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Analysis EO
Analysis · 2
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Analysis EO
Aug 1, 2020 12:48 am ·

Will DiDi's Ambition in Freight Hamper Lalamove?

► Lalamove is the largest online truck-hailing company in China, dominating about half the market. The company has a first-mover advantage in the industry, which has low barriers to entry but is very fragmented.  ► The company solves the pain points of individual customers, SMBs with intra-city transportation services. By providing a platform that connects truck drivers and clients, the company’s income mainly comes from commissions and membership.  ► On the path of scaling, changing the fragmented market brings values and requires a lot more tough jobs. For instance, drivers’ unscrupulous charges and service irregularities undermine customer values and thus harm the company. ► Is the first-mover advantage real or not? We believe it will take more effort for Lalamove to defend competition from strong players like DiDi, and the experience of the supply-side management remains the core competitiveness.  DiDi for trucks  2013 is considered Year One for China's ride-hailing business. That year, the business giant DiDi was founded and swiftly grabbed the market share of Uber, the US competitor which had also entered China in the same year. Witnessing the promising future of the ride-hailing industry, Shing Chow, the Stanford graduate who was, by that time, a professional poker player, set his mind to enter this business. But Chow was smart enough to avoid direct confrontation with DiDi, which had already gained scaling momentum in the online car-hailing. Instead, he noticed that, in the logistics industry, which is a trillion-dollar market, similar problems of difficulty in hailing a cab also exist. Founded in 2013, Lalamove once positioned itself as the freight version of DiDi, for they have the same operation mode – providing on-demand transportation services via cell-phone applications. Unlike traditional logistics agencies, the company targets small businesses and corporate clients and individual customers with intra-city transportation demands. Because it believed that, though the demands of transporting goods are less frequent for individual users, they might together form a big market. Apparently, investors agree. In January 2015, less than one year after the company entered China mainland, it secured USD 10 million funding from renowned investors, including Sirius Venture Capital. The success of Lalamove lured more and more competitors to join the business. As of 2016, more than 200 intra-city logistic companies were registered. Faced with such a stiff competition, Lalamove again referred to DiDi's tactics –allowances. Rushing to stake a claim in this new market, Lalamove also jumped in the allowance carnival, along with all its local competitors. This round of cash burning competition left two surviving players, Lalamove and Kuaigou, formerly known as 58 Suyun, which gained a rapid growth by acquiring Hong Kong-based freight service provider, GoGoVan. The two companies together accounted for nearly 80% of the market share in 2019. Connecting truck drivers and users Before the emergence of Lalamove, people who needed to move had to spend a lot of time and energy contacting moving companies, often accepting an arbitrary price along with a series of unnecessary services. Witnessing this chaotic but lucrative industry, Lalamove set its mind to make moving a much less stressful thing. The company then recruited a group of drivers ready to serve with their own trucks/vans. Clients with moving demands only need to fill in the necessary information on a cell-phone application (APP) on-site. The APP would then assign the order to nearby drivers with the help of an LBS-based algorithm. As of May 2020, the company’s business had covered 352 mainland Chinese cities, Hong Kong and Taiwan and 21 overseas cities, with 480,000 monthly active drivers and 6 million monthly active users (MAU) across the world. The ‘vices’ of the industry are more stubborn than imagined In the beginning, Lalamove was exciting news for users who had had annoying moving experiences. But soon, they found that the solution was not as ideal as they imagined. Unlike in the ride-hailing business where customers have fixed demand being transported from one point to another, it's hard for moving companies to provide a standardized charging rate for there are too many factors to consider. Lalamove also only regulated the regulatable parts, like mileage fees, duration fees and charges per floor. For other particular demands, the platform allows the customers to discuss the charges with drivers. When subjectivity adds, the problems arise – more and more questionable charging incidents were exposed concerning Lalamove in recent years, which seriously undermined the company’s leading position. But the drivers also didn’t do this for no reason. As the allowance craze receded, their income was significantly compromised. Lalamove’s business model adopts both membership and commission deduction. That is to say, drivers have to join the membership to get orders from the platform. Meanwhile, the membership fee can only protect them from a certain volume of free-of-deduction orders unless they go for the super VIP, which costs CNY 859 per month for a mid-size van in tier-one cities. In comparison with Kuaigou’s optional membership and DiDi’s temporary free of charge, plus the highest upfront fee, Lalamove ended up bringing the least income for its drivers, under three daily order volume circumstances (we assume) A new strategy is urgently needed A first-mover advantage can be a false proposition for an 'established player' like Lalamove as giants like DiDi march into the battlefield. DiDi has established itself in the mobility industry with years of online ride-hailing operations. The company’s APP has 550 million registered users, who can all be potential users for its new freight service. Besides, as an Internet giant, DiDi is also more likely to provide a smoother experience for its users by integrating all services into one APP. Lalamove’s experience of supply-side management remains the core competitiveness. For starters, although with a significant user foundation, it is still going to take time and money for DiDi to shake Lalamove’s market dominance. DiDi still plans to play the game in an old-fashioned way, judging from limited disclosed information – i.e. pouring allowances into the project. Aside from that, there is no significant difference in the business model from that of Lalamove. But history has taught us that price advantages don’t last. In the highly homogeneous business, the player that can provide differentiated services is more likely to win the game. In addition, while DiDi just set foot into the B2C truck-hailing business, Lalamove has already begun to expand its business to larger-scale business end clients, and the car rental and selling business. As mentioned above, logistics and freight is a huge market in China. There are still many undiscovered opportunities. As a senior player, Lalamove has the chance to unlock these fields before DiDi, and even discover a new continent.

