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Courtesy of Dingdong Maicai
Chinese online grocer Dingdong Maicai drastically cut the size of its initial public offering, but its founder Liang Changlin insists the industry still has a great deal of potential for growth and the Shanghai-based startup is ready to capitalize on it.
“I am confident of our growth,” he says in a phone interview with Forbes. “A lot of companies are attracting users with cheap prices, but we’d rather compete by offering products of quality.”
Liang wants investors to focus on Dingdong Maicai’s long-term potential, and says his company has advantages in terms of quality control, securing supplies and understanding user needs in an increasingly crowded market.
Dingdong Maicai slashed its IPO fundraising target by 74% just prior to its debut on the New York Stock Exchange on Tuesday. Later the same day, the company said it had managed to raise $95.7 million by pricing 4.1 million American Depositary Shares at $23.5 each. Previously, the target was $357 million.
Similar to its director competitor Missfresh, the company has been met with weak demand from investors. Missfresh saw its share price drop by a third from its IPO price, including a 26% tumble during its Nasdaq debut last week. The Beijing-based online grocer backed by tech giant Tencent had earlier raised $273 million from the offering.
Beginning last year, Dingdong Maicai has been a beneficiary of the coronavirus-induced lockdowns that prompted many Chinese consumers to order fresh produce online and have them delivered to their homes. Its average revenue per order reached 70 yuan ($11) in the first quarter of 2020, but that figure has since dropped 23% to 54 yuan in the first three months of this year as the restrictions were eased.
The company said its total revenues reached $1.7 billion, an almost three-fold surge from $600 million in 2019, according to its prospectus. But its net loss widened to $485 million, compared with $290 million a year ago, as it had to spend more to source supplies of fresh produce and compensate its delivery partners.
Dingdong Maicai isn’t Liang’s first venture in the business world. After retiring from the Chinese military, the entrepreneur developed in 2002 a video cutting and merging tool called Easy Video Joiner & Splitter. With money made from the then-novel service, he founded a parenting and maternity discussion platform called iYaya.com and MaMaBang a year later.
Both were sold to New York-listed Chinese education firm TAL Education in 2016, according to Liang’s Linkedin profile page. He spotted opportunities in the on-demand grocery market in 2014, as many startups rushed to deliver services–everything from car-washing to pet grooming–to consumers’ doorsteps. Dingdong Maicai was founded in 2017, and Liang developed his “frontline fulfillment grid model” that allows the company to achieve last-mile deliveries more efficiently.
By positioning 950 storage and delivery centers closer to consumer homes across 29 cities, and using an algorithm to assign orders to the nearest station, Dingdong Maicai ensures delivery within half an hour, according to its prospectus.
Xinhua News Agency/Getty Images
But the competition for China’s online grocery market is growing rapidly. Internet companies, from the Hong Kong-listed Meituan to the Alibaba-backed Shihuituan, are all seeking a piece of the country’s online grocery delivery market, which is estimated to reach more than 1 trillion yuan in sales by 2023, up from 458.5 billion yuan last year, according to Beijing-based research firm iResearch.
Arun George, an analyst who publishes via research platform Smartkarma, has likened the race in this market to China’s “bike-sharing frenzy” a few years ago, when loss-making startups like Ofo and Mobike each raised billions of dollars to attract users with cheap rides.
“The resulting arms race has led to specialists (such as Dingdong and Missfresh (MF US)), tech goliaths (Pinduoduo (PDD US)) and Meituan (3690 HK)) and traditional offline stores (such as WM Tech Corporation (WMT HK)) reporting heavy losses for their online grocery segments in the quest to grab market share,” he writes.
And despite Liang’s pledge to offer better products, and not to engage in price wars, the company says in its prospectus that it may have to cut prices if a competitor does so, otherwise it risks losing market share. The entrepreneur declines to predict when Dingdong Maicai should begin turning a profit, but instead says now is the time to expand and invest.
“If people look at the likes of Amazon and JD.com, they’d found out that the share prices of those companies surged a lot over the long run, no matter how they performed initially, ” he says. “For us, there is still a big room to let people depend on our services.”
