After burning 40 billion, will the pole rabbit "catfish" eventually turn into a dragon or become a "meal on a plate"?
J&T Express Hong Kong Stock Exchange listing ceremony site map.
Just after Double 11, it is still lively on the surface, and the data is quite beautiful. However, it is an indisputable fact that the development of e-commerce has been bottlenecked and has entered the era of stock competition, and the increment is weak. The express delivery industry, which is extremely dependent on e-commerce, will inevitably be affected, and it is in this context that J&T Express has entered without hesitation, and has also offered a great method of burning money with a hundred attempts and a hundred losses.
According to the J&T Express Hong Kong IPO prospectus, although it has achieved the sixth position in the Chinese market, its financial situation is not so good: from 2020 to the end of June this year, its net profit is mostly in a state of loss, with -664 million US dollars, -6.192 billion US dollars, 1.573 billion US dollars and -667 million US dollars on an annual basis, respectively. Even if you only look at the non-net profit, from 2020 to the first half of 2023, J&T Express has been losing money for 3 and a half consecutive years, with a cumulative loss of 36.9 billion yuan, plus the previous loss, 40 billion yuan of financing is almost burned out. In 2022, the reason why J&T Express achieved profitability was not due to the contribution of its main business, but due to changes in fair value, which was not sustainable.
J&T Express is known as the "catfish" by the outside world, because of its rapid rise at the same time, it has also stirred up the relatively stable express market pattern. However, from a long-term perspective, it may remain to be seen whether its rapid expansion and a large amount of money-burning methods will help catfish "turn into dragons" or eventually become a "meal on a plate" for others.
Is the international story moving or "frozen"?
All kinds of signs show that the story of internationalization is the priority theme of J&T Express's external publicity. The prospectus begins: "We are a global logistics service operator with a leading express business in Southeast Asia, competitive in China, and expanding into Latin America and the Middle East. The prospectus also shows that J&T Express's business volume in Southeast Asia in 2022 will be 2.513 billion pieces, with a market share of 22.5%, ranking first.
However, it is not difficult to find that whether it is the Southeast Asian market or the new market it says, the contribution to the J&T Express business is not critical, and the real key can only be the Chinese market.
According to the data, in 2022, the business volume of J&T Express in the Chinese market will be 12.026 billion pieces, which is close to 5 times that of the Southeast Asian market in the same period. This year, the total number of global parcels of J&T Express reached 14.6 billion, of which the Chinese market accounted for more than 80%. In the first half of this year, its business volume in the Southeast Asian market was 1.438 billion pieces, and the business volume in the Chinese market was 6.446 billion pieces in the same period. It is also expected that from 2023 to 2027, the overall parcel volume of the Southeast Asian market will increase from 13.2 billion pieces to 23.5 billion pieces, and the overall package volume of the Chinese market will increase from 125.1 billion pieces to 188 billion pieces during the same period.
Whether in terms of actual business volume or the growth of the overall market in the future, J&T Express can only rely on the support of the Chinese market. It is an indisputable fact that the development of the express delivery industry is heavily dependent on the development of e-commerce, and the Chinese e-commerce market on which J&T Express depends has entered a bottleneck period of development.
After the impact of the epidemic, the recovery of consumer confidence has been a process, and as the economic downturn concerns intensify, the public has a lot of doubts about the certainty of future income, accompanied by more conservative consumption and more cost-effective requirements. Take this year's Double 11 as an example, several major e-commerce companies are all making a fuss about "low prices", wanting to compete for the "crown" of the lowest price on the whole network. This is one of the most obvious reflections of the slowdown in e-commerce development.
In addition, the slowdown in the growth of the e-commerce industry is also reflected in the annual reports of major e-commerce, and Alibaba's financial report for the 2023 fiscal year (Q2 2022 to Q1 2023) shows that the revenue of the core business of China's commercial retail business (Tmall, Taobao, Taocaicai, Hema Xiansheng, etc.) was 565.332 billion yuan, down 1.7% year-on-year. In 2022, JD.com's retail business revenue will reach 929.9 billion yuan, a year-on-year increase of 7.3%, and the growth rate has also slowed down.