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Analysis · 1
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Mar 10, 2020 10:21 pm · SOHU

Lalamove swung "three-plate axe"

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Aug 21, 2019 09:38 am · EO company

Lalamove entered the South American market

Analysis EO
Analysis · 2
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Analysis EO
Jun 10, 2019 06:00 pm ·

Intra-city Logistics is Undergoing One More Upgrade

Blackstone announced it is buying a network of U.S. industrial warehouses from a Singapore-based GLP for USD 18.7 billion earlier this month, bringing the spotlight to logistics again. As the e-commerce industry keeps surging with a breakneck speed, especially in China, where the new generation of consumers is getting more digitally savvy, disruptions in the transportation process are becoming more prevalent, and companies are looking for ways to tackle this issue. The development and popularization of inter- and intra-city logistics services, LTL (Less Than Truckload) expresses, and logistics informatization are all reshaping the future of logistics in China. Previously, we have sat down with Shan Dandan, CEO of the leading inter-city trucking platform ForU (a.k.a. Fuyoukache, 福佑卡车 ),  and looked into his company's strategic plan for the developement of new commercial infrastructure. This time, we've interviewed several Lalamove’s drivers and investors and dove into the latest goings-on in China’s intra-city logistic service industry. Founded in 2013 and headquartered in Hong Kong, Lalamove forayed into mainland China in 2014 and is currently matching customers with van, truck and motorcycle drivers in 136 Chinese and 13 overseas cities. With the intra-city freight industry being fragmented and disorganized, Lalamove centralizes logistics services, making them more effective, and gradually establishes new standards and regulations.  Market perspectives The logistics industry in emerging markets is still in great need of capital and technology to keep developing and transforming for the better. Nonetheless it is sure to create a booming vertical market full of innovations. China’s road freight market is now worth over CNY 5,000 billion (USD 700 billion). There are more than 5 million heavy-trucks and 14 million minivans in China, according to Bain. Lalamove targets the market directly focusing on the segment of intra-city logistics that is valued at roughly CNY 1,200 billion (USD 168 billion) in China. Although Lalamove recently also made advances into inter-city logistics, its main business interests remain in intra-city express delivery. As the sharing economy prospers, Online to Offline (O2O) platforms start taking over the trucking industry. It was estimated that 20 O2O logistics companies had raised approximately USD 2 billion from 2014 to 2017. With more investments flooding the industry and improving its structure, these companies were trying to duplicate the success of DiDi, which managed to beat Kuai and Uber relying on one powerful weapon, subsidies. However, 2C an 2B businesses operate completely differently. 2B's are working with a batch of enterprises and business that make more sensible decisions than individual consumers with higher requirements in terms of service and experiences. Thus, to build a wide and deep moat a 2B will likely need to put more emphasis on high-quality service and increased efficiency. As for Lalamove, its main revenue streams come from individual drivers, brokers, and other outsourcing capacities. 58 Suyun, previously operated under 58 Home, a subsidiary of New York-listed 58.com (NYSE: WUBA) merged with a Hong Kong delivery startup GOGOVAN in 2017. At that time, 58 Suyun’s priority was to cut costs to increase profits, not to mention grabbing market shares. In addition, 58 Home’s CEO Chen Xiaohua (陈晓华)  was busy expanding its cleansing services, which let then weaker rival Lalamove catch some breath in Guangzhou. Another rival Yunniao struggles. Fresh food startups that have recently been suffering from market downturns and fierce competition, went bankrupt. Those startups had contributed a lot to Yunnaiao’s receivables. It creates a challenge for Yunniao, according to people familiar with the matter.  Company overview Fee-based model & commission-based model It is normal for ride-hailing companies like Uber, Lyft and DiDi to use take rate as one key metric to analyze the state of their businesses. The term defines net revenue as a percentage of gross bookings. Ridesharing companies can choose to increase the take rate once they achieve a certain level of scale, which drives the top line performance. That is how these 2C companies commercialize and generate cash flow. Several logistics companies like Yunniao (云鸟) and Kuaigou Dache ( a.k.a. Suyun, 快狗打车, formerly known as 58速运) adopted that model while Lalamove chose another key financial driver, charging membership fees. Here are sume useful statisticst related to membership fees: 72% of operating income of Costco, for example, is derived from its membership fees, yet those fees only accounted to 2% of the businesses total revenue in FY 2017. Lyft recorded a 26.8% take rate in 2018, surging from 18% in 2016.  