Dingdong (Cayman) Q2 2023 Earnings Call Transcript

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Provided by Quartr
September 1, 2023

Key Takeaways

  • In Q2 2023 Dingdong delivered RMB4.84 billion in revenue and achieved non-GAAP profitability for the third consecutive quarter with a 0.2% net profit margin, and was GAAP-profitable excluding one-time expenses.
  • Despite a high pandemic base, Q2 GMV reached RMB5.32 billion, with monthly order frequency up 5% YoY, ARPU rising 8%, and member penetration climbing 10 pp to 54%, driving stronger customer engagement.
  • The launch of the “Delicious Keeling Ranking” notably boosted product performance—free-range silky chicken saw 200% higher exposure, a 360% surge in transactions and a 5.4 pp lift in repurchase rate—while private-label Mochi Roll revenue more than doubled.
  • Advanced supply-chain upgrades and AI-driven algorithms trimmed full-chain loss rates by nearly 1 pp annually to below 0.5%, enhanced fulfillment efficiency and supported a sequential 2.3% rise in overall order volume, with East China stations up 5%.
  • Operating cash outflow was RMB178 million (positive when excluding year-end bonuses), cash and equivalents stood at RMB5.52 billion, short-term loans were reduced by RMB127 million, and management confirms confidence in full-year non-GAAP profitability.
AI Generated. May Contain Errors.
Earnings Conference Call
Dingdong (Cayman) Q2 2023
00:00 / 00:00

Transcript Sections

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Operator

Good morning, and good evening, ladies and gentlemen. Thank you for standing by, and welcome to the Dingdong Limited Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please note that this event is being recorded. I will now turn the conference over to the first speaker today, Nicky Zheng, Director of Investor Relations. Please go ahead, sir.

Nicky Zheng Limited)
Nicky Zheng Limited)
Director of Investor Relations at Dingdong

Thank you. Hello, everyone, and welcome to Dingdong's second quarter 2023 earnings call. With us today are Mr. Changlin Liang, our Founder and CEO, and Mr. Song Wang, our Senior Vice President. You can refer to our second quarter 2023 financial results on our IR website at ir.100.me. You can also access a replay of this call on our IR website when it becomes available a few hours later after its conclusion. For today's call, management will provide their prepared remarks first, and then we will be hosting a question and answer session. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call.

Nicky Zheng Limited)
Nicky Zheng Limited)
Director of Investor Relations at Dingdong

As we will be making forward-looking statements, please note that all numbers stated in the following management prepared remarks are in RMB terms, and we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and filings with the SEC. I will now turn the call to our first speaker today, the Founder and CEO of Dingdong, Mr. Liang.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

Hello, everyone, and welcome. Hello, everyone, and welcome to Dingdong's 2023 second quarter earnings call. I'll start by providing a brief overview of our operating performance in Q2, 2023. In the second quarter, we recorded CNY 4.84 billion in revenue, with a non-GAAP net profit margin of 0.2%. If excluding one-time expenses, we were profitable on a GAAP basis. At the same time, if we exclude the impact of year-end bonuses issued in Q2, we were operating cash flow positive. This strong performance reflects our steadfast commitment to our efficiency first, with due consideration of scale approach, which has resulted in three consecutive quarters of non-GAAP profitability. Our GMV reached CNY 5.32 billion in Q2.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

A year ago, at the height of the pandemic, we successfully met certain consumer demand by quickly adapting to difficulties across our supply chain and operations, which resulted in a strong operational performance. Despite the high base effect set in Q2 last year, we managed to achieve a 5% year-on-year increase in monthly order frequency, surpassing 4 times per month for the first time. In addition, our ARPU increased by 8% year-on-year, and our member penetration rate improved greatly, with members contributing 54% of the total GMV. This is a 10 percentage point year-on-year increase. Thanks to our product development capabilities and full chain operational capacity, we also made continuous improvements to overall order quality and user stickiness, even with the retail environment normalized post-pandemic. This reflects our commitment to optimizing operational efficiency to meet the evolving needs of our users....

