Looking at the future of e-commerce in front warehouse from dingdong’s buying vegetables and daily excellent fresh From Ping An Securities

The following is the Looking at the future of e-commerce in front warehouse from dingdong’s buying vegetables and daily excellent fresh From Ping An Securities recommended by recordtrend.com. And this article belongs to the classification: Securities report, Electronic Commerce.

      1、 Front position e-commerce: high frequency accounts for the share of wallets of medium and high customer groups

1.1 front warehouse e-commerce: to meet consumers’ demand for convenient and healthy fresh and miscellaneous food

Fresh e-commerce: the time limit of performance is within one hour, and the main business category is fresh food miscellaneous e-commerce. Fresh e-commerce can be divided into platform type and self operated type. Platform type includes Jingdong Jiajia and taoxianda, which focus on supermarket platform, as well as meituan take out and hungry. The self operated mode is further divided into two modes: front warehouse and store warehouse home mode. Front warehouse includes dingdong shopping, daily excellent fresh, meituan shopping and so on. Store warehouse home mode includes HEMA, RT Mart home mode and so on.

Pre warehouse e-commerce: the pre warehouse is densely built around the community, where fresh and fast-moving products are directly stored, and the rider is responsible for the last kilometer of delivery to the consumer’s home, mainly to meet the convenient and healthy needs of consumers in medium and high speed line cities.

1.2 industry scale: in 2020, the scale of fresh e-commerce will be 128.8 billion, of which 30.8 billion will be in front position

In 2020, the scale of fresh e-commerce will be 128.8 billion, of which 30.8 billion will be in front position. According to the data of CIC consulting company, the scale of fresh e-commerce in 2020 will be 128.8 billion, including 70.3 billion for platform type and 58.5 billion for self operated type. It is estimated that the scale of fresh e-commerce will reach 511.8 billion in 2025, including 193.4 billion for platform type and 318.4 billion for self operated type.

1.3 comparison of business types: the advantage of front warehouse lies in denser outlets and faster distribution speed

Prepositional warehouse: the advantages lie in low location requirements, more intensive coverage of users, and faster distribution speed. The disadvantage lies in the poor UE model and weak profitability.

Store warehouse: the advantage lies in the two traffic entrances online and offline, and online orders can reuse resources such as offline stores and employees. The disadvantage lies in the high requirement of site selection and limited coverage area

Platform: the advantage lies in the platform light asset model is easy to sink, the disadvantage lies in the supermarket home demand is not as big as takeout, and the supermarket profit margin is lower than the restaurant, it is difficult to bear the distribution fee.

1.4 user portrait: white collar workers are the main users in high-speed line cities, and the potential user scale is estimated to be about 75 million

User portrait: high income group of young and middle-aged people in high speed city. 80% of daily Youxian users are between 26 and 45 years old, of which more than one half are between 26 and 35 years old, and nearly one third are between 36 and 45 years old. Typical users are: parents who use kitchens frequently, consumers who have high requirements for food and white-collar professionals. He Ma also revealed that the main user portraits are women aged between 25 and 40, with an annual income of more than 270000.

Calculation of potential user scale: according to the above user profile, we assume that fresh e-commerce mainly covers users aged 25-45 in first and second tier cities, and other age groups account for 20%, so the potential user scale is about 75 million. There are 6.9 million consumers of dingdong in 21q1, 7.9 million consumers of Youxian 21q1-ttm every day, 31 million cumulative trading users by the end of 21q1, and 25 million consumers of HEMA in 2020. The penetration rate of fresh e-commerce users still has room to improve.

1.5 Ding Dong buying vegetables vs. daily fresh: Ding Dong buying vegetables came from behind, the main core indicators are in a leading position

Dingdong’s main core indicators are in a leading position. In 2018, the Gmv of dingdong is only 740 million yuan, and in 2020, the Gmv of dingdong will reach 13 billion yuan. At present, the main core indicators such as the average daily order volume, the number of users, the number of cities covered, and the number of front warehouses of dingdong are higher than those of daily excellent fresh food.

