Image source @ Visual China
Text | Beijing Maritime Securities
Why are most of the players on the instant delivery track mainly losing money?
At Q4 2021, Meituan Takeaway, a subsidiary of Meituan (Hong Kong Chinese stock: 03690), had delivery revenue and cost of 14.3 billion yuan and 18.3 billion yuan respectively. That is to say, Meituan delivered a single takeaway loss of more than 1 yuan.
From the perspective of a variety of factors, Beijing Haizheng believes that although orders in the instant delivery industry will continue to increase, the problem of profitability is still unsolved. Why?
01 Instant delivery: 100 billion orders for near-field logistics
The instant delivery business was born out of the early takeaway delivery platform. For example, in 2006 and 2008, KFC and McDonald's successively launched the "KFC Home Express" and "McDonald's" services, customers placed orders by phone, and then the company pushed the order to the nearest store to the customer, and the store arranged special personnel for delivery, which basically laid the prototype of the follow-up instant delivery business.
Today, the instant delivery business is gradually showing a trend of diversification. Running errands, fresh fruits and vegetables, flowers and cakes, retail convenience, etc., we have gradually entered the era of everything that can be delivered. With the development of third-party mobile payment and the rapid increase in the number of domestic netizens, orders for instant delivery have also ushered in rapid development.
Taking the data released by iResearch Consulting as an example, the domestic instant delivery in 2015, the industry market size was only 24 billion yuan, but by 2020, the industry as a whole has exceeded 170.08 billion yuan, doubling the growth in just a few years. In the same period, the scale of users has also reached 400 million person-times, and the number of orders generated is 22.84 billion, with a growth rate of 18.1%.
However, it is worth noting that at present, food and beverage takeaway is still the main source of orders in the instant delivery industry. Taking the 2020 instant delivery Top 10 list released by China Logistics Magazine as an example, the orders of meituan delivery and hummingbird meter ranked first and second have exceeded 16 billion, while the total number of orders similar to flash delivery and point I da is only more than 200 million. Obviously, in the current instant delivery market, Meituan Delivery and Hummingbird basically won most of the market share of the entire industry.
In addition, from the perspective of the existing user scale, number of riders and coverage of Meituan and Hummingbird, this pattern is also difficult to break in the future, and the opportunities for small and medium-sized players are limited as a whole. Judging from the situation in the next few years, Beijing Haizheng believes that domestic orders for instant delivery industry will also increase rapidly on the basis of the original.
First, the takeaway industry will continue to contribute a steady stream of orders to the instant delivery industry. First of all, the number of one-person households in the country will continue to increase. According to the data released by the China Statistical Yearbook 2021, the number of one-person households in China in 2020 was 125 million, accounting for more than 25% of the total number of 494.16 million households in that year. The number of one-person households consists mainly of single young and old people.
Even with the gradual death of some elderly people in China, the increase in young people is enough to offset this part of the reduction, especially the gradual spread of the idea of not falling in love, not marrying, and not having children in the younger generation, and the number of one-person families in the country will only increase unabated. Secondly, the epidemic will accelerate all walks of life into a new round of reshuffle period, with the withdrawal of existing enterprises and the addition of new enterprises. For surviving businesses, the workload of employees will also increase.
Finally, the areas not covered by Meituan and Hummingbird are mainly concentrated in rural areas in China. However, with the acceleration of subsequent domestic urbanization, its coverage and takeaway penetration rate will also increase. Among them, the overall order volume of the mainland takeaway market in 2020 was 17.12 billion, an increase of 7.5% over the same period in 2019. If the impact of external factors on the takeaway market is taken into account, the industry as a whole will increase at an average annual rate of 6%, and takeaway orders will reach about 23 billion in 2025.
Second, the orders generated by the new retail industry will become a new growth pole for orders in the instant delivery industry. On the one hand, it is an indisputable fact that the traditional real industry is becoming more and more difficult to do under the impact of e-commerce. The contactless delivery proposed during the epidemic has made many traditional merchants no longer reject e-commerce, but they have begun to actively embrace e-commerce and use e-commerce to empower physical stores, and users have gradually recognized this delivery model. In the future, more and more physical stores will begin to transform into new retail, and the increase in the number of merchants will also drive the increase in orders.
On the other hand, at present, companies including ByteDance, JD.com, Ali and other companies are also on the road to layout new retail. With the deepening of their subsequent layout, the area covered, the number of goods, and the number of users will also increase, which will inevitably lead to a continuous increase in the number of orders in related industries.
Since the instant delivery industry still has broad room for growth in the future, it is probably too early to say that this industry is the Red Sea. Theoretically, the higher the order volume, the more obvious the scale benefit, and the profitability of the enterprise can also be improved. Taking Zhongtong (Hong Kong Chinese stocks: 02057) as an example, after its average daily vote volume rose from 10 million to 47 million per day, the transfer cost fell from 1.2 yuan per order to 0.8 yuan per order.
But why does the instant delivery industry increase its costs as orders increase? For example, in the process of Meituan takeaway rising from 10 million per order to 28 million per order, its cost has not decreased, and even the situation of losing 1 yuan for 1 single delivery has occurred? What is the reason for this?
02 Profitability problem: Scale effect is difficult to form
On the surface, excessive labor costs have eroded the profits of instant delivery companies. Although the service models under the four processes of takeaway service process, fresh home delivery and supermarket service process, purchase and delivery service process, e-commerce warehousing/express delivery service process and landing distribution service process are different, they are essentially a peer-to-peer delivery service. In addition, the establishment of this service model revolves around the rider, which determines that labor costs are the bulk of the cost of the entire industry.