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

[Foreign language]商品集 合了美味、奇特、少添加、零添加等许多优点。随着美琪林平台的推出，也给我们 的好商品带来更多的增长机会。

Translator

Next, let me review our progress on the product front. Our exceptional product development capabilities are a key growth driver, enabling us to establish robust competitive advantages. We have developed numerous products that are unique to Dingdong, and our brand is gaining popularity among users. This quarter, we launched the Meiqilin Ranking, which highlights top-rated products that have been reviewed by experts and select users, assessing everything including deliciousness, uniqueness, and the amount of additives. This feature is creating significant growth opportunities for our outstanding products.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

[Foreign language] 例如，我们的土乌鸡，从四月进入美琪林频道以来，3个月内月均曝光量增长了2倍，交易额增长了3.6倍，同时用户的30日复购率提升了5.4个百分点。我们自有品牌宝炉工坊虎皮麻薯卷，进入美琪林一个多月来，周均曝光量增加80%，周均收入实现了2倍以上增长。我们相信未来会有越来越多的用户发现并认可我们的叮咚好商品。

Translator

Since Free Range Silky Chicken was added to the Meiqilin Ranking in April, we have seen a remarkable increase in exposure, transaction volume and customer loyalty. Our average monthly exposure has surged by 200%, while monthly average transaction volumes have skyrocketed by 360%. Additionally, the 30-day repurchase rate increased by 5.4 percentage points. Another product that has grown, thanks to the Meiqilin Ranking, is our private label Striped Mochi Roll by Bao's Bakery. In the space of just one month, its average weekly exposure increased by 80%, and its average weekly revenue more than doubled. Fueled by this new promotional channel, we're confident that more and more consumers will discover and appreciate our high quality products in the future.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

同时，我们非常重视提升我们的用户体验。截止今年六月，针对我们华东地区的绿卡用户，我们累计定制近100款会员专属高品质商品，以满足会员用户更优质的消费需求。在现有的免费菜、会员专享品、会员专属折扣、超级会员日等会员权益之外，我们未来也会不断推出更多新的会员权益，来进一步回馈我们的会员用户。今年二季度，我们绿卡会员GMV占比同比提升了10个百分点，环比提升了2.4个百分点。同时，我们会员用户的下单频次同比提升了9.0%，环比提升了5.2%。即使考虑去年疫情因素的影响，会员用户的季度ARPU也实现了超过10%的同比增长。

Translator

We're constantly striving to improve the user experience for our valued members. Our team has been hard at work customizing nearly 100 high-quality products exclusively to meet the unique needs of our members in East China. Our existing member benefits, such as free dishes, member exclusive products, member exclusive discounts, and super member days, are just the beginning. We'll continue introducing even more benefits to incentivize and reward our loyal members. We're proud to share that in the second quarter of this year, member GMV increased by 10 percentage points year-on-year, and 2.4 percentage points sequentially, while their order frequency increased by 9% year-on-year and 5.2% sequentially. Despite the high base effect created by the pandemic last year, quarterly member ARPU increased by more than 10% year-on-year.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

接下来，我想来聊聊我们在供应链方面的建设情况。最近的几个季度，我们能够持续保持盈利，除了商品力的贡献外，很大程度上也归功于我们在研发技术方面的持续投入。我们一直秉承着长期主义的经营理念，在供应链的每个环节上一直不断升级优化。我们结合自身的运营实践经验，成功地实现了从采购、生产加工、仓储、履约配送整个供应链路，以及人、货、运、仓每个场景的数仓管理。品类运营方面，在我们自主研发的数据算法支持下，我们的系统还可以利用AI技术预测订单规模，进行品类规划、定价、搜索、推荐，智能补货和调拨管理库存。依靠我们对系统和算法能力的持续投入，在我们供应链上有1000个前置仓，每天处理FDC到SKU数百万量级的情况，我们依然极大提升了供应链的运营效率。以生鲜行业一个关键指标全链路损耗率为例，过去3年，我们全品类损耗率每年持续下降近一个百分点。当下，我们稳定地将自销损耗率成功控制到了0.5%之内，这放眼整个生鲜行业都是非常罕见的成绩。

Translator

Next, I would like to update you on the progress we have made in our supply chain. Our supply chain improvement have been a key driver of our recent profitability, alongside our product development capabilities. We have always adopted a long-term approach to every aspect of our operations. Through sustained investment in R&D and technology, and continuous upgrades to every link in the supply chain, we now can digitally manage procurement, production, processing, warehousing, fulfillment, and distribution, covering everything from people, goods, logistics, and warehousing. Our proprietary algorithms enable us to predict order size with AI technology, perform category planning, optimize pricing, provide search recommendations, replenish supplies, and manage inventory.

