Dada Nexus Limited (NASDAQ:DADA) Q3 2021 Earnings Conference Call November 23, 2021 8:00 PM ET

Company Participants

Caroline Dong - Head, Investor Relations

Philip Kuai - Chairman and CEO

Beck Chen - Chief Financial Officer

Jun Yang - Co-Founder and CTO

Conference Call Participants

Ronald Keung - Goldman Sachs

Eddie Leung - Bank of America

Thomas Chong - Jefferies

Alicia Yap - Citigroup

Ashley Xu - Credit Suisse

Wei Xiong - UBS

Robin Leung - Daiwa

Operator

Good morning, ladies and gentlemen. Thank you for standing by for Dada Third Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the managements’ prepared remarks, there will be a question-and-answer session. As a reminder, today’s conference is being recorded.

I will now turn the meeting over to your host for today’s call, Ms. Caroline Dong, Head of Investor Relations for Dada. Please proceed, Caroline.

Caroline Dong

Thank you, Operator. Hello, everyone, and thank you for joining us today. Our third quarter 2021 earnings release was distributed earlier today and is available on our IR website at ir.imdada.cn, as well as on GlobeNewswire services.

On the call today from Dada, we have Mr. Philip Kuai, Chairman and Chief Executive Officer; Mr. Beck Chen, Chief Financial Officer; and Mr. Jun Yang, Co-Founder and Chief Technology Officer.

Mr. Kuai will talk about our operations and company highlights, followed by Mr. Chen, who will discuss the financials and guidance. They will all be available to answer your questions during the Q&A session that follows.

Before we begin, I’d like to remind you that this conference call contains forward-looking statements, as defined in the Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1994 -- 1995.

These forward-looking statements are based on upon management’s current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict in a manner of which are beyond the company’s control.

These risks may cause the company’s actual results or performance to differ materially. Further information regarding these and other risks, uncertainties or other factors is included in the company’s filings with the U.S. SEC.

The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law.

Anyway, please note that unless otherwise stated all figures mentioned during this conference call are in RMB.

It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Kuai Philip. Sir, please go ahead.

Philip Kuai

Thank you, Caroline, and thank you all for joining us today. We are pleased to announce another strong quarter. I would like to highlight recent progresses and then provide updates on our two platforms. And beck will go through our financial results in greater details.

So earlier this year, the CPC Central Committee clarify China’s strategic vision and the government’s priorities in the 14th five-year plan and long range objectives through the year 2035. With this, sets a goal of accelerating digital development and building digital China.

So according to statistics from China Academy of Information and Communication Technologies, China’s digital economy accounted for 38.6% of total GDP in 2020. Well that number leads among developing countries, there are still a notable gap with the 54.3% average in developed countries.

So the main engine to drive China’s digital economy highlights in industrial digitalization, which contributes 80.9% of the total digital economy. Such industrial digitalization will build up the country’s competitive age of digital economy. It’s a key theme that Chinese Government wants to promote.

So Dada Group is well positioned in the national trends of digital economy development, as a leading local on-demand delivery and retail company, we have always been committed to driving digital transformation in the retail industry.

Together with JD.com we are further empowering traditional industry and driving the development of the real economy. So this naturally leads to our strengthened strategic cooperation with JD.

In October, Dada Group and JD.com jointly launched Shop Now or Xiaoshigou, unified brand for all on-demand retail services within the JD ecosystem. Through Shop Now user can access on-demand services via multiple channels on JD, including the Nearby Fujin tab and all the entry points of Fujin Xiaoshigou program. Shop Now is powered by Dada Group.

Leveraging our years of LBS oriented operational experience and accumulation of technological capabilities we will fulfill all needs of local on-demand retail and delivery on JD. We both strongly believe in the huge potential of on-demand retail in China. With Shop Now Xiaoshigou, we will leverage our respective strengths to lead the development of this pre-growing industry and bring winning results for both Groups.

For JD, Shop Now will enrich both products supplies and delivery options, providing consumers with a better shopping experience. For Dada Group, Shop Now we’ll increase our penetration rates around JD’s vast user base. This should become a stronger drive -- stronger driver for our long-term development.

