Missfresh Limited (MF) on Q2 2021 Results - Earnings Call Transcript

Operator: Hello, ladies and gentlemen. Thank you for standing by for Missfresh Limited 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host, , Senior Director of Financing of the Company. Please go ahead, . Unidentified Company Representative: Thank you. Hello, everyone, and welcome to Missfresh second-quarter 2021 earnings conference call. Our financial and operating results were issued via Newswire Services earlier today and are available online. You can also view the earnings press release by visiting the IR section of our website at ir.missfresh.cn. Participants on today's call will be Mr. Zheng Xu, our Founder, Chairman, and CEO; Mr. Jun Wang and Ms. Catherine Chen, our Co-Chief Financial Officers. Management will begin with the prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the Company as filed with the U.S. Securities and Exchange Commission. The Company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that Missfresh earnings press release and this call include the disclosure of the unaudited GAAP financial measures, as well as non-GAAP financial measures. Missfresh earnings press release issued earlier today contains a reconciliation of the unaudited non-GAAP measures to the GAAP measures. We also posted a slide presentation on our IR website providing details on our results. We will refer to those results in our prepared remarks but not refer to specific slides during today's discussion. I now turn the call over to our Founder, Chairman, and CEO, Mr. Zheng Xu. Please go ahead. Zheng Xu: Hello, everyone, and thank you for joining our inaugural earnings conference call today. On June 25, 2021, Missfresh was successfully listed on the NASDAQ global market, an extraordinary milestone marking the start of our new journey as a public company. On behalf of all our employees and myself, I would like to extend our sincere gratitude and appreciation to our new and existing shareholders for their support. Today represents another important milestone for Missfresh as we reported our very first quarterly results following our IPO. In the second quarter of 2021, our GMV grew to RMB2.3 billion, and total revenue reached RMB1.9 billion, an increase of more than 40% on a year-over-year basis. As an innovator and leader in China's neighborhood retail industry, we remain relentlessly in the pursuit of our growth strategy, targeting at the final landscape of our -- of the industry. Our unique business model consists of three pillars: our pioneering on-demand Distributed Mini Warehouse, DMW retail business; our intelligent fresh markets; and our Retail Cloud business. These pillars work in concert to drive digital transformation across the huge neighborhood retail market in China, meeting the evolving needs of consumers as we pursue our mission to help every family enjoy quality grocery at their fingertips. Our on-demand DMW retail business targets to grow into the prevailing grocery shopping channel for mainstream urban consumers and first or second-tier cities. Our pioneering DMW solution featuring full-spectrum product selections, better price performance ratio, and convenient on-demand delivery services enables us to efficiently provide consumers with quality fresh produce and fast-moving consumer goods, FMCGs, at competitive prices every day. As of June 30, 2021, we have 625 self-operated DMWs across 16 cities, offering over 4,000 SKUs with an average delivery time per order of 37 minutes. In terms of customer strategy, we stick to our business philosophy to pursue high-quality, sustainable growth. We have amplified our marketing efforts with a dual-pronged approach, including online social network-based consumer acquisition and offline community-based promotional events, resulting in a 35% of year-over-year increase in the number of new transacting users. In 2Q 2021, we also actively promote our paid membership program, which features exclusive member-only product selections, service offerings, and exclusive benefits. Our membership program efforts drove year-to-year growth of about 240% in our revenue contributed by paid members. As we strive to strengthen our supply chain capabilities, we remain diligent in our efforts to refine our full-spectrum quality product selection. On the fresh groceries front, we focus on quality improvement from places of origin, end-to-end coating coverage, and shelf-life management for seven major fresh food groups, including meat, fish, eggs, dairy, vegetables, fruits and flowers, maintaining the high quality of our fresh produce offerings and creating a superior neighborhood shopping experience. With respect to FMCG, we further enhanced our strategic collaboration with leading consumer brands and top trendsetting brands, employing joint marketing campaigns to cultivate customers' on-demand shopping habits. In the second quarter, our average value per order grew to RMB96.1 at a leading position in the industry. With more customers adapt to an increased spending on on-demand retail channel and with the continuous improvement of our core capabilities, we believe our on-demand retail business will maintain its strong growth momentum and realize long-term profitability. Moving to our intelligent fresh market business, this business segment targets to transform the major neighborhood retail channel by mainstream consumers in third-tier with fourth-tier cities, leveraging retail chain operation model, along with digital upgrade initiatives. We aim to transform offline fresh market into a neighborhood shopping mall, delivering better shopping experiences to consumer while helping marketplace merchants increase revenue and profits. I'd like to highlight that our intelligent fresh market business inherently encourages neighborhood development and community development. Our socially responsible model gathered widespread recognition and secured community and local government support during its development. As of June 30, 2021, we have entered into contracts to operate 48 -- 58 intelligent fresh markets in 15 cities. 