Translator

Even with thousands of frontline fulfillment stations processing millions of FDCs to SKUs daily, we still manage to upgrade our algorithm to drive consistent improvement in operational efficiency, resulting in a decrease of nearly 1 percentage point in the full chain loss rate of all categories in each of the past three years. Our loss rate of unusable goods has been carefully managed down to less than 0.5%, a rare achievement in the fresh food e-commerce industry.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

二季度我们订单量环比提升了2.3%。同时，我们相信华东区域还有非常大的增长空间，也在持续投入和优化现有供应链的仓网布局。我们华东仓均日单量环比提升了5%。今年上半年，我们根据站点间的覆盖区域和订单密度，对华东近100个前置仓进行了升级、裂变和区域优化布局，进一步改善我们的缺货率，并提升我们的履约效率。

Translator

Our order volume was up 2.3% sequentially. We're confident that there is still room for additional growth in the East China region and are working hard to optimize the network layout of our existing frontline fulfillment stations. Our frontline fulfillment stations in East China saw a 5% increase in average daily order volume sequentially. In the first half of this year, we upgraded, split, and optimized the layout of nearly 100 frontline fulfillment stations in East China, which has improved both our out-of-stock rate and fulfillment efficiency.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

最后，我们来展望一下2023年全年的情况。我们仍然非常有信心能实现全年Non-GAAP口径下的盈利，持续实现健康和高质量的发展。我的发言到此结束，谢谢大家！下面请公司财务负责人、高级副总裁王松来介绍一下公司财务情况。

Translator

We're confident that we can achieve a full year non-GAAP profitability in 2023, and that we will maintain healthy and high quality growth throughout the year. Thank you all. That concludes my remarks. Next, I would like to invite Song Wang, our Senior Vice President and Head of Finance, to review the company's financial performance.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

哎，谢谢梁总。大家好，在向大家介绍我们的财务情况之前，先说明一下，我们的所有数字都是以人民币为单位的。

Translator

Thank you, Mr. Liang. Hello, everyone. Before I review our financial performance, please note that all of our figures are in RMB.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

2023年Q2，我们继续秉承高质量增长的路径，坚定推进效率优先，兼顾规模的战略打法。随着运营效率的持续提升，成本费用的不断优化，我们已经实现了连续三个季度Non-GAAP口径下的盈利。Q2 Non-GAAP净利润为0.2%。同时，如果去除一次性费用，我们也实现了GAAP口径下的盈利。

Translator

During Q2, we remained committed to achieving high-quality growth by following our efficiency-first, with due consideration of scale strategy. We have achieved Non-GAAP profitability for three consecutive quarters through our ongoing efforts to improve operational efficiency and optimize costs and expenses. We also achieved a Non-GAAP net profit margin of 0.2%. Additionally, if we exclude one-time expenses, we were profitable on a GAAP basis.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

接下来我们来看一下2023年Q2的具体业绩情况。叮咚买菜2023年Q2的GMV为53.2亿元，同比下降了25.2%，营收48.4亿元，同比下降了27%。收入下降的主要原因是去年同期疫情所形成的高基数。正如前面梁总所说，去年同期上海等区域遭受了严重的疫情，叮咚买菜克服了供应链和运营上的种种困难，承接住了大部分用户激增的消费需求，从而导致了去年同期的高基数。考虑到疫情和短期宏观影响造成的高基数，我们的AOV也有同比和环比的下降。然而，我们仍然相信，随着我们商品的持续优化和宏观经济环境的逐步改善，AOV仍有很大的增长空间。

Translator

Now let's dive in. In Q2, GMV was CNY 5.32 billion, a decrease of 25.2% from the same time last year, while revenue was CNY 4.84 billion, a drop of 27%. As previously mentioned by Mr. Liang, the primary reason for the decrease was the high base effect created during the same period last year, when the pandemic restrictions were impacting Shanghai and other regions. During that period, we successfully navigated supply chain and operational challenges to fulfill the surge in consumer demand. Given the base effect and short-term macro headwinds, we experienced a decrease in average order value or AOV on a year-on-year and sequential basis. However, we remain confident that with the continual optimization of our product offerings and a gradually improving macroeconomic environment, AOV still has substantial room for growth.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

Q2的毛利率为31%，与去年同期保持稳定，同比去年略微下降了0.6个百分点。未来我们会继续将商品力作为公司核心驱动力，深耕供应链，持续升级和优化我们的系统和技术数据算法等能力，以整体提升供应链的运营效率，助力成本和费用的持续优化。我们相信这将成为京东买菜的竞争壁垒，并逐步转化成公司更强的盈利能力。

Translator

... Although gross margin decreased by 0.6 percentage points year-on-year in Q2, it remained stable overall at 31%. To achieve sustainable growth, we plan to continue focusing on product development as our core driver and deepen our supply chain engagement. Upgrading and optimizing our systems and algorithms will help improve operational efficiency in our supply chain, lower costs, and increase profitability. We aim to establish this as our competitive advantage, resulting in stronger profitability in the long term.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

Q2的履约费用率为23.7%，同比去年上升了0.4个百分点。这是由于去年Q2受疫情影响形成的AOV的high base，但我们的单均履约费用仍然同比下降了7.8%。这说明我们履约端的效率仍然是在持续提升的。我们一直努力提升履约每个环节的效率，比如在Q2，我们的干线物流运输效率提升明显，干线单均物流费用同比下降8.4%。另外，我们在包装耗材上也一直倡导节约环保，单均包装耗材费用同比下降了17.6%。

