What is a “strategic” loss that does not flicker?
Editor’s note: This article is from WeChat public account “Box Finance” (ID :daxiongfan), author Yao Wei.
As of this Friday, the US stock Q2 earnings season was basically disclosed.
With Tencent, Vipshop, Betta, Ruixing Coffee, Jingdong, and Ali, the Q2 quarterly earnings report was released. The impact of the data continued: Tencent’s average monthly salary was 72,000, and Jingdong was profitable. I lost money…
On August 13, JD.com, with the concept of “strategic loss”, handed out the most eye-catching earnings and created a record high for growth. The financial report shows that Jingdong’s 202 net income in 2019 was 150.3 billion yuan, a year-on-year increase of 22.9%.
There are also Ruixing coffee that is losing money and waiting for future digital verification. The financial report showed that Q2 revenue was 909.1 million yuan, up 648.2% from 121.5 million yuan in the same period of last year, and the net loss was 681.13 million yuan. The net loss for the same period last year was 333 million yuan.
In the Jingdong, a record high profit growth rate and Ruisheng Coffee continue to lose money, let’s talk about strategic losses.
1.Strategic strength
The advertisement for Ruixing Coffee has been replaced by “I have its own reason”, which seems to be an open ridicule for those who say they don’t understand their business model.
“We are satisfied with the performance of our business as we continue to implement long-term growth plans.” Rui Zhi Coffee CEO Qian Zhiya said in the financial report that it is expected to be in the third quarter of 2019. The company will move towards a breakeven point in store operations.
The “long-term growth plan” emphasized by Qian Zhiya is a plan that requires strategic strength and is the logic behind Rui Xing’s continued loss.
There are countless companies that choose strategic losses.
“Ultra-long thinking and planning” has always been the motto of Amazon’s development, and this motto has also been accompanied by Amazon’s entrepreneurship. In the early days of the venture, Bezos positioned Amazon as “the largest bookstore on the planet ” (Earth’s biggest bookstore).
(Amazon founder Bezos)
To achieve this goal, Amazon has adopted a large-scale expansion strategy, relying on loss-making self-operated businesses to attract users, forming a moat, relying on the income and other income of the market platform to obtain profits, and then Put all the profits into the R&D innovation of new products and services. This has also caused Amazon to lose 20 years in its nearly 24 years since its inception in 1995.
The Ant Financial, known as the “world’s largest unicorn”, also chose a strategic loss. On May 4, 2018, Alibaba announced its financial report for the 2018 fiscal year, and part of the Ant Financial Service was concerned. On the one hand, Alipay and its partners have 870 million global active users. On the other hand, in the first quarter, ant paid a loss to Alibaba, which was a loss of -114 million.
In addition, the choice of strategic losses, as well as the stock price soaring the United States Mission, express “one brother” SF, and the use of “five rings outside” occupy a place where e-commerce is a lot.
On March 13 this year, Ren Zhengfei sat in front of the camera and had a conversation with Canadian CTV reporter Lisa LaFlamme.
The reporter asked him: “I have read relevant reports before, saying that you have made it clear that Meng Xiazhou will not be your successor. But after this, can it make her more mature? Her Will the experience change your original thinking? Will you reconsider her as a successor?”
Ren Zhengfei affirmed that this tribulation was an exercise for Meng Xizhou, and directly denied the possibility of Meng Zhouzhou taking over: “She is a manager, her horizontal management ability is very strong, and Being a leader is a requirement for vertical breakthrough, to see the future of ten or twenty years, and insight into this future.”
It can be seen that the strategic judgment is what Ren Zhengfei is looking for. This is one of the requirements for the leader to bring the enterprise forward and move forward in the impact.
Chen Ju, a former scientist at a laboratory in Huawei, once said in an interview with the media: “At the time, everyone was selling PHS and selling it very well. He insisted on not doing PHS and doing 3G. That is to say His judgment on technology is more accurate. Later, everyone found that 3G and 4G are the general direction. This shows that leaders must have strategic strength and strategic judgment.”
What is the strategic strength? It refers to the strategic confidence, will and perseverance that has in order to achieve strategic intent and strategic goals in a complicated situation. The confidence, will and perseverance behind strategic intentions and strategic goals are the key to strategic execution.
For the sake of a bigger picture, and suffering temporary losses, Ruisheng is not the first.