34 of which have commenced operations. We have great confidence in the future prospects of our intelligent fresh market business. We're poised to accelerate the expansion of the business segment with our hundred subsidies, thousands of fresh market initiatives, making the intelligent fresh markets business one of our significant growth drivers. By way of technology empowerment through Industrial Internet, our Retail Cloud business will help the massive neighborhood retailers across China in lower-tier cities to start their online operations and digitalization, which will create a better shopping experience for customers and enable retailers to boost revenue growth and profitability. At our Retail Cloud Strategy Conference on June 2021, we joined forces with Tencent's Smart Retail division to launch our Retail Cloud business, which enables traditional retailers, especially small and medium-sized supermarkets, to improve their digital operation capabilities. Thus far, we have established retail cloud collaborations with several regional supermarket chain operators, supported by our extensive industry know-how accumulated in our 1P DMW operations and in-house developed Retail AI Network RAIN, our Retail Cloud business provides a SaaS platform, which allows small and medium-sized supermarkets to swiftly build digital operating capabilities while optimizing all aspects of operations to increase efficiency, including omnichannel marketing, private traffic, merchandising, supply chain, and last-mile fulfillment capabilities. To summarize, the neighborhood retail industry in China, which encompasses multiple business models to accommodate diverse consumer needs for fresh produce and FMCGs shopping in different tiered cities has tremendous potential. Its growth is accelerating rapidly due to the wave of industrywide digital transformation. Our unique business matrix consisting of on-demand retail, intelligent fresh market, and retail cloud, along with our core capabilities built on supply chain enhancement, technology, and value chain empowerment, presents an excellent value proposition in the neighborhood retail market. We believe this winning combination will support Missfresh to achieve even stronger, higher-quality, and more sustainable growth in the long run, ultimately underpinning our vision to become the leader to drive the digitalization of China's neighborhood retail industry. Thank you, everyone. With that, I will now turn the call over to our Co-CFO, Ms. Catherine Chen, to discuss our financial performance for the second quarter 2021. Catherine Chen: Thank you, Mr. Xu. Our results demonstrate our robustness, strength, and the effective execution of our strategy, solidifying our leadership position in the industry. This quarter's success will allow us to explore more strategic partnerships, and our recent listing on the NASDAQ has further reinforced our brand name recognition and the influence in the market. We are encouraged by our second quarter results and are optimistic about our future growth opportunities. Now I'd like to walk you through our detailed financial results. Total net revenue reached RMB1.9 billion in the second quarter of 2021 compared to RMB1.3 billion in the same period of 2020. The year-over-year growth accelerated significantly to 40.7%. Net revenue grew by 23.8% on a quarter-over-quarter basis. Sales of products through online platform increased by 41.2% to RMB1,854.1 million in the second quarter of 2021 from RMB1,313.4 million in the same period of 2020, primarily driven by an increase in the numbers of orders. Other revenues reached RMB40.4 million in the second quarter of 2021, representing an increase of 23.6% from RMB32.7 million in the same period of 2020, primarily attributable to an increase in the sales of products throughout our Convenience Go Smart Vending Machine business. Cost of revenue increased by 65.5% to RMB1,752.6 million in the second quarter of 2021 from RMB1,059.1 million in the same period of 2020. Gross profit was RMB141.9 million in the second quarter of 2021, representing a decrease of 50.6% from RMB286.9 million in the same period of 2020. Gross margin was 7.5% in the second quarter of 2021, compared to gross margin of 12.3% in the first quarter of 2021 and 21.3% in the second quarter of 2020. The decrease was primarily attributable to an increasing discount coupons and incentives offers to customers. Operating expenses were RMB1,635.5 million in the second quarter of 2021, compared to RMB623.7 million in the same period of 2020. Fulfillment expenses were RMB541 million in the second quarter of 2021, compared to RMB342.2 million in the same quarter of 2020, primarily due to an increase in the number of orders fulfilled and an increase in the number of products delivery, warehouse operations, quality control, and customer service staff for further enhancement of our fulfillment capabilities. Fulfillment