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spk00: Good morning and good evening, ladies and gentlemen. Thank you for standing by. And welcome to the Ding Dong Cayman Limited third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. We will be hosting a question and answer session after management's prepared remarks. Please note, this event is being recorded. I will now turn the conference over to the first speaker today, Karen Ji, Investor Relations Vice President of the company. Please go ahead, ma'am.
spk08: Thank you. Hello, everyone, and welcome to Ding Dong's Third Quarter 2021 Earnings Call. With us today are Mr. Changlin Liang, our founder and CEO, and Ms. Le Yu, our CSO. You can refer to our third quarter 2021 financial results on our IR website at ir.100.me. You can also access a replay of this call when it becomes available a few hours after its conclusion on our IR website. Before we start, please note that this call may contain forward-looking statements made pursuant to the Safe Harbor provision for the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties, and other factors not under the company's control, which may cause actual results, performance, or achievements of the company to be maturely different from the results, performance, or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statement, risk factors, and the details of the company's filings with the SEC. The company undertakes no duty to revise or update any forward-looking statements for selected events or circumstances after the date of this conference call. I will now turn the call to our first speaker today, founder and CEO of Dingdong, Mr. Liang.
spk02: 好的,欢迎大家参加丁东买菜2021年Q3业绩讨论会。 感谢各位投资者和分析师对丁东买菜的关注和支持。 我们丁东买菜是一家高速成长的创业公司,是新型的供电公司,也是中国进场零售的代表公司之一。
spk06: Hello everyone and welcome to Dingdong's third quarter 2021 earnings conference call. First, on behalf of the entire Dingdong team, I would like to extend our sincerest gratitude and appreciation to all the investors and analysts for their support. We here at Dingdong are a rapidly maturing company with advanced supply chain capabilities and one of China's fastest growing companies in the domestic neighborhood retail industry.
spk02: I am very happy to tell you that in the third quarter, Dingdong Grocery has achieved a rapid increase in efficiency while maintaining rapid growth. Based on the data provided by Quest Mobile, Dingdong Grocery ITT has grown to be one of the top ten e-commerce stores in China, and is listed as one of the top ten e-commerce stores in China. We are full of confidence and expectations for the company's future.
spk06: We're delighted to report that we not only achieved strong growth in the third quarter, but also rapidly optimized efficiency and made significant improvements to our non-GAAP net loss margin. In addition, according to MAU data from Quest Mobile, our DingDong app has grown into one of the top 10 e-commerce platforms in China this quarter. More importantly, we rank number one among China's e-commerce platforms for fresh produce, and we have tremendous confidence in our prospects.
spk02: Next, I will explain from four aspects the results of Dingdong Maicai in Q3. First of all, one of the highlights of Q3 is the continuous growth of the scale. In Q3 this year, the overall GDP of Dingdong Maicai increased by 107.7% and reached 7.2 billion RMB. The number of monthly orders has reached 10 million for the first time. The number of members of the monthly order in the entire Q3 has increased dramatically, increasing by 26.5% compared to Q2. At the same time, the number of members of the lower order
spk06: Let me share our third quarter highlights in terms of four primary aspects of our business. First, one highlight is our continued rapid growth in scale. Our overall GMV increased by 107.7% year-over-year to 7.02 billion RMB in the third quarter. The number of average monthly transacting users exceeded a milestone of 10 million for the first time. In addition, the number of average monthly transacting members grew by 26.5% sequentially, with each member placing an average of 7.4 orders per month.
spk02: We believe that Dingdong's GNV growth is equal to Changchengkwan times high. Changchengkwan refers to the covered area. Changchengkwan tests the city's ability to reproduce expansion. For Dingdong, in the past period, our area's ability to reproduce expansion has been fully verified. This year's Q3 end, the number of cities we entered increased by 185% compared to the same period last year. Changchengkwan is a relatively simple thing for us.
spk06: Deriving our total GMV resembles the formula for a cube's volume, length times width times height. The length times width refers to our geographic coverage and its growth potential is seen in our mass expansion capabilities. Our regional mass expansion capabilities have already been thoroughly tested and verified. As of the end of the third quarter, we've seen 185% year-over-year growth in city coverage, proving that geographical expansion is a relatively simple task for us.
spk02: 高指的是單個城市內每個城鎮人口在丁東買菜的月均GNV貢獻, 例如上海的城鎮人口在2400萬左右, 目前上海每人口每月在丁東的GNV貢獻大概是30塊錢左右, 在機油市場我們的進步空間仍然很大。 We can see that there is a huge potential for growth in the highlands.
