Card position is more important than making money.
It is difficult to say that the real “hunting” husband and wife shop is a community group purchase platform, but a company called huitongda.
Recently, the company submitted its prospectus to the Hong Kong stock exchange for the second time. According to the data, as of September 30, 2021, huitongda has 57074 active member retail stores, covering more than 20000 villages and towns in China.
Member retail stores are small stores connected to huitongda SaaS system. To some extent, huitongda’s business is equivalent to the sinking version.
But SaaS business is “high-end” after all. It is difficult to quantify whether small stores in the field have such a large digital demand. Therefore, the actual path of huitongda is more like an intermediary, connecting with upstream suppliers and downstream stores. The digital system is just a channel built by it to open up the intermediate links.
Rural e-commerce seems to be an imaginative business. In the past, there were rural Taobao, and then there were social e-commerce such as pinduoduo and Jingxi. However, after years of sinking war, there was no “giant” and the market share was less than 1%. Can huitongda really bite the hard bone of rural e-commerce? Now it seems that it is not easy.
hunting husband and wife shop
Opening the official website of huitongda, the news that came into view was that “the 8th Township Shopping Festival was successfully held”. In this rural version of “double 11”, huitongda plays the role of e-commerce platform, but unlike Taobao, huitongda is not to C, but for the majority of small B customers – small shops between villages and towns.
Huitongda, established in 2010, has been positioned in the sinking market. The prospectus shows that as of September 30, 2021, huitongda’s member retail stores have covered more than 20000 villages and towns in China.
If calculated according to the transaction scale facing the sinking market and China’s overall market in 2020, huitongda ranks first and third respectively. However, the sinking market and China’s retail market are highly fragmented and low in digitization. Huitongda accounts for less than 1% in both sectors.
Dismantling the prospectus, huitongda’s income mainly includes two, trading business and service business. The former is to provide product supply chain for rural member retail stores and supply for small B merchants; The latter refers to store SAAS and solutions.
The member retail stores constantly mentioned in the prospectus actually originated in 2015. On the one hand, huitongda helped these husband and wife stores build a business model based on membership, on the other hand, it also established a series of services such as supply, marketing and digitization for husband and wife stores.
Huitongda’s role as a platform undertakes two businesses: first, trading services, which covers the coverage of commodities, including household appliances, consumer electronics, Shenzhen Agricultural Products Group Co.Ltd(000061) , transportation, home building materials and drinks, and collects service fees through self-supporting sales and online matching; The second is the service business. The income is relatively simple, that is, the service fee generated by purchasing SaaS.
To some extent, huitongda is very much like youzan + retail link in the sinking market. It is like a platform channel. It accesses stores through the most downstream SaaS system and opens up the channel for the supply of goods at the most upstream.
Its sources of goods are mostly large-scale retail goods such as furniture and household appliances, rather than simple daily retail goods. Such advantages and characteristics are related to the founder’s own entrepreneurial experience. Wang Jianguo, the actual controller and the largest shareholder of the company, holds 30.27% of the shares directly and 2.29% of the shares held by Nanjing Yuanbai, a subsidiary of five-star holdings, with a total of 32.56%. Alibaba ranks as its second largest shareholder, with a shareholding ratio of 19.08%.
Wang Jianguo is also the founder of five-star appliances, Kidswant Children Products Co.Ltd(301078) and Haoxiang home. He sits on three resource plates: electrical appliances, mother and child retail and furniture and home decoration. Huitongda is more like an export that gathers the three retail plates to the sinking market.
gross profit is only 2%
Facing the business model of huitongda, the biggest question is, do small stores in the countryside really have digital demand?
In fact, the trading business sector has almost supported 99% of the revenue of Huitong, and SaaS services account for only 1%. It can be seen that the digital penetration of retail in the sinking market is still very low. Data show that in the past three years, huitongda’s revenue reached 29.8 billion, 43.6 billion and 49.6 billion respectively.
Although the revenue is high, huitongda’s trading proprietary business is limited by low gross profit margin. The gross profit margin of proprietary business in the past three years was 3.2%, 2.7% and 2.4% respectively. The reason why the gross profit margin is too low lies in the insufficient standardization of agricultural e-commerce, large loss of supply chain and lack of cold chain logistics integration. The large-scale effect produced in cities and towns with developed e-commerce transactions does not work in the sinking market. On the basis of undertaking the girder of its own business, huitongda’s thin profit is still a problem to be solved.
From the prospectus, “e-commerce online” found two trend changes. One is that although the number of member stores increased significantly this year, the proportion of revenue gradually decreased, while the proportion of revenue contributed by channel cooperation customers gradually increased. In the prospectus, huitongda also stressed that channel partners will be important partners in the future.
Another change is that the largest proportion of sales is changing from home appliances to consumer electronics. In the past three years, the proportion of home appliances has decreased from 57.1% to 24.5%, while the proportion of consumer electronics has increased from 19.6% to 35%. Huitongda explained that the decrease in the gross profit margin of proprietary business is due to the decrease in the proportion of household appliances with higher gross profit. The low gross margin of consumer electronics is that the platform has adopted various promotions to improve market share.
where is the “good” business of the villagers?
After 11 years of deep cultivation, huitongda’s sinking business is not sexy.
For huitongda, sinking market and membership store model are the foundation, but they are not unbreakable barriers. Huitongda and the member store belong to a service relationship. There is no strong binding attribute, the threshold is not high, and the ability to resist external competitive risks is limited.
However, these do not hinder the recognition of huitongda in the investment market. Since round a, there has been no lack of star capital participation, including Huaxing new economy fund under Huaxing capital and Shunwei capital under Lei Jun. Alibaba injected 4.5 billion yuan in 2018 and has now become the second largest shareholder. In December 2020, it also attracted the state-owned national adjustment fund and state investment Chuangyi strategic investment.
From the perspective of industry, rural e-commerce has always been a big cake expected by the market. However, the sinking market is subject to the complex transaction levels in the industrial chain, the traditional multi-level distribution system is excessively decentralized and inefficient, and the transportation and logistics infrastructure is underdeveloped. The last kilometer distribution is still a huge challenge. In addition, the industrial chain lacks industry-wide infrastructure and effective information sharing and cooperation mechanism among participants, which leads to low efficiency of the whole industry and faces many challenges.
From the sinking path of several large e-commerce platforms, it is not easy to really “go back to the countryside”. The sophomore of the rural business operator of a platform once admitted to “e-commerce online” that if you do a 200000 marketing activity in the city, you can easily change to tens of thousands of traffic, but if you continue a marketing activity in the countryside, you can earn very little C-end traffic.
The lack of understanding of rural culture and human relations restricts the process of the platform in the rural market to a great extent. For the platform, it may be a new idea to shift from “persistence” on the C end to the operation on the B end. Huitongda, a platform with a large number of small store resources, can well play the role of “faucet” in sinking the market, which may also be the biggest reason why Ali and Xiaomi like this company.
For huitongda, the next thing to face is still to find a large-scale effect in the rural market. On the one hand, by expanding the marketing radius of SaaS services and expanding the high gross profit business, it can become a tool for small b-end merchants to help farmers; On the other hand, establish Shenzhen Agricultural Products Group Co.Ltd(000061) industry standardized process, broaden marketing path in self operated business, reduce boundary cost, or find a breakthrough in profit point.
Who can make the villagers really want to embrace digitization may be the traffic password that opens the sinking market.
(e-commerce online)
