As one of the few targets that can be examined in the fresh e-commerce track, Dingdong's financial report on buying vegetables has received a lot of attention as always.
On February 15, Dingdong Buy Food released the fourth quarter of 2021 financial report: Dingdong Buy Food achieved operating income of 5.48 billion yuan in the quarter, an increase of 72% year-on-year; GMV was 6.006 billion yuan, a year-on-year growth rate of 59.6%. The net loss under the Non-GAAP caliber was 1,034.1 million yuan, compared with 1,238.8 million yuan in the same period of 2020, and the loss margin narrowed significantly.
Its executives admitted on the call that this was the "best result" that Dingdong had delivered since it went public. This is because Dingdong Buy Food announced that the Shanghai region achieved overall profitability in December 2021, and the entire Yangtze River Delta region achieved UE correction in the quarter. That is to say, it completes an average of one order in the Shanghai market, and the profit has been corrected.
In the case of fresh e-commerce is controversial due to the difficulty of profitability, why can Dingdong buy vegetables take the lead in achieving regional profitability? And how far is it from achieving full profitability in the future? Or, behind the profits, dingdong to buy vegetables and the entire fresh e-commerce situation today how to meet the bottom?
Shanghai is profitable, and it is timely
In the fourth quarter of 2021, although the Q4 revenue growth rate narrowed sequentially due to the impact of seasonality and efficiency strategies, it was fortunate that it was still within a reasonable floating range. Today, at the existing scale, the year-on-year growth is still at a high speed, and the efficiency has been significantly optimized. The most intuitive manifestation is that the loss margin of Dingdong grocery shopping is narrowing. Under the non-GAAP caliber, dingdong buy vegetables in the fourth quarter of 2021 loss rate optimization of 13 percentage points, far exceeding the expectations of the previous quarter.
"Turning around" is not easy, in August last year, Dingdong to buy vegetables put forward the strategy of giving priority to efficiency, clearly to advance the profit schedule, which means that in the short term, from the priority to be wide to the priority to be deep, the company's operating efficiency will be improved, and the loss rate will be optimized in a straight line, which is a great challenge.
In less than two quarters, the results were still due to the continuous improvement of gross profit margins and the reduction of performance costs and customer acquisition costs.
First of all, the gross profit margin of Dingdong Grocery in the quarter was 27.7%, an increase of 12.65 percentage points year-on-year. The first reason is that there have been results in the supply chain and its own brand investment, at the same time, the category structure of the commodity has been continuously optimized, and the proportion of GMV of high-margin commodities has gradually increased, which has increased the overall gross profit margin level; the second is that the cost advantage of taking goods brought about by the scale effect has increased; the third is the investment in the place of origin of Dingdong to buy vegetables, and has begun to gradually release the value of raw materials.
Secondly, during the reporting period, its comprehensive operating expense ratio was 46.65%, a year-on-year decrease of 6.95 percentage points, mainly due to the scale effect and the improvement of human efficiency, which diluted the fixed cost of the performance link of Dingdong in the existing scale, so that its performance expense rate in the fourth quarter fell by 5.49 percentage points year-on-year.
Source: Company announcement
Its management disclosed at the conference call that in the Shanghai area, the gross profit margin of each order in Shanghai in December 2021 was more than 28%, the cost rate of processing and trunk line transportation in the sorting center, the cost rate of the front warehouse performance were 6% and 15%, and the marketing expense rate was 7%. In other words, Dingdong's profitability in Shanghai is achieved by removing various expenses such as fulfillment costs and headquarters management costs.
As for why Shanghai? It should be known that Shanghai is the first city to operate Dingdong to buy vegetables, is the base camp of Dingdong, at present, whether it is the number of SKUs or the effect of doing deep, Shanghai is its most mature market, with absolute advantages in scale, supply chain (cost) and user habits, so Shanghai has also become an experimental park for national business.
It can be said that when the overall capital market environment is more pessimistic, it is more correct for the performance of mature cities to release a clearer profit signal.
How does regional mode work?
The track where Dingdong groceries are located was once above the wind.