expense as a percentage of net revenue was 28.6% on a non-GAAP basis in the second quarter of 2021, compared to 28.8% in the first quarter of 2021 and 25.4% in the second quarter of 2020. Sales and marketing expense were RMB304.7 million in the second quarter of 2021, compared to RMB139.2 million in the same period of 2020. The increase was primarily due to an increase in advertising and marketing promotion expenses as we further invested and targeted advertisement in residential neighborhoods to acquire new customers and retail existing customers to retain existing customers, as well as increase in share-based compensation recognized upon the completion of our initial public offering in June 2021. General and administrative expenses were RMB396 million in the second quarter of 2021, compared to RMB58.7 million in the same period of 2020. The increase was mainly attributable to the increase in share-based compensation recognized upon completion of our initial public offering in June 2021, as well as an increase in the number of management staff for new business initiatives. Technology and content expenses were RMB393.8 million in the second quarter of 2021 and RMB83.6 million in the same period of 2020. The increase was mainly due to an increase in share-based compensation recognized upon completion of our IPO. As a result, the foregoing losses from operations were RMB1,493.7 million in the second quarter of 2021, compared to a loss of RMB336.8 million in the same period of 2020. Net loss was RMB1,433.2 million in the second quarter of 2021, compared to RMB339.8 million in the same quarter of 2020. Non-GAAP adjusted net loss was RMB888.9 million in the second quarter of 2021, compared to adjusted net loss of RMB325.4 million in the same period of 2020. Basic and diluted net loss per ADS were both RMB33.87 in the second quarter of 2021, compared to basic and diluted net loss of RMB14.49 per ADS in the second quarter of 2020. Non-GAAP basic and diluted net loss per ADS were both RMB18.84 in the second quarter of 2021, compared to basic and diluted net loss of RMB10.08 per ADS in the second quarter of 2020. As of June 30, 2021, the Company had cash and cash equivalents, restricted cash and short-term investments of RMB3,427.3 million, compared with RMB1,041.5 million as of December 31, 2020. The increase was primarily attributable to net proceeds received from the Company's IPO in June 2021. In the second quarter of 2021, the net cash used in operating activities was RMB698 million. Now turning, our business outlook and projection. For the third quarter of 2021, the Company currently expects the net revenue to be in the range of RMB2,020 million to RMB2,090 million, representing a year-over-year growth of -- accelerated growth of approximately 40% to 45% and expects gross margin to improve by 250 basis points to 350 basis points on a quarter-over-quarter basis. This outlook is based on our current market conditions and reflects our preliminary estimates of market and operating conditions and consumer demand, all of which are subject to change. With our innovative business model and core technology capabilities, we will continue to fulfill our mission to help every family enjoy quality groceries at their fingertips. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead. Operator: First question comes from the line of Andre Chang of J.P. Morgan. Please go ahead. Andre Chang: So thanks for management taking my question, and congrats on the successful IPO and the decent growth. So I have two questions. One is about the recent regulatory tightening in China for the Internet space. So do we see some of our competing business model facing more pressure and leaving a small opportunity for our DMW business, retail cloud, and also the smart intelligent fresh market business? And my second question is about the growth outlook beyond the third-quarter guidance. Do we see a chance for acceleration or it’s still too early to say about the fourth quarter or next year's growth outlook? Thank you. Zheng Xu: The neighborhood retail market in China is a massive market in terms of scale. We're seeing accelerating digitalization of the market, especially stronger growth in the online sales of fresh produce and food. For our Distributed Mini Warehouse on-demand retail business, we will focus -- continue to focus on quality growth and build up upon our growth strategy by targeting at value customers in the first and second-tier cities. We will focus on quality users and constantly improve our core capabilities and supply chain to drive increasing spending by our customers and better operation efficiencies. And meanwhile, our multiple business strategy help us to better position us for the future growth of the market. Our intelligent fresh market business is a social-friendly business that has been supporting the local merchants to better support their business, helping them to increase their income and providing jobs and also empower them with digitalization capabilities. And this has been fully recognized by the local government and local society. And at the same time, our Retail Cloud business is empowering local retailers and helping them to better grow and -- with the help from the digitalization tools. So our unique business matrix of our on-demand retail in the first and second-tier cities, intelligent fresh market in the mid, small-sized cities, and the Retail Cloud business that empowers supermarkets well is supporting Missfresh to