quarter. Our extensive long-standing merchant coverage, coupled with our strong yet flexible on-demand delivery network, allowed us to better meet consumer demand during the COVID. Consumers gradually and increasingly regard on-demand retail as a new form of online shopping, especially post the COVID-19. Furthermore, we work to better serve the next generation consumers who demanded superior quality and value for money products and more on-demand delivery services. In Q2, we partnered with more brands, increasing our brand penetration and deepening our collaborations on marketing.
We worked with more merchants to help stimulate consumption recovery and launched the marketing campaigns around the festivals such as Children's Day and Mother's Day. Moreover, we actively foresee and capture emerging consumption trends and new categories. During the Dragon Boat Festival, camping became very topical and drove demand for outdoor consumption scenarios. With the product under the camping category increasing by more than sixfold year-over-year. Demand for outdoor activity products such as the grills, skis, barbecue equipment, and tents soared. During the quarter, we also brought more Meituan Insta-stores, which are brand distribution stores operated by merchants themselves. We call them into our supply offering for different categories in order to better meet the evolving consumer needs.
We also launched a city-wide pharmacy delivery service and expanded delivery distances for medicines to help consumers quickly and conveniently purchase medicines online. Overall, our various initiatives successfully enhanced the consumer mindshare that Meituan delivers everything to their homes. Our in-store hotel and travel business, also including alternative accommodation booking, transportation ticketing, were heavily impacted by COVID resurgence in high-tier cities, including Shanghai and Beijing, who undertook strict COVID control measures during April and May. Merchants' offline operations and consumer demand for local services were significantly affected, and GTV decreased substantially on a year-over-year basis as a result. As the pandemic control measure relaxed since June, we began to see signs of recovery for our in-store hotel and travel business. We also actively assisted the small and medium-sized merchants while supporting the government in stimulating economic recovery.
As Beijing, Shanghai and other regions gradually recovered from the pandemic and people returned to work, we conducted multiple promotional campaigns and distributed consumption vouchers to the local governments to boost the consumption and service industry recovery. In Shenzhen, Guilin, Chengdu, Wuhan, Guangxi and many other locations, we also helped the government distribute consumption vouchers and drive the merchants' online sales. All these helped accelerate industry's recovery, especially as we cover a wide spectrum of small and medium-sized merchants. For in-store dining, offline merchant operations were significantly affected in Beijing, Shanghai and many other cities. Local consumption faced COVID headwinds, but we helped further accelerate restaurant merchants' digital transformation and helped them recover from offline traffic losses. We helped restaurants with diversifying their revenue streams through food delivery options and self-pickup services, including those fine dining restaurants.
We offered discounted advertising services for temporarily closed restaurants and launched the various themed promotions to boost consumption recovery. Meanwhile, we accelerated the digitization of light meal chain stores on our platform, resulting in a continuous growth in light meals transaction volumes. We continue to provide customized services for chain restaurants as well, while refining operations, enhancing client service capabilities, and optimizing supply structure on our platform. To better provide the restaurants with a more comprehensive products and in-depth services, we launched the more diversified discounted packages and membership system that can help them improve consumer retention rates. Meanwhile, we further diversify the consumption scenarios and category coverage for transaction-based products to help merchants improve turnover rate. For other in-store services, group activities and gathering events were impacted. New consumption trends and categories emerged dynamically from the pandemic.
Outdoor activities were very popular, and demand for events such as whiskey and camping have rapidly increased as a result. To meet consumers' evolving demand and mitigate the pandemic impact, we further refine the offerings and services on our platform to help consumers efficiently find desired products and services, especially during the pandemic. During the quarter, revenue from categories such as fitness, pets, and lifestyle services maintained a relatively high growth. We believe that there is sufficient room for these new categories to grow in the long run as demand evolves and higher quality supplies build up. Thanks to our strong brand awareness, high-quality user base, optimized operations, and unique industry insights, we were the go-to destination for merchants in these new categories as they seek business growth. As the pandemic control measures relaxed in June and July, consumption of local services started to recover.