Before discussing the recent performance of our two platforms, I would like to provide some highlights of our Double 11 Shopping Festival. There’s over 150,000 source on JDDJ participating in the event this year. JDDJ achieved record high in the peak day GMV and grew the total GMV during the 11 days from November 1st and November 11th, the 11-day campaign by over 100% year-over-year.

Now let’s move on to JDDJ, the leading local on-demand retail platform in China. JDDJ continues to drive the digitalization of offline retail in three ways, empowering retailers at broader scale, helping brands improve marketing efficiencies and innovating technology solutions.

First, empowering retailers at broader scale. So, on one hand, partnering with more retailers help us enrich product offerings and bring better shopping experience to more consumers, the number of active users on JDDJ increased by 53% year-over-year to 57.1 million. On the other hand, as we expand the merchants and category coverage, we’re helping more offline retailers filling digitalization capabilities.

So let me take you through two different verticals and talk about some exciting recent developments. In the supermarket category, we continue to enhance our leading position. We now have established partnerships with 82 out of the top 100 supermarket chains in China. And the Super Merchant Day, the Super Merchant Day provides supermarkets with a great opportunity to engage with users on our platform.

In the third quarter, during the 8th Super Merchant Day sessions for local winner supermarkets such as Dada UA and Global Now [ph], the weekend sells were increased by over 200% year over year.

In the smartphone category, we continue to expand partnerships with brands. This quarter we establish direct partnerships with Samsung and other. And we are -- for Apple we saw impressive results for new product launch. On September 24th, more than 900 authorized stores on the JDDJ platform started to sell their iPhone 13 series. On launch day sells on our platform were a remarkable 7 times greater than the launch day of iPhone 12.

For small home appliance, we deepen collaboration with the leading retailer chains such as Tombai, Samsung and Chondeng [ph]. We strengthen online/offline integration. Our efforts paid off. The GMV in the third quarter increased by about 100% quarter-over-quarter.

In the pharmacy category we launched a 24-hour free online medical consolidation service to provide the user with real-time assistance. Meanwhile, 24-hour retail and delivery services are also available in more than 3,300 pharmacy stores on our platform to meet consumer’s needs for medicine at any time.

Secondly, our helping brands to improve marketing efficiency. In the third quarter revenue from online marketing service on our JDDJ platform grew by over 140% year-over-year, a significant acceleration from the 110% growth in the previous quarter and online marketing monetization rates jumped to 3%, further demonstrating JDDJ as the go-to platform for brands to drive online sales.

We now have strategic partnerships with more than 200 brands. We are committed to help brand partners improve, marketing efficiency and engage with consumers effectively. As part of this, we recently introduced a new marketing program called Super New Product Day. For a product launch promotions. In August, Unilever launched a campaign under this new program as a results sales increased by 190% from the previous week.

And thirdly, we’re innovating technology solutions. Our Haibo system continues to be popular among retailers. Recently, Haibo Now reached the milestone of serving 5,000s retailer stores. Based on the broad cooperation with retailers we have a great understanding of their pain points in O2O operations and are able to innovate quickly.

We therefore in the third quarter to better support merchants holiday auto promotions, we launched a new module on Haibo to manage on those products. This module provides a one stop solution to address the pain points inventory synchronization and expenses allocation. As a result, we improve the processing efficiency for bundled products by as high as 20 times.

In addition, based on our capability to allocate expenses down to the SKU level, we launched a tool to enhance marketing efficiency. This tool integrates the subsidies from brand partners, merchants and platforms into one single coupon, the three-in-one coupon to improve the ROI of marketing dollars for brands and help merchants improve sales by expanding the number of products on promotion.

For example, this tool enables Dada Group to create three-in-one coupons that cover around 2000 SKUs across over 100 brands. In September, the average daily sales during the weekend that offers three-in-one coupons for more than 10 times than the sales in normal weekends.