2. What happened to the “loss”
Of course, cannot use the universal concept to cover up the failure of individual cases, the key depends on what is gained after the loss.
First look at the two sets of data in the Ruixing Coffee Q2 earnings report.
The first group, on the total cost of revenue and the amount of loss. In the second quarter of 2019, Ruisheng Coffee’s total revenue was 909 million yuan, an increase of 689.4% from Q2 in 2018. The total cost of revenue reached 1.599 billion yuan, which means that Ruixing had a net loss of 681 million in the second quarter, while Ruixing Coffee had a net loss of 552 million in the first quarter.
The second group, the number of stores of Ruixing Coffee. As of June 30, Ruisheng Coffee had a total of 2,963 stores. Among the 2,963 stores, 593 new stores opened in the second quarter, and 297 new stores opened in the first quarter.
Q1 lost 552 million to Q2 loss of 681 million. The number of new stores increased from 297 to 593.
The financial report shows that as of the second quarter of 2019, the number of Ruixing coffee stores reached 2,963, an increase of 374.8% compared with 624 stores in the second quarter of 2018. At the same time, Ruixing coffee shop operating loss decreased by 31.7% to 55.8 million yuan compared with the same period of last year, close to the store breakeven point.
Transaction costs, organizational structure and market competition, these three categories are the main classifications proposed by the academic community to understand the company’s traditional mechanisms.
The best-selling book “Scale: The Simple Rule of the Complex World” combines these three points with “scale.” First, the minimum transaction cost reflects the economies of scale driven by optimization principles, such as profit maximization; the second is that the organizational structure is a network system within a company that transmits information, resources, and capital to support, sustain, and promote the company. Growth; third, competition brings the evolutionary pressure and selection process inherent in the market ecology.
From the figures of the financial report, Rui Xing is still using losses for growth.
Charles Hill, the world’s top strategic management scholar, and Zeng and Gareth Jones co-authored “Strategic Management.” The book points out: The key condition for successful entrepreneurship is that the entrant must have a larger scale. In the short-term, large-scale entrants need huge capital investment, so if they fail, they will cause significant losses; but in the long run, such a large investment will be far more likely than a small-scale entry. Companies that invest in losses are more profitable.
In the relationship between “entry size” and “profitability”, successful small-scale entrants have lower initial losses, but long-termLook, large-scale entrants generally make a big profit. However, in view of the high cost and high risk of large-scale entrants, many companies tend to choose a small-scale entry strategy. This means that small-scale entrants cannot build the market share needed for long-term success.
Rui Xing has positioned himself as a “mass entrant” since its inception. From now on, what it is doing is not against its original design.
A study has pointed out that the company’s development is a sub-linear proportional change, rather than a super-linear proportional change, which determines that such organizations rely mainly on economies of scale.
After the financial report was released, Ruizheng Coffee Co-founder, Chairman Lu Zhengyao, CEO Qian Zhiya, Chief Financial Officer and Chief Strategy Officer Reinout Schakel and other company executives attended the subsequent earnings conference call to interpret the key points of the financial report. Answer the analyst’s question.
Reinout Schakel responded to an analyst’s question and said: We see that both cost improvement and delivery costs have declined due to economies of scale and operational efficiency, and this trend will continue.
The scale: the simple rules of the complex world also mentions an interesting conclusion.
The Superman created by DC, originally from a baby of the comet, “The body structure of the planet’s inhabitants is hundreds of years older than our human beings. After adulthood, people of this race will have tremendous power.” The speed is faster than the bullets, the power is bigger than the locomotive, and jumps over the high-rise buildings. In the Superman comics, in order to confirm the authenticity of this setting, two examples are given: “An ant can lift objects hundreds of times its own weight”. “The distance the grasshopper jumps is equivalent to the human crossing several blocks. Length.”
(DC Superman Comic Image)
The author believes that these two seemingly correct examples are classic cases that draw errors and dance conclusions from the right facts. And explain: As Galileo said, as the volume shrinks, the relative intensity will increase systematically. In other words, ants actually have the same strength as their body, just like our human beings. The reason for this type of erroneous conclusion is simple—people tend to think linearly, just as the doubling of the size of an animal will make its power double.
