Ding Dong buy food why do you insist on "do heavy"?

Ding Dong buy food seems to be taking a similar road with Jingdong and Amazon: endure losses, desperately do heavy. However, before Jingdong and Amazon achieve profitability, the road is always full of doubts. Ding Dong Buy food founder Liang Changlin believes that in the second half of the Internet, "do heavy" is difficult and correct, "only heavy not broken".

Fresh electricity supplier when profit?

This "century of torture", Ding Dong Buy food (NYSE: DDL) has disassembled a clear answer.

They were profitable in Shanghai in December; Strive to achieve full profitability in the Yangtze River Delta region in Q2 2022; Strive to achieve national profitability in Q4.

In the Q4 earnings call held on February 15, Liang Changlin, founder and CEO of Ding Dong Buy Food, said confidently: The company has found a profitable way and path.

From the financial report, in Q4 2021, Ding Dong Bought Food experienced the best quarter of operational efficiency since its establishment.

In the quarter, Ding Dong Maicai GMV reached 6.04 billion yuan, an increase of 59.6%; Revenue reached 5.48 billion yuan, an increase of 72.0%. Throughout 2021, the company's revenue was 20.12 billion yuan, a year-on-year increase of 77.5%.

With the rapid growth of transaction and revenue scale, Ding Dong Maicai's operating efficiency has been greatly improved: the gross margin of Q4 was 27.7%, a record high; The compliance rate is declining, with Q4 at 32%, a record low.

Q4, Ding Dong is still losing money, but the losses are narrowing. Under Non-Gaap, Ding Dong's quarterly loss narrowed to less than 13%.

These changes are due to the strategic transformation of Ding Dong Mai in the third quarter of last year: from the pursuit of "scale first" to "efficiency first, taking into account scale".

The transformation effect of Q4 makes Ding Dong management believe that the company can make profits by following this strategy.

So, Ding Dong buy food in the "efficiency priority, taking into account the scale" strategy, how to do? How to realize the profit from Shanghai area to the national profit? The Internet industry is unpredictable, Ding Dong buy food by what to beat the second half of the Internet?

From scale first to efficiency first

For a long time, electricity suppliers, including fresh electricity suppliers, are taking a similar development path: first to trade losses for scale, and then seek profits; The bigger you get, the more losses you probably have before you become profitable.

From Jingdong, Amazon, Pinduoduo, to Ding Dong buy food, without exception.

The goal of Ding Dong buying food is not "small and beautiful", but to be an infrastructure company, serving the general public and hundreds of millions of consumers.

Before the IPO bell rang in June 2021, Liang Changlin told the media, "Profit is not the current primary pursuit of Ding Dong Buy food, the next step, the company will further expand, the pursuit of greater scale."

In the face of ups and downs and the accumulation of uncertainty in 2021, preserving strength has become a more pragmatic choice for e-commerce companies. Dingdong bought Food in Q3 took the initiative to adjust the strategic focus, from scale priority to "efficiency priority, taking into account scale" transformation.

In Q4, the year-on-year growth rate of GMV and revenue of Ding Dong Maicai was 59.60% and 72% respectively; In Q3, the year-on-year growth rate of these two items was 107.70% and 111.00% respectively.

It can be seen that they are deliberately controlling the growth rate of scale, but the priority of profit is increased, and the loss is constantly reduced by improving efficiency.

Shanghai is the place where Ding Dong buy vegetables started, the headquarters is located, and it has also become the "experimental field" for them to explore profits. Ding Dong was profitable in Shanghai in December.

The management of Ding Dong Shopping revealed in the telephone conference after the Q4 financial report that the average unit price of customers in Shanghai exceeded 66 yuan, the gross profit rate of each single was more than 28%, the cost rate of processing and trunk transportation in the sorting center was 6%, the cost rate of pre-warehouse fulfillment was 15%, and the headquarters and marketing expenses accounted for 7%.

According to the financial report, in Q4, the total order volume of Ding Dong buy vegetables is 100 million, GMV is 6.04 billion yuan, according to this calculation, Ding Dong's average customer unit price is about 60 yuan. The average unit price in Shanghai is more than 66 yuan, which is significantly higher than the overall level in the country.

At the same time, the performance cost of Ding Dong Shopping Q4 was 1.786 billion yuan, and the performance cost ratio was 32%. In Shanghai, Ding Dong's front-loading rate is even lower, at 15%.

Why can Shanghai make profits first?