Our digitized in-store picking service, the Dada Picking, Dada Picking [ph] have enhanced strong growth momentum. In the third quarter, orders were fueled by Dada Picking grew over 70% quarter-over-quarter. During the Double 11 Shopping Festival, order volume more than doubles compared with June 18th promotional periods, effectively helping merchants improve on-time fulfillment rates while selling costs.

I would like to move on to Dada Now. Our revenue from on-demand delivery services to key accounts or KA. The merchants increase more than 110% year-over-year. Revenue from supermarkets KA increased by over 90% year-over-year.

In the third quarter we added geofencing functions to our on demand delivery service virtually help those merchants to accurately determine the delivery area for each store without additional investment. Revenue from restaurants KA increased by 150% year-over-year. Orders from fast food chains and the tea beverage chains continued to increase significantly.

So moving to SMEs, the number of SME merchants that completed orders on Data Now in the third quarter increase over 90% year-over-year. This was mainly driven by our refined rates based operational strategy and continued to optimization of our fulfillment capabilities.

In September, we officially announced the launch of our logistics SaaS, software-as-a-service, the Data to pay the Dada Smart delivery. So this product provides the third-party delivery service providers and merchants who develop -- who deploy their own delivery fleets with a suite of digital tools to manage orders, dispatching and routing for omni-channel on-demand delivery orders.

Our digital logistic platform has helped a lot in improving our operation efficiency in the last several years. And now by opening up our technology in the form of a standardized SaaS product, we hope to further enhance the service capability and efficiency for the whole on-demand delivery industry.

And lastly, last-mile delivery, we saw strong growth in pickup services, with the number of pickup orders in the third quarter doubling from the previous quarter. This growth is built upon our enhanced system integration with JD Logistics and increased penetration in various orders types. We expect pickup services to be another driver for our last-mile business.

With that, I will now pass the call over to Beck Chen to go over our financials for the quarter. Thank you.

Beck Chen

Thank you, Philip. Before we go over the numbers, just a few housekeeping items in advance. We believe year-over-year comparisons are the most useful ways to judge our performance. Therefore, all percentage changes I’m going to give will be on a year-over-year basis and all numbers are in renminbi unless otherwise noted.

Total net revenues increased to RMB1.7 billion, aligning the revenue recognition method of Dada Now last-mile delivery services to a comparable net basis, pro forma revenue growth would have been 86% year-over-year, which represents an accelerated growth rate, compared with 81% revenue growth in the last quarter.

Net revenues from Data Now were RMB614 million. Pro forma revenue growth rate was 90% year-over-year, mainly driven by increases in order volume of intra-city delivery services to chain merchants.

Net revenues from JDDJ increased by 84% to RMB1.1 billion, mainly due to the increase in GMV, which was driven by increases in the number of active consumers and the average order size. The increase in online marketing services revenues as a result of the increasing promotional activities launched by our brand owners also contributed to the revenue growth of JDDJ.

Moving over to the expense side, operating and supporting costs were RMB1.2 billion. The rise was primarily due to an increase in rider costs as a result of increasing order volume for inter-city delivery services provided to various chain merchants on the Data Now perform and the retailers on the JDDJ platform and partially offset by the decrease of rider related costs incurred by our business upgrade of last-mile delivery services.

Selling and marketing expenses were RMB780 million. The increase was primarily due to the growing absolute dollar amount incentives to JDDJ consumers and an increase in personnel cost in connection with the company’s growing business.

G&A expenses decreased to RMB99 million, primarily due to decreased share-based compensation expenses.

R&D expenses rose to RMB148 million, mainly attributable to the increase in research and development personnel cost as the company continues to strengthen its technological capabilities.

Non-GAAP net loss attributable to ordinary shareholders of Dada was RMB480 million, compared with RMB324 million in Q3 last year. Non-GAAP basic and diluted net loss per share was negative RMB0.48, compared with negative RMB0.36 in Q3 last year.

So, as of September 30, 2021, the company had RMB3 billion in cash, cash equivalents, restricted cash and short-term investments. And under the US$150 million share repurchase program announced in June 2021, as of October 31st, we have repurchased approximately US$131 million have ADS.

