This article is the 844th original work of Shenqian Atom

How can Dmall prove its own value

Meng Fanliao | Author

Shenqian Atom Studio | Editor

In the past few years, Shenqian Atom has witnessed the rise and fall of Dmall in the Wumart Supermarket near the office.

During the epidemic, Dmall, which provided self-checkout services, began to be accepted by consumers, and there were even queues to pay. After the epidemic, the number of consumers in this area seemed to decline, and many consumers returned to the cashier. Even though Dmall was also optimizing the product experience, from the initial mandatory download of the App to face recognition payment, it was ultimately a change focused on young people, and did not change the trend of consumer loss.

As online shopping gradually becomes a daily routine, offline consumers are dominated by middle-aged and elderly people. Dmall must also face the dual challenges of supermarket expansion and middle-aged and elderly consumer maintenance. If it fails to gain the recognition of middle-aged and elderly people, Dmall's value to supermarkets will further decrease. Even if it goes public, it will not be able to reverse this situation.

Dmall needs to prove as soon as possible that customers can earn more money while spending money

In 1994, Zhang Wenzhong founded Wumart, which is now a leading national supermarket chain brand, attracting numerous consumers daily. For Wumart, the more consumers, the more profitable it is. However, for consumers, a large number of people means long queues, wasting time. For this reason, how to change the consumer's payment experience has become a challenge for Wumart and Zhang Wenzhong.

Under the wave of mobile internet, SaaS products that improve corporate productivity and efficiency have broadened Zhang Wenzhong's horizons.

In 2015, Zhang Wenzhong embarked on his second entrepreneurial journey, bringing in former Huawei Honor President Liu Jiangfeng as CEO, former JD.com executive Lin Jie as COO, and former Vipshop executive Han Xin as CTO. He also recruited his nephew Zhang Feng to co-found Dmall. Positioned as a one-stop, omnichannel digital retail solution service provider, it entered the race for supermarket digital transformation.

Because it shares the same boss with Wumart, this means that Dmall's birth may have been the dream destination for other SaaS products. Dmall began its own retail digital exploration with Wumart, implementing retail cloud solutions across Wumart's national store network and iterating its own functions through Wumart's complex business. On this basis, Dmall has also incubated modules suitable for various retail formats.

Today, Dmall has gradually gained recognition from young people, and the number of registered users has quickly exceeded 100 million. With few cashier lanes at Wumart and long queues, it has become routine for consumers to enter the Dmall self-checkout area.

When Dmall submitted its prospectus in 2022, it had already become the largest retail cloud solution digital retail service provider in China and Asia, with market shares of 14.8% and 9.0% as of December 31, 2021, respectively. The latest updated prospectus for 2024 shows that Dmall has reached 677 clients.

Driven by Zhang Wenzhong and capital, Dmall has developed rapidly. So the question arises, has Dmall truly provided commercial value to supermarket customers while improving efficiency?

Judging from Dmall's business model, it aims to improve the operational efficiency of retail enterprises, optimize supply chain management, and enhance marketing effectiveness through digital means, thereby helping customers achieve revenue growth. Theoretically, Dmall can also integrate online and offline aspects of merchandise, members, marketing, supply chain, operations, and payments through algorithm support, further enhancing supermarkets' revenue capabilities. This means that Dmall cannot directly generate revenue for customers.

The associated customer Wumart has always been Dmall's calling card. Dmall's associated customers are primarily from the "Wumart Group," including Wumart Group, Metro China entities, Chongqing Department Store Group, Yinchuan Xinhua Group, and B&Q entities. From 2021 to 2023, Dmall's revenue from associated customers increased from 709 million yuan to 1.31 billion yuan, with the proportion of total revenue rising from 67.9% to 74.9%. In 2023, Wumart Group alone contributed 927 million yuan to Dmall's revenue, accounting for 53% of the total.

Dmall's latest prospectus reveals that many large customers were acquired through mergers and acquisitions. For example, in 2021, Dmall invested 129 million yuan in Guoquan Food Hub, which subsequently became a Dmall customer. According to Dmall's prospectus, strategic partnerships seeking complementary growth strategies, as well as investments and acquisitions, are crucial components of the funds raised in this IPO.