Ding Dong bought vegetables out of a number of reasons, including: the Shanghai area user re-purchase rate is higher, the order density is large, the sorting center and the pre-warehouse fixed costs are diluted, so the performance cost has dropped significantly. At the same time, Ding Dong Maicai's new products are usually tested first in Shanghai, which helps to increase the price of customers in Shanghai.

For example, in early 2021, Ding Dong Maicai launched pre-made dishes; By June, the penetration rate of prefabricated dishes in orders in East China had reached nearly 30%. Prefabricated dishes can obtain higher gross profit, and even became the best department of Ding Dong's grocery gross profit.

In general, the improvement of the overall efficiency of Ding Dong Shopping Q4 is mainly carried out in three major directions: improving gross profit, reducing the cost of fulfillment, and saving energy and reducing consumption at the entire company level.

In the fourth quarter, Ding Dong's grocery fulfillment rate was 32%, the lowest level in history. In 2019 and 2020, Ding Dong's billing rate reached 49.9% and 35.7%, respectively.

In terms of customer acquisition and marketing, subsidies were also reduced, and Q4's sales and marketing expense ratio was 6.5%, lower than Q3's 6.9%.

Coupled with the efforts of the whole company to promote energy conservation and emission reduction, Ding Dong bought food achieved a gross profit margin of 27.7% in the fourth quarter, which was not only much higher than 18.2% in the previous quarter, but also a record high.

With the improvement of gross profit margin and the reduction of costs, the company's loss is narrowing significantly. In the fourth quarter, Ding Dong's net loss was 1.096 billion yuan, narrowing by 12% year-on-year; It narrowed by 45.5% from Q3.

For the relationship between scale and profit, Liang Changlin believes that the overall growth of the company should be considered from the three aspects of "long x wide x high" : "long x wide" test is the replication ability of the business; "High" refers to the penetration rate, user order frequency, GMV contribution in existing cities, "high" is the basis for high-quality growth, but also the key to profitability.

How to improve "commodity power"?

On the consumer side, what is the core value of a fresh e-commerce platform?

Ding Dong buy food in the past mainly around the "three determination" to create a sense of value - quality determination, time determination, category determination, that is, focus on the needs of users to cook, invest human and material resources in multiple aspects of quality control, promised to the fastest 29 minutes to home.

Since August 2021, Ding Dong Maicai has taken commodity power as the first driving force for the company's development, not only relying on commodities to generate profits, but also relying on good commodities to retain users, relying on users' word-of-mouth communication to attract new users, and relying on users' re-purchase rate to achieve scale development.

Consumption upgrading is the premise of their belief in "commodity power". Liang Changlin mentioned in the telephone meeting that young people's consumption upgrade is the trend of The Times, they are more concerned about the "product price ratio" rather than "cost performance", especially in the matter of eating, hoping to obtain higher quality.

In 2021, Ding Dong Maicai mainly strives to enhance its commodity strength from four aspects: adjusting the commodity structure, creating a new consumption scenario, vigorously developing its own brand of goods, and increasing infrastructure construction.

It is always easier to look back than to experience, and these aspects of the work are complicated and complex.

The development of its own brand of goods is a successful attempt by Ding Dong to enhance its commodity power. Their three goals for developing private brands can be summarized in order from high to low: people have no I have, people have my excellent, if these two things can not be done, then the price is lower.

At present, Ding Dong Mai CAI has developed more than 20 self-owned brands such as Ding Dong Ace dish, Ding Dong Daman Crown, boxing shrimp, Baoluo Workshop, and good core craftsmen.

At the end of December last year, Xu Zhijian, senior vice president of commodity development of Ding Dong, revealed in an interview that at that time, the differentiation rate of vegetables, fruits and aquatic products on the Ding Dong platform was 5%-10%; The differentiation rate of fast dishes (prepared dishes) can reach 50%-60%, and the differentiation rate of standard products is 30%-40%.

Premade dishes are Ding Dong Mai's own brand products. In 2021, they began experimenting with pre-made dishes, and by the end of last year, the GMV share of pre-made dishes had reached nearly 15%.

In the recent earnings call, Ding Dong management revealed that in Q4 last year, the GMV of Ding Dong prepared dishes exceeded 900 million yuan, and the annual GMV was more than 3 billion yuan, which was 2-4 times the business of prepared dishes of the two listed companies in A-shares last year.

Private brand goods not only easy to form scale effect, and high gross profit margin.

Taking Ding Dong's own crayfish brand "boxing shrimp" listed in April last year as an example, it achieved more than 80 million yuan GMV in more than two months on the line; The pre-coupon gross margin was 33.8%, higher than the overall pre-coupon gross margin. In addition, the customer unit price of the order containing "boxing shrimp" is also much higher than the average order, up to 98.9 yuan.