For the fourth quarter of 2021, we expect total revenue to be between RMB2 billion and the RMB2.1 billion representing a pro forma gross rate of 88% to 97%, adjusting 2020 Q4 and 2021 Q4 Dada Now last-mile revenue to comparable net basis. In addition to the acceleration in revenue growth, we further expect the pro forma net loss margin based on the comparable net basis revenue to continue to experience significant year-over-year improvement in the fourth quarter of 2021.

This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from Ronald Keung of Goldman Sachs. Please ask your question. Hi, Ronald. You may be unmute.

Ronald Keung

Hello. Hello. Can you hear me?

Operator

Yes. Go ahead.

Ronald Keung

Okay. Sorry about that. Hello, Philip and Beck, and congratulations on the results. Two questions. Firstly, is on the Shop Now function is -- how has that channel grew -- how have we seen the traction with that with JD users clicking that nearby button? And is our fourth quarter revenue kind of acceleration that we guided? Is that mainly contributed from this new channel and how do we see that Shop Now function that will progress through say the next one year in driving additional growth for the company? And then we’ve seen the sales and marketing costs come down as a percentage of revenue, which is encouraging? Could you just share how that subsidy rate trend has been going and is that the -- how new channel is driving efficiencies that is leading to lower subsidy rates? Thank you.

Philip Kuai

Okay. Hi, Ronald. So the Shop Now certainly is a key is growing very quickly and we expect it will become one of the key driver of our future growth and we’re happy to see the traction has been very good.

And so the Shop Now includes not only the nearby the Fujin channel, but also various entry points and collaborations. For example, if you are searching using the search engine on JD and then you click on the search results and the purchaser also consider as part of the Shop Now.

So the contribution from the Shop Now will absolutely growing up for the foreseeable future. And both JD and us are very confident about the growth potential. And in October we launched the unified brand of this Xiaoshigou. So I think the consumers will be building up the mentality around the on-demand retail on JD. I think over time we will see the potential going up.

And also we have a joint agreement with JD Retail to grow the user penetration of Shop Now Xiaoshigou all the way to 50% of the user penetration. So I think that’s the future we’re looking at.

At the same time, we’re also very happy to see the subsidy level going down partially since to the Shop Now, the new channel and the new traffic. And at the same time, we are improving our marketing efficiencies overall, that also helps to drive down the subsidy level. So we are quite confident about both growth and the profitability in the future.

Ronald Keung

Great. Thank you, Philip.

Operator

Thank you. Your next question comes from Eddie Leung of Bank of America. Please ask your question.

Eddie Leung

Good morning, guys. I have follow-up question on Ronald’s question about subsidies and sales and marketing, could you elaborate a bit on the unit economics trend and whether is still on track with our previous target in terms of the breakeven point? And then related to that, could you also elaborate a bit on the competitive landscape in the overall grocery and fresh produce category, because we have heard some potential reduction of subsidies in some of the other formats in this category? So just wondering how that might affect our sales and marketing and subsidies strategy going forward? Thank you.

Beck Chen

So, Eddie, let me protect the first question. So, yeah, just like Philip said, in Q3, just like we have communicated in the earnings call last order. So in the second half, we expect -- we expected consumer incentives given to JDDJ consumers will decrease significantly, compared to first half of this year and actually interestingly the incentive ratios was decreased more than our expectation before.

So in Q3, it was a 5% for the incentive -- for the consumer incentive versus 6.2% in the first half of this year. So this is the main contributor to our greater improvement of our direct-to-margin level. So in Q3, our direct-to-margin was improved significantly to minus 0.6%, so which is I think to like the 120% they’ve seen improvement for the incentive -- consumer incentives.

So actually this is improved the cost of the contribution of those Xiaoshigou or Shop Now businesses. The other is like the tours implemented just Philip mentioned in the earlier script that, for example, we have created three-in-one coupon to combine the platform money, merchant money and also the brand owners money together to improve the efficiency of the subsidies. So this also helped us to improve a lot. And also in our expectation for the fourth quarter, we believe the subsidy ratio shall be no more than 5%, which will help us to further improve in the direct-to-margin level in Q4.