Lacking increment, the competition can only be stock, and the "low-price exchange" operation of e-commerce has also been transmitted to the express delivery industry. In fact, in the early stage of the development of China's express delivery industry, most of them fought price wars to compete for the market, and then after a relatively stable period of time, the sudden appearance of J&T Express with the attitude of "catfish" set off a new round of price war, and this round of price war seems to be more "bloody".
Yiwu, the battleground of the express delivery industry, has bottomed out after experiencing the lowest unit price of only 1.2 yuan in 2019, and the circle has basically reached a consensus on a "truce". As a result, in March 2020, J&T Express suddenly entered, completely turning "tragic" into "bloody": it only costs 0.8 yuan to send express delivery!
In the first three quarters of 2021, when the war was at its most intense, all the companies that "participated in the war" were greatly "hurt": the net profit attributable to the parent of YTO Express was 954 million yuan, a year-on-year decrease of 31.16%, the net profit attributable to the parent of Shentong Express was -240 million, a year-on-year change from profit to loss, and the net profit attributable to the parent of SF Holdings was 1.798 billion yuan, a year-on-year decrease of 67.89%.
In the end, the disorderly competition in the express delivery industry led to the intervention of the regulatory authorities. In March 2021, the Yiwu Express Association issued the "Implementation Opinions on Maintaining the Stability and Orderliness of the Industry and Promoting the High-quality Development of the Industry", in April, the Yiwu Post Administration further regulated the local express delivery prices, in July, the State Administration for Market Regulation issued the "Administrative Punishment Provisions on Price Violations", focusing on cracking down on the behavior of "dumping at a price below cost for the purpose of squeezing out competitors or monopolizing the market"; In September, the Zhejiang Provincial People's Congress deliberated and passed the "Zhejiang Provincial Express Industry Promotion Regulations", which drew a red line for the express delivery industry in the form of local methods.
The "Zhejiang Province Express Industry Promotion Regulations" is the first express delivery method
According to market estimates, J&T Express is likely to have burned three or four billion dollars in the price war. According to its prospectus, from July 2017 to May 2023, J&T has completed 9 rounds of financing, with a cumulative total of more than $5 billion. If the low-price competition strategy is still adopted in the future, the competitive pressure will only be further amplified.
The oligopoly competition is on, how does J&T win?
Today, the express delivery industry has gone through two rounds of reshuffle, and the industry concentration has reached a considerable peak, with the top five shares superimposed close to 80%, and the sixth-ranked J&T Express is close to 90%. The next step in the competition of the leaders will inevitably be the birth of the oligarchs.
On the one hand, it is the disadvantage of being a latecomer, after all, J&T Express will only start to exert force in 2020, and the foundation is relatively weak; on the other hand, it needs to immediately face the competition of the oligopoly pattern, and the time left for J&T Express cannot be said to be less, but it can only be said that it is really too little. How long can relying on burning money to mergers and acquisitions and price wars last?
As a traditional project for the development of China's Internet field, the Dafa of burning money has failed in all its attempts. In the field of local life, the former "Thousand Group War" does not know how many group buying companies have been "burned". Founded in 2010, Meituan, as a survivor of the market, is now the largest in its category, but it has not completely recovered from the quagmire of losses, and its core business delivery services still lost 8.1% in the first half of this year. Didi Chuxing, another company that also uses the method of burning money to achieve the first place in the field of core business, showed that the adjusted EBITA in the third quarter was a loss of 315 million yuan, a year-on-year loss of 2.3%.