1.5.1 catch up tips: seize the minds of consumers and core customers, and accelerate the reversal during the epidemic period

The main reasons for Ding Dong’s buying vegetables are as follows

Seize the mind of “shopping” consumers, continue to improve the repurchase rate and increase the scale of orders“ The high demand of “buying vegetables” brings about the continuous growth of the order quantity, while the daily excellent fresh food goes to the “online supermarket”. Although the customer unit price is high, the demand frequency is low, which affects the growth of the order quantity.

Grasp the core customers and avoid being “fleeced” by non target users. The demand for fresh food at home is limited, and nearly half of the Gmv is contributed by the core users of dingdong. However, in 21q1, 25% of the orders for daily excellent fresh food still belong to “plucking wool”.

During the epidemic period, the customer experience was good. Instead of blindly improving the profitability, the service was good. During the epidemic period, the gross profit rate of daily excellent fresh food soared to 30% from about 10% in previous years, while dingdong vegetables reasonably controlled the growth of gross profit rate to obtain more users with better prices.

1.5.2 catch up tips: seize the minds of consumers and core customers, and accelerate the reversal during the epidemic period

The pace of financing is good, and a large amount of funds are reserved before the epidemic. Pre position e-commerce is still in a loss period, and financing ability has become an important support for business development. In 2019, the net cash of dingdong’s vegetable purchase financing activities will reach 1.68 billion yuan. We will make full use of the financing funds to develop business, increase investment in case of epidemic situation, and realize overtaking at corners. The daily excellent fresh in 2019 financing stalls, financing cash outflow of 82 million. In June 2021, dingdong bought vegetables and daiiyouxian went public in the United States, with the market value of 5.54 billion US dollars and 2.27 billion US dollars respectively on the first day of listing.

Second, it takes a long time to make profits, and the order volume is very important

2.1 business model: high quality goods and rapid distribution bring re purchase and scale, and then improve UE model

The first step is to have high-quality goods and rapid distribution system. When the quality of goods and delivery time are determined, it can bring consumers to buy again, improve the order scale, and then improve the UE model, continue to improve the quality of goods, forming a positive cycle.

UE model: the three key variables are customer unit price, gross profit rate and distribution fee. The core is that the gross profit should cover the distribution cost per unit. The main factor affecting gross profit is supply chain capacity, that is, commodity power, while the main factor affecting distribution cost is single warehouse order size.

Order quantity: it is driven by the quantity of front warehouse and single warehouse order quantity. Regional and urban expansion improves the quantity of front warehouse to cover more users. The order quantity of single warehouse is determined by the repurchase rate.

2.2 UE model: at present, the gross profit can not cover the distribution cost, so it is difficult to make profit

The key of the forward warehouse UE model is that the gross profit covers the distribution cost, and the current profitability is poor. UE model starts from the unit price of customers, deducts a series of costs, and finally gets the average operating profit / loss, in which the key elements are the average gross profit and distribution costs. The unit price of 21q1 dingdong is 61.7 yuan, the average gross profit is 10.3 yuan, the performance fee is 21.3 yuan, and the average operating loss is 19.1 yuan.

2.2.1 gross profit rate: the comprehensive gross profit rate of front position company is lower than that of traditional supermarket

The commodity gross profit rate of excellent front position company is higher than that of traditional supermarket, but the comprehensive gross profit rate is lower than that of traditional supermarket. Taking dingdong Maicai and Yonghui supermarket as examples, the gross profit margin of dingdong Maicai in 2019 and 2020 is higher than that of Yonghui supermarket, which is speculated to be related to the higher commodity pricing in the front warehouse and the fact that the front warehouse is mostly packed vegetables. In 2019 and 2020, the comprehensive gross profit rate of dingdong is lower than that of Yonghui supermarket. The main reason is that offline supermarket can attract passenger flow through goods, realize “flow cash” through income such as store rent and commodity background fee, while front position company only has non commodity income such as member income.

During the epidemic period, the gross profit rate increased significantly, and then fell back to a lower level. From 2018 to 2020, the daily gross profit rate of excellent and fresh food was 8.6% / 8.7% / 19.4% respectively. In 2020, the gross profit rate of excellent and fresh food increased significantly, mainly because the daily gross profit rate of excellent and fresh food increased to 30.2% during the epidemic period of 20q1, and dropped to 12.3% during the epidemic period of 21q1. This shows that there is a big gap between the commodity operation efficiency and dingdong’s vegetable shopping.