That is, economies of scale are non-linear and there is an optimalThe boundary of efficiency is not a linear development with a larger scale and less efficiency. Derived into business, when the company decides on the strategy of “strategic loss” and “economies of scale”, the factor that determines the success of the strategy is not only the market competition, but also the “boundary”.
At present, has not seen or crossed this border from the financial report of Ruixing Coffee.
3. Return to the essence
When you witnessed O2O, shared bicycles and other circuits from the wind to the corpse, the myth of the concepts of “strategic loss” and “scale moat” has long since shattered. We need to push the logic forward one more layer: What kind of company is Ruixing?
Founded in 19 months, it became the fastest IPO company in the world. From the speed of opening a store, Ruixing Coffee is striving to achieve the goal of more than 4,500 stores nationwide at the end of 2019.
It took nearly 20 years for Starbucks to open about 3,300 stores in China. Among them, the early 1000 households spent 14 years, from 1000 to 2000 households for 3 years, from 2,000 to 3,000 only used for 1 year. According to the number of stores of Naicha and Xicha, the company has more than 200 stores in more than 30 cities. By the end of 2018, the total number of Xicha stores has reached 163. .
Rui Xing differs from the O2O companies that used the scale to build a moat before. It is fast enough that it is too late for competitors to “copy” or even “copy” – given the previous “burning money” The sequelae of those who tried to enter were more cautious.
On July 8, Ruixun Coffee held a strategic-level new product launch conference, announced that it launched more than 10 models of Xiaolu tea products in nearly 3,000 stores in 40 cities across the country, and officially invited the popular popular star Liu Yuran to endorse new teas. market. The new peach peach ruby tea, guava cheese ruby tea, grapefruit cheese jasmine tea and raspberry cheese jasmine tea are similar to the new tea brand red brand products such as Nai Xue and Xicha.
(Rui Xun’s new spokesperson Liu Yuran)
Under the double word of mouth of the rainbow fart and the mouth, the founder of Xicha, Nie Yunzhen, expressed his opinion in the interview: Hi tea did not feel the pressure, the key to the tea industry depends on the feedback from the consumer. The tea business cannot be said by the mouth, and the tea is still believed to be down to earth.Doing products, design, and branding is the most important thing.
Rui Xun defined its scene as “unlimited scene” shortly after its creation, including four major offline stores, including flagship store, Youxiang store, cache store and takeaway kitchen store. According to the Q2 financial report, as of June 30, 2019, Ruixing Coffee’s take-away kitchen shop was 99, an increase from the previous quarter. On June 30, 2018, the number of takeaway kitchen shops was 246, which means that in the past year, there were 147 Ruixing coffee takeaway kitchen shops.
Quality is questioned, enters the new tea industry, continues to frenzied to open the store to burn money, take-out stalls, kitchen stores close the store… These recent actions of Ruixing are confusing – what exactly is it going to do?
The financial report shows that as of June 30, Ruisheng Coffee has opened a total of 2,963 stores. Among them, 2,741 quick-buying stores (pick-up store), the proportion of cache stores reached 92.5%. Most of the cache stores are around 20 to 50 square meters, and are opened in office lobby, corporate interiors, schools and other places where traffic is crowded.
(Research data of Ruixing Coffee Cache, image source Ruixing Coffee Q2 Financial Report)
According to the official statistics of Ruixing, Ruixing achieved 100% coverage within 500 meters in the core area of the first-tier cities such as Beishangguang, and customers can reach it in 5 minutes on foot; there are 12.54 million users, and sales have reached in the past year. 89.68 million cups; the user’s self-raising ratio rose to 61%, the repurchase rate in 3 months was greater than 50%; the average length of take-away delivery was also reduced to 16 minutes and 43 seconds.
From an internet perspective, every store is a “contact” that is in direct contact with the customer. A systematic platform has been formed through the connection of supply chain and management system through these contacts in major cities across the country. Ruixing Coffee expands Sku after having the platform attribute. “Little Deer Tea” is a test to increase the mainstream category.
Under the same supply chain and management system, the increase in categories will undoubtedly reduce the average cost, and the cost of strategic losses has been compensated.
“The world’s leading mobile Internet, big data and AI technology-driven technology companies” is the latest positioning of Ruixing.
Assume that Ruixing is using this platform to establish a new entrance to the restaurant industry, and look at recent moves that you don’t understand – The takeaway is not important to the current Ruixing, and the store may not be important anymore in the future.