For J&T Express, due to the price war all the way, its own profitability has also fallen again and again. Take the unit price of customers as an example, according to the data of recent grassroots research, among several leading economic express delivery companies (commonly known as Tongda Rabbit), Zhongtong is the highest, followed by Yuantong Yunda, which is lower than Zhongtong 0.1-0.3 yuan/piece, followed by Shentong, which is lower than Zhongtong 0.4-0.5 yuan/piece, and finally Jitu Express, which is lower than Zhongtong 0.6-0.8 yuan/piece.
The low unit price maintained by burning money naturally seriously affects its own profitability, and the 10.9% market share won by burning money can not strengthen the strength of the oligopoly position too much, after all, there are five leading companies in front of J&T Express, and the volume of the sixth place in the market is not enough to win by volume. The dual factors of customer unit price and customer order volume are superimposed, and the competitive situation of J&T Express is not optimistic.
In addition, J&T Express adopts a regional agency model, which is essentially a "variant" version of the franchise system, compared with the express delivery leader that takes direct sales and direct franchise, in fact, there are more levels to manage. Not to mention whether it has substantially increased operational drawbacks, let's just say that the multi-level segmentation of benefit distribution will definitely weaken the profitability of all levels, including J&T itself.
The low unit price, the lack of advantages in the number of customer orders, and the weakening of profit distribution are superimposed, and all kinds of factors have to sweat for the profitability of J&T Express.
Regional Agency Model Diagram (from Hong Kong IPO Prospectus)
Now it seems that burning money may just be a "strong pill with huge side effects". In order to offset the "side effects", Internet giants have invariably sought profits from diversified operations and refined management. For example, Meituan operates on multiple tracks such as food delivery, finance, and bicycle sharing, while Didi Chuxing runs on taxi-hailing, finance, and bike-sharing tracks. No matter how many tracks they cross, they can't get rid of the foundation of their original advantages, and basically use one app to achieve complete integration of business.
J&T Express, which has only been working for three years, does not have the ability to diversify for the time being, whether from the perspective of external competition or internal strength. This can also be seen from its prospectus, most of the fund-raising income of the stock market is still invested in infrastructure, including warehousing expansion, service expansion, etc. If you want to diversify, in a word, "strength is not allowed!"
The number of diversified roads is not passable, and burning money to fight price wars seriously affects profits, so where do the profits come from?
"In the future, the competition pattern of the express industry will depend more on the comprehensive competition in terms of service quality, refined management and cost control. China Merchants Securities said in a recent research report: "If express companies want to win in the competition, they need to grab the market through service upgrades, demand premiums, and control costs and profits through refined management." Service, share and cost are actually related to the "quality, quantity, and profit" of the express company.
Back to J&T Express, its late-mover disadvantage has always been a problem that cannot be ignored, and its own pace of development is indeed slightly behind the first echelon of the industry. According to the J&T Express prospectus, "about 30% of the proceeds will be used to expand the logistics network, upgrade infrastructure and strengthen sorting and warehousing capabilities and capacity in Southeast Asia and other existing markets, about 30% will be used to develop new markets and expand the scope of services, about 30% will be used for research and development and technological innovation, and about 10% will be used for general corporate purposes and working capital needs." It is not difficult to see that J&T Express also needs to further make up for the shortcomings of its own infrastructure. In contrast, the first echelon in the same period has taken steps in refined management and service upgrading through digital reform, management empowerment and other means, and has shown initial results.
The lagging pace of development will inevitably bring huge competitive pressure to J&T Express. It remains to be seen whether the next step in its internationalization story will continue to be as moving as it was preached. After all, the leading domestic companies are also developing the international market at the same time. On different battlefields, J&T Express will face the same "enemy". At the same time, international giants such as UPS and FedEx are also eyeing up and have more advantages, after all, they started with the international route.
Nowadays, the competition curtain of the oligopoly position of the express delivery industry has been officially opened, so this "big fish eat small fish, big fish eventually turn into dragons" drama is the inevitable ending, who will become a dragon and who will become a "plate of food", you might as well move a small bench to the rooftop to "sit and watch the wind and clouds".