achieve an even stronger and higher quality and more sustainable growth in the long run. We have entered into a new phase of growth. On the supply side, we continue to enhance our core capabilities and supply chain to offer quality products in all categories. On one hand, we emphasize the freshness of our fresh produce offerings and pay attention to quality improvement from places of origin end-to-end coating coverage and shelf life management so that we can consistently provide best shopping experiences to our consumers. For example, our today's production series of fresh meat and milk have been well-received by our customers. Our fresh live seafood category differentiates with its safety, freshness, and convenience and includes now 670 SKUs. And we have emphasized the fresh, which, like our sales of fresh fish and fresh seafood, has been highly welcomed by the consumers. We also offer 60 SKUs for fresh flowers, and our flower sales increased by 3 times since launch in March this year. On the other hand, our own FMCG products, we have strengthened collaborations with leading consumer brands and top trendsetting brands by holding co-marketing campaigns to cultivate the consumption habits of the consumers. And from the COVID pandemic, we have seen a trend that the top brands have been shifting their sales from offline to more of the online on-demand channels. And we have seen there's increasing collaboration potential between us with the FMCG major brands. And from the efforts from both the demand side as well as the supply side, we are seeing the revenue growth is accelerating, and we expect our growth to grow by around -- to be further accelerated in 3Q 2021, with revenue growth estimated to be around 40% to 45% on a year-over-year basis. And we also see a further accelerating trend in the coming quarters. Unidentified Company Representative: Next question please, operator. Operator: Thank you. Next question comes from the line of Xiaopo Wei of Citigroup. Please ask your question. Xiaopo Wei: Thank you for taking my question. My question about the market development in the third quarter. As we know that China had a resurgence of COVID cases in the quarter, and a lot of cities implemented most strict lockdowns since the first half last year. So my question is about what do you see the challenges or opportunity in this change in the market dynamics, especially in the areas of the interaction with users and the sales mix in terms of category and SKUs. What's your strategy to fine tune your operation in order to maximize growth? And also, do you see any pressure on your infrastructure and logistics, order procurement? Thank you. Zheng Xu: Overall, in China, the COVID situation has been well under controlled. However, in this year, there are several rise of cases, but it has been a swiftly been discovered and controlled. So it has some of the positive tailwinds providing to our business given that users are consistently being reminded of being more well -- awareness of the -- being adopting protection measures against COVID. So people choose to not to go out that often and now to go to some of the offline shopping areas to prevent a potential risk. So that helps to -- helps the users to have more adoption of online shopping trend. And they are more used to do their grocery and fresh produce shopping from on-demand retail platforms. And this has been helping us to transform users as well as nurturing their habits and improving their other -- their shopping frequencies. And on the supply chain side, we have been well-prepared of being reacting to the increasing demand through our commodity sources as well as our service capabilities. And we call it to guarantee your responsibilities and never pull back, and we're able to -- being able to fast response to some of the emergence like increased demand. And this kind of attitude and secure of supply has been well-received by our users as well as local government. And we have been -- we have received several letters and thank you letters from the government. And that's helping to stand where our strong efforts during the emergent situations. And we see with this kind of macro environment and there is an accelerating trend of online digitalization, which helps us to better improve our business. At the same time, our intelligent fresh market business and our retail cloud business, which has helped to empowering the digitalization of neighborhood retail market, is also accelerating its expansion speed. And we could see a great potential in the new business as well. Zheng Xu: Thank you very much. Next question comes from the line of Vincent Yu of Needham and Co. Please go ahead. Vincent Yu: Zheng Xu: Vincent Yu: Unidentified Analyst: Vincent Yu: Unidentified Analyst: Let's take the first question first. Okay? Vincent Yu: Okay. Okay. Cool. Unidentified Analyst: Okay. Zheng Xu: Unidentified Analyst: Okay. So the decrease in the gross margin on a year-over-year basis is mainly contributed by our marketing periodic marketing strategy for a new round up growth phase. We expect that the gross margin will be further increased by 250 to 350 basis points on a quarter-over-quarter basis in 3Q 2021. So in mid to long term, we'll stick to our strategy to focusing on high-value customers and actively promote our paid membership program, which features exclusive members-only product selection, service and offerings as well as benefits. On the other side, we will continue to optimize the product mix and increase