Didi Said to Consider Separate IPO for Its Community Group-Buying Operation
Chinese ride-hailing giant Didi Chuxing is reportedly planning to spin off its community purchasing business and launch a separate IPO for the platform, which allows buyers to obtain discounts by ordering groceries in groups and have them delivered to their neighborhood, according to tech media outlet The Information.
Chengxin Youxuan, Didi’s newly created grocery-delivery service, recently raised $1.2 billion from existing investors Citic Private Equity and angel investor Wang Gang. As part of the fundraising, Didi also chipped in $3 billion to Chengxin through convertible bonds, The Information reported Thursday, citing sources familiar with the matter.
The restructuring of Chengxin is expected to take place sometime between 2022 and 2023 – a year or two after its parent company Didi went public in the US this summer. In April, Reuters reported that the SoftBank-backed firm was planning to file confidentially for a July listing in New York, which would be led by Goldman Sachs and Morgan Stanley.
China’s leading internet companies Alibaba, Meituan and Pinduoduo have all set up their own group-buying platforms, intensifying competition in the country’s e-commerce arena, currently the hottest globally. The community purchasing business has attracted billions in startup investment. Xingsheng Youxuan, a grocery app backed by Tencent and Kuaishou Technology, raised about $2 billion in a new funding round that valued the company at $6 billion prior to the fresh capital injection in February, Reuters reported. Last month, its rival Beijing-based MissFresh privately filed for an IPO in the US, for which it aims to raise more than $500 million.
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Community group-buying enables a coalition of people, often living in the same residential compound, to place bulk orders on groceries and other daily essentials at a discounted rate. The practice is usually organized by a community leader such as a neighborhood administrator, social ringleader or convenience store owner. These leaders create and manage WeChat groups, where they coordinate orders and oversee logistics. The entire order will be delivered to a designated neighborhood spot the next day, where the community leader will sort it into individual residents’ orders for them to pick up. Community leaders are recruited by platforms and can typically win a 10% commission of the total sale.
The pandemic has accelerated this trend as millions of Chinese people relied on a group of community workers to purchase fresh produce and life essentials on their behalf during the more than two months of lockdowns earlier last year. According to iiMedia research, the community group-buying market is expected to reach $15.6 billion by 2022, a threefold increase compared with 2019.
However, the explosive growth of community group-buying has also triggered scrutiny from Chinese authorities. In March, the State Administration for Market Regulation imposed fines totalling 6.5 million yuan ($1 million) on five community group-buying platforms, including Didi’s Chengxin Youxuan, under allegations of price dumping and cheating.
Didi, which became China’s undisputed ride-hailing champion after defeating Uber, has over recent years diversified from its traditional business, entering various sectors such as cloud computing, financial services, on-demand trucking, autonomous driving and automobile manufacturing.