At a time when "Daily Excellent Fresh" is being questioned, there is good news from Dingdong Grocery Shopping in the same fresh e-commerce track.
On August 11, Dingdong Grocery released its second quarter performance report for the year ended June 30, 2022. According to the report, Dingdong's revenue in the quarter was RMB6.63 billion, an increase of 42.8% year-on-year; Non-GAAP net profit of $20.6 million, the first time to achieve a phased profit.
The once-much-maligned pre-warehouse selling mode has finally begun to make money?
Dingdong buy vegetables in the second quarter of this year to achieve profitability performance report screenshot
However, Dingdong, which has been questioned by losses, is still far from a bright future.
On the one hand, Dingdong buying vegetables has often attracted attention recently because of doubts such as "withdrawal of the city" and "layoffs". If the current financial performance of Dingdong buying vegetables benefits from the "cost-side optimization" brought about by the survival of the broken arm, then it is obvious that it is difficult to last, and it is not conducive to becoming bigger and stronger; On the other hand, the core problem of Dingdong buying vegetables is still whether the "front-end warehouse model" can run through and find a stable and sustainable profit model.
Now that the daily excellent fresh festival is losing, the outside world's doubts about the front-end warehouse model will only increase. At the same time, the pull of the epidemic on performance is not stable and long-term, in the future, Dingdong to buy vegetables only to find a healthy and sustainable way to reduce costs, and improve their revenue performance, in the "buy vegetables" business to make better technical and product strength, it is possible to meet a chicken and dog, lively dawn.
The withdrawal of the city and the layoffs only relieve the "near thirst", and only by abandoning the epidemic factor can we see a more realistic answer
From the perspective of revenue, Dingdong Buy's revenue and GMV (total commodity trading) performance in the second quarter of this year are acceptable.
During the period, dingdong's total revenue from buying vegetables was 6.63 billion yuan, an increase of 42.8% year-on-year and 21.9% month-on-month. In the performance report, Dingdong Buy food attributed it to the increase in average order value, as well as the increase in membership subscribers. In terms of sales, the GMV was 7.12 billion yuan, an increase of 32.3% year-on-year and 21.6% month-on-month. In the eyes of the outside world, the outbreak of the new crown epidemic in first-tier cities such as Shanghai has "outweighed the disadvantages" of the online grocery shopping business, which has improved the performance of fresh e-commerce companies such as Dingdong grocery shopping, but looking to the future, this pull is not sustainable.
Dingdong buy vegetables in the second quarter of this year revenue and GMV to achieve growth performance report screenshot
The problems in reality are more complex.
According to the Financial Associated Press, Dingdong buys vegetables this year, including Anhui Xuancheng, Chuzhou, Guangdong Zhongshan, Zhuhai and other cities, superimposed layoff news, the cost side is further optimized, and then to achieve loss reduction and profitability. This means that Dingdong buys vegetables from loss to profit, and must face a question: Is this because the cost structure has been greatly improved, or has the business contraction brought about a short-term boost? This needs to be observed in a longer time dimension.
By the same token, revenue and GMV growth also require detailed data on order volume and customer numbers for further explanation.
From this point of view, the data of the epidemic factor is more explanatory.
According to the report, in the first half of this year, dingdong buy vegetables in the Yangtze River Delta region revenue increased by 47.9% year-on-year, and achieved a positive operating profit margin of 3.7%. Take Shanghai, for example. In May 2017, Dingdong Buy Vegetables was founded and opened in Shanghai, and then blossomed in Hangzhou and other cities. In December last year, Dingdong, which had been losing money for consecutive years, was the first to achieve overall profitability in shanghai. During the new crown epidemic in the spring of this year, a large number of users obtained daily necessities such as fresh products through Dingdong to buy vegetables, and many consumers chose to buy more things (increasing the unit price of customers) and opening memberships (increasing non-product categories, that is, service revenue).
Burning money is not a problem, the problem is to prove the front position mode
Dingdong grocery shopping and daily excellent fresh, their most essential feature is the "front warehouse mode". Visually speaking, they are like fresh supermarkets that are sold 100% online, and small warehouses are built near residential communities to achieve fast delivery. This is one of the main differences between them and the combination model of hema and the store-warehouse combination model, the supermarket home model such as Jingdong Dajia, and the community group buying model such as Xingsheng Preferred.
