{"text":[[{"start":9.09,"text":"This article only represents the author's own views."}],[{"start":13.82,"text":"The instant commerce wars ravaging China’s retail landscape have claimed their biggest victim yet. That’s our flash verdict following the Thursday announcement that Dingdong (Cayman) Ltd. (DDL.US), one of China’s earliest online grocers and arguably one of its oldest instant retailers, is throwing its bag into the much larger shopping cart of rival Meituan (3690.HK)."}],[{"start":43.36,"text":"Consolidation in China’s online sector rarely happens through this type of merger, partly because most companies are headed by fiercely independent founders who would rather see their empires go bankrupt than sell them to someone else. That was the case in 2022 when Dingdong’s former top rival Missfresh crashed and burned, even though many suitors probably would have considered buying the company while it was still doing reasonably well."}],[{"start":72.36,"text":"So, in that regard, we have to commend Dingdong founder Liang Changlin for seeing the writing on the wall and selling his company while there was still something of value to sell. China’s retail landscape was far different when Liang, described on Dingdong’s website as a “serial entrepreneur,” previously founded several other e-commerce companies before setting up his online grocery business in 2017."}],[{"start":99.5,"text":"Most notably, China’s “instant commerce” sector has exploded in the last year, as e-commerce heavyweights Alibaba (BABA.US; 9988.HK) and JD.com (JD.US; 9618.HK) entered the space. Groceries were arguably one of the earliest instant commerce products due to their perishable nature and the ease of delivery from local warehouses. Similar logic holds for takeout dining meals."}],[{"start":130.14,"text":"But Alibaba, JD.com and even Meituan have taken the concept to a new level lately with instant commerce rapid delivery initiatives that included not only groceries and takeout dining, but many everyday household items that usually took days to deliver in the past. Now the group is fighting to see who can deliver the fastest, with some promising deliveries for even non-perishable items in as little as 30 minutes."}],[{"start":157.88,"text":"None of this comes cheap, and Alibaba, JD.com and Meituan are all using their other profitable businesses to subsidize their instant commerce initiatives – a factor that may have made Dingdong’s Liang realize he could never compete with such big companies over the long term. The subsidy wars took an especially big toll on Meituan, which swung massively into the red with an 18.6 billion yuan ($2.68 billion) loss in last year’s third quarter, compared with a 12.9 billion yuan profit a year earlier."}],[{"start":192.73,"text":"Against that backdrop, we’ll take a closer look at the Dingdong deal, which is quite simple. Both sides said Meituan will acquire Dingdong’s core China business for a total consideration of $717 million, with 90% to be paid up front and the remaining 10% to follow after the settlement of applicable taxes."}],[{"start":216.37,"text":"Disappointingly, the comments from both companies don’t talk about the brutal competition driving this deal, and instead only talk about both companies’ commitment to freshness and quality. Dingdong’s U.S. shareholders weren’t too impressed, with the stock dropping 14.4% on Thursday, wiping out most of its gains from the last 52 weeks. Still, the company’s market value after the selloff was around $700 million, which is roughly what Meituan is paying. Meituan shareholders were also unimpressed, with its stock down 1.5% in Friday morning trading in Hong Kong."}],[{"start":257.96000000000004,"text":"Grocery giant"}],[{"start":259.71000000000004,"text":"From a market perspective, the merger of Dingdong with Meituan’s own online grocery businesses, mostly its Xiaoxiang and Kuailv services, will create an industry leader. Dingdong’s revenue totaled 6.66 billion yuan in the third quarter, but wasn’t going anywhere fast, up just 1.9% year-on-year. Dingdong operates over 1,000 front warehouses in China, with more than 7 million monthly transacting users, according to Meituan’s announcement of the deal."}],[{"start":290.64000000000004,"text":"Meituan’s grocery business makes up the bulk of the “new initiatives” segment of its financial reports, whose revenue rose 15.9% year-on-year to 28 billion yuan in the third quarter. The new initiatives segment also includes Meituan’s overseas Keeta takeout dining business, which has been expanding aggressively over the last year, and we suspect most or all of the new initiative revenue growth came from that."}],[{"start":318.43000000000006,"text":"Still, the two companies combined would have nearly 35 billion yuan in quarterly grocery-related sales, translating to 140 billion yuan annually, which is no small amount. By comparison, U.S. grocery leader Kroger (KR.US) reported $147 billion in sales in the 12 months through last September, about seven times more than Dingdong, in the far more mature U.S. market."}],[{"start":347.77000000000004,"text":"But again, we need to emphasize this deal is really more about instant commerce and less about groceries. Dingdong’s Liang probably understood that when he decided to sell. Thus, he realized his standalone grocer would never be able to compete with the likes of Alibaba, JD.com and Meituan, which were offering not only groceries, but takeout meals and other everyday items, from kitchenware to clothing, under their instant commerce banners."}],[{"start":379.06000000000006,"text":"It’s interesting to note that Dingdong didn’t sell the entire company to Meituan, but instead only sold its core China business. Dingdong pointed out it also operates an international business, which is presumably all that will be left in the publicly traded company – plus a big chunk of cash – after the sale to Meituan is completed."}],[{"start":402.96000000000004,"text":"That leaves us to speculate what might be next for the Dingdong name, and the publicly traded Dingdong (Cayman) company after this deal closes. We suspect the Dingdong name will be retired and merged into Meituan’s Xiaoxiang business, similar to what Alibaba is now doing by merging its Ele.me takeout dining name into its newer Taobao Instant Commerce brand."}],[{"start":428.40000000000003,"text":"In addition to the $717 million it will get from Meituan, the listed Dingdong (Cayman) had another $549 million in cash and short-term investments at the end of last September. That means it will have more than $1.2 billion in its coffers once the deal is complete. Liang could theoretically pay that out to investors as a massive dividend, which would represent a nice 70% premium to the current stock price. But given his background as a “serial entrepreneur,” we suspect he may try to use the company – and its huge cash pile after the deal closes – to try his hand at another business, either inside or outside China."}],[{"start":470.98,"text":"Anyone who thinks a big dividend might be coming could hang around and wait for such a payout, and pocket some nice profits in the process. But if Liang decides to try out another business, perhaps building off Dingdong’s small base in international markets, then investors could be left holding a new mystery grocery bag of dubious value."}],[{"start":505.31,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1770365061_9282.mp3"}