Sharp: if the front position wants to earn back the lost money, it is estimated that it can only go to metaverse

Source / spirit beast (ID: lingshouke)

Author / Chu buliuxiang

01

Loss – has always been the fatal injury of the “front position” model.

According to the financial data of the third quarter (as of September 30) released by dingdong shopping and Youxian daily, the losses of the two front warehouse head enterprises are still expanding year-on-year. Dingdong’s net loss in the third quarter was 2.011 billion yuan, an increase of 142.65% compared with 829 million yuan in the same period last year; The net loss of daily Youxian in the third quarter was 974 million yuan, an increase of 58.02% year-on-year. But there is not no good news. The revenue of the two enterprises is still growing. Dingdong’s revenue in the third quarter was 6.190 billion yuan, a year-on-year increase of 111%, and Gmv was 7.02 billion yuan, a year-on-year increase of 107.7%; The revenue of daily excellent fresh food in the third quarter was 2.122 billion yuan, a year-on-year increase of 47.2%. In addition, the total number of orders completed by Youxian daily reached 28.7 million, an increase of 34.4% over the same period last year; At the same time, the average price of each order reached 88.4 yuan, a year-on-year increase of 5.2%. However, the development direction and focus of the two enterprises are different: dingdong continues to cultivate the “front warehouse” business. As of September 30, 2021, dingdong has 1375 front warehouses in 37 cities across the country, an increase of 711 compared with the same period last year, and the number of cities has increased by 185% compared with the same period last year. In addition to the front warehouse business, daily Youxian launched the smart vegetable market business in the second half of 2020 and launched the retail cloud business in 2021. As of September 30, 2003, Youxian Daily has signed 73 smart fresh markets in 18 cities, including 52 smart fresh markets in 13 cities, and 11 signed supermarkets for retail cloud business. When discussing the front warehouse mode, Ding Dong shopping is more representative. Some media quoted insiders of pupu supermarket as saying that pupu has made profits in Fuzhou and Xiamen, but it is still a regional front warehouse enterprise. In the first quarter and the second quarter, dingdong’s net losses in buying vegetables were 1.385 billion yuan and 1.937 billion yuan respectively. If the loss of 2.011 billion yuan in the third quarter is included, dingdong’s cumulative loss in the first three quarters reached 5.333 billion yuan. However, as of September 30 this year, the cash, cash equivalents and short-term investments held by dingdong shopping were 6.817 billion yuan. Assuming that other operating data remain unchanged, according to the data of the first three quarters of Ding Dong’s shopping, the average loss in a single quarter is about 1.778 billion yuan. According to rough calculation, the cash flow of Ding Dong’s shopping can support nearly a year. Although this calculation method is simple and crude and has certain limitations, it can describe the urgent pressure Ding Dong will face in the future. Although the last year is not short, considering other competition and potential risk factors, this period of time is not long and should be prepared for a rainy day. Because in the short term, Ding Dong’s vegetable buying is still far from the goal of “profit”. At least for now, Ding Dong’s vegetable buying is still in the stage of “burning money for scale”.

02

Liang Changlin, founder and CEO of dingdong shopping, has repeatedly stressed the importance of scale. He believes that we should not talk about profit without scale. “Listing is not for money, so we have the confidence to do some difficult, right and long-term things. For example, we continue to improve the density of regional layout, extend to the upstream supply chain, increase technology investment, etc.” even if we emphasize scale, Liang Changlin has already realized the importance of profit. At the third quarter earnings conference, Liang Changlin said, “in the third quarter, the company adjusted its strategic focus and playing method, suspended the expansion of new regions, and changed from ‘scale first’ to ‘efficiency first, due consideration of scale’.” that is to say, dingdong’s focus on buying vegetables in the future is to move forward to “profitability”. Liang Changlin said that in the next quarter or two, the scale growth of dingdong’s shopping may slow down, but the company will achieve new growth with the improvement of efficiency and quality. “According to the current efficiency optimization, the profit of dingdong shopping will be more optimistic than expected during the IPO.” when dingdong shopping IPO this year, Liang Changlin expected to realize the correction of operating profit by the fourth quarter of 2024. If calculated according to this time, Ding Dong still has three years to make a profit. Yu Le, Chief Strategic Officer of dingdong shopping, said, “in Shanghai, where dingdong shopping was first operated, it is expected that the unit economic benefits will reach breakeven in the next quarter.” on November 5 this year, Jefferies group, a global securities and investment banking group, released a research report, “It is estimated that the compound annual growth rate of Gmv of dingdong vegetable shopping will be about 46% from 2021 to 2024, and the breakeven will be achieved in 2024, and the positive net profit rate will be achieved in 2025.” at the same time, the report believes that the economic model of dingdong vegetable shopping unit is constantly improved, and the target price of USD 38 is given. However, for the front warehouse model, the unsolved problem is that the customer order cannot cover the “performance cost” . in the third quarter, dingdong still faced the problem of high cost when buying vegetables: the cost and expense were 8.2 billion yuan, an increase of 117.3% compared with 3.777 billion yuan in the same period of last year, of which the commodity cost was 5.06 billion yuan (about 786 million US dollars) , with a year-on-year increase of 109.2%; the performance cost was 2.3 billion yuan, with a year-on-year increase of 120.8%. In addition, the sales and marketing expenses and management expenses were 428 million yuan and 153 million yuan respectively, with a year-on-year increase of 206.8% and 78% respectively. It is not difficult to see that the performance cost of dingdong in the third quarter exceeded 2.3 billion yuan, second only to the commodity cost, accounting for 28.05% of the total operating costs and expenses. In other words, the top The more new outlets are opened, the higher the performance cost of storage rent, workers’ wages, outsourcing riders and other expenses.

