Why JD.com Is Going All-In on Self-Operation

Source | Most Talk FunTalk

JD.com is going all-in on self-operation, and many people have noticed this. At the end of August, JD.com's community group buying business, which had been quiet for a while, made a comeback under the name "JD Pinpin." From the mini-program of the same name, JD Pinpin has currently launched operations in four regions: Beijing, Hebei, Anhui, and Jiangsu. When expanding its partner stores, it mainly collaborates with community-based tobacco and alcohol shops, convenience stores, and express delivery stations. Looking at the products listed, besides the standard community group buying items like fresh produce, vegetables, and daily necessities, the highlight of JD Pinpin is JD's own brand products. In the JD Exclusive Zone, there are various products from JD's sub-brands such as Qixian, Jingxianfang, Jingdong Jingzao, and Jingyue, covering fresh produce, food, daily necessities, grain and oil, dry goods, and household cleaning products. It is evident that JD Pinpin is not just a group buying platform but also a showcase for JD's own brands. Its important task is to become a link in JD's retail supply chain, especially providing a community sales scenario for JD's own brand products. JD is personally going down the production line, personally entering the market, personally going down to lower-tier markets, and then self-operating everything. Many long-time JD users have also noticed that this approach of deeply integrating into every link of the supply chain is being rolled out across various industries, including JD Auto Care, JD Home Services, Qixian Kitchen, hard discount supermarkets, and even medical aesthetics. Not long ago, a light medical aesthetics clinic named JD Medical Aesthetics quietly emerged, and within a short time, two clinics have already opened. In the current retail melee, JD is also an important participant, but behind this broad-spectrum self-operation approach, there are clearly different strategic choices compared to its competitors. Currently, both Meituan and Alibaba mainly adopt a platform model, with their primary revenue sources being transaction commissions and merchant advertising fees. This revenue model determines that platforms need to continuously expand horizontally to achieve growth. But the self-operated retail model is different; its growth space is vertical, achieving profits through buying low and selling high. Of course, since Liu Qiangdong has adhered to the "three cents and five cents" theory since the founding of the company, if JD only relies on procurement and sales to generate profits, its growth remains limited. So JD has only two choices: first, to horizontally expand the scope of procurement and sales, joining the supply chains of various industries; second, to vertically expand its "territory" in the supply chain, such as going upstream to the production end to capture brand profits, and downstream to the service end to capture service profits. Looking back, JD's alternative choice naturally has its genetic advantages, but it should also be a choice it had to make. Just like the recent food delivery war, a few years ago, internet companies also engaged in a money-burning land grab in the community group buying field, but in the end, they all left one by one, leaving only Meituan Select and Duoduo Maicai on the battlefield. But just when everyone thought the community group buying market structure had been formed, Meituan Select announced in June this year that it would shut down its business in multiple regions. The reason is simple: it wasn't making money. Meituan's second-quarter financial report showed that its new business segment revenue increased by 22.8% year-on-year to RMB 26.5 billion, but losses expanded by 43.1% year-on-year to RMB 1.9 billion. The losses in new businesses were mainly due to losses in Meituan Select. In Meituan's Q3 2024 financial report, it was mentioned that Meituan Select was the only business in new businesses that had not achieved profitability. Other media reports mentioned that Meituan Select's full-year loss in 2024 was in the tens of billions. During the Q2 earnings call, Pinduoduo's management, when responding to the latest developments of Duoduo Maicai, also mentioned that Duoduo Maicai is a relatively tough business that indeed requires long-term and substantial investment. Pinduoduo's founder, Huang Zheng, once said that the hardship of the grocery buying business lies in the fact that while others are sleeping, you are picking and delivering goods, so that consumers can get fresh vegetables before they cook. In fact, living beyond one's means is a common "hardship" experienced by all community group buying players. When JD first tried the community group buying business with Jingxi Pinpin in its early years, it assumed that the gross margin could reach 15%, distribution costs could be controlled at 10%, and subsidies for group leaders and users would be about 2%, leaving a profit of 2%-3%. But Jingxi Pinpin's gross margin only reached 6% at most, which is still quite far from the gross margin target needed to achieve profitability. On the other hand, JD was good at long-chain logistics at that time. To solve the logistics distribution cost, JD chose not to cooperate with third parties but to build its own "Jingxida." But building a short-chain logistics system further reduced the possibility of Jingxi Pinpin's profitability. According to reports, Jingxida's cost accounted for 20%-25% of the overall GMV. Fortunately, things are different now. JD already has more than 100,000 JD riders who are good at short-chain distribution, and the advancement of the community group buying business can also spread the costs of JD's food delivery business. In addition, JD's accumulated advantages in the supply chain over the years have also laid the foundation for JD to re-enter the community group buying market. Currently, JD Pinpin continues the model of "order today, pick up tomorrow." According to media reports from JD Pinpin's store expansion personnel, partner stores must be located in communities with more than 600 households, and the store must have refrigerated cabinets and shelves. There are mainly two cooperation models: one is online orders, where merchants can receive a 5% commission on turnover; the other is to take goods at the purchase price and sell at their own pricing, with goods mainly sourced from discount supermarkets and JD procurement. According to the person in charge of JD Pinpin, in the future, JD Pinpin will, based on the local supply chain, leverage JD's capabilities in global brand cooperation, industrial belts, origin places, and own brand product development, cooperate directly with origin places and industrial belts, compress intermediate costs, and compete for the market with a sustainable low-price strategy. JD Pinpin has not copied the old path of community group buying players. Instead, it relies on the supply chain advantages accumulated in the past to add retail scenarios for its own or self-operated