Recently, netizens reported on social media that Didi's community group buying business, Orange Heart Preferred, has been completely shut down, with all related product and research staff laid off. On March 2, a Didi insider told Red Star Capital Bureau: "The product and research team in Hangzhou has been mostly laid off, and affected employees will receive N+1 compensation." The insider revealed that since the end of last year, Orange Heart Preferred has been gradually laying off staff, " Before the Spring Festival, business and marketing positions were cut, and this time core product and research positions are being cut." The insider also said that Didi distributed year-end bonuses at the end of February, including to those laid off. Since the second half of last year, news of business contraction has been circulating about Orange Heart Preferred. In early September 2021, it was reported that Orange Heart Preferred had reduced its operations from 9 major regions and 31 provinces to 3 major regions and 9 provinces. In December, Orange Heart Preferred, which was originally placed on the Didi app page, was removed. Another former Orange Heart Preferred employee told Red Star Capital Bureau: "In December last year, the national C-end business of Orange Heart Preferred's community group buying was shut down, leaving only a part of Sichuan." As for whether the Orange Heart Preferred business has been completely shut down, Red Star Capital Bureau sought confirmation from Didi, but as of press time, there was no response. File photo: IC photo Orange Heart Preferred Business Contraction Removed from Didi App Page at the End of Last Year Recently, a netizen posted that Didi's community group buying business, Orange Heart Preferred, has been completely shut down, with all related product and research staff laid off. A former Orange Heart Preferred employee told Red Star Capital Bureau: "In December last year, the national C-end business of Orange Heart Preferred's community group buying was shut down, leaving only a part of Sichuan." In fact, since the second half of last year, news of business contraction and staff cuts has been continuously reported about Orange Heart Preferred. In September 2021, Orange Heart Preferred was reported to have closed multiple central warehouses and grid warehouses. As a transfer station connecting the city main warehouse and offline store pickup points, the grid warehouse undertakes important tasks of end sorting and distribution in the sinking market, and is also an important link different from traditional e-commerce logistics. This was not a positive signal and was interpreted by the market as: Orange Heart Preferred is contracting on a large scale. Subsequently, LatePost reported that Orange Heart Preferred would reduce its operations from 9 major regions and 31 provinces to 3 major regions and 9 provinces. Red Star Capital Bureau learned during an interview that on September 8, 2021, Orange Heart Preferred in Changzhou, Jiangsu, closed its group point system and announced the suspension of business operations in Changzhou. Local operators explained to group leaders: "The suspension is due to optimization and adjustment." At the same time, grid warehouses in eight counties in Jiangxi Province, including Qingyuan, Luxi, and Tonggu, announced closure. The relevant person in charge said in the work group that September 8 would be the last night of fulfillment. Image from Douyin APP According to public information, in the Shandong region, Orange Heart Preferred closed its business in Jining on September 7, Linyi on September 13, and finally Jinan and Qingdao. It also gradually withdrew from Jilin, Hainan, Guangdong, Guangxi, Ningxia, and other places. At that time, a person familiar with the matter told Red Star Capital Bureau that Orange Heart Preferred would contract in batches, closing cities and warehouses based on city warehouse dimensions. Fourth-tier cities were the first batch, third-tier cities the second, and then provincial capitals and first-tier cities, with the final retention being the Chongqing-Sichuan market. According to Jiemian News, Orange Heart Preferred had already formulated a contraction plan as early as June 2021, including structural adjustments and unavoidable layoffs. A person close to Didi said that Orange Heart Preferred had about 8,000 employees nationwide. They could choose to stay with Orange Heart Preferred or transfer to other departments. If neither was acceptable, they would receive N+1 severance compensation. The background of Orange Heart Preferred's large-scale adjustment and contraction can also be seen from Didi's financial reports. In the third quarter of 2021, Orange Heart Preferred's losses reached 20.8 billion yuan. At the same time, Orange Heart Preferred shifted its focus to wholesale business, incubating a retail terminal and wholesaler trading platform - "Orange Wholesale." The new business did not bring a turnaround for Orange Heart Preferred. Red Star Capital Bureau learned that in late December 2021, Orange Heart Preferred, which was originally placed on the Didi app page, was removed, which also meant that the core traffic entry for Orange Heart Preferred was shut down. Previously, the Orange Heart Preferred entry in the Didi app Now it has been removed from the Didi app Once Reached 2.8 Million