We will further improve supply quality while diversifying our categories and services adapt to the post-pandemic consumer behaviors. Our hotel and travel business suffered the heaviest impact from COVID over the last few quarters. The 35% year-over-year decrease in domestic hotel room nights in Q2 was mainly due to strict travel controls, which kept more consumers in their home cities during April and May. As the pandemic control measure relaxed in June, our domestic hotel room nights recovered. In particular, domestic room nights for local and short-distance travel returned to a positive year-over-year growth trajectory in June. The high-star hotel segment suffered a bigger hit from the pandemic than the low-star hotels. We continue to enhance supply quality, improve digital content display, and upgrade package deals for high-star hotels.
For alternative accommodation booking, a subset of our hotel booking business, we are the leading player in China. During the quarter, we further upgraded our accommodation supply. After Airbnb announced its exit from China in May, we acted quickly and collaborated with Airbnb to cover their host launch-only plan. We offered these new hosts full services, upgraded their insurance to preserve their benefits and safeguard their properties, and guided them through a smooth transition. For the long term, we are confident about the growth potential of domestic travels. In a post-COVID era, we will further strengthen the synergies between our hotel booking, travel, and transportation ticketing businesses. We are committed to offering high quality and comprehensive choices to our merchants and consumers. Now let's move onto our second segment, new initiatives.
Revenue for the second segment grew by 40.7% year-over-year in Q2. Thanks to that's Meituan Youxuan. Our community e-commerce model continued to pursue high-quality growth and maintain the market leadership, also with a higher operating efficiency. On supply chain, we made good progress in brand merchants and supply chain management. We also continue to partner with more brands to offer consumers a wider range of high-quality value-for-money products. In particular, we have many timely local brands on product innovation and launch their products online to better meet consumers' diverse needs. We also enhanced our direct sourcing capabilities and centralized nationwide procurement, which improved our supply chain efficiency and further broadened our SKUs selection.
Leading into summer, we optimized infrastructures and operating systems for cold chain logistics across our entire supply chain, ensuring more stable and efficient operations for frozen products during the peak season. We also integrated our sourcing solutions through the use of DAS, digital assorting system, to our central warehouses and satellite procurement centers. Most importantly, we continue to fulfill our social responsibilities, actively supporting local governments to ensure sufficient supplies of essential necessities to consumers, especially in places affected by COVID and extreme weather, such as Shanghai, Jilin, and Guangdong. We are also proud of the role Meituan Grocery has played in many times and places in supplying daily necessities to consumers this quarter. The number of orders and quarterly transacting users also reached a new height.
During COVID resurgence in Shanghai, with the guidance from local governments, Meituan Grocery used various ways to ensure the supply of daily necessities by direct sourcing and expanding our supply network supplier network and preempting an advance stocking of necessary inventory. When Beijing was under COVID control measures, we rapidly launched the supply chain model with the successful experiences learned in Shanghai, guaranteeing stable supplies while ensuring full compliance with pandemic controls. As the COVID situation improved in Shanghai, we also invest significant manpower and resources to meet surging consumer demand post the pandemic and support the city's economic recovery. Looking forward, we will continue to optimize our supply chain and the human capabilities and strive to bring better user experience to consumers.
We will establish a mindset that Meituan Grocery provides comprehensive offerings by extending our SKUs selections, increasing local and seasonal product supplies, and improving category diversity. Although the recent COVID resurgence has temporarily impact on our businesses, we believe that as the pandemic is brought under control and as consumer confidence recovers, our core local commerce business will gradually resume its growth trajectory. Meanwhile, our new initiatives in goods retail continue to iterate and serve more consumers, creating greater value for our society. Looking ahead to the second half of the year, we will proactively cooperate with the government to drive the recovery of the consumer spending and offline businesses. Powered by our innovations, innovative online marketing tools and extensive delivery network, we will assist more merchants in their digital transformations and online operations.
Going forward, we will continue to execute our strategy, retail plus technology, by providing more diverse value for money, goods and services. As a technology-empowered retail company in China, we will continue to remember our social responsibilities in terms of supporting the offline industry and generating abundant job opportunities. We remain highly confident and are fully committed to accelerating the industry digitization into creating more value for our society. With that, I will turn the call over to Shaohui for an update on our latest financial results.