spk06: The height of the cube refers to the average monthly GMV contribution on Dingdong by each city's urban population. For example, Shanghai's population is approximately 24 million, and its current monthly GMV contribution is 30 RMB per capita, showing that we still have significant growth potential in our existing markets. Expanding the height of this cube requires us to increase the penetration rate of our existing city's and enhance the purchase frequency of our current users. In our pursuit of efficiency, quality, and profitability, these are necessary efforts that, though difficult, we'll strive for relentlessly. Even in relatively mature markets like our Yangtze River Delta region, where we have been operating for over four years, we continue to see tremendous growth potential in terms of height, as GMV for the region increased by 64.8% year-over-year in the third quarter. Another highlight for the third quarter is that while continuing to grow in scale, we also significantly enhanced efficiency. When major shifts to macro policy changed the logic behind market growth, we quickly and proactively responded to keep pace. In late August, we changed our strategy from scale first with due consideration of efficiency to efficiency first with due consideration of scale. We'll continue to work hard to improve our product development capabilities, strengthen our supply chain, and optimize our operational efficiency to achieve high-quality development and self-sufficient capacity.
spk02: Bindong has always had a fast response. In addition to the long-term accumulation of our supply chain, in the third quarter, we achieved a rapid efficiency improvement. Under the non-GAAP approach, the loss rate has been reduced from 37.2% to 31.9% from this year's Q2, to 5.3%. With our efficiency priority and the further advancement of strategic tactics, we are very confident that the loss rate of Q4 this year will be greatly reduced.
spk06: We achieved a rapid efficiency improvement in the third quarter thanks to our ability to act swiftly, which is one of our core strengths. Moreover, an accumulation of long-term investment in our supply chain began to bear fruit. Our non-GAAP net loss margin improved by 530 basis points from 37.2% in the previous quarter to 31.9% in the third quarter. We're confident that we'll narrow the non-GAAP net loss margin to a greater extent in the next quarter with the further execution of our Efficiency First with Due Consideration of Scale strategy.
spk02: The optimization of the loss rate is mainly due to our long-term investment in the supply chain, including order agriculture, production of paper and free brands, as well as continuous investment in agricultural technology and food processing. At the same time, we also need to see that these aspects need a longer time from input to output. These investments will continue to produce greater value in the future, and will further help us to improve our efficiency.
spk06: The improvement in our non-GAAP net loss margin was primarily due to the returns from the long-term upfront investment in the supply chain. These include investments in contract farming, direct sourcing, private label brands, agricultural technology, and food processing. While we're aware that it takes a long time for us to see returns on these investments, we're confident that we'll significantly improve our efficiency and benefit from these investments in the future.
spk02: Third, Dingdong continues to improve our commodity value. Dingdong's commodity value will be the core competitiveness and the first driving force to use beautiful commodities to meet the daily growth needs of the people. Previously, consumers bought vegetables on Dingdong. Our goal is that in the near future, consumers will buy more and more Dingdong's vegetables. This requires us to continue to develop better and more differentiated products. It also requires us to continue to keep up with and optimize in many aspects such as free products and free production processing.
spk06: Third, we continue to enhance our product development capabilities, which are our core competitive strengths and primary growth drivers, to satisfy people's ever-growing demands for a happy life. Previously, customers would buy groceries on Ding Dong. Our goal for the near future is for more customers to buy Ding Dong's groceries. This goal requires us to diligently develop differentiated products with better quality as we continue to iterate and optimize our private label brand and our in-house production and processing line.
spk02: 丁东的自由品牌自去年7月份上线以来发展迅猛,凭借自由品牌的良好的商品力,今年三季度丁东的主要自由品牌在相关品类的GMA占比已达到27.0%, Since their launch in July last year, our private label brands have leveraged our product development capabilities to develop rapidly.
spk06: GMV of our leading private label brands in aggregate accounted for 27% of GMV for their corresponding categories during the quarter, representing an increase of 22.6% points compared to the same period last year. As re-events will continue to evolve according to user needs and develop more high-quality private label products in increasingly diverse product categories, For a long-term perspective, we expect the GMV contributions from our private label brands to reach as high as 30%, increasing from the 5.8% of this year's Q3.
spk02: In the process of developing a free brand, we insist on one product ten times the investment. For example, our hot pot free brand, Ding Dong Da Man Guan, in the process of pot development, in order to adjust the best taste, we self-developed and made 720 pots, held 240 rounds of tasting, and finally chose 18 kinds of hot pot pots, but they all have their own characteristics, and can include a whole Chinese hot pot map.