Uber and DiDi’s take rates are not muchh different, ranging from 20% to 25%. Kuaigou usually charges 10% from bookings, with the rest going to the driver’s account. Lalamove charges drivers from CNY 99 to CNY 699 each month in membership fees, with CNY 1000 as a nonrefundable deposit, unless the driver wants to quit. Lalamove won’t charge a 15% commission fee for each order until the driver starts picking up five orders a day, according to a Lalamove driver. We believe this system is what makes today’s Lalamove. Relying on the membership renewal rate and membership revenue,  Lalamove already saw a green financial statement this year, according to people familiar with the matter. To calculate the BEP and find out the potential key drivers for driver’s retention we created a model that is based on official open-source information and interviews. Bellow are our key assumptions (Figure 1) and the model: We divided the intra-city express delivery platform into two types by its charging model: the fee-based and the commission-based. The former charges a membership fee for their service and a 15% commission fee after five orders per day for each consecutive order; the latter is compensated by a 10% commission on each order. Figure 2 represents the net income (net revenues minus costs) that one driver can make in one month using two types of platforms. In our CNY 60 average price scenario, the BEP for drivers employed by fee-based and commission-based providers are pretty similar; in fact, so are drivers’ benefits under the two models. In our CNY 100 average price scenario, net income for drivers employed by fee-based businesses surpassed those from the commission-based ones after they delivered three orders a day. In our CNY 150 average price scenario, net income for drivers from fee-based platforms increases slower than that from the commission-based ones as their income keeps growing even after they have reached six orders per day. According to our investigation, it takes drivers 1-2 hours to finish an order worth CNY 60 and 2-3 hours for a CNY 150 order. Normally they can deliver 3-6 orders per day. The range is constraint by driver’s physical conditions, orders' time limits and also overall market dynamics.  The idea that the platform charges drivers to join was unimaginable before, however, it has proved to bring drivers sizable benefits as long as the average price per order is high enough (in our case, the average price was above CNY 60). In addition, the membership provides platforms like Lalamove with a way of pre-selecting the demographics of their driver base without a need for extensive research. The platform takes less risk in assigning orders based on different membership classes, reflecting the driver’s willingness to devote his or her time and efforts accordingly. On top of that, more orders for selected drivers make it possible to deliver high-quality services to customers more effectively. Paying for a higher membership class in a platform is akin to making a long-term commitment. One driver we interviewed has been working for Lalamove since 2014 and we believe he is definetely not the only one. They have a strong reason to stay. Lalamove follows a fee-based business model, implying that drivers purchase memberships expectating them to bring them more orders to make up for the initial investment.  Brand Loyalty Lalamove employs a self-reinforcing business model of a virtuous cycle. The cycle begins with transparent pricing and large demand for drivers on the platform. Most competitors fail to encourage drivers as much as Lalamove does and are forced to go out of business.  For example, most logistics information service platforms only connect drivers and customers and assign orders based on algorithms. Lalamove’s drivers, however, need more devotion to get more high-quality orders. For instance, they could offer high standard services which in return would increase their credit. When more drivers join the club, Lalamove’s scale increases. This increase in scale allows Lalaomove to spread its overhead like R&D and marketing over a larger base as well as gives the company a stronger position in competing with other players. Driver side, the supply side of the company, is also the bridge between the company and customers. Only when drivers’needs are met well in Lalamove, could they and the company serve customers better. With its resounding 200% gross bookings growth in 2018, It is clear that drivers consider the advantage of using the platform well worth the membership fee. The fee allows drivers to stop feeling as if they are being charged for each drop of their sweat. Lalamove’s NPS (Net Promoter Score) was 65.8, quite high compared to tech giants like Amazon and Apple, that recorded scores of 69 and 76 in 2013 when they were all in their relative infancy. Lalamove’s 2018 goal was a score of 75, according to company's press release.  