Translator

Fulfillment expense ratio increased by 0.4 percentage points year-on-year to 23.7%. This was due to last year's pandemic, which created a high AOV base effect. Despite this, our average order fulfillment costs decreased by 7.8% year-on-year, indicating continued improvement in our efficiency on the fulfillment side. We're committed to enhancing efficiency across every aspect of the fulfillment process, which is reflected in the significantly improved efficiency of our mainline logistics and transportation units. Average mainline logistic cost per order dropped by 8.4% year-on-year. Additionally, we are passionate about conservation and environmental protection and achieved a 17.6% year-on-year reduction in the cost of packaging consumables per order.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

Q2的营销费用率为1.8%，同比去年同期优化了0.4个百分点。这说明商品力已经成为叮咚的流量来源，叮咚差异化的独特的好商品，越来越能吸引用户并留住用户。Q2的管理费用率为1.8%，较去年同期优化0.5个百分点，研发费用率为4.2%，较去年同期增加了0.3个百分点。我们在倡导节约环保的同时，将一如既往地在食品研发、农业科技和技术数据算法等方面持续进行研发投入。从长期来看，我们相信以上三个方面的基础设施投入将加强叮咚的竞争优势。同时，我们在自主研发能力上的建设也带来了明显的效率提升。在保证服务质量和系统稳定性的同时，我们也通过对云计算和大数据等基础设施及电商和供应链等应用系统的持续优化，进行了有效的降本增效。在Q2，我们的IT服务费同比降低了23.7%。

Translator

Marketing expense ratio was 1.8%, down 0.4 percentage points compared to the same time last year. This highlights our success in using product development as our main source of traffic by creating distinctive and unique products that attract a greater number of target customers and boost user retention. We're also pleased to report that our G&A expense ratio decreased by 0.5 percentage points compared to last year, and is now at 1.8%. While our R&D expense ratio increased by 0.3 percentage points year-on-year to 4.2%, we remain committed to investing in food R&D, agricultural technology, and our algorithms, while advocating for conservation and environmental protection. These investment will strengthen our competitive advantage in the long run.

Translator

Our infrastructure investment in these areas has already yielded significant efficiency improvement, and we have also adopted cloud computing, big data, e-commerce, and supply chain applications to optimize our systems and reduce costs. As a result, our IT service costs decreased by 23.7% year-on-year in Q2, while maintaining consistent service quality and system stability.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

2023年 Q2，我们实现了 Non-GAAP 口径下 0.2%的净利润。如前面提到，扣除一次性费用后，GAAP 口径下也实现了盈利。这充分说明了在疫情后，回到常态化经营环境 下，我们有能力持续提升商品力，以及全链路的供应链能力，将来持续提升我们的运营效率和盈利能力。

Translator

During Q2, we achieved a non-GAAP net profit margin of 0.2%. As previously mentioned, after excluding one-time expenses, we were profitable on a GAAP basis. This demonstrates that we can continuously improve our product development and full chain capabilities, leading to better operational efficiency and profitability even in the post-pandemic environment.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

2023年Q2，经营性现金流出为1.78亿元。去除Q2发放了2022年全年的年终奖后，我们Q2实现了正向的经营性现金流。截止2023年Q2末，现金及现金等价物、短期受限资金和短期投资的余额为55.2亿元。Q2，我们主动优化了融资结构，在保证充足的运营资金，及一如既往通过供应链金融服务好供应商的前提下，主动减少了短期借款和供应链金融贷款。贷款余额较Q1末减少了1.27亿元。

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

... 这也是 Q1 末现金及现金等价物，短期受限资金和短期投资余额较 Q1 末减少的主要原因。

Translator

Operating cash outflow was CNY 178 million. We achieved positive operating cash flow when excluding the payment of year-end bonuses for 2022. Our cash and cash equivalents, short-term restricted cash, and short-term investment totaled CNY 5.52 billion at the end of Q2. We proactively optimize our financing structure by reducing short-term and supply chain financial loans, which decreased the loan balance by CNY 127 million. Although this was the main reason for the decrease in our balance of cash, we have ensured sufficient operating funds to serve our suppliers with supply chain finance.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

最后预估下，2023年后续的数据呈现，我们非常有信心在Q3和Q4两个季度均实现季度Non-GAAP口径下的盈利，从而实现2023年全年Non-GAAP口径下的盈利。我们今天的发言到此结束。Operator，下面可以进入QA环节了。

Translator

We are highly confident in our ability to attain Non-GAAP profitability in the remaining quarters and for the full year of 2023. This concludes our speeches today. Operator, now we can enter the QA session.