spk06: We steadfastly adhere to our principle of applying rigorous attention to detail to every product while creating our private label brand. Putting this principle into practice, we selected 18 different flavors for our private label hot pot brand, Ding Dong Da Man Guan. After developing and testing over 720 recipes and conducting over 240 rounds of tastings, Each flavor features a unique local taste, and together, these flavors represent a culinary hotpot map of the entire nation.
spk02: At the same time, we will maintain a very open attitude towards non-private brand products. We believe that an excellent company can build a good ecosystem and will lead to progress in the industry. In the future, we will develop more products with more partners, more products that I have, more products that I have, more products that I have, more products that I have, more products that I have, more products that I have,
spk06: While proactively developing the private label brands, we'll keep an open mind towards non-private label products. We firmly believe that to be an excellent company, we must establish an ecosystem to beat the development of the entire industry. As we advance, we'll work closely with more partners to develop more distinctive and better quality products for the gratification of our customers. Doing so puts us in a position to capitalize on on the transition from an era of simply serving people's basic needs to a period of prosperity and a nationwide consumption upgrade.
spk02: Thank you. This year, Q3, Dinomite is promoting the factory in China.
spk06: As of the end of the quarter, we had 10 in-house production and processing plants. As we rapidly scaled our production and processing capabilities, GMV contribution from products developed and processed in-house in the third quarter increased by 85.8% quarter-over-quarter, On the production and processing side, we're driven by the core principle of ingenuity to perfect our supply chain and enhance automation in our production lines, thereby reducing costs and increasing efficiency. Moreover, we diligently monitor our factory environment products, processes, and personnel through the lens of four core aspects, excellent production practices, strict process control, end-to-end monitoring system, and two-way traceability systems. We have established stringent rules for food safety and the flavor and quality of our products, which are non-negotiable priorities for us. In the third quarter, Ding Dong's grain processing plans obtained IFS International Food Standards Certification. reflecting our strategy to invest in high-quality products.
spk02: Fourth, we continue to strive to revitalize the countryside and actively participate in public activities to take on more social responsibilities. For example, this year, Q3, the United Sichuan Province's Ziyang City Government and the University of Shanghai Hanyang started to build the first environmentally friendly land-based no-dust chicken farm. After being built, it will become the largest no-dust chicken farm with the most mature and advanced domestic technology. Fourth, we continue to further our commitment to rural revitalization, participating in public welfare activities and taking on additional social responsibilities.
spk06: For example, in this year's Q3, we began to build the first environmentally friendly land-based antibiotic-free shrimp breeding base, collaborating with the Ziyang Municipal Government of Sichuan Province and Shanghai Ocean University. Upon completion, this base will be the most advanced and largest antibiotic-free shrimp base in China. with the potential to quickly drive the development of the fish and shrimp aquaculture in that region. We understand that the prerequisite of rural revitalization is industrial revitalization, which requires technological advancements.
spk02: This base was built in the southwestern capital of Xinjiang. While improving the commodity value, it greatly improved the transportation cost of chicken and shrimp, and reduced the loss, thereby reducing the carbon emissions. In addition, this base uses the most advanced pipeline water technology, zero-use, zero-emissions breeding system, which will greatly reduce environmental and biological pollution.
spk06: The breeding base was established in the suburbs of the southeast western city in China. While enhancing our product development capabilities, we simultaneously reduced shrimp transportation costs, product waste, and carbon emissions. In addition, the base adopts cutting-edge advanced water circulation technology and a zero-drug, zero-discharge breeding system, significantly reducing environmental and biological pollution.
spk02: While further developing our supply chain technology and enhancing our product development capabilities,
spk06: and serving our consumers, we'll continue to insist on our philosophy of greater power, greater responsibility, and actively devote ourselves to public welfare. In July, Henan Province in China suffered from heavy rainstorms and floods. We donated 5 million RMB to provide daily necessities, flood prevention supplies, and emergency rescue for the victims.
spk02: Dingdong Maicai is the first fresh app to support the public. This year is the fourth consecutive year for the market group to launch public donation activities. The employees in Dingdong also accompany the market group one-on-one to travel, help them get out of their homes, explore the world around them, and feel the sunshine, nature, and care from society. And our technology development team will also regularly visit this special group, listen to their feedback, and let technology better serve the daily life of the special group.
spk06: It's also worth mentioning that we are the first fresh grocery app available for the visually impaired, and we continue to impact disadvantaged groups. 2021 is the fourth consecutive year that we have run our charity donation program for the visually impaired. Our employees accompany visually impaired individuals as one-on-one guides helping them get outdoors, explore the world, and experience sunshine, nature, and societal concern and care. Our research and development team has scheduled regular visits with visually impaired users to collect their feedback and develop our technology to serve their daily lives better. In summary, as a new type of supply chain company, we'll deepen the integration of Internet technology with agriculture, food processing, and neighborhood retail operations to offer high-quality and differentiated products to meet the user's ever-growing demand for a happy lifestyle.