Thank you, Xing. Hello, everyone. I will now go through our second quarter financial results. During the second quarter, our total revenue reached RMB 50.9 billion, increasing by 16.4% year-over-year in the midst of the COVID resurgence and a challenging macro environment. The increase was mainly driven by the steady revenue growth of our core local commerce segment and the strong revenue growth of our new initiative segment, especially the goods retail business. Cost of revenue ratio decreased on both a year-over-year and on a quarter-over-quarter basis to 69.4% this quarter, primarily due to the improved gross margin of our food delivery, Meituan Instashopping , and the food retailing business that we improved operating efficiency and optimized cost structure.
Selling and marketing expenses ratio also decreased on both a year-over-year and a quarter-over-quarter basis to 17.6% this quarter, reflecting our efforts in controlling user incentive spending and other marketing expenses across various businesses. R&D expenses ratio increased to 10.2% from 8.9% in the prior year period and decreased from 10.9% in the previous quarter. While G&A expense ratio remained relatively stable on both a quarter-over-quarter and year-over-year basis. We have achieved meaningful progress in pursuing high-quality growth with higher operating efficiency this quarter. Total segment operating profit turned to positive RMB 1.5 billion compared to an operating loss of RMB 3.7 billion in the previous quarter and an operating loss of RMB 2.9 billion in the same period of last year.
Operating margins improved meaningfully across all business segments. On a consolidated basis, Adjusted EBITDA and adjusted net profit were RMB 3.8 billion and RMB 2.1 billion for this quarter, turning from loss position to profit position on both a year-over-year and quarter-over-quarter basis. Turning to our segment results. We will start with the core local commerce. Our core local commerce segment revenue improved by 9.2% year-over-year to RMB 36.8 billion, while operating profit grew 39.7% year-over-year to RMB 8.0 billion. Operating margin for the segment improved on both a year-over-year and a quarter-over-quarter basis to 22.5%. Food delivery withstood external challenges and achieved 4.8% year-over-year growth in order volume this quarter. Food delivery revenue growth far outperformed order volume growth due to several factors.
First, large numbers of small and medium-sized merchants temporarily suspended their operation due to the pandemic, while a greater number of premium restaurants with high ticket size launched the delivery service on our platform during the quarter. At the same time, our collaboration with many high-quality merchants to launch our Must Order list and to provide citywide delivery services in a number of cities has also driven the improved contribution of long-distance orders this quarter. The higher portion of high ticket size orders drove year-on-year improvement in commission and delivery service revenue.
Second, on the back of the COVID impact on merchant side and user side, user willingness to order food delivery was suppressed. In particular, demand in non-residential scenarios declined due to traffic restriction, and we saw even more significant decline in the demand of users who pursue value for money product and tend to place lower ticket size orders.
Therefore, we re-reduced our subsidy spending in response to the pandemic impact by focusing on promoting the purchase frequency of medium and high-frequency users. As a result, the user incentive network contract delivery service revenue improved during this quarter. Operating profit and operating margin for our food delivery both improved meaningfully on a year-over-year and on a quarter-on-quarter basis, primarily due to the reduction in user incentive and the favorable order mix change. Seasonality also played a role in the sequential increase in operating margin, as delivery cost per order during the second quarter was among the lowest all year. Turning to Meituan Instashopping. The pandemic overall had a smaller impact on Meituan Instashopping than on food delivery. We're glad to see that Meituan Instashopping continued to achieve strong growth with daily average order volume in this quarter achieving new highs of 4.3 million.
The pandemic has catalyzed more consumers to rely on on-demand delivery. In particular, given time sensitivity and the imminence of new control measures, consumers have showed strong demand for stocking up on grocery and daily necessities, and chose to order locally using on-demand delivery network. In addition, Meituan Instashopping merchants, especially supermarket and convenience stores, were generally less affected by the pandemic and played a more critical role in meeting people's daily needs. Average ticket size improved substantially as a result of consumers' surging demand to stock up on food pre-lockdown, as well as the explosive demand for high ticket size gifts during multiple festivals. Meituan Instashopping's unit economics show significant improvement on both a year-over-year and on a sequential basis. We are very cost-efficient this quarter due to an increase in AOV, our tighter control over user incentive and other marketing expenses during the pandemic.