Freshness is a drainage tool, but the high-loss characteristics make people dare not do business with it alone, until the emergence of new players such as Dingdong Grocery. But until now, they've been looking for the next solution. At present, Dingdong has expanded from the initial "selling vegetables" to other catering categories and daily necessities, and gradually formed a general trend.
But the vegetables that a family eats have a price ceiling. In the early days of the development of Dingdong buying vegetables, Liang Changlin, the founder and CEO of Dingdong buying vegetables, was very soberly aware that under objective circumstances, because the amount of food money and customer orders in a family day is limited, the more important reason for scale expansion and efficiency improvement is actually to maintain a large enough order density. This depends on the size of the user and the frequency of orders placed by the user.
Obviously, unlike other players, after ending the wild run to the listing node, Dingdong Buy Vegetables began to improve the refined operation ability and the management ability after the scale increased, intending to achieve transformation at various levels.
In the face of the customer base, Dingdong buys vegetables and bets on something that is actually difficult to verify - the product itself. For example, the development of its own brand, do deep SKU value, so that not only can improve the platform's competitive differentiation and commodity power, the second is that its own brand goods help to improve the overall customer unit price and gross profit margin.
Dingdong Buy's current own brands include rice noodle staples, prepared dishes, baking and so on. The data shows that in Q4 2021, the sales of private label goods accounted for 10.2% of the overall GMV, of which the sales of goods developed and processed by Dingdong's own factory also accounted for 6.5% of the overall GMV. In addition, it is more fortunate that Dingdong, who began to make pre-made dishes in June 2020, should not have thought that he had taken advantage of the east wind at this moment. Today, the sales of prepared dishes account for 14.9% of the total GMV, and the results are more obvious.
But the back end also needs an invisible hand. In essence, for a new type of retail that has been reborn from the traditional track, it is impossible to detach itself from the essence of retail and consumption, and the ability to operate digitally and efficiently will become an invisible "killer". The characteristics of short shelf life and long industrial chain lead to large fresh loss, low gross profit margin, extremely scattered source, and inefficient intermediate links are the drawbacks of the traditional fresh supply chain.
Supply chain systems combined with intelligent algorithm technology can be used to improve human efficiency and reduce cargo damage. At present, the algorithm-based sales forecasting, intelligent allocation and front-end recommendation system are applied to multiple links such as pre-warehouse site selection, product selection, procurement, logistics, and sales, which can reduce procurement costs and improve procurement and marketing efficiency. Such a system and construction accumulation takes time, and the upfront investment is large, but it often has a much higher than expected return in the follow-up. Public data show that the overall accuracy of sales forecasts reached more than 90% and the prediction accuracy of popular single products reached more than 95%.
However, for the changing competitive environment and user demand, even if the unsalable rate is less than 1% in the future, it is likely to become a pain point, so the continuous increase in investment is actually behind. Fortunately, at present, through the control and investment of goods, the purpose of preempting "core users" and improving user stickiness has been preliminarily completed.
According to the Q3 data of 2021, the order frequency of Dingdong buying member users has further increased to an average of 7.4 times per month. Q4 data shows that its GMV-to-revenue conversion rate is 91%, an increase of more than 6 percentage points over the same period in 2020, which is mainly due to the decline in the proportion of coupons to GMV. That is to say, the reason driving the growth of GMV has quietly changed from issuing coupons to pulling new ones: the increase in goods and services under the perception of strong users.
Whether this implicit transformation can be successful is the basis of whether the so-called front-loading player can run through the mode.
The profitability of Shanghai means that under the unit model and the regional market, the Dingdong grocery shopping model finally ran through after 5 years of long-distance running, and achieved initial profits before the entire front warehouse track and other friends. But does this have reference significance for the national market? Is there still hope for the fresh e-commerce track?
Each track has a person who issues cards and follows the cards, and the development of the fresh e-commerce track, especially the front-end warehouse enterprises, in the general environment is a sweat.
But the final solution to this track is certainly not all pre-positioning, the final test is whether the company can maintain enough strength to cope with the competition, after all, the competition has long spread to the company's own supply chain and infrastructure.
So we must continue to torture Dingdong to buy vegetables: What is the ability to face the battle? After all, the retail industry itself has regional barriers, different cultures and consumption habits between regions, and local enterprises in the region also have first-mover advantages, which is something that the mature traditional offline retail industry cannot completely solve.
