Chinese grocery platform Dingdong posts first quarterly profit, but easing pandemic controls could s
Chinese grocery delivery firm Dingdong Maicai has posted its first-ever profit for the fourth quarter, an accomplishment that analysts say came at the expense of expansion, as the industry faces mounting challenges following the country’s easing of stringent pandemic controls.
Dingdong’s revenue last quarter climbed 13.1 per cent year on year to 6.2 billion yuan (US$908.3 million), while non-GAAP net income reached 116 million yuan, according to its earning results announced on Monday. This was a reversal from the 1.03 billion yuan loss it posed a year earlier.
The company also saw its gross merchandise value (GMV) increase 12.7 per cent year on year to 6.8 billion.
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Cutbacks were the main reason the fresh grocery platform was able to turn a profit for the first time, according to Li Chengdong, founder and chief analyst at Beijing-based e-commerce consultancy Dolphin. Dingdong cut back on marketing expenditures and subsidies, and it made a strategic retreat from loss-making regions, he said.“[Dingdong’s] profit comes at the price of growth and expansion,” Li said.
Zhang Yi, founder of Guangdong-based internet consultancy iiMedia, also noted the company’s tempered spending, ascribing Dingdong’s quarterly earnings to reduced marketing expenses and improvements in operational efficiency. Optimising and shortening its supply chain also helped, he said.
“[Dingdong] truncated unnecessary links on the supply chain to connect with farm produce suppliers directly [to save on procurement costs] to get rid of the middlemen,” Zhang said.
The Shanghai-based company’s total operating costs and expenses decreased 5.6 per cent, with sales and marketing expenses plummeting 74.5 per cent, thanks in part to a drop in user acquisition costs resulting from repeatedly pulling the plug on unprofitable markets.
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Since late 2021, Dingdong axed operations in 10 cities in its quest to turn a profit. The company now operates in 27 cities, most of which are in the Yangtze River Delta region.
Dingdong chief strategy officer Yu Le said in an earnings statement that the company expected to “achieve non-GAAP break-even for both the first quarter and the full year of 2023”. However, the grocery delivery firm faces mounting pressure, according to Dolphin’s Li, as China’s reopening could nudge a change in consumer behaviour. Some larger players, including on-demand delivery giant Meituan and supermarket chains Yonghui and Wumart, are also eyeing the market.“Dingdong benefited a lot from three years of Covid restrictions, as people resorted to platforms like Dingdong for grocery shopping,” Li said. “With the restrictions being lifted and people going back to offline life, its first-quarter 2023 performance might not look good.”
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