the proportion of FMCG products, private brand products, as well as mid- to high-end consumption upgrade category products. We will also further increase the proportion of direct procurement to optimize commodity cost so as to further improve the gross margin. So in summary, it will be further -- the gross margin will be further increased, driven by the above factors. And the revenue growth is mainly driven by the increase in transacting users. So an AOV, we will further optimize our marketing strategy and enhance the customer acquisition through online social network-based customer acquisition and offline community-based promotions to further boost new customers' growth and repeat purchase by existing customers. Zheng Xu: For the expansion of our DMW business, Missfresh continue to focus on sustainable and economic model-arranged growth. So we will continue to expand our DMW business in first tier and second-tier cities. So we believe that in the current cities that we cover, there's still great potential to further build up our DMW network and to increase the density of our DMWs. And also, our strategy is to keep acquiring like high-value customers in the existing cities and expand our business. And we have already branched out among the top top 50 top-tier cities in China. There are 35 cities that can build up the DMW network and sustain for long-term growth. So we were targeting on these cities in a long-term -- mid- to long-term perspective. So we think there are still room for the penetration rate to rise in the first tier and second-tier cities as the customers have higher requirement of consumption for product quality, for fulfillment efficiency, etc. And we believe DMW model has more advantages to fulfill this demand compared with other models. On the other hand, for the lower-tier cities that we have our intelligent fresh market that's penetrating in this market, that's helped to provide quality products and services to the population in the lower-tier cities. So we believe that with these two pillars, the DMW and the intelligent fresh market business, as well as our retail cloud business, we can take full use of our core capabilities to achieve even stronger and higher quality and more sustainable growth in the long run. Vincent Yu: So guys, sorry, for the signal issue that's on my phone. So I guess some investors who cannot understand Mandarin is not -- cannot understand what I just asked with the last two questions and this third question I just asked. So in very quick to brief rephrase it, my first question was about gross margin strategy and the long-term goal. My second question was about the progress in entering new cities and the challenges. And third question I just asked is about the user growth initiative currently in place and the view on user growth trend for second-half 2021 and 2022. Thank you. Zheng Xu: Unidentified Analyst: So the Company will stick to the online social network-based customer acquisition as well as off-line community-based promotion events. This two double engine that's driving the customer growth of the Company. And it also has been providing proven by our -- in the second quarter of 2021, our newly added transacting users on a year-over-year basis has been growing at a pace of 35%. And also, we are also emphasizing from increasing the per customer value. So our user value has also been increased through our paid membership program. From that, we can see that in the second quarter, the revenue contributed by our paid members has been increased by over 200 and -- around to 240% on a year-over-year basis. And this, too, has been providing an evidence of our user growth -- effective user growth strategy. And we expect the trend of our user growth will remain strong. And also, our efforts has been proven to be effective and will continue with the user growth strategy as well as per user value growth strategy to further improve -- to further drive the future growth of the Company. Excellent. Next question please, operator. Operator: Thank you. Next question comes from the line Charlie Chen of China Renaissance. Please go ahead. Charlie Chen: Thanks for taking my questions. I've got two questions here. First one is about the average order value. I can see the AOV actually increased about two to 3% year on year. What is the strategies or other initiatives that management is taking to further increase the AOV in the future? So that's the first question. And the second question is related to the new initiatives the Company has taken recently, including the smart vending machine and also the cooperation with JD's platform. So how does these two new channels fitting the Company's omnichannel strategy to maximize coverage of your consumers as well as minimize possible commoditization in your business? Thank you. Zheng Xu: Charlie Chen: So it's a very good question as AOV average price per order is very, very important for DMW model and is a determining factor for all the overall unit economic model. And for Missfresh, we have always been performing very well in the AOV part and which is well above industry average. And it also guarantees that we are able to achieve a better unit economic model. So in terms of the supply side, that you need to have the correct product mix to provide facing to the high-value customers. And on the other hand, you also need to become the major channel and the major consumption scenario for your customers. So for Missfresh, we have been working a lot in these two