Unlike traditional warehouses, which are far away from consumers, front warehouses are often near consumers, and the distance is mostly within 3 kilometers. On the one hand, this can ensure the timeliness of fresh products, while at the same time saving operating costs. However, the cost of offline stores is saved, but the cost of performance is coming again: the cost of buying vegetables in Dingdong is not only the purchase cost of fresh goods, but also the rent of the front warehouse, cold chain logistics, labor, distribution and other costs, which is also the key to the front warehouse model.
The essence of the front position is to provide consumers with a balance between the cost of time and the price of goods. Specific to the business of buying vegetables, it is "affordable price, fast delivery time, and fresh things". Fresh food itself has a series of characteristics: low unit price, low gross profit margin, but it is a strong demand for just needs, high consumption frequency, and difficult to distribute. This brings up a problem that cannot be solved by burning money.
The essence of burning money is a business model that attracts customers with subsidy policies, builds "infrastructure", and eventually turns ordinary people into "residents" on this commercial map (cultivating consumption habits, creating industry ecology, etc.), and then realizing monetization. In some platform economic services, or online shopping for non-fresh goods, it can often achieve "marginal cost reduction" - it will require a large fixed cost input at the beginning, and then enter the stage of scale effect, and for a long time, the cost of additional production unit products will be lower and lower.
However, the front-loading model of fresh e-commerce often shows a completely different side: the marginal cost is almost not decreasing.
Fresh food requires extremely high-cost cold chain logistics, and if it is not sold in a short period of time, it will face inventory impairment. To put it bluntly, it is rotten - and compared to the one-size-fits-all judgment of whether the clothes are good or not, the freshness of freshness is gradual, and some categories are sent early and sent late for a few hours, bringing a completely different consumer experience. This requires strong inventory management skills.
The increase in orders can theoretically dilute the cost, but in the fresh food industry, if the management and operation are improper, it is likely to push up the cost. Compared with other industries, fresh food is obviously in a very awkward position. For example, catering, although everyone belongs to the business of low unit price, strong demand, frequent consumption and demanding delivery speed, it is obvious that the delivery of catering is less difficult - the rider carries the takeaway and leaves.
Comparison of different industry characteristics Produced by Zheshang Securities Research Institute
Fresh e-commerce, one end in the supply chain, one end in the distribution chain. The basic plate of Dingdong buying vegetables has almost no competition threshold and technical barriers for giant enterprises such as Meituan and JD.com; However, on the other hand, dingdong buys vegetables and it is difficult to easily enter the market where Meituan and JD.com occupy a dominant position. First, fresh e-commerce needs to maintain its attractiveness and bargaining power to suppliers, and consecutive years of losses and extended account periods will affect supplier confidence; Second, supply chain construction often requires a lot of "infrastructure" work, which requires a lot of financial and human investment, compared with the enterprises in the subdivision track, cross-field giant enterprises often have more scale advantages.
Fresh e-commerce such as instant retail, in fact, and takeaway is very similar, since everyone only earns a little bit of an order, then the profit is saved - high performance costs will directly erode profits. Either reduce costs, or external financing, or strategic losses, through other businesses to return the blood. In terms of delivery costs, the community group purchase of next-day delivery and consumers having to pick up their own money may be lower.
According to the Zheshang Securities Research Report, Meituan Takeaway achieved profitability for the first time in 19Q2, when the average daily order volume was 22.9 million, and the average cost of a single rider was 7.5 yuan / single. Referring to the meituan, Dingdong, Dada financial report, the team calculated that in 2021, the cost of Meituan takeaway 1P, Dingdong, and Jingdong home delivery costs were 7.1, 18.8, 22.9 yuan / single, respectively - Meituan's takeaway delivery staff is very large, and the transportation capacity between takeaway delivery and instant retail can be used interchangeably.
2021 Meituan takeaway 1P, Dingdong, Jingdong home delivery cost comparison Figure source Zhejiang Securities Research Institute
In the face of the inherent fulfillment cost problem of the business model, Dingdong, which is deeply cultivating fresh e-commerce, obviously does not have many advantages.
Burning money is not a problem, the problem is that the front-loading model can prove itself. If burning money can establish a viable business model that ultimately meets consumer demand, improves the consumer experience, and achieves reasonable profitability for the business, and even the expectation of driving productivity development, then it is also a good thing in some way. But if burning money is just burning money, and the business logic does not run through, it will not last long.
The core of the front-loading model lies in whether it can solve the problem of high performance costs.