spk02: The IPO is expected to be more optimistic. We found that many great companies' growth paths are not linear, but micro-experience. In the next one or two seasons, the growth in the size of Ding Dong is likely to slow down. But although the efficiency and quality improvement will certainly achieve a new, more solid growth, and a perfect micro-experience.
spk06: In the third quarter, we proactively adjusted our strategic focus to efficiency first with due consideration of scale. As such, we rapidly improved efficiency and significantly narrowed our non-GAAP net loss margin. We're confident that we'll further reduce the non-GAAP net loss margin substantially in the fourth quarter. We're more optimistic now than we were during the IPO process about our expected profitability timeline. Many great companies' growth trajectory is often not linear, but more closely resembles the curve of a smile. Similarly, we may experience slowdowns in the growth pace in the coming one to two quarters. Nonetheless, we are confident that we will achieve new and more solid growth through improvements in efficiency and quality that will complete that perfect smile curve.
spk02: At present, China has entered the era of wealth from the times of Wenbao. Consumers' consumption habits are changing dramatically. This is a great era. We believe that the deep-rooted supply chain of digital vegetables is the core competitiveness of the commodity market. It will not let go of the opportunity of wealth in this era, creating value for consumers and long-term value for investors.
spk06: China has transitioned from an era of simply meeting basic human needs to a period of prosperity, leading to tremendous changes in people's consumption habits. This is a momentous era. Through deeper engagement in our supply chain and enhancement of our product development capabilities, we'll live up to the opportunities presented by the times, create value for consumers and generate long-term returns for our investors.
spk02: Thank you, everyone.
spk06: With that, I'll hand the call over to Ms. Yu, our CFO, to go over the financials.
spk08: Thank you, Mr. Liang, and hello, everyone. Before I walk you through our detailed financial results, please know that all numbers stated in the following remarks are in RMB terms. and all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted. In the third quarter of 2021, total revenue increased by 111% year-over-year to $6.19 billion, and our GMV-to-revenue conversion rate increased by 140 basis points year-over-year to 88.2%. This result was primarily driven by a decrease in coupons as a percentage of GMV, as well as our substantially optimized marketing efficiency enabled by the drip marketing system we launched in the previous culture. During the culture, while revenue growth in Tier 1 cities maintained a rapid pace, we experienced even stronger momentum in 2nd, 3rd, and 4th tier cities. Take Fujian, for example, one of our nearest markets which we entered in late May. With newly added frontline fulfillment stations in this culture accounting for up to 68.4% of the service grid, every daily order station still grew at amazing speed, up 33.4% from the previous culture to 1,286. because the overall supply of fresh groceries and daily necessities from both online and offline channels in lower tier cities is relatively inadequate compared to that in Tier 1 cities. We believe that consumers in lower tier cities are ready and willing to switch from the traditional offline retail models directly to the on-demand home delivery model. In addition, our product development capabilities will further promote rapid improvements in our user experience. As a frontrunner of the on-demand home delivery model, we see huge growth potential in these lower-tier cities. Our growth margin for the third quarter increased by 360 basis points from the previous quarter to 18.2%. As Mr. Liang mentioned earlier, the primary driver for such improvement were the efficiency gains and the continued enhancement of our productive development capabilities empowered by our long-term investment in our supply chain. We are confident that our product development efforts will further improve our growth margin and, more importantly, serve as the basis for attracting more consumers and cultivating their brand loyalty. In the third quarter, non-GAAP fulfillment expenses as a percentage of total revenue increased slightly from the previous quarter to 37%, primarily due to the higher revenue contribution from new markets, the resurgence of COVID in some regions, utility costs increased during summer, and high-temperature subsidies to deliberate riders. New markets tend to have lower order density and therefore higher fulfillment expense ratios than mature markets. Meanwhile, we have made significant improvements in every daily order per frontline fulfillment station in new markets, which is a core indicator of order density. As order density in new markets increased, fulfillment expenses and percentage of total revenue naturally decreased substantially. For example, from unit economics perspective, Q3, fulfillment expenses as percentage of total revenue decreased by 810 basis points from the previous culture in southwestern markets. As such, we are confident that fulfillment expenses as percentage of total revenue will continue to decrease as overall order density rises. with the change in strategic play