areas. First, we emphasize on the freshness of our fresh produce offerings and pay attention to the quality improvement from our places to our region end-to-end coating coverage as well as improving the FMCG-light mix. So by providing the correct mix of our products to our users, we are able to achieve steady growth. And at the same time, we are also accelerating and continue to improve our fulfillment experiences to make sure we are becoming the major channel and major channel that account for the -- our customers' wallet share. Zheng Xu: Charlie Chen: Okay. So Dingdong is one of our important business partners. And also, we have seen great growth in the past. So one part of the collaboration is on the fresh produce and food and categories that we were utilizing our strength in the supply chain side. We were able to sell on the Dingdong platform. And this part has realized very good growth in the sales volume. And on the other hand, on Missfresh app that we have this kind of high-frequency and female-oriented customer base, which also we have been able to collaborate with Dingdong on their supply chain to provide our next-day delivery services and products, so which also achieved very good growth. So on one hand, that is using Dingdong's traffic and in combination with our supply chain. And on the other hand, it's using our traffic in combination with Dingdong's supply chain, both has very good collaboration potentials and achieved great growth in the sales growth. Zheng Xu: Charlie Chen: So in terms of Convenience Go Smart vending machine business that we haven't disclosed much in the past as it is more of an exploration business, as in the past that in the embedded in the Missfresh DNA that we always have the endeavor to facing the final landscape of the industry and making more explorations. So Convenience Go Smart vending machine is one part of that. And we believe that the smart vending machine would be the next generation of convenience store. So we have been -- developed that business for a period of time and to actively utilize on the technology side, including like IOT, Internet of Things, data technologies and to ensure that we have a remote control over the smart vending machine and including also the AI and IoT technologies that can be further formed our core technology capabilities and to be further utilized in our intelligent fresh market and our retail cloud business. So in summary, so this business is more of an exploration business with very good growth and also with good profitability. And we are also emphasizing on this kind of exploration that help us to accumulate technology core capabilities that can be further becoming our core competencies and empower our future other business. Zheng Xu: Charlie Chen: So the smart -- the Convenience Go Smart vending machine business is more like the DMW business at five or six years ago and our intelligent fresh market business around two years ago, and our retail car business around one year ago. It all represents our endeavor to continue to do business model innovation as well as technology innovation that's driving the future growth curve of the Company. Okay. Next question please, operator. Operator: Certainly. Next questions will come from the line of Thomas Chong of Jefferies. Please ask your question. Thomas Chong: Thanks, management, for taking my questions. I have two questions. The first question is about the cohort analysis. Can management share about the purchase frequency ASP retention for our existing users? And then given that our paid members revenue is growing very rapidly, can management also share some of the behavioral differences for the paid members versus those long-paying subscribers? And my second question is about our SaaS business. This sector is a huge market with enormous potential. And we are introducing that the competition is also quite intense with a number of players and very similar opportunities. Can management share about our key competitive edge on this front in terms of our data insights and other areas? And in particular, with regard to the R&D spending, how should we envision our R&D costs going forward? Thank you. Catherine Chen: Thank you, Thomas, for your question. For the first question, on the AOV and other frequency. So the Company has been continuously to improve our AOV through providing more abundant product mix and the correct product mix to our -- facing our value customers. And we have been strengthening our supply chain capabilities by providing fresh meat, fresh fish, as well as more like fresh products as well as providing a wide range of FMCG products that's serving the users' needs for consumption upgrade. And this helps us to contribute to our AOV as people are adding more items to their shopping basket at each time when they order. So -- and also on the frequency side, we also rolled out several, for example, our paid membership program that we have been continuing to cultivate that. And also the revenue contributed by our paid members has been increasing significantly. And also, there are order frequencies, and this also help us to drive the order frequency growth. And at the same time, with a more stronger supply chain on the fresh produce side that arises in the, for example, live fish live shrimp, and that helps us to contribute to the increase of the users like other frequency as well as they are more inclined to shop on our platform with a combination of a fresh produce as well as FMCG and to satisfy their daily