03

This is also why Ding Dong will choose the “efficiency first” playing method at this stage, because through the improvement of efficiency, it can reduce the cost of all links and improve the gross profit space. Due to the high performance cost, the front warehouse mode needs sufficient unit quantity and customer unit price to achieve profitability. The relevant research report issued by Northeast Securities shows that the performance cost of 300 square meters of standard pre warehouse is about 10-13 yuan / order without considering the transportation cost of products from the origin to the pre warehouse under the condition of 60 yuan per customer unit price and 600-1400 orders per day. Of course, this can only be used as a reference. Although the cost of performance is high, it is not without solution. Spirit beast once put forward a view in previous articles: first, through technological progress, improving efficiency can reduce the cost of performance; Second, increase the customer unit price and customer order quantity to cover the performance cost. The former is throttling and the latter is open source. In fact, Ding Dong’s purchase of vegetables has improved customer orders and expanded gross profit space by deeply cultivating the supply chain, expanding the proportion of direct purchase from the origin, adjusting commodity strategies, launching private brands and differentiated commodities, etc. This year, dingdong’s focus is on the semi-finished food market. On dingdong’s food app, such goods are also gradually increasing. Hot pot, salad, fresh food, instant cooked semi cooked dishes, Kwai Sai, instant food, semi processed products, chafing dish ingredients and barbecue ingredients. By expanding categories and subdividing more consumption scenarios, dingdong is trying to improve customer orders. At present, dingdong has gradually expanded from fresh products to prefabricated vegetables, flowers and green plants, daily necessities, etc. Among them, the gross profit margin of prefabricated vegetables is nearly 10 percentage points higher than the average gross profit margin. It is not difficult to see that simply selling vegetables can only be low gross profit. However, the processed semi-finished dishes are different. Through the processing, production and transportation of large warehouses, there may be 8% gross profit margin. According to Ding Dong’s plan to buy vegetables, the sales scale of semi-finished vegetables will reach 10% in the future. No doubt, Kwai Chi, private brand and so on are all ways to increase the quantity of customers and the unit price of customers, and there will be better gross margin, which will help to improve the overall gross profit of Ding Dong’s shopping. Jefferies group’s report said, “the private brand has brought greater commodity differentiation. At present, the popular series of ‘daily fresh’ pork, ‘Ding Dong Da man Guan’ hot pot, ‘Liangxin craftsman’ pasta and ‘boxing shrimp’ are very popular with users. It is expected that the Gmv contribution rate of its private brand will reach 8% in the fourth quarter of this year and 30% in the long term.”

04

Of course, all analyses are based on past data. In actual operation, the situation may be more complicated after introducing competitive factors. To take an inappropriate example, a regional chain community fresh food store has achieved breakeven in the second half of 2020, and the profit is in sight. However, when the community group buying business entered this area, the chain fresh food store became a loss again. The competition faced by the front warehouse format is not just fresh e-commerce in the same industry, but also community fresh stores, supermarkets, member stores and third-party home platforms. This is not an incremental market, but grabbing consumers in the stock market. Just think, if you rely on commodity power to win, at present, only Sam’s club can press many formats. In the future, will dingdong buy vegetables in the direction of “Sam’s club in the front warehouse”? From another angle, if Ding Dong stops subsidizing when buying vegetables, will it affect its flow? What does it rely on to drain and improve repurchase? More importantly, fresh purchase has no loyalty, and subsidies can not burn out a market. A CEO of a fresh e-commerce enterprise said that the front warehouse model has three key elements, namely customer unit price, gross profit margin and density. If the three are linked together, the role of mutual influence will be amplified. Sometimes raising the customer unit price is based on sacrificing the gross profit, “it is particularly difficult to deal with the relationship between the three”. “Assuming that the customer unit price, gross profit margin and density all increase, the enterprise will pay special attention,” said the CEO of the fresh e-commerce enterprise. At the same time, the overall supply-demand relationship of fresh production is relatively balanced, especially in large and medium-sized cities, the supply-demand relationship is in Nash equilibrium, and the competition between all parties is in a systematic and stable state. It is very difficult to break through this balance and must pay a huge price. In the past, the price Ding Dong paid for buying vegetables was that every time it entered a new city, it used subsidies to attract and retain users, that is, “burn money for scale”. However, the CEO of the fresh e-commerce enterprise still believes that there are great opportunities for fresh e-commerce: first, provide high-quality goods and good services around user experience. Because consumers have formed the habit of pursuing quality and service in other fields, this is an irreversible trend and it is difficult to go back. This requires fresh e-commerce to do a good job in terms of quality, cold chain, commodity traceability, quality control and service quality. For example, easy return, punctual arrival, one-stop shopping, etc. Second, focus on value creation and improve efficiency. Meanwhile, the CEO of the fresh e-commerce enterprise believes that the front warehouse has a market, but not all cities are suitable. Similarly, in a city, not all areas are suitable for opening front warehouses.     “The ‘wool Party’ that burns money doesn’t match the services provided by the front warehouse enterprises. Because they are unwilling to pay for home services, these are fake customers and meaningless.” it must be in the first and second tier cities and in areas with high density of high net worth people that are the customers of the front warehouse and suitable for the entry of the front warehouse. Of course, Ding Dong, who already has 1375 front warehouse outlets, will face a lot of competitive pressure in the future. In this case, can it make a profit? Or when will it be profitable?

Source / spirit beast (ID: lingshouke)

Author / Chu buliuxiang

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