Additionally, the improvement in unit economics was also driven by a rapid growth of online marketing revenue, primarily contributed by the expansion of online marketing merchant base and the merchants' increased ARPU. Turning to Insta Hotel & Travel, which include alternative accommodation booking and transportation ticketing starting from this quarter. Overall, the impact of COVID-19 has been materially more severe than on food delivery, with Insta Hotel & Travel revenue decreasing by 18.6% year-over-year this quarter. In terms of GTV impact, hotel was most heavily affected, followed by other in-store business, with a relatively lower impact on in-store dining. Transaction-based commission revenue was down by more than 27% year-over-year during this quarter.
However, since late May, as control measures relaxed across major cities, we saw in-store business GTV, especially in-store dining business GTV and the domestic room night rebound strongly, thanks to pent-up demand from the consumer side, effective promotion campaigns, and the consumption in vouchers. For online marketing services, Insta Hotel & Travel business contribute about 69% of the total online marketing revenue for the entire core local commerce segment. Overall, large numbers of local service merchants were impacted by the pandemic, and they reduced their marketing expenditure with their demand for CPC and the display ads decreasing the most. However, we continue to provide service with lower price threshold for small and medium-sized merchants, or extend the period of existing services during COVID as a merchant support effort. Subscription-based service revenue continued its resilient growth this quarter on a year-over-year basis.
In addition, merchants in some categories with more essential demand and are less impacted by the pandemic show higher marketing demand, such as pet care, car, and lifestyle services. Online marketing revenue in these categories grew by more than 20% year-over-year this quarter. Operating profit for instant hotel and travel business decreased on both a year-over-year and quarter-over-quarter basis. As operating margin still show steady improvement on a sequential basis, thanks to our focus on cost and expense control, as well as operating efficiency enhancement. Let's now turn to our new initiative segment. The segment mainly include Meituan Select, Meituan Grocery, B2B food distribution service, and other new initiatives. During the period, revenue in this segment improved by 40.7% year-over-year to RMB 14.2 billion, mainly due to the development of our goods retail business.
Operating loss for this segment narrowed significantly on a sequential basis to negative RMB 6.8 billion during this quarter, while operating margin improved by 21.9 percentage points quarter- over- quarter to - 48%, primarily attributable to the improved operating efficiency of our goods retail business. On Meituan Select, both operating loss and operating loss as a percentage of GTV continued to narrow sequentially. Our enhancement of supply chain capability and product mix has driven sequential increase in both our price per item and the price markup. At the same time, we continue to improve our warehouse and delivery efficiency by optimizing our warehouse sorting and delivery process. On Meituan Grocery, both operating loss and operating margin improved significantly on a sequential basis.
This was primarily due to, first, improved AOV and order density generated by the surging demand for food and supplies stock piling during the pandemic period. Second, improved operating efficiency generated by the optimization of user incentive strategy and the upgrade of our warehousing and fulfillment capability. Third, the improvement of our economics of scale led to a higher degree of operating leverage. Now turning to our cash position. As of June 30, 2022, we continue to maintain a strong net cash position with our cash and cash equivalent, as well as short-term treasury investment totaling RMB 107.5 billion. Additionally, our operating cash flow improved to RMB 9.2 billion from negative RMB 11.3 billion in the prior quarter.
To conclude, I would like to say that the ongoing pandemic has presented continuous challenges to every member of our ecosystem, including ourselves. We responded to these challenges by focusing on high quality growth and improving our operating efficiency over the past several quarters, which is reflected in our results in this quarter. More importantly, we did not act only in regard to our own needs. We reaffirmed our commitment to creating more values for consumers, helping merchants maintain their operations, and providing our employees with better welfare and working conditions in the current challenging environment. By collaborating with local government, we make sure the delivery of basic supplies is fully fulfilled during the COVID outbreak and to promote local consumption during the post-COVID recovery phase. No matter how the external environment evolves, the interest of our merchants, consumers, and corporate will always be our top priority.
We are still confident that our business will resume normalized growth when pandemic control measures loosen, and our long-term business objectives remain unchanged. With that, we are now open for your questions.
Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Today's first question comes from Ronald Keung with Goldman Sachs. Please go ahead.
