Yahoo Finance Pagoda forays into B2B business with Banguo buyout
Chinese retail chain Pagoda announces a full-scale expansion into the fresh fruit B2B sector.
SHENZHEN China, Oct. 31, 2023 /PRNewswire/ -- Shenzhen Pagoda Investment Co.,Ltd., a wholly-owned subsidiary of leading Chinese fruit retail chain Pagoda, entered into an equity transfer agreement with Shenzhen Tiantu Dfp Investment Consulting Centre on 10th October, whereby the former would acquire 19.58 per cent of Shenzhen Banguo Technology Co.'s equity. Upon completion, B2B fruit platform Banguo will become an indirect affiliate of Pagoda, with roughly 51 per cent of equity held by Pagoda.
Yu Huiyong, Pagoda's founder and chairman, describes the deal as "an iconic event" in Pagoda's aggressive development in the B2B fruit business. Banguo will become a key driver in Pagoda's efforts to centralise fruit procurement and wholesale in the B2B marketplace.
Taking its central warehouse as the distribution centre, Banguo links suppliers, agricultural cooperatives, and primary wholesale markets in production regions. Then via city warehouses, Banguo acts as a platform enterprise that manages procurement and sale for mom-and-pop stores, supermarkets, convenience stores, online retailers, and other business customers.
Banguo now reportedly has 500,000 registered users, more than 1,700 long-term supplier partners, and four central warehouses in Tianjin, Jiaxing, Shenyang, and Zhengzhou respectively as well as 178 city warehouses across 125 cities nationwide.
As estimated by Pagoda and Banguo, Banguo's GMV (gross merchandise value) is now nudging Rmb2.4bn in the first nine months of 2023, and it is set to skyrocket to Rmb150bn by 2032 under ideal conditions, with an average annual GMV growth rate of 50 per cent or above. Evidently, relative to Pagoda's consumer-facing business, Banguo has greater potential for growth of GMV and market share.
China's fruit market is worth over Rmb1 trillion, but the supply and sale of fruit are highly fragmented, according to Yu. Relying on its retail business alone, Pagoda can at most capture a 10 per cent market share in an ideal scenario. As for the remaining 90 per cent of the market, at least 70 per cent is controlled by small businesses that do not have end-to- end procurement capabilities across categories. In this context, Banguo presents an enormous opportunity.
"I hope Pagoda together with Banguo can seize around 30 per cent of China's fruit market. To that end, Pagoda will empower Banguo in terms of model upgrades, purchasing capabilities, industrial resources, digital information systems and more" adds Yu.
Contact Us: import-purchase@pagoda.com.cn
Why Banguo?
The deal follows much deliberation. Yu purported to have been contributing to Banguo's business strategies since 2018, thereby ensuring its faster and steadier growth.
He believes the odds are heavily against the growth of third-party platforms that offer information matchmaking alone. Logistics and distribution are not the core competencies of fruit B2B platforms either. Banguo's competitive edge is built upon such understanding: a full range of fruit categories, specialisation, and credibility.
Banguo's presence operating across all fruit categories is attributable to its reliance on primary wholesale markets, instead of accessibility to supply origins from point of production. On one hand, it helps Banguo bring down its inventory pressure and limits turnover to within two to three days. On the other hand, by linking with category suppliers, Banguo can offer a wider selection of products in response to the needs of small business customers.
In order to make the price advantage stand out, some B2B platforms typically resort to direct sourcing from places of origin, skipping the middleman. However, given the low average transaction value (ATV) and buyer density in the initial stage, platforms have no alternative but to procure 'star' products only. As a result, a colossal number of B2B platforms become unattractive to buyers because of the limited range of SKUs and end up in a vicious circle.
Banguo founder Xu Yusheng says that instead of skipping primary wholesale markets, Banguo counts on the vast pool of resources in wholesale markets. Banguo's strategy works for both buyers and suppliers: suppliers have access to more sales channels and are at a lower operational risk while retailers get cheaper and higher quality fruit.
Banguo's second edge is specialisation, which is underlined by its strength in product selection. Banguo can help small businesses make market evaluations and calculate profit ratios, so that they can find more suitable products and resources. According to retail media outlet Uniqueeye, Banguo requires five years of experience in fresh produce business as the minimum for taking up a procurement job. Job applicants must have a management mindset, besides adeptness in price comparison and product selection. For example, Banguo has a cherry tomato procurement specialist who used to be a fresh food supplier with 16 years' experience operation in the Beijing Xinfadi market.
"Whether a product is lucrative comes first in procurement, which is focuses on place of origin, weather, logistics, and other factors. Dealing with suppliers is the last step," explains Banguo coo Cai Qinglai.