2.2.2 performance cost: the distribution cost of the last kilometer accounts for the highest proportion

The performance fee includes: ① the last kilometer distribution fee, ② the rent of front warehouse, ③ the distribution fee from City warehouse to front warehouse, etc.

The last kilometer distribution fee accounts for the highest proportion, and the rider Commission is relatively rigid. The last kilometer distribution is in the charge of the rider. Because the rider’s salary is composed of the base salary and the single average commission, the scale effect of the distribution cost is weak. In 2020-21q1, the delivery rates of dingdong vegetables and the last kilometer of daily excellent fresh food will be maintained at about 20%, accounting for about 2 / 3 of the overall performance fee.

Rent and distribution fee from City warehouse to front warehouse have scale effect. Taking dingdong as an example, from 2019 to 2020, the rate of rent + urban warehouse distribution fee will drop from 17.6% to 13.5%.

Compared with similar industries, the distribution cost rate has a certain space to decline

If the single average distribution cost is reduced to about 7 yuan, the distribution cost rate of the last kilometer will be reduced to 12.8%. The average distribution cost of 21q1 dingdong menu is 12.7 yuan. It is speculated that the high average distribution cost is mainly due to the insufficient order density of single warehouse due to the large-scale development of new warehouse. Compared with similar industries, the delivery cost of meituan take out 1p order is stable at about 7.2 yuan. Assuming that the average distribution cost of dingdong menu is reduced to 7 yuan, compared with the existing single average income, the distribution cost rate will be reduced to 12.8%.

2.2.3 subsidy: focus more on the acquisition and maintenance of target customers

The subsidy intensity of daily excellent fresh is higher. There are two types of subsidies for forward positions: 1) subsidies for selling goods, which directly offset income in accounting, can be measured by Gmv / income index. 2) The new subsidy is included in the sales expenses, which can be measured by the sales expense rate. In 21q1, the Gmv / income of dingdong vegetable reached 113%, the sales expense rate was 8%, and the subsidy intensity of daily excellent fresh food was higher.

Subsidies should focus more on the acquisition and maintenance of target customers. The daily premium subsidy intensity is higher, but the customer cost is higher than that of dingdong, which may be related to the low proportion of effective users Gmv. It is not effective to rely solely on subsidies to attract “wool collecting” users, so it should focus more on the acquisition and maintenance of target customers.

2.3 order volume: dingdong’s order volume for vegetables is significantly ahead of others

Dingdong’s order volume is significantly ahead of the daily excellent fresh. In 2020, the order volume of dingdong will reach 200 million, a year-on-year increase of 111%, while the daily effective order volume of excellent fresh food will be 65.1 million, a year-on-year increase of only 10.2%. Assuming that the effective user’s order volume accounts for 81% of the total orders, the daily fresh order volume will be 80.37 million in 2020. The main reasons for dingdong’s leading vegetable purchase orders are: 1) the number of front warehouse is more, and 2) the order volume of single warehouse is larger.

2.3.1 the number of front warehouse: dingdong vegetable rapidly expands its city by region, and 21q1 covers 950 front warehouses in 29 cities

Dingdong’s shopping market expanded rapidly, covering 29 cities and 950 front warehouses in 21q1. In 2019-21q1, the number of cities covered by dingdong shopping increased from 5 to 29, with 950 front positions. The number of cities with monthly Gmv exceeding 100 million reached 5. Although the monthly Gmv of a single city decreased from 79 million to 49 million, it was still higher than the daily excellent 40 million, showing an effective regional expansion strategy.

In the long run, dingdong’s regional expansion strategy is more reasonable. In a city, the order distribution of front warehouse is honeycomb. When the order quantity of a certain area exceeds the demand of a single warehouse, the number of front warehouse will increase. Therefore, front warehouse is generally expanded by region and city. Ding Dong’s vegetable shopping will expand the city by region, which is conducive to the construction of regional supply chain. Daily fresh extension mainly covers the first and second tier provincial capital cities, with large short-term demand, but due to the scattered cities, the cost of long-term supply chain is high.