needs. And for the second question, I will turn to our partner and CFO -- co-CFO, Wang Jun, to answer that. Jun Wang: Hey, Thomas. I heard your question about the retail cloud business. I think our retail cloud business is very much focused on the product optimization and implementation for our several clients at this moment and so that we can pave way to future expansion. And at the same time, we're actively engaging with business partners for in-depth cooperation in the retail cloud business. As you have seen from the news, we have already had a strategic press conference with Tencent's smart retail to collaborate on this business initiative. And in addition to this, I think, as you have been very much interest in the uniqueness of our business, I think it's like three dimensions. The first one is that we are very friendly to the CEOs of our customers. We offer them private traffic -- private domain traffic as a major solution to bring their customer from offline to online without robbing their customer to a centralized traffic platform. So in this way, we sit together with them, empower them rather than centralizely collecting virtual customers. And the second fact, I think we're very friendly to the CTO. Our product is very much standardized, and it is compatible with their existing system. And so they can -- they don't have to replace the ERP. We can be compatible with the ERP because we focus on the application level on the operations rather than on the bottom level of the front. And also, it's very easy to deploy this because we have already standardized a lot of the operation into product and into automation driven by the AI so that it could be easily deployed and it is friendly to employees or the COOs of our customers. So by offering value to the three key decision maker and the users within our customers, the retail cloud is offering them a solution that is powerful and friendly in the meantime. I think that's our very much niche and the extensive utilization of the AI in shaping the future of the smart decision making for future supermarkets offline and online together as a whole solution. Thomas Chong: Thank you. Operator: Thank you for the questions. In view of time constraints, I will now turn the call -- Unidentified Analyst: No. We are going to turn to the next question from Robin, I believe. There's a line. We'll turn to Robin from . Operator: Certainly. Mr. Robin , your line is now open. You may go ahead. Unidentified Analyst: Could management share a bit on the user acquisition cost in the second half of 2021 and next year. Especially, we're seeing some investment from the community repurchase players decreasing and some small players have exited the market. So is there any positive impact, especially in the lower-tier cities? Or are we mainly competing with other front-end warehouse models? Thank you. Catherine Chen: Okay. We expect our user and our revenue to further grow in the coming quarters, which is mainly driven by the increase of our transacting users and AOV. We believe that the cost of customer acquisition in the second half of the year will be continuously to decrease, which is because of our implementation of our online social network-based customer acquisition, in combination with our offline like community-based promotional events, marketing strategies. So as you mentioned that in some of the lower-tier cities that you see some of the smaller platforms like there's evolving trends there. But for us, we will continue to -- we believe that with the current situation that the expansion and competition within the market will be more rational, and the whole industry will be more focused on high-quality and sustainable growth. So in long term, we believe that there are 7.2 trillion online neighborhood retail markets there that will provide several trillion-dollar platform. So providing different kind of like the value proposition, covering the needs of various users from different tier cities. So the Company always concentrate on our -- on the business with scalability and stronger barriers. So facing the final landscape, we have been planning for a long time and implementing our strategy with multiple business contribution, including our DMW and the intelligent fresh market as well as retail cloud business. That's taking the full use of our core capabilities to achieve a stronger and higher-quality and sustainable growth in the long run. So we will continue to focus on the quality growth as well as build up our growth strategy by targeting our value customers in the first tier and second-tier cities. And also, we will focus on the quality user and constantly improve our core capabilities in supply chain to drive the increasing spending by our customers. And in the lower-tier cities, we're more like covering the customer through our intelligent fresh market as well as retail cloud business to cover a wider rent of customers in a wider spectrum of cities. Unidentified Analyst: Thank you. Very helpful. Operator: Thank you very much. With that, let me hand the call back to the management for closing remarks. Unidentified Company Representative: Thank you once again for joining us today. If you have further questions, please feel free to contact Missfresh IR through our contact information provided on the website of the TPG Investor Relations. Thank you today. Operator: This concludes today's conference call. You may now disconnect your line. Thank you.
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