Thank you. Thank you, Xing , Shaohui, and Scarlett . We noticed the new segment disclosures this quarter. I just wanna hear what is kind of the thinking or the reason behind. We see the profitability of now the core local commerce segment seems higher than what the market or people were expecting and achieved very significant year-on-year improvement. I wanna hear within that, the drivers within as well. Thank you.
Okay, thank you, Ronald. To answer your first question, starting this quarter, we adjusted our segment disclosure and disclose our businesses under two segments. The first one is core local commerce, and the second one is new initiatives. The new segmentation better reflects our business strategy and the development stage for each business. It also matches our perspectives on resource allocation. The first segment, core local commerce, contributed more than 70% of our total revenue. It includes proven light asset business models, and it's the main source of our operating profit and operating cash flow.
Among them, on food delivery and in-store hotel and travel business, we are market leaders after years of operations, and the synergies between them will continue to grow as well. Food delivery is the main source of our active users and provide a meaningful traffic and cross-sell opportunities to support our in-store services and hotel booking. The transaction frequency of our high quality food delivery consumers using our in-store hotel and travel services continue to increase every year. Meanwhile, we provide easily improved high quality merchant engagement to our platform by adding more value to their operations with both the food delivery and in-store dining services. For example, during the recent recovery and resurgence, high quality restaurant brands from our in-store dining segment quickly launched delivery services on our platform to mitigate their offline revenue losses.
Our food delivery team also allocated optimal delivery capacity and provided other value added services for these merchants. As an extension of our food delivery business, Meituan Instashopping, Meituan Shangou, leveraged on the large user base and on-demand delivery network from our food delivery business. Having a similar unique economic model to food delivery and with a clear path to profitability, Meituan Instashopping has already reached respectable tech scale, establishing itself as the industry leader. Another one, alternative accommodation and transportation ticketing are also included in the service segment, as we recently integrated them with the rest of our in-store hotel and travel businesses for organizational structure, given similar business nature. Our new initiatives segment focuses on business models which we are still exploring.
Several businesses in this segment involves self-operated goods retail operations with a relatively long operational chains that need more time for us to iterate and optimize the business model. Compared to our core local commerce segment, these new initiatives needs more resources and investment from the company. In future, we will evaluate the development of each new initiative to better allocate resources and make a strategic assessment. Shaohui will take your second questions on financial.
On your question on profitability. The profitability improvement of core local commerce was mainly driven by economic improvement for food delivery and Instashopping. It was partially offset by the profit drop of our in-store hotel and travel business due to the outbreak in the spring. The profitability of food delivery improved quarter-over-quarter and year-over-year. It was the result of our focus on high quality growth and operational refinement to cope with the current macro and COVID situation. It's also the seasonality as we have communicated before that the second quarter is usually the best season for food delivery unit economics. For example, we reduced marketing intensity meaningfully, and order structure was more favorable to profitability, given less orders from small and medium-sized restaurants, which suspend their operation during COVID control.
Second, the Meituan Instashopping AOV also improved, driven by consumer demand to stock up during the COVID resurgence. Coupled with our effective cost management, Meituan Instashopping operating profit was very close to breaking even this quarter. Therefore, the improvement in profitability in our food delivery and the Meituan Instashopping business were mainly from short-term COVID factors and our active cost management. This is only a demonstration of long-term potential and should not be seen as a near-term benchmark. Thank you.
Thank you. Xing , Shaohui.
Our next question today comes from Thomas Chong with Jefferies. Please go ahead.
Hi. Good evening. Thanks management for taking my questions. How should we think about the operating margin for our core local commerce segment for the second half of the year? Could you please comment on the margin trend for food delivery, Meituan Instashopping, as well as the Insta Hotel & Travel business separately? Thank you.
Thank you. As we just mentioned, operating margin for core local commerce segment picked up quite meaningfully because of short-term factors from COVID. Also, delivery cost per order is usually lower than Q2, so there is some seasonality influence too. For the second half, I think short-term and seasonality factors will all gradually fade, so the core segment OP margin will likely go down quarter-over-quarter. However, we will continue to pursue high quality growth and efficiency improvements. Operating profit and operating margin on a year-over-year basis is expected to improve in second half this year. For food delivery, operating profit and operating margin is usually lower in Q3 and Q4 versus Q2.