According to the data, the "performance fee" of Dingdong to buy vegetables in the second quarter was 1.5418 billion yuan, down 9% year-on-year; Sales and marketing expenses were RMB146.7 million, down 64.2% year-on-year; General and administrative expenses amounted to RMB153.5 million, a decrease of 49.9% year-on-year. Whether the front-end warehouse model can prove itself, it needs to put aside factors such as the epidemic situation, the withdrawal of employees in the city, and put it in a longer cycle to judge that the data of a single quarter is not enough.
Dingdong buys food in the second quarter of this year's performance expenses fell by 9% year-on-year Screenshot of the performance report
Open source or throttling, that's a question
Profit essentially comes from lower costs, or more revenue.
From the consumer's side, those consumers whose vegetable markets are at their doorstep do not need to use channels such as fresh e-commerce. This naturally determines that for a long time, the main battlefield of Dingdong to buy vegetables is Beijing, Shanghai and other first-tier cities and even super-first-tier cities. Behind the withdrawal of the city and the layoffs, Dingdong buys vegetables to consider the question of expansion or contraction.
If you shrink, only pay attention to Shanghai and other super first-tier cities, fresh e-commerce in the field of "so-and-so to buy vegetables", I am afraid that it will become "Shanghai to buy vegetables" or "Yangtze River Delta to buy vegetables"; The contraction of the overall market will also require the development of force in the market segment - for example, for white-collar consumers, compared with sending vegetables within half an hour, is it possible to send more high-quality, high-end fruit products in the same delivery time?
If the expansion is aimed at the users of first- and second-tier cities in the broader market, then the number of front-end warehouses will inevitably be affected by the level of urban economic development, and the adaptation to cities is limited. Under the premise that it is destined not to become a national business, fresh e-commerce needs to reasonably select the target city and formulate a more scientific, careful and prudent localization policy, which is a problem that cannot be solved by burning money.
Increasing the unit price of customers, increasing gross profit margin, or increasing order density, optimizing performance costs, Dingdong buying vegetables and other pre-warehouse models need to find a synergy point on these issues.
The small number of rider delivery orders will lead to a significantly higher average delivery cost of Zhejiang Securities Research Institute
Under the premise that the dilemma of the front warehouse mode is difficult to break through, it can be seen that Dingdong buys vegetables in terms of pre-made dishes and other aspects. For the most part, this can be seen as a good thing. In addition to strategies such as continuously improving the quality of prefabricated products and seeking a second growth curve, other perspectives will also bring some thinking.
Fresh e-commerce and community group buying are all Internet or platform companies "grabbing business" with vegetable vendors. The pain point is that companies and enterprises in this process, do not really let technology play their role, just let capital to encircle the land. "Burning money and enclosure" hurts vegetable vendors, "consecutive years of losses" hurts enterprises and investors, and finally let consumers pay the bill, which people do not want to see.
The front-end warehouse model wants to prove itself, if the choice of the way is to optimize in the area with high order density and high customer unit price, then this will put forward higher requirements for artificial intelligence and big data capabilities, and enterprises can improve efficiency, reduce waste, and optimize output as much as possible through better production management tools, then maybe this is what people call "digital transformation" every day; If we make efforts in intelligent machinery and smart agriculture, the realization loss is far lower than that of traditional fresh formats, and the quality control greatly exceeds that of ordinary fresh ecology, then it may also win a better reputation in the hearts of consumers.
This is not far away: the use of technology and big data can reduce the cost of the supply chain, which means that the gross profit space is improved; Build a smarter distribution network, from the central warehouse, the front warehouse, the delivery staff to the consumer time can be reduced; If the warehousing and logistics equipment can be more intelligent and economical, and the comprehensive scheduling of fresh categories and distribution distances can be more scientific, then the cost of loss is expected to be reduced, and the quality of fresh food will be further guaranteed.
The essential model of burning money is enclosure, an exclusivity struggle between you and me. In the face of the low-profit business of selling vegetables, it may be the moment of change. In many business models based on burning money, in the past, there was often a phenomenon of "only looking at the scale, not looking at profits", "only talking about market share, not talking about symbiosis and cooperation", which was inherently unhealthy, after all, after the monopoly position was formed, it was still consumers who were injured. If companies pay more attention to profit performance rather than market share, and at the same time can achieve mutual cooperation with other companies, complement each other's advantages in traffic, cost, product supply and logistics, exchange time and space for the future, and let the business return to the business itself, this may be more worth looking forward to.
Stepping out of the thinking framework of "small traders and small vendors and vegetable farmers grabbing business", Chinese enterprises should go to the sea of technological innovation and commercial innovation.
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