from scale first with due consideration of efficiency to efficiency first with due consideration of scale. our marketing expenses as percentage of total revenue were 6.9% in the third quarter, representing a decrease of 190 basis points from the previous quarter. The improvement was primarily driven by a decrease in user acquisition costs in both online and offline channels. Despite that, the number of new users still increased by 14.7% sequentially. Going forward, we will focus more on the quality of new users and reduce the number of ineffective users while steadily acquiring new users. We will strictly manage user acquisition costs in each channel and attract more users with high consumption potential. Our non-GAAP G&A expenses as a percentage of total revenue decreased from 2.9% a year ago to 2.3% in the third quarter, thanks to our growing economic upscale. We believe that technology and data are crucial for operating the on-demand home delivery model, and thus we increased our investments in product development accordingly. To be more specific, we invested more in our supply chain systems and personnel with agriculture technology expertise this quarter. As such, our non-GAAP product development expenses as percentage of total revenue increased to 4.1% in the third quarter from 2.9% in the same period last year. We believe our investments in technology and data will generate great value throughout the full cycle of our supply chain shortly. On our last earnings call, we announced our guidance to reduce our non-GAAP net loss margin by 400 basis points in the third quarter. We managed to beat our guidance by reducing our non-GAAP net loss margin by 530 basis points from 37.2% in the previous culture to 31.9% this culture. We are confident in our ability to sustain this momentum and further narrow our non-gape net loss margin in the coming culture. Net cash outflow from operating activity was $1.3 billion in the third quarter. Considering supply chain finances, adjusted net cash outflow from operating activity improved to $0.8 billion. Our cap tax in the third quarter was $0.1 billion. Our cash, cash equivalents, restricted cash, and short-term investments totaled $6.8 billion as of September 30, 2021. To sum up, we not only achieved satisfactory top-line growth, but also narrowed our non-gap net loss margin in the third quarter. From the user's perspective, the number of every monthly transacting users increased by 24.2% from the previous culture. and the users' repeat purchase rate and purchase frequency improved. In terms of our supply chain, the percentages of direct sourcing in fresh grocery suppliers increased to 79.1% in the third quarter. In the long run, we will continue our commitment to providing consumers with better and safer products. For the fourth quarter, we will remain focused on serving higher value users, improving our non-GAAP network margin, and growing our GMV on a year-over-year basis. We will continue to improve our growth margin while further benefiting from our upfront investments in the supply chain, increasing the GMV contribution from our private label brands and in-house products, and optimize optimizing our productive mix. In terms of non-gap net loss margin, we expect to achieve greater sequential improvement in the first quarter than in the third quarter. In Shanghai, the home of our first operation, we expect our unit economics to reach break-even in the coming quarter. driving unit economics in the Yangtze Delta region to steadily turn positive in the future. This concludes our prepared remarks for today. Operator, we are now ready to take questions.
spk00: Thank you. To ask a question, you may press star then 1 on your touch-tone phone. To remove yourself from the queue, please press star then 2. Today's first question comes from Eddie Wong at Morgan Stanley. Please go ahead.
spk03: Hello, Mr. Liang, Mr. Yu, Karen. Thank you for answering my question. I have a question. Mr. Liang mentioned in the Preparer Mark that we are now focusing on efficiency and scale. Thank you for taking my question. My question is about the profitability timeline. So as Mr. Yang mentioned that right now we are more focused on the operating efficiency and we are kind of slowing down in terms of expansion in the new markets. So I just want, if you can give more color about the profitability timeline, if this is a little bit different versus we previously communicated during the IPO stage. Thank you.
spk02: Okay, thank you for your question. Yes, we can see that the timeline is ahead of the previous forecast. First of all, the GNV of Dingdong Maicai is higher than that of Changchengguan. Changchengguan refers to the covered area. The test is the ability of the city to reproduce and expand. For Dingdong, over the past period of time, we have been able to fully verify the ability of the region's supply and demand. The high point is that in a single city, each city's population has made a significant contribution to Dingdong's milk and vegetables. Compared to that, it is easy to reach the high point, and it is difficult to test our product development ability and service ability. From Q3, we have slowed down the expansion of the new region, and we are more focused on improving quality and service efficiency. Long-term, this is the most valuable thing, and it also ensures that Dingdong's milk and vegetables can continue to grow in high quality.