This is due to seasonality reason as we need to provide higher subsidy for couriers to operate in more extreme weather and have higher delivery cost per order. Second, as COVID situation and related cost control measures get better, more small and medium restaurants with lower AOV will resume operation. With low AOV orders will contribute to a higher percentage of overall orders and will drop down the operating margin over the quarter. We will also increase consumer incentives on a quarter-over-quarter basis to help boost consumption recovery. We will continue to pursue high-quality growth. We will allocate consumer incentives to different marketing events and distribute government consumption vouchers to help further increase transaction frequency and engagement of medium and high-frequency users. For the more price sensitive consumers, we will maintain a reasonable level of incentive. Overall, competitive dynamic has become more rational.
It will help us further lower incentive in the longer term. Operating profit and the operating margin will increase year-over-year in the second half. On the Meituan Services shopping, we are committed and will improve investment versus same period in 2021. To help with consumption recovery, we will optimize incentives on main business and key strategies, and we will further build our brand. We continue to view Meituan shopping has a great potential and now is still early stage. We are focused on growth rather than profitability for Meituan shopping. For Insta-store business, COVID uncertainty remain for the second half of the year. We will continue to improve efficiency and cut costs where necessary. On marketing, we will use more effective online channels and optimize the offline channels to pursue high quality and sustainable growth.
As the revenue growth returned positive in July, we should also have more operating leverage. The operating margin for the second half of the year should go up year-over-year. On hotel and travel, we think demand for domestic travel will further recover in the second half, and we will invest to boost the consumption in the summer and other holidays while optimize the market efficiency. Operating margin should further recover towards the pre-pandemic levels, higher on both the year-over-year and quarter-over-quarter basis. Thank you.
Thank you.
Our next question today comes from Gary Yu with Morgan Stanley. Please go ahead.
Hi. Thank you for the opportunity to ask question. I have a question regarding the recovery trend of the core local commerce business. Could you share more on the recovery trend of your food delivery and in-store hotel and travel business in June? Do you see further acceleration in July and August? How should we think about the growth trajectory for these two businesses in the second half? Thank you.
Thank you, Gary Yu. This June, COVID situation in higher tier cities such as Beijing and Shanghai were under control. Food delivery and in-store hotel and travel also recovered steadily. We roll out targeted and tailored recovery plans for different cities at different recovery phase. We became a trusted partner by the local government in distributing consumption vouchers to boost recovery. More merchants also trusted us as a partner to increase their sales amid external challenges. We not only provide offline merchants consumer traffic, but also launched the merchant support measures to help them recover. On food delivery, order volume growth in June recovered to 10% year-over-year despite a high base last year. Average daily order volume in June in places like Shenzhen, Guangzhou, Shandong, Hubei, Fujian recovered to a level seen end of last year. On a higher tier, markets gradually recover as well.
On the supply side, merchants suspended in Q1 resumed operations. Non-residential scenarios like offices, entertainment venues also recover accordingly. For in-store, the year-over-year GTV decline in June narrowed to a mid-single-digit . As the travel restriction relaxed, travel industry is also recovering nicely. Domestic room night in June only dropped less than 10% year-over-year. Since July, more regions saw COVID resurgence, such as Chengdu, Xi'an, and Hainan, impacting our business recovery. Overall COVID controls are becoming more and more regular and regional focused. Food delivery order volume growth continued to increase in July versus June leading into summer, and the recovery accelerate in August. Especially, daily peak order for food delivery reached more than 60 million in August, another milestone for us. Demand for in-store services is also strong in summer, with in-store GTV seeing mid-teens year-over-year growth in July. Growth also further picked up in August.
In-store dining saw sharper rebound than other in-store services as some gathering category and non-essential consumption still suspended given COVID control. For hotel and travel, domestic room night growth was still negative in July, but it's better than in June, became positive in August. If there is no widespread COVID resurgence in September, we expect core local commerce to record healthy year-over-year growth. It's hard to predict for Q4. It depends on how COVID situation unfolds and on the control measures. Regardless, we will remain focused on high-quality growth and efficiency improvements for our business. In addition, our in-store business has a broad category coverage. Most of our consumers demand for food delivery is in that setting.