Operator

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. At this time, we will pause momentarily to assemble our roster. The first question comes from Thomas Chong with Jefferies. Please go ahead.

Thomas Chong
Thomas Chong
Managing Director and Regional Head of Internet and Media at Jefferies

Hello, Mr. Liang, congratulations on achieving three consecutive quarters of Non-GAAP profitability. Can you introduce the current development of the company in different regions? What is your specific focus in different regions? Thank you.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

好，谢谢你的问题。去年上半年，考虑到上海的疫情的因素，我们把主要精力放在了上海。在后期的Q2和Q4，Q3和4，我们将工作重点放在了江苏和浙江这两个区域。我们希望在已有的优势区域提高效率，提高订单密度，提高ROI，将华东区域的毛利率做出来，并且稳定住之后，再将精力集中在华北、华南区域的各项经营指标改善上，以及未来扩展到新的城市上。

Translator

Thank you for your question. To address the challenges presented by the pandemic, we strategically prioritized our efforts in Shanghai during the first half of last year. As we progressed into Q3 and Q4, we shifted our focus to Jiangsu and Zhejiang. Our plan was to optimize efficiency, enhance order density, and increase ROI in our existing focus areas before expanding further. Once the gross profit margin stabilized in East China, we could then concentrate on improving operational indicators in North and South China and expanding to new cities.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

现在看来，我们之前的策略是完全正确的。江浙沪这些区域已经逐渐成熟，并且这三个区域都实现了连续三个季度的稳定盈利。从经营数据来看，江苏和浙江的日单量同比分别提升了27%和21%。一系列的指标都表明，我们在华东区域牢牢扎根，日益变好。同时我们在这一区域的商品力也在变强，我们不仅有商品研发能力，也能快速分析不同区域用户对商品的不同反馈，快速迭代，这也是我们能在不同区域取得成绩的原因之一。考虑到华北、华南开城时间不及江浙沪区域，由于还有进一步爬坡的空间，同时这些区域渗透空间也还很大。接下来我们需要做的是在华东优势区域继续夯实市场占有率，并在进一步提升规模的基础上，以华东作为粮仓，带动华北、华南区域的发展。

Translator

In retrospect, our strategic approach has proven to be well-founded. The Jiangsu, Zhejiang, and Shanghai regions have all experienced steady growth, with each contributing stable profits for three consecutive quarters. Based on operational data, daily order volume in Jiangsu and Zhejiang has increased by 27% and 21% year-on-year, respectively. These key performance indicators also demonstrate our ongoing success in East China. Our product development capabilities in this region continue to improve, and we have developed the ability to rapidly analyze user feedback and iterate accordingly. This has contributed significantly to our ability to achieve results across different regions. Since operations in North and South China began after those in East China, we expect that it will take some time for us to ramp up the unique economics and establish a strong presence in these areas.

Translator

Nevertheless, we see significant potential for growth in these regions. In sum, we will focus on consolidating our market share in mature markets in East China to provide support for the development of our operations in North and South China.

Operator

The next question comes from Joyce Ju with Bank of America. Please go ahead.

Joyce Ju
VP and Internet Analyst at Bank of America Securities

哎，梁总晚上好，那个...

Joyce Ju
VP and Internet Analyst at Bank of America Securities

我是那个美林的Joyce，我想问的是，就是我们也注意到之前公司在这一季度里面，关闭了一些川渝地区的这个站点，想问一下公司是否从，是不是从战略上已经放弃了西南区域的市场，我们应该要怎么样解读这个，这个方向？我来翻译一下。Good evening, we noticed that the company exited the Sichuan and Chongqing regions, of late. Just want to check if the company has given up on the market in the southwest region, how should we understand the strategic direction going forward?

Joyce Ju
VP and Internet Analyst at Bank of America Securities

Thank you。

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

好，谢谢您的问题。今年五月呢，我们对重庆成都区域业务进行了调整，在深入评估了该地区整体的收益回报后，我们暂停了相关区域的服务。川渝地区呢业务体量目前占我们整体业务较小，预期短时间内也不会盈利，并且短期城市群还不足以满足该地区供应链的规模化运营，因此我们选择了短期退出。出于降本增效的考虑，我们还是会继续深耕现有区域，在保持区域稳定规模化利润后，再考虑新区域的业务拓展，但我们仍然会继续保持与川渝区域的优秀食品企业的深度合作。谢谢。

Translator

Thank you for your question. We decided to suspend our services in Chongqing and Chengdu in May of this year, following our extensive evaluation of the overall return from the region. The business volume from the Sichuan, Chongqing area comprised a small portion of our overall business, and was not expected to be profitable anytime soon. Moreover, we determined that the surrounding city hubs will not support large scale supply chain operations in the short term. As a result, we decided to exit the region temporarily. Our focus now is on cost reduction and efficiency improvement. We'll continue to focus on building a stable and profitable business in our core existing markets, and consider expansion into new regions afterwards. Despite the exit, we will continue to maintain in-depth cooperation with leading food companies in Sichuan and Chongqing. Thank you.