Complexity of freight & customer service As we mentioned before, the subsidy strategy that works in a 2C world does not necessarily work in the 2B one. Moreover, freight can have additional dimensions which create complexity while dealing with consumers and passengers. One example is Uber, when it was rising in the on-demand passenger market, the company started cutting off its brokerage competitors C.H. Robinson Worldwide Inc. and Echo Global Logistics Inc., as it was chasing market share, according to an analyst from Morgan Stanley. Uber continues investing in its Uber Freight business, which generated USD 125 million net revenue in the fourth quarter of 2018 (Uber Eats earned USD 165 million during the same period). Uber is sharing 99% of its gross revenue with its carriers (vs. the industry standard of 80-85%). Uber clearly has a misperception of the freight business where dramatic undercutting of prices is erroneous. Ensuring that the shipment will be delivered duly is a key value-add for brokers or platforms that is not a component of the on-demand passenger business. Lalamove designed a system to calculate a cartage fee based on several dimensions, from the weight, volume, distance from stairs to cars and so on. The price for cartage set by Lalamove, which will be stated clearly in the order, can be adjusted by drivers and customers offline to suit more flexible needs. In December 2017, Lalamove launched its enterprise version as the company saw more enterprises using the personal version to book services. company employees had to pay from their personal accounts and apply for reimbursement later, sometimes they also had more requirements in terms controling where the truck is and when it will arrive at the destination as opposed to personal users. Lalamove enterprise version solves these problems, offering a one-stop payment solution that covers everythhing from recharging to invoicing.  New capacities To expand capacity Lalamove attracts drivers who use their own vehicles which creates lets the company to compete with incumbent brokers. 90% of Lalamove vehicles are owned by individual drivers, brokers, and other outside players. A large capacity remains an advantage for a platform like Lalamove. By building a complete and stable supply, Lalamove can manage shipments and vehicles dynamically as well as improve delivery time to reach higher efficiency and cost advantages. Additionally, an increase in fragmented needs is another addressable market that Lalamove can target, with smart retail getting more popular in China. The last-mile networks will need to be optimized for pick-up and delivery. It is also important to note that the greatest factor behind serving enterprises is that they normally have a shipment schedule while individual orders tend to be more sporadic. Last January, Lalamove started a pilot plan in Shenzhen to offer drivers new cars. Cooperating with automakers, drivers can now buy New Energy logistics cars, vans and trucks for a floor price, without negotiating with dealerships. They can also register their cars under Lalamove’s name and get licenses.  Value-added service Fuel and wages make up most of individual delivery costs, and because those are highly influenced by prevailing market forces, carriers typically have minimal control over those costs, according to Deloitte. Today transportation platforms are covering more transaction process than ever before. Companies create a network effect and raise bargaining power, only to later reap the benefits of value added services, for instance, offering lower fuel prices for drivers adopted by Lalamove. Drivers can get discounts for fuel from several selected gas stations that Lalamove cooperates with. But the horizon is not as clear as it might seem. Offering lower oil prices can increase drivers’ benefits and loyalty. However, drivers from Lalamove are reluctant to use this service since driving to one of those selected gas station is not always convenient and it saves less than CNY 1 for one-liter of fuel, more importantly, drivers need to add a new bank account to get access to the service. Another alternative solution for fuel costs is electric vehicles. EVs promise higher energy efficiency, lower emissions, lower maintenance costs. The technology is still nascent, but the Chinese government goes out of its way to promote the new means of eco-friendly transportation and subsidize consumers, logistic electric vehicles are sure to be part of Lalamove’s future strategy. The company has already expanded its new energy vehicle fleets in cities with favorable plate policy in 2018 and is expecting to expand to the total of 30 cities in 2019.