Philip Kuai

Yeah. And in terms of the overall market landscape and the competitive landscape, so first of all, I think, as we can all see that both retail and the economy are under general pressure, so most of the brands and the retailers are certainly under pressure.

But at the same time, people are all looking for growth and all looking for channels can provide efficiency improvements. And JDDJ is certainly consider as the fastest growing channel for most of the brands and also can helping them to improve the efficiencies.

That’s why while we’re seeing this pressure, at the same time, most of the brands we’ve been working with are now more than willing to allocate more marketing resources through our channel, the JDDJ channel.

So at the same time, we improve the ROI of search marketing dollars by the three-in-one coupons. So that’s why we’re not only getting more marketing resources from the brands but also improving ROI.

And in terms of the competitive landscape, I think, one of the key player in the markets or at least used to be the very key player in the market is the community group buying. But as you probably have seen that the regulations had recently tighten up on community group buying and they certainly are now seeing some slowdown and the subsidies from the community group buying has certainly been reduced as well.

And for us, for all of the provinces that’s group buying are most active. We are seeing the GMV of 100% year-over-year growth in Q3. So, again, we are able to grow despite the competition from the community group buying.

I think looking forward with the regulations, as well as the economic pressure, we would envision that each player in the market will be more reasonable and rational, instead of like a burning too much of subsidies.

So we’re certainly happy to see that as we are getting to a more healthy competition environment. I think that’s good for everybody. And at the same time, we’re certainly stressing our collaboration with JD to achieve a win-win situation, so to both increase the scale and improve the efficiencies for both JD Retail and JDDJ. So we are very confident about our competitive edge going forward.

Eddie Leung

That’s very helpful. Thanks again.

Operator

Your next question comes from Thomas Chong of Jefferies. Please ask your question.

Thomas Chong

Hi. Good morning. Thanks management for taking my questions. I have two questions. My first question is about our KA business under Dada Now. The business growth momentum is very strong. Just want to get a sense about how we should ambition the growth momentum as we enter into 2022 and also how we should think about the competition in this segment, as well as the investment that we are going to be made in this KA segment? And my second question is on JDDJ, can management comments about the category mix in Q3 and also the average order value? On the other hand, with regard to the our strong online marketing revenue growth, given that it is about 3% right now, how we should think about the take rate for online marketing in future? Thank you.

Beck Chen

Thank you, Thomas. So, let me firstly elaborate on the questions and I will leave competition question to Philip. So the number of things, so first for JDDJ, our average order value in Q3 was RMB194 for the platform. And so going forward we expect that this will be further increase the cost, we further diversify our platform, categories mixture -- mix and also even for the supermarket categories still it is very high as like RMB146 in Q3, so we think that it will be -- will further go up in the following quarters.

And in terms of the category mix, in Q3 two-thirds was coming from supermarket category and 25% was coming from the three C category including smartphones, home appliances and PC and tabs. So, we also expect that Dada Now supermarket categories will contribute more and more gradually in the following quarters.

And in terms of the online marketing services, so 3% of the GMV in Q3 and we expect that this monetization rate should be now at least be maintained in the following quarters, if we will -- still we will be prudently further monetize for the online marketing revenues. But I believe that for the following quarters should be no less than 3% for the next few quarters.

And also for the key accounts, a chain merchants delivery services for Dada Now businesses it is growing by more than 110% in Q3 and we think in Q4 it will be further like grow by triple-digit on a year-over-year basis. And yeah, I will leave the competition question to Philip.

Philip Kuai

Yeah. So, regarding the KA -- the Dada Now KA business, I would like to give more color and background. So first of all, one of the reason why we can grow -- continue to grow very fast is, we are building up a solid reputation among the key accounts players.

There’s -- in order to serve the KOL, you need to win the trust and you need to get people’s confidence in you. So as we are serving like all the big names, well, for quarters-after-quarters. So that’s how we are now able to win the trust and a -- build up a good reputation in the market.

And in addition to reputation, we are also building up a very solid capabilities and knowhow. There are a few key segments of KA we are now serving, including supermarkets, restaurants and pharmaceutical chains. Each segment require very different knowhow and the capabilities.