Before the 2024 Spring Festival, Hao Chunqiang, Vice President of Dmall, stated that Dmall would fully leverage its role as a "mid-platform" for retail, supporting supermarkets in efficient operations, supply chain collaboration, and more, to prepare adequately for the peak sales period during the New Year's holiday. Undoubtedly, during significant holidays, Dmall can better assist supermarkets in product preparation and operational optimization. However, these are merely icing on the cake.

For many small and medium-sized supermarkets, having Dmall is beneficial, but they have managed to develop normally without it over the years. Moreover, although Dmall has increased checkout efficiency, supermarket cashiers still exist, failing to transform their clients into unmanned checkout supermarkets.

The cooperation between supermarkets and Dmall is more like paying for improved efficiency and service rather than generating more revenue for customers. In business terms, Dmall needs to prove that it can create more revenue and bring more traffic to supermarkets. Relying solely on investments to acquire customers is not a sustainable strategy for Dmall.

Sustained losses make it difficult for Dmall to tell its story in the secondary market

The commercialization of SaaS enterprises is relatively challenging, and Dmall, which has not yet validated its value, is no exception.

From 2021 to 2023, Dmall's operating revenue was 1.045 billion yuan, 1.501 billion yuan, and 1.750 billion yuan, respectively, with losses of 1.825 billion yuan, 841 million yuan, and 655 million yuan, respectively, for a cumulative loss of 3.321 billion yuan over three years.

Dmall's primary businesses include retail core services, e-commerce services, and marketing and advertising services. Among them, retail core services, which provide end-to-end digital solutions for retailers, are the largest business. In 2023, this business generated 1.299 billion yuan in revenue, accounting for 74.3% of total revenue, up from just 42% in 2021. The rapid increase in the number of associated customers is a direct catalyst for Dmall's revenue growth.

It is noteworthy that from 2021 to 2023, Dmall's gross profit margin decreased from 59.3% to 41.7%. Dmall believes that the decline in gross profit margin is due to the relatively low gross profit margin of AIoT solutions, but how can it ensure that this does not affect its future performance?

As revenue grows, Dmall's losses are decreasing, but future operating costs can also determine its profitability.

Perhaps to reduce costs or due to a clearer understanding of reality, Dmall has significantly reduced its revenue and R&D expenses over the past few years, abandoning its rapid expansion strategy. From 2021 to 2023, marketing expenses decreased from 608 million yuan to 180 million yuan, and R&D expenses decreased from 614 million yuan to 551 million yuan.

Of course, there is another possibility: Dmall is genuinely short of money. As of the end of 2023, cash and cash equivalents stood at only 533 million yuan, a decrease of approximately 602 million yuan compared to 1.135 billion yuan at the end of 2020.

Once upon a time, Dmall, backed by Zhang Wenzhong and Wumart, was also a darling of the capital market. In April 2015, the company launched its Series A funding round of 106 million US dollars and subsequently completed seven funding rounds, raising a cumulative total of over 700 million US dollars, attracting investors such as IDG Capital, Tencent, Kingdee, Lenovo, and others. In 2021, it completed a Series C+ funding round of 51.8 million US dollars, with a post-investment valuation of 3.052 billion US dollars. However, this seemed to be Dmall's final hurrah, as the capital market suddenly cooled towards it. This may also be the reason why Dmall accelerated its IPO plans.

The Hong Kong Stock Exchange is no stranger to Zhang Wenzhong, whose first entrepreneurial venture, Wumart, listed on the exchange as early as 2003, becoming the first private retail stock. This time around, Zhang Wenlong has once again set his sights on the Hong Kong Stock Exchange for Dmall.

In December 2022 and June 2023, Dmall submitted its prospectus to the Hong Kong Stock Exchange twice but failed both times. On April 30, 2024, Dmall launched its third attempt at the Hong Kong Stock Exchange, but there has been no feedback yet. However, the deadline for the prospectus to expire is approaching.

The bonus period has passed, leaving Dmall with high debt, tight cash flow, and narrow financing channels. While these issues pose challenges, they are not sufficient to defeat Dmall in the short term. If Dmall can address the decline in supermarket revenue, its future holds unlimited possibilities.