Our platform overall provides much lower ticket size services. Therefore, we will be more resilient to deal with weaker macro environment compared to other consumption-related platforms. I'm confident of the long-term growth potential for both food delivery and the in-store business. Thank you.
Thank you. Our next question today comes from Ya Jiang with CITIC Securities. Please go ahead.
Thank you. Congratulations on the strong quarter. Then my question is regarding the Meituan Instashopping business, and it is now including the core local commerce segment. Does this imply Meituan Instashopping is a higher priority among your grocery business? You just mentioned that you know made some progress in the Meituan Insta-stores as well. Could you share more details on how this will help grow the Meituan Instashopping business? Thank you.
Thank you. As I mentioned, the online grocery market will not be dominated by a single business model. Meituan Instashopping, Meituan Select, and Meituan Grocery are all important as we expand into online grocery. Given Meituan Instashopping's business model and development stage, we decided to include it in our core local commerce segment. First, Meituan Instashopping is a natural extension of our on-demand food delivery, expanding from restaurant food to more categories. Its model and unit economics are similar to those of the food delivery with a clear path for growth and profitability. However, Meituan Select and Meituan Grocery are at an earlier growing and developing stage. They both need warehousing infrastructures, and operations need to build a supply chain capability. It's quite different to our core local commerce segment.
After rapid development over the past few years, Meituan Instashopping built up its core competence and became the largest on-demand retail player in China. It leverages on our nationwide on-demand delivery network with efficient procurement, so we have a strong advantage on the delivery side. We also empower the merchants through operation, digitization, and offline business development. We have accumulated the largest merchant base and a diverse range of supply across categories. On the consumer side, we have a large high-quality user base from food delivery and strong on-demand retail brand awareness. It help us easily convert food delivery users to Meituan Instashopping users. Meituan Instashopping has the potential to achieve high AOV and online marketing revenue in future. Its long-term unit economic potential should be at least similar to that of food delivery.
We believe the inclusion of Meituan Instashopping in our core local commerce segment better reflects the synergies between Meituan Instashopping and food delivery, and as well as its long-term value. Regarding the Meituan Insta-store, when we explored and tried to deliver everything now, we noticed that the current offline supplies do not fully meet the demand of large online user base. This is not only for the SKU selections, but also the price and quality of those goods. We explored the innovative Meituan Insta-store for FMCG, daily necessities, pet supplies, and more. The Meituan Insta-stores are built by merchants. We help the merchants operate the store online and offer them our on-demand delivery service. Compared to traditional stores, Meituan Insta-stores have wider selections and more efficient procurement capabilities.
Meanwhile, the online business operation model also allow us to quickly gather the consumer insights and SKU strategies from one store to others. We also help merchants start business and operate efficiently through our digital operating system. As of June 2022, the Meituan Insta-store project expanded to over 100 cities with more than 1,000 stores in total. Our Meituan Insta-stores' price are more suitable for younger generations and online users and are able to meet their long-tail needs through flexible selections. The user retention rate is also higher than offline stores. We efficiently match supply and demand to create more growth and momentum in on-demand retail. Looking forward, we will continue to explore innovative supply models to better meet and stimulate the consumption needs of younger generations. With the younger users faster pace of life, cost of time has become an even more important consideration.
Consumers are more dependent on the reliability and timeliness of on-demand retail. Meituan Instashopping will continue to benefit from the tailwind of everything now. With a continuous expansion of users and transaction frequency, we will penetrate into more high-quality food delivery users and increase transaction frequency in a more cross-cutting. More products and services will be available online over time as the traditional offline offering comes online. The role of on-demand retail will also evolve from addressing immediate needs to fulfilling more regular and routine purchases. Thank you.
Thank you, Xing Wang.
Thank you. Our next question comes from Eddie Leung with Bank of America Merrill Lynch. Please go ahead.
Good evening, guys. I remember in the past that you guys provided some color on the long-term scale, for example, the daily order size as well as the long-term normalized margin of your different key segments. We have the new core segment right now. Could you also give us some color on the longer term outlook of the scale, order size, or the margin of these blended segments? Thank you.