For example, like supermarkets, as you can imagine is requires like to handle very heavy and bulky packages and also from packaging to delivery, so the process has been -- is quite complex, that’s why leveraging our service of Dada Picking integrated our -- integrated with our Dada Now Delivery. So we are providing a lot of value adds for the supermarket’s. That’s why most of the leading supermarket chains in China, like most of them are using our service.

And for restaurants is very different from supermarkets, as you may imagine. So restaurant, the number of stores can be much more than the supermarkets. But at the per store level, the orders are fewer, much fewer than supermarkets. So it requires very different order bundling and routing operations.

And for pharmaceutical, you need to be able to deliver around the clock, 24 hours. It also requires very different capabilities. So all of this, we have been building such capabilities and knowhow and efficiencies over the years. That’s how we can win the customers.

And last but not least, Dada Now is a third-party delivery platform considered by all the KAs, so we are very valuable as a independence player. So unlike, for example, like Metwans or Alomi [ph], which owns the order picking platform, they’re considered -- they’re not considered as independent. So most of the KA wants to use independent delivery services, because they don’t want to be too much tightened to the order taking platforms.

So all this, as I mentioned, explains why we are able to continue to grow fast Dada Now, and at the same time, improving the profitability and we’re very confident to carry it on for the next year or so. Thank you.

Thomas Chong

Got it. Thank you.

Operator

Your next question comes from Alicia Yap of Citigroup. Please ask your question.

Alicia Yap

Hi. Good morning, management. Thanks for taking my questions. I have two questions. First is, I think, our management mentions about, you just launched this digital logistics SaaS service opening to other KAs. So wondering if there’s any revenue opportunity down the road from these service that you’re licensing out? And then second is on the Singles Day performance? I think management mentioned JDDJ achieve over 100% growth. Just management could elaborate a little bit the category performance during the Singles Day on the supermarket versus the non-supermarket. I will assume the three C category probably contributed a much higher percentage during the Singles Day. So any colors on the category mix during the Singles Day will be helpful? And then just on -- related to that is the consumer behavior. I guess, given the macro slowdown, just not sure if you have experience or have seen any change of the consumer behavior during these Singles Day in terms of the -- of demand and the category preference? Thank you.

Beck Chen

Okay. So, actually, there are three questions. So, Alicia, so let me take the first two questions. I will leave macro question to Philip. So about the Dada to pay, the Dada’s logistic SaaS product, it’s a pure SaaS platform, which can be provided to all those third-party delivery service merchants or those providers -- service providers.

So up to now it was implemented or used by like 5,000 stores. So right now it, I think, the revenue contributing to our like RMB6 billion revenue per year is still very minimum, but it will further expand our service scope to be like filled or filled by Dada, so we don’t need to physically fill the orders by our Dada riders, we can even provide a software product to those merchants.

So we are right now in close, like, review about the development of the logistic SaaS product. So I think maybe it will be better to further talk about the revenue contribution and like those expectations in the next few earnings call.

And also, for the Singles Day mix, the Singles Day growth for the category mix. You’re right, so three C product is growing factors and like the supermarket categories, but generally right now, we think and supermarket categories for the Double 11 Campaign period is still growing very promising and that’s why our like the revenue guidance for Q4 is given and also we believe that the JDDJ growth rate will be still very fast, which is mainly contributed by the revenues of supermarket category, called, supermarket categories monetization, including the online marketing services is more -- much more than three C categories.

So I don’t -- actually I don’t look at the detail like the mix growth rate for the Double 11 Campaign period, but I believe the overall Double 11 Campaign period promotion results should be very satisfied to all those merchants.

For example, like for, even for like Walmart, so Walmart, the annual campaign, usually annual campaign peak is there August 8th Promotion Day but for the Singles Day like the November 11th is like still growing by 25% compared to their August 8th. They’re selling all supermarket category products.

Philip Kuai

Right. And in terms of the consumer behavior and the market situations, there’s an interesting small accelerator, I will say, for the Singles Day is that, right before Singles Day the governments encourage consumers to stock up a little bit at home, you might have seen on the -- in the news. So I think this also helps to boost the sales a little bit.