2.3.2 order quantity of single warehouse: the order quantity of mature warehouse is significantly higher than the average, which has a great impact on the distribution cost

Standard front warehouse configuration: according to the front warehouse data published in the daily Youxian prospectus, the single warehouse area is generally about 300 square meters, with 4300 SKUs, and each front warehouse is equipped with 1 manager, 5-10 sorting and inventory staff, and 10-20 delivery staff. On average, each delivery clerk delivers 50 orders a day, and the delivery time of each order is about 39 minutes. Single warehouse inventory turnover rate of 3.8 days, loss rate of 2.5%.

The average daily order size of mature warehouse is significantly higher than the average, and the order volume of single warehouse has a great impact on the distribution cost. Taking dingdong as an example, the average daily order volume of mature warehouse is 2000, while the average value of single warehouse is only 815. Considering the cultivation time of mature warehouse, it is expected that the average order performance of single warehouse will be affected by new warehouse. The order size has a serious impact on the efficiency of delivery workers. In mature warehouse, each rider delivers 85 orders per day, while the average is only 48 orders. Considering that there is a minimum wage guarantee for delivery workers, the continuous opening of new warehouses has a great impact on the distribution cost.

2.3.3 single warehouse order quantity: driven by repurchase rate, high customer unit price affects consumption frequency

Single warehouse order growth depends on re purchase. From 2018 to 21q1, the average monthly trading order volume of dingdong menu users was more than 3, while the average monthly trading order volume of Youxian daily was less than 1. The repurchase rate was the main reason for the difference in the average monthly trading order volume of single user. The majority of Gmv can also verify the importance of repurchase rate. According to dingdong’s vegetable purchase prospectus, the contribution rate of Gmv of stock users increased from 51.9% in 18q1 to 81.6% in 21q1, and the continuous re purchase of stock users drives the continuous growth of Gmv.

The high unit price affects the frequency. The daily unit price of excellent fresh customers is always higher than that of dingdong. In 21q1, the daily unit price of excellent fresh customers is 89.6 yuan, while that of dingdong customers is 61.7 yuan. The high unit price of customers may be one of the reasons for restraining the shopping frequency.

2.3.4 order volume of single warehouse: higher re purchase rate of core users

The re purchase rate of core users represented by members is higher. According to Ding Dong’s vegetable shopping prospectus, the member users of 21q1 accounting for 22% of the total users contribute 47% of Gmv, the unit price of customers is 107% of the whole, and the monthly trading order volume is 1.9 times of the whole. The re purchase rates of dingdong members in December and 24 were 64.2% and 70.5% respectively, and the retention rate has been 48.8% since the release of the membership plan. Similarly, in January 2020, the core users of HEMA, accounting for 31% of the total users, contributed 67% of Gmv.

2.4 core competitiveness: retail is ultimately the competition of supply chain

Retail is ultimately the competition of supply chain, and strong supply chain capability is ultimately reflected in lower procurement cost, competitive sales price and larger sales scale. The ways to improve the supply chain include: increasing the proportion of direct purchase of goods, deep cooperation with the upstream of the supply chain, and enhancing the ability of commodity operation.

Box horse, Ding Dong buy vegetables supply chain capacity is more prominent

From the perspective of commodity prices, box horse and dingdong have strong supply chain capabilities. The price advantage of box horse goods in Shanghai is obvious, while the price of dingdong vegetables in Beijing is slightly superior. In Shanghai, according to 15 kinds of goods in 4 categories, box horse has a price advantage in 9 kinds of goods. In addition, dingdong has a certain price advantage in Shanghai. In Beijing, dingdong has a price advantage in six commodities.

3、 Enhance supply chain capacity, increase gross profit, expand member scale and increase order quantity

3.1.1 supply chain: increase the construction of private brand goods and enhance the operation ability of goods

Increase the construction of private brand goods. Private brand products have lower procurement costs, which can not only reduce the sales price and improve the price competitiveness, but also improve the gross profit margin and enhance the profitability. In addition, private brand goods can also increase the uniqueness of goods and enhance the differentiation of retailers.

