Hipac.cn (海拍客) has announced the completion of its Series D round of funding on December 20, led by Anchor Equity Partners – a Korea-based private equity firm – with Hillhouse Capital Group (高瓴资本).
Up to now, the company has closed five funding rounds, raising more than USD 170 million in total. Its other investors include LightHouse Capital Management (远瞻资本), Shunwei Capital (顺为资本), Fosun Capital (复星资本), Jointown Pharmaceutical (九州通医药).
Founded in 2015, the Hangzhou-based company started its business with a cross-border online shopping platform focusing on baby and maternal products.
At present, it operates under a Business-to-Business-to-Customers (B2B2C) model – where the company acts as the first ‘B’ – it connects with both the upstream Original Design Manufacturers (ODMs) and the downstream mother-and-baby products stores in the third- and fourth-tier cities.
Its business mainly lies in three categories: 1. Providing customer operation services to offline mother-and-baby stores; 2. Helping large mother-and-baby brands to distribute their products in low-tier cities; 3. Incubating new brands on its own.
Up to now, the baby and maternal products platform has provided services to nearly 200,000 offline maternal and infant stores, covering more than 30 provinces across China, representing more than 50% of penetration among domestic offline stores.
The high penetration level it has achieved could be possibly attributed to the following two aspects: 1. The word-of-mouth Hipac.cn has established in the field attracts many offline stores to take the co-operating initiative; 2. The company has been continuously expanding its members (especially the business development (BD) team). It has more than 2,000 employees at present, among which about 50% of them are occupied in BD.
In the past two years, Hipac.cn has incubated more than 600 products, which belongs to two categories: 1. The customized products launched by mature brands exclusively for Hipac.cn; 2. The items launched in co-operation with ODMs who have certain business experience.
“Categories of consumer goods are widening in the low-tier cities in China, with locals tending to gradually forming more recognition and more acceptance regarding products like nutrition and personal care,” said Zhao Chen (赵晨) – founder and CEO of Hipac.cn – during an interview with 36Kr.
According to Mr. Zhao, people in low-tier cities have a social circle culture, i.e., residents have a closer social relationship with each other compared to those in top-tier cities, and rely more on word-of-mouth in making purchasing decisions.
This suggests the importance of offline store managers having a certain level of knowledge in the maternal and child fields. In fact, different from the marketing practices in the top-tier cities – where brand operations are mainly based on media and supply chain – promotion in the low-tier cities is largely carried on based on these individual offline store managers.
Put it simply, the low-tier city business development mechanism could possibly be interpreted as ‘what the offline store owners earn from the brands is advertising fees, helping them to educate the consumers.’
Besides, Mr. Zhao noted that businesses react to differences in the general population’s characteristics between top- and low-tier cities not only by designing marketing strategies accordingly but also changing the approach in product and store operations:
Differences in the needs of residences between top- and low-tier cities
Taking diapers as an example, first- and second-tier cities' consumers tend to require the product to be soft and environmentally friendly.
However, those in third- to sixth-tier cities generally consider strong water absorbency as the biggest appeal, as they sometimes only change their baby’s diapers once per night. Besides, given that people in low-tier cities tend to use air-conditioners less frequently in summer, they also have a preference for picking diapers with breathable fabric.
Based on these two facts, materials for diapers products sold in low-tier cities have been dominated by polymer for years, while cotton still takes the main place in top-tier cities markets.
Differences in appetites regarding selling price between top- and low-tier cities
Consumption stratification tends to be more significant among the low-tier cities population.
Specifically, they could purchase milk powder with an Average Selling Price (ASP) of hundreds of yuan, at the same time, they also looking for diapers with an ASP of less than one yuan per piece.
In this case, the low-tier cities market highly needs dealers to provide both high- and low-priced Stock Keeping Units (SKUs).
Differences between stores operating characteristics between top- and low-tier cities
Though offline stores in top-tier cities face high costs, they are also highly efficient at the same time. Rent could account for 25% of the operating expenses of a particular store, while its revenue in a single month could reach CNY one million.
On the other hand, though offline stores in low-tier cities have lower costs, they are also less efficient. Rent takes up 5% of the operating expenses alone; however, monthly revenue may possibly only reach CNY 50,000 – 150,000.
This fragmented low-tier cities market makes platforms face bigger challenges in providing service to the offline stores – and to some extent – emphasizes the importance of having good supply chain management.
The above sheds some light on the competitive advantage of Hapic.cn's business in low-tier cities. Through its professional team can provide a series of services, including product and packaging design, online marketing and customer operations and offline promotion – which may spread the product across over 3,000 baby product stores within two months.
Compared to local Township and Village Enterprises (TVEs), Hipac.cn has considerable advantages in both production and operation efficiencies. Its production scale is at five- to ten-fold the TVEs, and also more competitive in terms of price and quality.
According to the company, the platform realized CNY 8 billion of Gross Merchandise Volume (GMV), and the number is expected to reach CNY 15 billion in 2019, where approximately CNY 3 billion amongst will be contributed by the incubated brands.
At an industry level, the continuously decreasing number of new births will be a headwind to play against, obliging the players in the baby product market to compete more fiercely.
On the other hand, Mr. Zhao has some different views on the issue. According to him, the nature of the Industrial Internet is to save costs and improve efficiencies. In this case, this macro-level downturn is instead giving rise to opportunities for the Industrial Internet players in the field.