In the case of Meituan and Dada, the cost of riders accounts for about 73% of a single ticket revenue. In 2020, Meituan's single takeaway revenue was 9.33 yuan, the profit of a single takeaway operation was only 0.4 yuan, and the gross profit of Dada's single ticket was only 0.96 yuan. In fact, this over-reliance on human labor business models is very fragile.
On the one hand, there is a lot of uncertainty about people. For example, the transit process of the express delivery industry can reduce the cost of all aspects through the planning of the line. But in the instant delivery industry, the route of the order fulfillment process is determined by the rider, and the uncertainty on the route makes the cost rise accordingly. In addition, extreme weather and the government's strict management of electric vehicle license plates will have different degrees of impact.
On the other hand, in addition to the express delivery industry currently used as self-operated riders, most of the self-operated + crowdsourced riders selected by other companies must also maintain the rider commission given within a certain range.
Especially at present, with the rising cost of labor, if the instant delivery platform significantly reduces the commission given to riders, it will inevitably lead to the withdrawal of a large number of riders, and the entire platform will also collapse.
At a deeper level, it is difficult for instant delivery platforms to form economies of scale, and it will certainly make profitability in the industry incomprehensible. If according to the production organization form and the characteristics of the corresponding performance mode, e-commerce logistics can be divided into three categories, one is the traditional e-commerce as the representative of the network express delivery, the user from the commodity order to the final receipt of the time is generally about 2-3 days. One is the integration of warehousing and distribution represented by community group buying, which is a next-day delivery model that is currently used in this distribution mode. The other is the current instant delivery logistics. The most prominent feature of this model is fast, and with the intensification of industry competition, today's instant delivery has even entered the competition in minutes.
In the first two modes, enterprises can centralize the distribution of orders in a certain area, which greatly reduces the cost of the delivery staff on the road, and the number of orders delivered per unit time will also increase. However, in the real-time delivery mode, because the order has a sudden, accidental, and decentralized nature, even if the delivery man merges the orders in the nearby area, the community management methods where the customer lives are different, the customer's requirements are different, and the types of goods are different, which makes the order that the delivery man can deliver in a unit time is actually limited, and it is difficult to form a huge economy of scale.
With the growth of orders on the instant delivery platform, this means that the relevant companies must add more delivery personnel to complete the fulfillment of orders to improve the customer experience. With the substantial increase in labor costs, this in turn makes the development of enterprises fall into a vicious circle.
At present, if you want to reduce labor costs, you can only replace manpower through unmanned distribution. Even if the follow-up domestic unmanned distribution can achieve a breakthrough in technical issues, enterprises are willing to buy a large number of equipment. But under the prevalence of local protectionism, from provinces to prefecture-level cities to county-level cities, the policies issued by each region are different. We do not rule out that some provinces will issue documents similar to prohibiting unmanned delivery equipment from the road for safety reasons.
This means that the instant delivery platform wants to invest in unmanned delivery equipment on a large scale, which is still a long road and difficult to achieve. Since the instant delivery platform is still difficult to make a profit in the future, why is the capital in-depth layout? Is it simply because the future market size of this industry is large?
03 Capital: What medicine is sold in the gourd?
In fact, the strategic significance of the same-city business itself is much higher than profitability. First, the same city e-commerce has a higher anti-risk ability than traditional e-commerce. Taking the logistics industry under the epidemic as an example, express delivery from the place of departure to the destination, the anti-epidemic policies introduced by different places due to the degree of the epidemic can be described as very different, which leads to the domestic express delivery industry is basically paralyzed. E-commerce and express delivery are not separated, and the transaction volume of traditional e-commerce platforms in China will inevitably plummet.
But on the contrary, even in Shanghai, the epicenter of the epidemic, the local current ready-to-use business is still running, and for low-risk areas in China, the overall impact of e-commerce in the same city is relatively limited. Second, for e-commerce platforms, the same city business is a super traffic entrance for C-end users. Taking Meituan (Hong Kong Chinese stock: 03690) as an example, it has completed the in-depth binding of users through low-price and high-frequency takeaway business, making users dependent on Meituan.
Taking the takeaway business as the traffic entrance, and then expanding other business sectors in the same city such as finance and hotels, this has formed a closed-loop system for users. This diversification of business can also form a crackdown on single-business enterprises, and then continue to consolidate their market position in local life. Third, for third-party logistics service providers, that is, the distribution business can complete the accumulation of B-end consumption data.
Take SF Tongcheng (Hong Kong Stock: 09699) as an example, which is a key link in SF's supply chain platform. Through the accumulation of massive merchant and consumer data in the early stage, and through the analysis and integration of data, the later stage is with the help of clear user portrait data, so that there are chips for cooperation for small and medium-sized merchants. This will also enable SF's business to become more diversified, gradually get rid of the company's dependence on a single business, and realize the transformation and upgrading of SF.
04 Breaking the situation: the construction of informatization
Beijing Haizheng believes that if the ready-to-match platform wants to achieve sustainable development, its focus should be on promoting digital business transformation with the help of information systems. For example, with the help of AI big data, the number of orders in the field of instant delivery is estimated, and the route planning is done, and the orders are matched in real time. In particular, the platform should collect the rider's trajectory in time and analyze the rider's trajectory to obtain an optimal path, which can reduce the unnecessary time of subsequent riders to improve distribution efficiency.
That is, the future of the allocation of enterprises contains orders of more than 100 billion levels, and in the competition of strength and ability. Which company can perform better, and who can seize this opportunity well and break through the bottleneck of difficult profitability? Everything takes time to give an answer.