Joyce Ju
VP and Internet Analyst at Bank of America Securities

谢谢。

Operator

The next question comes from Robin Leung with Daiwa. Please go ahead.

Robin Leung
Analyst at Daiwa

Hello, Mr. Liang. I understand that Dingdong has been emphasizing the development capabilities and quality products. Can you elaborate on your efforts in this area? Thank you.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

好，谢谢。我们围绕着商品力作为核心竞争力和第一驱动力，做了以下一些优化。首先在供应链端，我们覆盖了供应链非常长且完整的一段，新鲜产地直采比例达到了80%以上。我们在产地做了很多和订单农业相关的事情，农场主只要遵循我们的DGAP标准，比如怎么样使用农药和肥料，用多少量的 方式来保证产品质量，这样我们可以 在播种之前订购，确定时间，确定价格和确定数量的产品，保证了供给和价格的稳定，也更加能从管控上游品质。例如我们二季度上架的红河山谷波波脆蓝莓，在上线销售仅仅一个月的情况下，GMV达到了CNY 15 million，超过了400,000人次购买。该产品我们从产地、品种、种植技术、管理水平、品控、口感、包装等多个维度与采购种植商反复沟通，通过订单农业锁定600余亩地，最终打造出了这个季度爆品。

Translator

Thank you for your question. Our primary focus is on product development capability as our core competitive advantage and growth driver. To achieve this, we have made the following specific optimizations: We have made extensive efforts on the supply chain front. We cover a long and comprehensive section of the supply chain, sourcing over 80% of fresh products directly from the origin, including through contract farming in the production areas. We have established DGAP standards for growers, specifying protocols for fertilizer and pesticide use, among other things, to ensure product quality and stability. This allows us to place orders before planting season at fixed price and volumes while controlling upstream quality. For instance, our Red River Valley blueberries achieved tremendous success, generating nearly CNY 15 million GMV and over 400,000 purchases in just one month of online sales. This success was, attributable to, attributable to our extensive collaboration with purchasers and growers to ensure optimal planting technology, management, quality control, taste and packaging. We secured 600 acres of production through contract farming, resulting in our best-selling products of the season.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

第二，我们做了更多与自有品牌商品相关的事情。目前友商自有品牌普遍都是通过OEM的方式，而我们自有品牌商品更多是自有研发和生产加工的，我们更多介入了研发环节和生产环节，这样可以在保证产品质量的基础上实现了差异化，提升了生产效率，也可以享受生产端带来的毛利。...

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

掌握生产进度，我们前后端联动，可以快速地通过数据化的呈现和用户评价，反馈出客户对商品的诉求和期望，从而快速作用到生产端。我们有豆子山间柴火豆腐，这个自有品牌单品，尽管单价很低，但是我们季度GMV也能达到近CNY 600 万，季度复购率达到近35%。我们自有品牌商品GMV去年占整体的16%左右，这个季度已经提升到了19%，未来我们希望能提升到30%。同时，自有品牌的毛利率也相较于去年同期提升了3个点以上。

Translator

We have taken a unique approach to our private label products, distinguishing us from our peers who usually rely on OEM. At our company, we prioritize in-house R&D and production, resulting in better product quality, differentiation, and higher production efficiency, as well as greater control over production rhythm. Now, connecting the front and back ends of our business enables us to respond promptly to customer demands based on data and user feedback. Douzishanjian Mountain Firewood Tofu, a low unit price product, is a prime example of the success. With a quarterly GMV of nearly CNY 6 million and a quarterly repurchase rate of 35%, our private label products accounted for 16% of total GMV last year and 19% this quarter, and we aim to increase that to 30% in the future.