spk06: Thank you for your question. The short answer is yes, we're now expecting a faster pace in delivering profitability than we previously expected. Deriving our total GMV resembles the formula for a cube's volume, length times width times height. The length times width represent our geographic coverage and its growth potential is seen in our mass expansion capabilities. Our regional mass expansion capabilities have already been thoroughly tested and verified in our track record. The height of the cube refers to each city's average monthly GMV contribution on Ding Dong by the urban population. While geographic expansion, or as we call it, length times width, is a relatively simple task for us, growing the height is comparatively challenging as it tests our product development capabilities, service capabilities, and overall efficiency. Starting from Q3, we have postponed our expansion into new regions and focused more on improving quality and service efficiency. We believe that this will add the most value to our business in the long run, and it also guarantees the high quality and sustainable growth of Ding Dong.
spk02: At the same time, we see that Q3 Dingdong Maicai in Shanghai, which has been operating for the longest time, under the premise of greater reduction of regional losses, Shanghai's financial income increased by more than 50% at the same time as last year. We believe that in the future, Dingdong Maicai will further strengthen its commercial power and supply chain. Although Dingdong Maicai's interest in expanding has slowed down, but in the free market, the rate of buying and selling, every city and city population in Dingdong Maicai's monthly and monthly shares will continue to improve.
spk06: In Q3, our revenue in Shanghai, where we have been operating the longest, grew by over 50% year-over-year, together with a substantial decrease in operating losses at a regional level. As we further enhance our product development capabilities and supply chain, we believe that our penetration rate in existing markets, user purchase frequency, and each city's average monthly GMV contribution on our platform by urban population will improve. despite the slowdown in new region expansion speed.
spk02: So, to answer your question, DinoMai has three steps in its profit path. The first step, today's Q4, we will first achieve a positive profit in Shanghai. Then, we will lead the entire Long Triangle region to achieve a positive profit. The second step, we will achieve a positive profit. The third step, we will achieve a positive profit in the entire company. So, when it comes to IPO, we estimate that In 2024, Q4 can achieve the turning point of the profit chart. According to the current efficiency optimization situation, we think the profit time chart will be more optimistic.
spk06: As such, our path to profitability consists of three steps. First, in Shanghai, we expect our unit economics to reach break-even in the coming quarter, driving unit economics in the Yangtze Delta region to steadily turn positive in the future. Second, we aim to reach break-even for operating cash flow. Third, we'll then target the delivery of positive net income to our shareholders. During the IPO process, we expected to recognize positive net income in Q4 of 2024. We are now even more optimistic about our timeline to achieve profitability based on the current status of efficiency improvements.
spk00: Thank you. Our next question today comes from Joyce Zhu at Bank of America. Please go ahead.
spk07: Mr. Liang, good evening. Congratulations to the company for achieving a great success in the third quarter. Thank you for giving me this opportunity to ask questions. My question is related to our competition and our current strategic direction. Because we have seen that the entire industry has a lot of participants, and various modes are relatively different. Yeah. Yeah. or other potential competitors, how do we see the competitive pattern in recent years, including our long-term strategic direction and strategic position, and the difference between competitors? And how do we view the competition and market pattern? How does it affect our current strategic direction of execution? I will translate myself. Good evening, management. Thanks for taking my questions. My question is regarding the competitive landscape and how it affects our strategic directions. We have seen there are a lot of competitors in this fast-growing segment, including from the global green model and also the platform model, such as like JDDJ and Meituan. Could management elaborate a little bit in terms of the recent update of the competitive landscape and how we're looking at the competitors and what strategy we will choose to try to stand out from our competitors? Thanks a lot.
spk02: Okay, thank you for your question. I think that from the perspective of user experience, we are all in the mode of the real estate market. The products are also based on fresh and used products. So from the perspective of fresh and used products, it is a very large market. There will be a lot of opportunities for users to have a valuable model. In-store retail, offline, these two trends are the consensus between us and the real estate market participants such as Jindong, Meituan, Ali, etc. It also reflects the beautiful premise and strong justice of the real estate market model. Thank you for your question. In terms of user experience, we all belong to that on-demand delivery model focusing on fresh groceries and daily necessities. The fresh produce and daily necessity market is enormous
spk06: and any business model there that are generating user value can blossom. The trend of neighborhood retail and digitalization is a consensus among the prominent participants in the on-demand industry, including JD, Meituan, Alibaba, and us. Reflecting the excellent prospects and strong vitality of the on-demand business model, we're happy to see a healthy competitive landscape in this large market While monopoly ages a company, strong competitors ensure that a company is always striving for excellence, just like a day one market entrance. Regarding the differences between the platform's home model and us, I would like to elaborate on four aspects.
spk02: First of all, the supply and demand of the platform model is based on offline business. Using social mass infrastructure, it can quickly reach many cities. It can also provide multiple choices for users. But the self-service model has strong supply and demand capabilities, good business quality, and good user service experience. It is highly efficient and can be accepted by users. The recovery rate is also higher. So in the same service city, you can see that the order density of the self-service model is higher and the scale is also much larger.