Thank you, Eddie, for the question. Yes, we have communicated about the long-term profitability for food delivery and it was not separate before. Now you see our core local commerce segment mainly comprises our food delivery in Meituan Instashopping, Insta Hotel & Travel. Each segment we have very strong confidence in its long-term growth and also its long-term profitability. On food delivery, we remain committed to our order volume target in the long run, which is 100 million transactions a day. The urban population in China has been increasing the food delivery services, opting more for food away from home versus just home-cooked meal. The continuing industry digitization and the low-cost supply model in future will make it even more affordable to everyone. We expect the delivery to become a more regular and essential choice for consumers over time.
We continue to cultivate consumer habits in ordering food delivery for more consumption scenario. We expect greater revenue contribution from merchant marketing demand and optimize the consumer incentives. We will see faster growth in revenue than in order volume. For Meituan Instashopping, we believe that the trend for on-demand retail in China is at least RMB 1 trillion market. This market is still underdevelopment and under-penetrated in terms of digitization. Meituan Instashopping leverage our on-demand delivery network and the consumer traffic from food delivery. We believe that Meituan Instashopping can reach 10 million orders a day in several years. This business will realize fast growth in both order volume and revenue than our food delivery business. For our Insta Hotel & Travel business, we believe that local service industry in China continue to enjoy its tailwind from the continued industry digital transformation.
As a go-to partner, we have a strong consumer mind share when searching for merchant recommendations and deals. We maintain our goal of five-year revenue figure for the Insta Hotel & Travel business. On margins, operating margins largely improved due to the short-term COVID factors in this quarter and will likely normalize in next few quarters as the short-term factors fade. However, we will optimize marketing incentives and increase efficiency in the long term. This quarter's operating margin is a good demonstration of the long-term profitability potential for this whole local commerce segment. Finally, I want to emphasize, as a leading player in local commerce, Meituan hopes to create greater value for more merchants, consumers in our society. Commitment to growing whole local commerce efficiently will be more important to us than short-term profitability.
We will dynamically adapt our operational strategy based on our external environment and COVID situation to deliver growth and profitability. Thank you.
Thank you.
Our next question today comes from Yang Bai with CICC. Please go ahead.
Okay. Hi. Thank you. Thank you, management, for taking my question. My question is about loss reductions. The loss for new initiatives seem to be better than expected. What are the drivers behind? Is this trend sustainable? Should we expect even bigger loss reduction in the second half this year? Thank you.
Thank you. Yes, we continue to enhance our capability and operating efficiency for our new initiatives. For Meituan Select, Meituan Grocery, and Kuailv Zhuanpan , we improve our supply chain management capability and warehousing and fulfillment efficiency. We continue to optimize user incentives and marketing expenses. For Meituan Select, we improve pricing and price markup ratio in the first half of this year, which helped to improve the unit economics. For Meituan Grocery, demand surge in regions with strict control in Q2, AOV went up meaningfully and operating efficiency for Meituan Grocery improved significantly as a result. For other new initiatives, we also further refine our operation. But given quite a few new initiatives, I feel like Meituan on all the basis, the restricted business scale in Q2 due to COVID resurgence also led to lower operating loss than expected.
I think our focus on cost efficiency and high quality growth will continue to show results. At the same time, if the COVID situation become better, order density and AOV for Meituan Grocery may drop. The business scale of other new initiatives will continue to recover when COVID is better controlled, which may lead to higher operating losses from certain new initiatives. We will continue investing into our new businesses, including Meituan Select and Meituan Grocery, to maintain good growth trajectory and cultivate user habits. Meanwhile, we will continue to improve operating efficiency in all operational chain for our new initiatives. We will well balance our goals of growth and loss reduction. Important to note, we have sufficient cash balance to support our new initiatives. We remain optimistic about their long-term growth potential and the competitive dynamic of our new initiatives.
We will dynamically adjust our business development strategy and reallocate our resources based on COVID development, macro environment, and operating cash flow of our core local commerce segment and the development phase of our various new initiatives. Thank you.
Thank you.
Ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to the company for any closing remarks.
Okay. Thank you for joining our call. We look forward to speaking with everyone next quarter. Thank you for your support.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.