Translator

Additionally, our own product gross profit margin increased by over 3 percentage points compared to the same period last year.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

第三，如我们之前所说的，永远要有创新，特别是对食品创新要加大投入。我们做了更多更加适应用户消费趋势的新品类商品，比如预制菜、烘焙、精酿啤酒等，不仅件单价相对于其他品类更高，毛利率也更高，同时这些品类也带来了一些新的用户。从过去的数据来看，这些品类的 GMV 占比也在不断提升。我们的预制菜也在今年正式步入大健康预制菜 2.0 时代。我们将结合现今消费者对营养健康的需求，开发更具特色、高品质、差异化的预制菜产品。

Translator

Third, we have always advocated innovation and prioritize investment in food R&D. We can better align with consumption trends and attract new users by developing new product categories like prepared meals, bakery items, and craft beer. These categories not only command higher unit prices, but also offer higher gross profit margins. As a result, GMV in these categories is on the rise. Specifically, our prepared meals business officially launched Healthy Prepared Meals 2.0 this year, aiming to meet growing customer demands around nutrition and health. We will develop distinctive, high quality, and differentiated prepared meals in line with this trend.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

第四，我们对于老的品类做了品类结构的优化。相同品类，我们在保持一些民生商品的基础上，加入了更多中高端的商品。比如蔬菜是我们传统优势品类，原来我们更多是做的L1类民生类的商品，现在我们增加了L2、L3类的，比如有机菜、高山菜，还有我们开发的江苏如皋长寿之乡的蔬菜等等特色的中高端商品。这些呢，也是件单价比较高的商品，我们主打的本地鲜，特色蔬菜肉禽，季度GMV也达到了近 CNY 3,000 万元。

Translator

We've also taken steps to optimize our category structure, specifically focusing on enhancing our older categories. While maintaining some essential livelihood commodities, we have incorporated a greater range of mid to high-end products. For instance, our vegetable category has been a top performer. Previously, it primarily consisted of L1 goods for everyday use. However, we have now expanded to L2 and L3 categories, such as organic vegetables and specialty vegetables from high altitude and Rugao, the village of longevity in Jiangsu. These additions are medium and high-end products with relatively higher unit prices. Additionally, our quarterly GMV for local specialty vegetables, meats, and poultry has reached nearly CNY 30 million.

Changlin Liang Limited)
Changlin Liang Limited)
Founder and CEO at Dingdong

回顾过去一年的时间，我们毛利率在不断提升，整体费率缩窄效果也比较明显。我们商品力作为主要的流量来源后，我们对于外部的流量依赖也会相应降低。换句话来说，我们构建了一条属于我们自己的护城河。谢谢。

Translator

Reflecting on the past year, we're thrilled to report a continuous increase in our gross profit margin and a narrowed overall cost ratio. This achievement can be attributed to our successful utilization of product development capabilities as the primary source of traffic, resulting in a reduced reliance on external traffic. In essence, we have successfully established a competitive moat. Thank you.

Operator

The next question comes from Jiajing Chen with CICC. Please go ahead.

Jiajing Chen
Jiajing Chen
Equity Research Assistant at CICC

Let me translate myself. Hello, Mr. Liang, thank you for giving me the opportunity to ask the question. We've seen that Dingdong has been profitable for three consecutive quarters. What is your strategy to ensure sustained profitability in the future? Thank you.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

...

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

好，谢谢你的问题。下面我想请我们财务负责人王松来回答这个问题。谢谢梁总。随着效率优先，兼顾规模的发展战略的持续推进，我们已经在2022年Q4以来实现了连续三个季度的non-GAAP口径下的持续盈利。本季度如果考虑剔除川渝调整的一次性影响，我们也实现了GAAP口径下的盈利。这主要受益于我们持续聚焦在商品力和全链路的运营能力的建设，服务好用户当下的需求，整体订单质量和用户粘性仍然在持续提升，我们的运营效率在持续优化。

Translator

Thank you for your question. Our VP, our Head of Finance is going to take this question. All right, thank you, Mr. Liang. As we continue to execute our efficiency first with due consideration of scale strategy, we have achieved three consecutive quarters of non-GAAP profitability since Q4 2022. We've also achieved GAAP profitability, excluding the one-time impact of Sichuan Chongqing adjustment this quarter. This is mainly due to our continued focus on honing our product development capabilities and improving our operational capacity to serve user better. Our overall order quality and user loyalty are improving as we optimize operational efficiency.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

具体来讲，从商品结构上，自2021年战略调整以来，我们持续调优商品的结构占比，非生鲜GMV占比提升了7个百分点以上，其中预制菜占比提升4个百分点以上，自有品牌GMV占比提升近13个百分点，提供更多更匹配消费者需求的产品丰富度选择。全国商品的仓均SKU相比2021年增加近500个，其中上海增加近1,000多个，主要集中在非生鲜和预制菜等类目上。随着商品结构的调优，商品更丰富的供给，牵引我们的客单价和毛利率的持续改善。2023年上半年，全国客单价提升至CNY 72.9，其中上海提升至CNY 75.8，毛利率自去年以来持续稳定在31%左右的水平。

Translator

Specifically, since our strategic adjustment in 2021, we have adjusted our category mix. In terms of GMV, this has led to a 7 percentage point increase in the proportion of non-fresh food, and particularly prepared meals, whose proportion increased by 4 percentage points, and private label products, whose proportion increased by nearly 13 percentage points, enriching the range of products available to consumers. Additionally, the number of SKUs per station has increased nationwide by around 500, with Shanghai seeing an increase of over 1,000 SKUs compared to 2021. The new additions are mainly prepared meals and non-fresh products.