spk06: First, the supply side of the Platform to Home model is based on offline merchants. Such a platform can quickly expand into many cities and offer users more diversified product selections, utilizing society's existing infrastructure. However, the self-operated model has several other outstanding features, such as solid supply chain capabilities, higher quality products, better service experiences, and more efficient delivery services. As a result, the self-operated model is more widely accepted by users and has a higher repeat purchase rate. In the cities where both models exist, self-operated business models usually enjoy a higher order density and a larger scale.
spk02: Secondly, we see that the platform model is still the thought of traffic, hoping to prove that traffic can cut down on commercial fees. And we believe that the value of the company is to create greater value. For users to develop products, ensure the safety and safety of food ingredients, and enhance the efficiency of the supply chain, it is all about creating value.
spk06: Second, the platform model is a traffic-driven mentality, and it charges fees from offline merchants through traffic allocation. In our opinion, times are evolving. A company's actual value lies in value creation, including developing products for users, ensuring the safety and quality of fresh produce, enhancing supply chain efficiency, and empowering upstream business partners.
spk02: Third, digitalization is the most basic premise of online service. The platform-based model corresponds to the commercial and food market. There are offline sales scenarios that are not conducive to storage and position management. And the level of digitalization in the online business is low. It is not conducive to online sales. Overall, the challenge of digitalization is great. It will also restrict the speed, efficiency, and user experience of development.
spk06: Third, we think digitalization is a prerequisite for online services. For example, the platform-to-home model has a more significant inventory management challenge because supermarkets and street markets are its suppliers that also operate offline. In addition, the standardization level of fresh produce in offline retail markets is low, which is also a challenge for online sales. In general, offline merchants face enormous digitalization challenges that restrict their development efficiency and user experience.
spk02: On the fourth aspect, the end-of-the-line delivery efficiency will be higher in the self-service model such as Dingdong Maicai. Dingdong Maicai's end-of-the-line delivery path is a three-point to multiple point model. The delivery efficiency is very high. The delivery cost per unit is lower. And in the platform model, the starting location is uncertain. It is a multiple point to multiple point model. The delivery efficiency is greatly limited. The delivery cost per unit is very high. The delivery cost per unit is higher, right?
spk06: Of course, the self-operated model has a higher efficiency in the last mile delivery. At Ding Dong, we deliver from a single point to multiple points, which increases delivery efficiency and lowers the delivery cost per order. In contrast, the platform model usually delivers from multiple points to multiple points, and the starting point for the delivery rider is uncertain, which constrains the development of delivery efficiency, leading to higher delivery costs per order.
spk02: To sum up, we believe that those two business models will coexist in the long run, but will likely have different market shapes because of the differences in their models.
spk06: We think that self-operated model will grow faster in the future thanks to the more robust product development capability, better user experience, and higher supply chain efficiency.
spk00: Thank you. Our next question today comes from Ashley Xu with Credit Suisse. Please go ahead.
spk05: Thank you for accepting my question. I would like to follow up with the previous question about our profit and loss. We just mentioned that our profit and loss improvement is mainly driven by supply chain progress. In this regard, can you help us make a more detailed analysis on the progress of our profit and loss? And what do you think of our future prospects for profit and loss? 然後我自己翻譯一下。 Thanks, management, for taking my question. I have a follow-up on our profitability. To the gross profit margin, could we have a more detailed breakdown or more color on the underlying driver of the improvement? And at the same time, could management share more color on the outlook? Thank you.
spk02: Thank you for your question. Three factors mainly drive the improvement in gross margin. The first is product development capability.
spk06: Product development capability is our core competency and also the primary growth driver for our development. While we capitalize on the growth potential of China's consumption upgrade, we'll do our part to meet people's ever-growing needs for a happy life by developing more differentiated products and more private label products with better growth margins.
spk02: In addition, continuous investment in the power chain makes the power chain more efficient, and can reduce energy consumption, reduce the middle link, and reduce the loss. In addition, Jindong Maishan also insists on investing in the energy infrastructure, and continues to invest in the production of energy in Shenzhen. These can help improve the comparison and also improve the efficiency.
spk06: The second is the supply chain. We'll continue to invest in our supply chain to enhance its efficiency to empower our upstream partners and further reduce the intermediate process and losses. In addition, we remain committed to our investment in agriculture technology and production and processing capabilities, which will simultaneously help boost our product development capability and increase our gross margins.
spk02: Building on our efforts to enhance our product development capability will attract more users and increase repeat purchase rates with our differentiated and superior products.