The concentrated market is large enough, and it makes sense to be "heavy"
It has always been said that the front position is a "minority" business.
To a certain extent, this is correct, first of all, compared to the sinking market to expand faster community group buying, the front warehouse is more popular among household users in first- and second-tier cities, compared to the fast and more controllable quality that can be delivered home, their price sensitivity is relatively not so high.
Of course, there are still many people who have the impression of the front warehouse to stay in the delivery of vegetables, burning money, robbing the offline market, etc., and now a profitable news also hopes to refresh the public's cognition of this business - the front warehouse has become the same as the traditional retail and e-commerce methods, has become one of the basic retail ecology, and has become a way for many young users to efficiently solve high-quality meals.
It should be known that three meals a day, as the catering scene with the highest consumption frequency, will reach 5 trillion yuan in the fresh retail market in 2020. According to iResearch data, the industry scale of fresh e-commerce in mainland China will reach 458.5 billion yuan in 2020, an increase of 64% year-on-year, and the online consumption habits consolidated by residents during the normalization of epidemic prevention and control will also help drive the industry to continue to maintain a high growth rate in the next few years.
In fact, in the author's opinion, fresh e-commerce does not have to pursue the absolute loyalty of users, users do not have to have the only dependence on any one of the business models, daily need to get home from work to receive fresh vegetables, you can also feel the fireworks of supermarkets or vegetable farms on weekends or occasional leisure; the elderly can also buy vegetables through online orders when it is inconvenient to travel. This is not a contradiction.
The author once asked a young family around the reasons for choosing to use fresh e-commerce: First, they almost do not have the time to go out to buy vegetables every day, so they can only rely on delivery to their homes; secondly, some pastries, bread, and meat in many markets make people look very eager to buy, but on the fresh e-commerce App, especially some of their own brands, whether it is packaging, raw material identification or quality, it seems that they can "close their eyes to buy", and the service and after-sales service are more convenient. What they need is, "How can I eat better and more conveniently when the price is controllable." ”
To borrow a phrase from the new consumer outlet: all consumer goods are worth doing again. In fact, all fresh and standard consumption is even more so, in such a market space, the concentration of fresh e-commerce platforms in the category and user side is actually very large, and the economic value of redoing the goods will be greater.
Therefore, for fresh e-commerce companies, what is more important than competing for users is the strength of commodity capabilities and supply chains and infrastructure, because this determines who can keep the service experience from dropping, obtain users for a long time, and obtain their "relative loyalty".
That is to say, the key to whether Dingdong can achieve national profitability after the profitability of the regional food purchase area lies in whether it can break down regional barriers, continue to increase order density in a wide market space, and fill market capacity; the second is to see whether its supply chain capacity and infrastructure can provide more competitive commodities to flexibly meet the consumption habits of different regions.
Retail eventually returns to "retail", in which the key competitive factor lies in the competition of the supply chain, and the supply chain ability tests the ability of the enterprise to extend upstream through the procurement end and the warehouse allocation ability. Extending upstream can obtain a stable and low-priced supply of goods, while strong warehouse allocation capabilities can reduce costs and losses, ultimately improve user experience, and achieve cost reduction and efficiency.
At present, Dingdong buys vegetables and continues to increase the proportion of direct procurement of commodities, in-depth cooperation with upstream producers in processing, and the construction of factories and fresh complexes. If all goes well, the replication of its profitable model will enter the fast lane in the future.
Therefore, from the current momentum, the probability of Dingdong buying vegetables breaking through the dilemma of full profitability is larger, and the speed of achieving self-generated hematopoiesis may be faster than imagined. In the case of continuous narrowing of the loss rate and high efficiency of capital utilization, even if the overall financing channels of the market are tightened, cash reserves are expected to support Dingdong to buy vegetables until it is sustainedly profitable.
At the very least, busy people who want to take a bite of hot soup at home don't want to see these apps leave their lives prematurely.
(This article does not constitute any investment advice, and the content of information disclosure is subject to the company's announcement.) Investors operate accordingly at their own risk. ）