China Consumer

Backpedalling

Ofo rolls back overseas operations

Ofo-w

More costly to burn cash offshore

“Presence first, profits second” summarises the mindset of much of China’s sharing economy. For example, Didi and Uber’s China unit both ploughed cash into subsidising fares in a bid to attract more customers. The price war only ended in 2016 with Didi took over its rival’s China operation. Likewise, the nation’s leading bike-sharing companies, Ofo and Mobike, have burned through billions of renminbi to ensure that they have a nationwide presence – yet neither is profitable.

In order to support their growth spurts both Ofo and Mobike have turned repeatedly to private equity investors for funding. In April Mobike broke away from that cash-raising cycle when it was fully acquired by Tencent-backed food delivery app Meituan for $2.7 billion (see WiC404).

With the financial burden now shifted to its parent, Mobike was able to launch a more expensive electric bike service, and drop the requirement that users of its pedal-powered bike operations pay a deposit.

Spooked by the spectre of greater competition at home, Ofo has ditched its “presence first” mantra overseas. According to a company spokesman, Ofo wants to focus on “profitability and moving towards priority markets”. As a result, the four year-old firm has pulled out of a number of its overseas locations over the last month.

The withdrawal began in Israel, where Ofo only launched five months ago. On July 8, Ofo said that it would cease operations next month, donating its 600-bike fleet to local charities. (Xinhua noted, in contrast, that Mobike continues to operate in Israel.)

Next on July 9, Ofo scaled back services in India, shutting down all its business there apart from one operation in the western city of Pune, where it has partnered with the local government to roll out a city-wide cycling network.

Many foreign cities haven’t been as welcoming as Pune. In Sydney, for instance, six districts mandated that “dockless” bike-sharing companies needed to introduce geo-fencing tools to ensure that users parked within designated areas. Ofo obliged: if customers left bikes outside an approved spot, their Ofo credit rating would drop. The downside was this dramatically curtailed usage and on July 10 Ofo announced its departure from Australia too. According to 9News, bikes in Sydney were used on average for just 0.3 rides a day compared to four to six elsewhere in the world.

Another reason for the low usage, 9News believed, was Australia’s greater diligence in enforcing the use of helmets when riding. Ofo knew this and when it entered the market it included helmets with its bikes. Unsurprisingly, a lot of them soon went missing.

Most recently, and only one week after retreating from its German market too, Ofo said on July 18 that its North American services were “going into sleep mode”.

According to The Observer, “sleep mode” means 70% of Ofo’s US employees will lose their jobs. That said, Ofo only has 100 employees in America, but it has deployed 40,000 bikes across 30 major cities. The Wall Street Journal reported that three of the bikefirm’s top US executives have already resigned over the downsizing.

Ofo counts Alibaba and Didi as its major shareholders but founder and CEO Dai Wei is less keen than Mobike to be bought out by another giant. In the same month that Meituan acquired Mobike, Dai reportedly rebuffed a $1.35 billion takeover bid from Didi. Then, according to the South China Morning Post, Dai declared to his employees they could either leave immediately or fight on with him until the end.

Meanwhile, the cash-burn continues in China’s sharing economy – and as Bloomberg reports it extends across many fronts. As an example, the boss of Alibaba-controlled Ele.me said he was launching a “summer battle” against Meituan to get his market share of food deliveries back to 50% (Meituan’s share reached 59% in the first quarter).

To do this, Ele.me plans to spend Rmb3 billion this quarter, doling out subsidies to consumers, merchants and delivery partners.


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