Translator

With these changes, the AOV has increased to CNY 72.9 RMB nationwide in the first half of the year, with Shanghai seeing an increase to CNY 75.8 RMB, while the gross profit margin nationwide has remained stable at around 31% since last year.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

在大盘结构调整的同时，我们持续深耕华东区域市场的渗透和盈利能力提升，自2022年Q1实现上海区域整体盈利以来，江苏和浙江也自2022年Q4实现了连续三个季度的持续盈利。在成熟市场的增长上，江苏和浙江持续实现仓均日均单量的年同比双位数增长。虽然上海区域因去年有疫情因素的影响，年同比有所下跌，但环比Q1仍然实现了正增长，达到了1,300单到1,400单的仓均日均单量水平。随着华东区域的整体持续盈利，提供给公司更多的资源储备，一方面我们会进一步深耕华东区域的增长，相比上海、江浙的订单渗透和仓均单量仍有进一步提升的空间。此外，我们也会在下半年聚焦在华北和华南的运营能力提升上。

Translator

While restructuring the national market, we focused on expanding in the East China region and increasing profitability there. Shanghai achieved overall profitability since Q1 2022, and Jiangsu and Zhejiang have achieved three consecutive quarters of profitability since Q4 2022. In terms of mature market growth, Jiangsu and Zhejiang recorded double-digit year-on-year growth in daily order volume per station. Despite the pandemic impact last year, Shanghai had a positive Q1, reaching an average daily order volume of 1,300-1,400. As the East China region becomes more profitable, we're focused on expanding it. There is room for improvement in order penetration and average order volume per station in Jiangsu and Zhejiang compared to Shanghai. Additionally, we plan to improve our operating capabilities in North China and South China in the second half of the year.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

同时，我们在关注大盘结构调优和区域增长的同时，我们会关注全链路的运营能力提升。一方面，持续在产研侧坚定投入，依靠系统和算法的能力，提升我们端到端的运营效率，且我们也在阶段性在运营效率上的持续改善。同前面所讲，含加工损耗的平台端到端损耗持续收敛，2-3年已经稳定在1.5%以内。

Translator

Meanwhile, we're working to improve our full chain operational capability. On one hand, we're investing in IT innovation to improve the systems and algorithms that can boost our end-to-end operational efficiency. And we have already seen some promising early results from this. As mentioned above, the platform's end-to-end loss, including processing loss, continues to narrow and has stabilized within 1.5% in 2023.... As the post-pandemic situation stabilized this year, we optimized our regional network layout, adjusted frontline fulfillment station stock, and improved mainline delivery efficiency with algorithms for end-to-end order fulfillment. Frontline station operational capabilities are also continuously improving. After excluding the impact of the pandemic, the efficiency of personnel, both inside and outside frontline stations, has steadily improved.

Translator

Despite initial adjustment costs and the impact from the pandemic, fulfillment costs improved throughout the year, resulting in a 1.2 percentage points decrease year-on-year during the first half of this year, and a 9.2% decrease year-on-year in cost per order.

Song Wang Limited)
Song Wang Limited)
SVP and CFO at Dingdong

That said, the company will continue to prioritize efficiency in the East China market and optimize product structure while improving operational efficiency in the North and South China regional markets. Our focus will remain on product development and building full chain operational capacity. Based on this, we're confident that we'll continue achieving non-GAAP profitability in Q3 and Q4 and for the full year of 2023.

Operator

As there are no further questions, I'd like to hand the conference back to our management for closing remarks.

Nicky Zheng Limited)
Nicky Zheng Limited)
Director of Investor Relations at Dingdong

Thank you again for joining our call today. If you have further questions, please feel free to contact us or request through our website. We look forward to speaking with everyone in our next earnings call. Have a good day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Analysts
    • Changlin Liang Limited)
      Founder and CEO at Dingdong
    • Jiajing Chen
      Equity Research Assistant at CICC
    • Joyce Ju
      VP and Internet Analyst at Bank of America Securities
    • Nicky Zheng Limited)
      Director of Investor Relations at Dingdong
    • Robin Leung
      Analyst at Daiwa
    • Song Wang Limited)
      SVP and CFO at Dingdong
    • Thomas Chong
      Managing Director and Regional Head of Internet and Media at Jefferies
    • Translator
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