Dingdong: in July 2020, it will launch its own brand products for the first time, with 21q1’s own brand sales accounting for 3.3% and Shanghai’s regional sales accounting for 8.1%. Taking the launch of Riri fresh pork in July 2020 as an example, dingdong’s self built pork processing plant is deeply involved in the processing process, which not only makes the price more attractive, but also makes the gross profit rate higher. In 21q1, Riri fresh pork accounts for 40% of pork sales.

Box horse: the construction of private brand goods is earlier, and has formed box horse workshop, ririxian, dihuangxian, box horse Max and other series. According to Zhao Jiayu, general manager of purchasing and marketing of HEMA products, the sales of HEMA’s own brand will reach 20% in 2020, double that in 2019. In 2020, HEMA will launch more than 20000 new products, of which more than 6000 are HEMA’s own brands.

3.1.2 supply chain: increase the construction of prefabricated semi-finished products and increase the gross profit rate

Increase the construction of prefabricated semi-finished products. Prefabricated semi-finished products, also known as 3R products, can meet the needs of consumers for convenience and health. With the accelerated pace of life, they are loved by consumers. In 2019, 3R products are the most popular among consumers of HEMA’s own brands. Prefabricated semi-finished products have higher gross profit rate. Take Japan 7-11 as an example, the gross profit rate of processed food in fy2021 is as high as 39.4%, which is much higher than that of fresh food about 16%.

Ding Dong buys vegetables, he ma actively arranges prefabricated semi-finished products. Dingdong has launched “boxing crayfish” and other prefabricated semi-finished products. The layout of prefabricated semi-finished products of HEMA is even more advanced. In 2017, the prefabricated semi-finished product brand HEMA workshop was established. In July 2020, the monthly sales of HEMA workshops in all stores across the country exceeded 100 million yuan, accounting for nearly 40% of the sales of HEMA’s own brand.

3.3 membership: expand membership scale and enhance user stickiness

Member users have high stickiness, which can improve the sustainability of order growth. As mentioned above, the order contribution of members is much higher than that of ordinary users. 21q1 accounts for 22% of the total users of dingdong’s vegetables, and its member users contribute 47% of Gmv. The unit price of customers is 107% of the average value, and the monthly order volume is 1.9 times of the average value. Expanding the member scale can improve the sustainable growth of orders.

Adopt “incentive measures”, actively expand the membership scale, and seize the core users. Due to the high value and scarcity of member groups, through certain incentive measures to promote more ordinary users to become members, we can seize the core users and improve the sustainability of order growth. Taking dingdong as an example, through the “joint membership” activities with iqiyi, Himalaya and other companies, we can reduce the membership fees in disguise and actively expand the membership scale. 21q1 has 1.52 million members and 45 million membership fees.

Costco’s way of cashing in membership fees through commodity drainage is not suitable for forward position mode at present. From fy2016 to fy2020, Costco’s membership fee income contributed about 70% of its operating profit. In contrast, the membership fee income of 21q1 dingdong is 45 million yuan, accounting for 6% of the gross profit. It is a long way to go for the domestic forward position mode to hope to improve the profitability through member income, mainly because the coverage of user scale and arppu are limited, and the role of members is to enhance user stickiness.

The size of members depends on the people the service is oriented to, and the scale of users covered by the front warehouse mode is limited. Costco attracts users to buy members through low price, which belongs to mass consumption in the United States. The typical users of forward position are those who are willing to pay a premium for convenient and high-quality services. In fy2020, Costco has 106 million members. Compared with this, 21q1 dingdong has 1.52 million members, with a penetration rate of 22%.

Member arppu depends on the richness of services provided. 21q1 dingdong member’s annual arppu is 118 yuan. Compared with this, fy2020 Costco single member’s arppu is 30 US dollars, and the box horse membership fee is 258 yuan. Box horse member’s rights and interests are relatively rich, including free distribution fee for 31 times a month, box horse x member’s shopping qualification, 88% discount on member days, exclusive coupon for members, and shopping rebate.

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