But overall, I think, if you look at the big picture, we’re seeing two things happening. One thing is, the consumers are now more and more used to on-demand retail. So historically, they may buy restaurant foods and get delivered on demand. And now a large number of consumers are now used to buy like everything on-demand. I think this is a very important trends we’re absolutely seeing.

At the same time, we also see mostly from this year that more and more vertical retailers are now willing or more than willing to work with us and get listed, for example, like, a smartphone consumer electronics and also like personal care cosmetics and like a parenting or like a pet supplies or like a liquid and alcohol.

So all those kind of verticals specialty stores, they are -- they use -- they didn’t work with like an online platform before. But especially this year, we’re seeing a strong trend that the vertical retailers are now very much willing to work with us.

And I think this creates a very good situation, while consumers are more used to on-demand retail and get delivered instead of going offline to visit stores. At the same time, all the stores, the quality supplies are now getting online. So we’re happy to see this combination.

Alicia Yap

Great. Thank you.

Operator

Your next question comes from Ashley Xu of Credit Suisse. Please ask your question.

Ashley Xu

Thanks management for taking my question. I actually want to follow up on our nearby entry point. Understand that it has been gradually rolling out and still on their test stage. But could management share more color on the recent progress and our plan or target by year end? At the same time, for those rolled out regions, how -- what the effectiveness we have seen in attracting more users? And for our 4Q guidance, does that reflect any contribution from this new entry point? Thank you.

Philip Kuai

Yeah. So I will give you some background and color about this nearby, and perhaps, Beck can -- will have anything there. So, first of all, the nearby channel is now available for access. So in most of the Tier 1 and Tier 2 cities and some of the lower tier cities.

So we’re happy to see that since June, when the nearby channel launched, we’re happy to see the technology and the engineering behind it, as you may -- as you can imagine, there are a lot of engineering work behind the scene.

Because literally we are transforming the JD app from a B2C app and now to location based app and there are a lot of technology needs to be done and we’re working very closely around the clock with JD technology team to make that happen. So with that happening, we are happy to roll out the service to most of the Tier 1, Tier 2 cities.

At the same time we will keep enriching the product supplies and the store supplies to the consumers and expanding our geographic coverage. So like every week, we are seeing more retailers sign up and get listed on the nearby channels. So I think that’s the fundamental, because you need to have quality supplies and broad coverage.

At the same time, we’re also happy to see the operation matrix around nearby channels has continued to improve ever since launch. So, going forward, we plan to be focusing on the key cities, the top cities to improving the mentality of consumers and to build up the Shop Now brands among consumers and also to improve the penetration into the JD user base, at the same time, to improve the order conversion rates conversion levels of this nearby channel.

So I think this is certainly a significant, very significant step and still just with like, six months, so far, or five months so far, so we’re still seeing this channel as a very early stage and we are very looking forward to grow it and to expand it in the future.

Beck Chen

And also in the 4Q guidance, we are very prudent in calculating the benefits coming from the Fujin tab, nearby tab in Q4. So -- and more businesses of JD ecosystem shall be coming from the traditional those Fujin came through our, like the search results in Q4, because it’s a more mature product and the for Fujin tab still, I think, like, Philip said, it takes a few time to do this further. Note improve for the product and on listing this all those merchants and build up the consumer mind for the nearby shopping.

Ashley Xu

Thank you.

Operator

Your next question comes from Wei Xiong of UBS. Please ask your question.

Wei Xiong

Hi. Good morning, management. Thank you for taking my questions. First, I want to get an update on the geographical coverage expansion. Can management share your latest update of JDDJ in terms of further expanding the geographical coverage of this quarter? And also do we have a target for the number of cities and counties we cover next year? If there is a GMV contribution from the lower tier market that you can share, that will be appreciated? And second, I just want to follow up on the point that we mentioned as the non-supermarket categories continue to grow their GMV contribution. I was wondering could we get an update on the different commission level across different product categories and how will that mix shift affect the future trends of our commission level? Thank you.