Yu deems credibility as the cornerstone of drawing industry players to a B2B platform. Fear of platforms absconding with funds is critical to both the supply and demand sides.
To dispel the fear, Banguo builds up credibility on principles of productive operation and transparency. For platform suppliers, Banguo waives charges for the management of sales, whilst setting a 'T(trade day) +3' accounting period, remarkably lower than the industry average of 30-45 days. For platform users, Banguo's cost and markup percentage are public and unified information, to bridge the information gap and lower the threshold for use.
For the sake of honesty, Banguo has set in place a stringent in-house management system: its procurement specialists are not allowed to take even 'one bottle of water' from suppliers, let alone accept dinner invitations. Yu says Banguo's preeminence also lies in its crackdown on purchasing corruption for retailers.
On that basis, Banguo is truly operating in an asset-light manner. Pagoda's VP and CFO Lai Xianyan projects a 2-3 per cent net profit from Banguo.
According to Uniqueeye, the majority of Banguo's cost lies in the construction of regional central warehouses. Nonetheless, initial investment is low as the facilities are leased. For the extension of city warehouses, Banguo adopts the "city partner" or franchise business model. Its headquarters funds the rental and operation cost of central warehouses, while franchisees pay for the rental and manpower cost of city warehouses. The parties share profits by a ratio of 3:7.
Retail plus wholesale
After taking over Banguo, Pagoda will step up work on its 'retail+wholesale' business model.
In terms of business planning, Pagoda will continuously work on high-quality fruit retailing. While strengthening its channel brand, it will also incubate product brands in an attempt to expand market scale and profits. Meanwhile, Banguo will focus on public fruit consumption, forging ties respectively with upstream wholesale markets, mom-and-pop stores, small- and medium-sized retailers, enterprises, public organisations and other business customers.
Yu says there will be no conflict of interest, even if Banguo's retail customers are covering more consumers than Pagoda's stores. Banguo's additional performance growth will simply act as a new driver for Pagoda.
Pagoda has plans afoot to further enable Banguo from six perspectives. First, by sharing its global supply chain resources with Banguo, Pagoda will assist in Banguo's global purchasing. Second, Banguo will align its fruit standards with Pagoda's across all categories. Third, by leveraging Pagoda's digital technology, Banguo will secure high efficiency and transparency. Fourth, Pagoda will help increase awareness of Banguo as a B2B trading platform. Fifth, Pagoda will arm Banguo with selection skills, guidance on operations and other value-added features. Sixth, Pagoda will optimise Banguo's cost structure encompassing fulfilment in logistics, warehousing and distribution.
Pagoda and Banguo are entering into a race, according to Yu. "We will run at full throttle, and see which of us develops faster and steadier," he says.
Despite the competitive spirit, Banguo retains a cautious approach to business expansion.
Many B2B platforms offer intra-city delivery services to buyers, which is defined by Xu as a 'pseudo demand'. He argues that, firstly, small business customers do not procure all products from a platform. In other words, even if a small business customer procures 30 per cent of its stock from Banguo, it still needs to visit the local wholesale market to purchase the remaining 70 per cent. Moreover, the initially low ATV and buyer density means intra-city delivery would be a money-burning service, thus resulting in losses.
For that reason, Banguo requires city warehouses to be on the perimeter of local wholesale markets, to facilitate self-pickup by small business customers. For orders requiring door-to-door delivery, Banguo generally turns to third-party distribution service providers.
Uniqueeye made a forecast on Banguo's next steps.
Firstly, Banguo will continuously broaden its global network of suppliers to expand the scale of trade and enhance accessibility.
What follows will be profit model optimisation and increased value-added services for buyers and sellers, such as stepwise layout in fulfilment in logistics and empowering suppliers with excellent product selection and branding.
Furthermore, setting up a fruit industry web portal to provide useful information to industry players. By all accounts, Banguo has already set up fruit information platforms nationwide that give industry players a glimpse of the latest developments in local wholesale markets nationwide.
Last but not least, Banguo also has embryonic plans to seek cross-category development using tried-and-tested profit models such as vegetables or snacks. "Using Banguo's model, related partners sold snacks worth Rmb100mn last year," says Yu. "In all likelihood, Banguo will evolve into a one-stop purchasing platform. We have a bright future."
Uniqueeye suggests Pagoda has envisaged a retail+wholesale landscape with a clear vision and deep commitment. Its implementation and differentiation from Biaoguoworks and other fruit B2B platforms are essential for bringing its vision to reality. That in turn will have a key bearing on the steady growth of the Pagoda ecosystem.
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SOURCE Pagoda