brands (procurement and sales). This approach is to seek growth from the supply chain because making growth horizontal is really too difficult. In the post-consumer internet era, no matter how fiercely everyone fights, the cake is only so big. Whether it's users or transaction volume, they are all within a relatively fixed range, and market share is shifted by cutting the cake. In other words, the users you attract are actually already someone else's users. Since this user migration happens, it shows that their loyalty is very low. Take the food delivery war as an example. During the period of high subsidies, JD's food delivery market share once exceeded 30%, but as Meituan and Taobao increased subsidies for their food delivery businesses, JD's share began to decline. According to the latest data, JD's food delivery share has fallen to 11%. The three platforms that experienced this food delivery war all saw their profits decline to varying degrees in Q2. Meituan's adjusted net profit fell 89% year-on-year to RMB 1.493 billion, Alibaba's adjusted net profit fell 14% year-on-year to RMB 38.844 billion, and JD's net profit attributable to ordinary shareholders fell 50.8% year-on-year to RMB 6.2 billion. The situation of "increasing revenue without increasing profit" for these three platforms is against the backdrop of high subsidies in the food delivery war. Clearly, continuously acquiring customers and maintaining market share through burning money is not a sustainable strategy. And this situation is not only in the food delivery field but also in other businesses. The user pools that internet companies built through burning money in the early years are rapidly losing their positive correlation with operations. Almost all users are being reused, and in the process of high-frequency reuse, users have developed a strong price comparison mindset. The same clothes, the same vegetables, and roughly the same logistics efficiency. In the end, the only decision-making handle everyone can get is: your price is 50 cents cheaper than his. This also means that the efficiency of burning money is getting lower and lower. It should be noted that in all internet scenarios, making a profit on the first order is difficult, and everyone hopes to achieve profits by locking in users and increasing repurchase frequency. But the reality is already very harsh. When users cannot be locked in, customer acquisition becomes a one-time game. Objectively speaking, this challenge is more obvious for JD. Compared to Taotian and Meituan, JD's MAU base is smaller, which means that in the process of horizontal growth, it will have more one-time games, and the marginal benefits of customer acquisition will diminish. These challenges have indeed been reflected in relevant financial indicators. In Q2, JD's quarterly active user count increased by more than 40% year-on-year, while net revenue growth was 22.4%. Therefore, for JD, rather than focusing operations on acquiring new customers, it is better to deeply operate existing users, deeply cultivate various industry chains, and extend business tentacles to all aspects of old users' clothing, food, housing, and transportation. Of course, the challenge of one-time games is not only encountered by JD, but why haven't other companies followed suit in deeply exploring the value of the industry chain? This should be related to JD's genes. It has indeed walked a long way upstream and downstream. Taking medical aesthetics as an example, many people may think JD's involvement in medical aesthetic clinics is somewhat absurd, but in fact, as early as 2016, Dongchen Investment, funded by Liu Qiangdong and managed by Zhang Zetian, had already invested in the medical aesthetic institution Lingyi Clinic. Of course, in 2021, Dongchen Investment was transferred to others, and since then it seems to have entered a maintenance stage, but the company has not withdrawn from Lingyi. Currently, Lingyi Clinic has become a multi-site practice clinic for several plastic surgeons from Beijing's top-tier hospitals. In addition, JD has not completely given up horizontal growth. By deeply cultivating various industry chains, it hopes to achieve cross-business traffic diversion, cross-line repurchase, and maximize users' consumption within the JD ecosystem. Although the food delivery business is losing money, through high-frequency businesses like food delivery, it not only increases transactions in other low-frequency businesses but also greatly improves user activity. Liu Qiangdong mentioned that 40% of consumers who use JD food delivery will cross-purchase JD e-commerce products. The money subsidized for food delivery is more cost-effective than buying traffic from Douyin or Tencent. Questmobile data shows that in Q2, JD's daily active users increased by 35% year-on-year, monthly active users increased by 17% year-on-year, and JD's average daily usage time per user increased by 25% year-on-year. These three figures are much higher than those of Taobao and Pinduoduo in the same period. Moreover, during the 618 period, JD App's DAU peak reached 212 million, a year-on-year increase of 52.1%. Of course, JD's layout is not limited to this. In 2023, CBNData, in conjunction with JD PLUS members, released a consumption trend atlas for JD PLUS members. The atlas mentioned that more than half of JD PLUS members live in high-tier cities, mainly consisting of six groups: affluent middle-class urbanites, middle-aged lazy parents, young sophisticated couples, potential rising families, urban new white-collar workers, and quality elite trendy men. These "petty bourgeois" groups inherently have many offline service needs, such as flower reservation, clothing and shoe care, travel and hotel, and car wash services. Relying on the membership system will further increase JD's "cross-selling" opportunities. For example, JD PLUS members can use points to redeem self-operated laundry, housekeeping, car care, and car wash services in the life service package, or receive discount cards to enjoy preferential services. Based on these needs, JD is also making efforts in offline services. For example, in 2024, the number of JD Auto Care stores exceeded 2,200. In addition to expanding in first- and second-tier cities, relying on strategies such as "city partners," it has also established service outlets in subordinate and surrounding districts and counties of key cities. But taking JD Auto Care as an example, car washing and maintenance are not JD's ultimate goal. In the 2025 investment promotion policy, JD Auto Care mentioned building a digital and intelligent supply chain, focusing on the full lifecycle service of car owners' "buy, match, maintain, use, replace," and building a one-stop consumption model of "goods + services," with JD Auto Care as the core touchpoint. It is not difficult to see that, as Liu Qiangdong said, all JD businesses revolve around "supply chain capabilities." In the future, there may be JD Beauty and Hair Salons and JD Foot Therapy SPA on the roadside, because JD is self-operating everything.