Philip Kuai

Okay. I will give you my view and see if, Beck, have anything to add. So first of all, in Q3, the GMV from our low tier cities on JDDJ grew by about 100%. And so far, we have covered over 107, sorry, 1,700 cities and counties, and we will continue to penetrate into the lower tier cities. And for now, we’ll be focusing on the, especially the category development and expansion in the existing cities, that the cities we have already opened. So -- and -- so that’s about the geographic coverage.

And in terms of the commissions, I think, different categories have a different commission rates. But if different categories we are improving the commissions and improving the monetization from each category. So with our stronger collaboration with the brands and also we are generating more value to the retailer, so that’s why we can improve -- we can improve the commissions in different categories. That’s independent from the mix of segments. And yeah, I’ll see if, Beck, have anything to add.

Beck Chen

Yeah. So for supermarket categories, usually we have commissions, daily fees and also especially for FMCG products we have marketing dollars from those brand owners. And in the same time, we are also given lots of subsidies to consumers, because they should be more frequent to purchase FMCG products instead of other non-supermarket categories, like, three C products, home appliances.

So for all those other newer categories, including smartphones, home appliances, pets products, so their manufacturing rate is lower than the supermarket overall manufacturing rate, but you don’t need to give so much incentive to them. So this will give us like the positive direct-to-margin for each order generated for those non-supermarket category products.

So the contribution from those non-supermarket categories will also contribute to the overall margin improvement of the platform. But we still emphasize that the FMCG products is the most important category of the platform.

So we still need to give some incentive to and assess subsidies to consumers to retain them. So that’s why to this moment, we are still have slightly negative direct-to-margin for the platform wise -- the platform because our investment in the FMCG and the supermarket categories.

So in the long run, we believe that we can still improve our overall manufacturing rate, while significantly improving the direct-to-margin level, of course, we continue to improve our incentive ratio by decrease the incentives given to FMCG and supermarket categories, while we don’t if so many incentives to other non-supermarket categories. So I -- through the mix contribution we believe that our overall direct-to-margin is on track to break even next year -- for the whole year basis.

Operator

Thank you. [Operator Instructions] And our final question comes from Robin Leung of Daiwa. Please ask your question.

Robin Leung

Hi, measurement. Thanks for taking my question. Actually, it’s just a follow up question. Looking into 2022, on one hand, I understand that we will realize some cost savings from user acquisition in the JD ecosystem. On the other hand, if user contribution starts to kick in, is it possible that JDDJ will step up its spending again, if the ROI is strong and it’s further improving, like what you mentioned, are we going to actually increase the subsidies in those, like, FMCG categories, if management could share some of our strategy within the JD ecosystem that would be great? Thank you.

Philip Kuai

Okay. So, first of all, as you said, we are happy to see we’re getting strong support from JD in terms of user acquisition. This can certainly help us to reduce the cost for user acquisition. And still we are in the early stage of this journal and -- of this journey and we are -- our goal is to reach like the 50% of the penetration. So we are now at the single digits. So there’s a long way to go.

And in terms of the subsidies, I think, overall, the trend and our goal is to improve the efficiencies and not to increase the subsidies. As we explained earlier, so we are getting more and more marketing dollars from the brands and also the resources from the retailers.

So we are combining all these and improve the overall efficiencies instead of increasing them and we’re happy to see the ROI of our incentives has continued to grow. I think that’s very important for all parties and we will continue that way.

And also for the general competitive landscape, as we said earlier, we’re happy to see that most of the players are now more rational and not like burning too much of the subsidies as they used to be. So that’s why, overall, I think, we are optimistic about both growth and profitability going forward.

Robin Leung

Great. Thanks.

Operator

I would now like to hand the conference back to Caroline. Please continue.

Caroline Dong

Thank you, Operator. In closing, on behalf of Dada’s management team, we’d like to thank you for your participation on today’s call. If you require any further information, feel free to reach out to us directly. Thank you for joining us today. This concludes the call.

Operator

This concludes today’s conference call. Thank you for participating. You may all disconnect.