Daily Orders in 3 Months From Prosperity to Decline in Just One and a Half Years Before June 2021, Orange Heart Preferred was still on a rapid growth trajectory. From its launch in June 2020 to announcing the number one order volume in the Chongqing-Sichuan region, it took less than 3 months. In September 2020, the expansion speed of Orange Heart Preferred further accelerated, with the pace of opening cities doubling. According to China News Service, by the end of September, the national daily order volume of Orange Heart Preferred exceeded 2.8 million orders. According to Southern Metropolis Daily, at the Didi all-hands meeting on November 3, 2020, the fifth month after launch, Didi CEO Cheng Wei was full of confidence and expressed his determination on the spot: "Didi's investment in Orange Heart Preferred has no upper limit, and we will strive to win the market first place." On the subsequent "Double 11" day, Orange Heart Preferred's national daily order volume exceeded 10 million. After that, Orange Heart Preferred subsidized users heavily, recruited aggressively with high salaries, and expanded cities and stores frantically, running at full speed. The change occurred in March 2021, when Didi was reported to be spinning off community group buying for a separate listing. Later prospectuses also showed that Orange Heart Preferred conducted A1 and A2 financing rounds and convertible bond issuance in March, with a latest valuation of $1.8 billion. After financing, Orange Heart Preferred changed its market strategy from loss-making subsidies to pursuing profitability. In May 2021, Orange Heart Preferred stopped full reduction discounts, and order volume plummeted. At the end of June 2021, according to public information, Orange Heart Preferred planned to cancel the 20% wartime subsidy. Market investment institutions' research and analysis showed that Orange Heart Preferred's daily order volume was about 13 million at the end of 2020. After subsidies were halted in June 2021, order volume dropped to between 8 million and 10 million, while Meituan Select and Duoduo Maicai each had daily order volumes about double that of Orange Heart Preferred. At the end of July, Orange Heart Preferred moved its headquarters from Chengdu to Beijing and Hangzhou. Then in early September, news came that Orange Heart Preferred would reduce its operations from 9 major regions and 31 provinces to 3 major regions and 9 provinces. Red Star Capital Bureau learned during an interview that Orange Heart Preferred's business changed rapidly. A third-party labor company in Yulin, Shaanxi, responsible for recruiting employees for Orange Heart Preferred's grid warehouse, told Red Star Capital Bureau that on July 24, 2021, it was still posting recruitment information for vegetable sorters, but just two months later, it received news of the grid warehouse's closure. Investor Says Orange Heart Preferred's Money Burning Was Inefficient Orange Heart Employee: Didn't Even Know How Much Was Lost Wang Li (pseudonym), a former mid-level employee of Orange Heart Preferred, was previously responsible for a core business at the Chengdu headquarters. In Wang Li's view, the reasons for Orange Heart Preferred's predicament were more internal. "Orange Heart Preferred never had a clear understanding of its business processes. It wasn't until March 2021 that it launched a tracking tool for inbound and outbound goods. Before that, it had no grasp of product loss rates and didn't even know how much money was being lost," Wang Li told Red Star Capital Bureau. In addition, Orange Heart also had personnel issues. Wang Li mentioned: "Due to rapid expansion, Orange Heart Preferred hired a large number of procurement and supply chain employees in a short time, but background checks were insufficient, and the quality of staff varied." The market generally believes that Orange Heart Preferred lacks a parent company with retail genes. Compared with Meituan and Pinduoduo, Didi's business scenario for community group buying is far behind. Wang Li shared the same view. He told Red Star Capital Bureau that compared with Duoduo Maicai and Meituan Select, Orange Heart Preferred had no advantages online or offline. Facing strong competitors, it was difficult to break through in any aspect. Wang Li said: "All along, the Didi app has been sparing no effort to drive traffic to Orange Heart Preferred, but it only accounted for less than 10% of Orange Heart Preferred's traffic. Online, Duoduo Maicai relies on the Pinduoduo app, with a more precise customer base and higher traffic conversion. Offline, Meituan has built a complete supplier system for Meituan Select, with mature methodology and management models, rapid store expansion, and stronger To B resources." An investor in the community group buying track told Red Star Capital Bureau that they favored Duoduo Maicai and Meituan Select, and Orange Heart Preferred was never considered. "Orange Heart Preferred's money burning efficiency was too low, with a high loss rate. After burning money, nothing was left behind. For example, improving supply chain efficiency and cultivating user mindshare were not done well by Orange Heart." The investor lamented to Red Star Capital Bureau: "Burning money is also a technical job." Source: Red Star Capital Bureau (ID: hxzbj2020) Author: Yu Yao, Qiang Yaxian -END-