spk06: In this way, we'll avoid being dragged into relying on common promotion tactics used on the Internet, such as price wars or special offers, which in turn will raise our growth margin. In conclusion, as our product development and supply chain capabilities further improve, we are on track to achieve high-quality and highly efficient development with gradually improving growth margins.
spk00: Thank you. Our next question today comes from Thomas Chong at Jefferies. Please go ahead.
spk01: Thanks management for taking my questions. We have seen our private labels have been ramping up very quickly. I just want to get a sense about our strategies for private labels as well as the outlook. Thank you.
spk02: Okay, thank you. First of all, what we see is the opportunity for sales to upgrade. So in the free brand, we will emphasize the development of different products, better products, rather than simply taking the products of the top sales to do it again.
spk06: Thank you for your question. First of all, we see opportunities in consumption upgrades, so we'll be focusing on developing differentiated and superior products for our private label brands instead of simply replicating the top sellers on the market. Second, Dingdong will not compete with leading upstream suppliers directly. We mainly focus on areas that require technological breakthroughs and long-term investment. We'll work hard to maintain a sound supply chain ecology and hope to promote the industry's progress.
spk02: Dingdong Maicai has always believed in the spirit of seed. A small, strong seed will grow into a three-year tree. So we will not simply ask for the speed and scale of free brands.
spk06: Ding Dong has always believed in the seed spirit. A tiny and well-planted seed will grow into a towering tree in the long run. Therefore, we'll not just force the development speed and scale of our private label brands. Instead, we are steadfast in adhering to our principle of applying rigorous attention to detail to every product to lay a solid foundation for future prosperity.
spk00: Thank you. And our next question today comes from Robin Ling with Daiwa. Please go ahead.
spk04: Hi, thank you, Manager Chen. This is my question. Congratulations on your long-term performance. Manager Chen, can you share with us the specific situation of the U1 upgrade in Shanghai? For example, what is the daily amount of ammunition in each field? In other mature cities, we also have a lot of orders every day. The second is for our new pre-loan. According to the management, for the current expansion cost trend, do you think they will achieve profit time faster than the previous time table? Thanks, Manishen, for taking my questions. Could management share more on the unit economics improvement in Shanghai, for example, the number of daily order per warehouse and also the number for other mature cities? And for the new added warehouse, do we see a faster than before break-even timeline because of the declining user acquisition cost trend in the industry? Thank you.
spk02: 好的,谢谢您的问题。那么这个问题我们请我们CFO娱乐来回答。 好的,谢谢。 Thank you for your question. I would like to ask our CFO娱乐 to answer this question.
spk08: 好的,谢谢。Q3在我们这个丁东买菜相对成熟的市场,比如说像上海以及长三角其他区域的优异呢,我们对比Q2均有一定的优化。 那么在上海呢,我们优化了两到三个百分点。 那么在长三角的其他区域,江苏省和浙江省,我们都优化了四个百分点以上。 那么我们是在八月底的时候,公司将战略打法调整为这个效率优先兼顾规模的。 In Q3, the UEE in our mature markets, including Shanghai and the Yangtze Delta region, improved sequentially.
spk06: For example, our UEE was enhanced by 2 to 3 percentage points in Shanghai, and in Jiangsu Province and Zhejiang Province, our UEE was enhanced by over 4 percentage points. Starting in late August, we have changed our strategy to efficiency first with due consideration of scale. Since then, Yuyi has improved even more than what I just mentioned. In September, the Yuyi and Shanghai was close to the break-even level.
spk08: So, with the increase of our product power and supply chain, drive the price and price increase, then the order density drives the further optimization of the order cost rate. We very much believe that this year Q4, we will achieve a good evaluation in Shanghai. Then, the entire long triangle will gradually achieve a good view of the business profit. Then, we are also very confident that the profit and loss time table of Dingdong Market will be more optimistic than the estimate of the IPO. Thank you.
spk06: As our product development capabilities and supply chain further drive the increase in our gross margin and average order value, order density helps to improve fulfillment efficiency. We believe our unit economics in Shanghai will reach break-even in Q4. This will in turn drive unit economics in Yangtze Delta region to steadily turn positive in the future. We're very confident and even more optimistic in our timeline to achieve profitability now than during the IPO process. Thank you.
spk00: And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Karen G for any closing remarks.
spk08: Thank you again for joining our call today. If you have any further questions, please feel free to contact us. or request through our IR website. We look forward to speaking with everyone in our next earnings call. Have a good day. Bye. Thank you. Thank you. Bye-bye.
spk00: Thank you. Ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines.
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