Secondly, Ding Dong continues to optimize the commodity structure and enhance the commodity power. They classify goods into three grades, "average, better, excellent", and now there are more and more goods in the better and excellent grades, such goods have a better "product price ratio" and higher gross profit.

In addition, Ding Dong hopes to enhance commodity power by creating a new type of consumption scenario. One example is that in 2021, they launched a children's channel, featuring quality ingredients suitable for children, which is popular with treasure mothers.

Increasing investment in infrastructure construction is also a latitude for Ding Dong to enhance commodity power, and it is also the basis for realizing the above three attempts.

Why insist on "doing weight"?

In the words of Xu Xin, the queen of investment - Today's capital, "The last fortress of e-commerce is fresh, and those who get fresh get the world."

This sentence highly summarizes the difficulty of fresh electricity suppliers - from the field to the table, there are too many links, each link is not easy to do, fresh is the most difficult industry to be transformed by the Internet.

But Ding Dong buy vegetables investors include Gaorong capital, today's capital is sure, if someone can make fresh electricity business, Liang Changlin has a very large probability is one of them.

For how to make fresh electricity suppliers, Liang Changlin and Ding Dong investors reached a tacit understanding: this business only in the industrial chain to do deep, do heavy, in order to form a moat.

Since its establishment in 2017, a large amount of money has been invested in infrastructure construction, including the layout of pre-warehouse, sorting center, construction of food processing plants, quality control and research and development investment, which is to do deep and heavy in the industrial chain.

Ding Dong's "do heavy", one of which is the layout of the pre-bin. Up to now, Dingdong Shopping has a total of about 1,400 pre-storage warehouses, with an area of about 500,000 square meters.

Although the market has mixed reviews on the pre-position mode, Ding Dong's management still believes that the pre-position is one of the ideal models for fresh e-commerce. It can not only store goods, but also keep them as fresh and alive as possible, ensuring delivery speed, as fast as 29 minutes.

In addition to the advance bin, there is a sorting center. Up to now, Dingdong has leased about 60 urban sorting centers with an area of more than 400,000 square meters. They have always insisted on doing their own processing and sorting of fresh goods. The advantage of this is that on the one hand, it can improve efficiency through automation technology and big data; On the other hand, fresh goods can be fully inspected.

In addition, Ding Dong's "heavy" is also reflected in the upgrade of the supply side.

Ding Dong has always adhered to the origin of direct mining model, Liang Changlin personally grasp the supply chain. At present, Ding Dong has 3 agricultural demonstration parks, and a total of 118 order planting bases have been signed. As of the end of the third quarter of last year, the proportion of Ding Dong buying vegetables directly from the source was as high as 79.1%.

In addition to direct mining, Ding dong buy vegetables also built their own processing plants. At present, they have 10 food research and development processing plants, which is also the guarantee for Ding-dong to launch its own brand products.

As of December last year, Ding-dong's own research and development and processing of goods sales have accounted for 7.2%. In 2022, Ding Dong Maicai will also start construction of three larger fresh complex.

The investment in research and development and quality control manpower is also a big expense. The R & D team uses big data mining analysis, AI, IOT and other technologies to create a set of intelligent supply chain system that runs through the whole link to help forecast sales and reduce inventory and losses.

Ding Dong management revealed that they have also increased research and development investment in cutting-edge technologies, including participating in the development of cooking robots and some agricultural planting and picking robots.

Judging from the financial report, Ding Dong's research and development investment continues to maintain a substantial growth trend. In Q4 last year, its research and development expenses reached 285 million yuan, an increase of 117%.

The other side of the coin is that "doing heavy" has also become a "gold-swallowing beast", which has also made Ding Dong Buy food bear the pressure of the capital chain for a long time.

On the call, however, Dingdong executives emphasized that the company currently has 5.2 billion yuan in cash reserves and 900 million yuan in approved and pending bank lines of credit. "Cash reserves are sufficient to last until profitability."

Today, Ding Dong buy food, it seems to be taking a similar road with Jingdong and Amazon: endure losses, desperately do heavy.

Amazon lost money for 20 years and JD.com lost money for 12 years before it became profitable. The road to profitability will always be full of doubts.

Liang Changlin believes that the second half of the Internet is "only heavy not broken", doing heavy is long-term value and core competitiveness; It is a difficult and correct path, and they are on the road to self-proof today.