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

Thank you, operator. Hello, everyone, and thank you for joining us today. Our second 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 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 1995.

These forward-looking statements are based on the current 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 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. In addition, 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. Please, go ahead. .

Thank you, Caroline, and thank you all for joining us today. We are pleased to announce another set of solid results for the second quarter of 2021. I would like to start by providing updates on our operations and highlights. Then I will turn the call over to Beck to dive deeper into our financial and operating results.

As a leading local on-demand delivery and a retail company, we have longed for the real economy and been growing tether with the brick and mortar retailers and brand partners.

Leveraging our unique advantages of retail plus delivery capabilities, we are fully committed to supporting the healthy development of China's real economy and promoting domestic circulation. We believe this is the key element of the country's dual circulation strategy.

Specifically, we enable our retailer and brand partners in achieving their digital transformation and adoption to the new O2O era. As a pioneer of the on-demand retail and delivery model, we empower our retailer and brand partners with our five core pillar of open platform, fulfillment, marketing, user engagement and digital empowerment.

Specifically, we have seen an evolving regulatory environment in China, while our government fully supported the development of innovative Internet companies that can enhance China's international competitiveness. The authorities also aim to create a sound legal environment to ensure that companies maintain compliant operation.

For example, the government recently strengthened antimonopoly efforts to prevent disorderly expansion of capital. Our business model is in line with policy directives. We welcome the strengthening of regulation and believe an orderly and fair environment will lead to the long-term sustainable development of the industry.

Now, I will move on to the update of our JDDJ platform, the leading local on-demand retail platform. For the June 18 shopping festival, we have achieved extraordinary results. Our total GMV more than doubled and GMV of consumer electronics, cosmetics and home appliances all grew more than double year-over-year.

It's vital for China to boost domestic market and build new expansion models by enlarging domestic demand and promoting high-quality development. We will leverage our strength to support national economic policies to help foster win-win situations and common properties.

As such, I would like to discuss JDDJ's progress on four fronts; serving users, enabling retailers, boosting brand promotions and technology and comments. So overall by creating value for participants along the value chain, we aim to drive long-term sustainable value creation.

First, in terms of serving evolving consumer needs, we continue to win customers trust by providing timely, efficient and high-quality services. Number of active consumers increased significantly by around 50% year-over-year to 51.3 million.

We will continue our in-depth cooperation with JD to better serve the omnichannel and on-demand needs of JVs over 530 million active users.

In July, our JDDJ on our e-commerce platform project were selected as a demonstration project for new form of retail by the State Ministry of Industry and Information Technology, Gōngyè Hé Xìnxīhuàbù [ph], which demonstrates the government's recognition in our innovative model and our ability to satisfy the growing needs of consumers for a better and more convenient life.

Second, in terms of empowering retailers, we provide integrated digital solutions, encompassing open marketplace, fulfillment membership management and technology platform to help resellers improve sales and enhance operating efficiencies. We continue to see enormous growth potential for local on-demand retail services.

So according to the National Bureau of Statistics off-line retail still accounts for 76.3% of consumer goods sold in the first half of the year. To realize quality growth and stay competitive, we believe accelerating digital transformation will continue to be the strategic focus of physical retailers.

With our mission of bringing people everything on demand, our JDDJ platform keeps expanding category and merchant coverage.

We maintained the leading position in the supermarket category by deepening our strategic cooperation with existing partners and establishing a partnership with new supermarket chains for now onboard is 80 out of the top 100 supermarkets including 9 out of the top 10.

In the smartphone category, we are glad to see that the value of on-demand retail is increasingly recognized by smartphone manufacturers. To ensure sufficient and high-quality supply of smartphones, we have already partnered with hundreds of outside distributors.

In the second quarter we went further and established direct partnerships with smartphone brands including Apple and Vivo. In the PC category, we have newly partnered with Microsoft, Asus, Dell and Alienware. We are helping this brand to strengthen O2O presence by gradually onboarding their offline stores on JDDJ.

We also continuously roll-out value-added services to retailers. For example, our data picking service helps retailers to improve order picking efficiencies, while reducing their store personnel costs and the staff shortages. Currently, data picking is deployed by Walmart, CR Vanguard, Yonghui supermarket, 7Fresh and other merchant stores.

During the second quarter, data picking gained significantly. The number of stores, number of units picked and income for pickers all increased by around 60% quarter-over-quarter. During August 8 promotional campaign the average picking time for Walmart stores, which utilize our data picking service was reduced down to just three minutes.

And third, online marketing service for brand partners. During the second quarter, online marketing revenue from brand partners remained very strong, increasing by more than 110% on a high base in Q2 last year. This further demonstrate our unquestionable leading position in on-demand retail sector for brand partners.

On top of deepening our cooperation with existing brands, we have also signed several new domestic FMCG brands, including WH Group, C&S and Blue Moon and emerging global brands such as Osley. We're promoting the China national type or the [Foreign Language] and driving our margin consumption trends. Lastly, technology impartment.

As enterprise become more digitized, network and intelligent they will add new momentum to economic development. Under the backdrop of the state's promotion of digital economy development and industrial digitalization provided by the National Policy Director of building digital China. Our Haibo system can be a good example.

Haibo is a SaaS product that enables retailers to drive O2O sales while streamlining operations. As of the end of August, Haibo has been adopted by more than 4,300 retail chain stores, up significantly from 3,300 stores as of the end of April. Our Haibo system now covers over 40% of the top 100 supermarket chains.

In the second quarter, we launched a new intelligence pricing model to replace menu pricing adjustments. This module helps merchants improve their O2O promotional efficiency and the profitability. As a result, stores that have utilized the new module has seen a 50% increase in profit and a 5% -- point improvement in gross margin.

Let's move on to Dada Now. As a platform that connects consumers and the merchants with cross work-based delivery services, we provide a large number of flexible employment opportunities. And at the same time, we are committed to protecting the rights and the interest of every worker as is encouraged by the authority.

On rider carry, we listen to and understand rider’s standpoint and needs in time via multiple channels. Accordingly, we continuously optimize our platform to help riders deliver more efficiently and safely. At the same time, we regularly host training sessions to improve rider delivery experience and service capabilities.

In addition, we have upgraded our rider stations, and the new stations will not only set up rest areas, but also provides convenience amenities including drinking water, medicine, epidemic prevention materials and other charging services. On business progresses.

During the second quarter, our on-demand delivery service to chain merchants, so called key accounts continues to see explosive growth. The revenue year-over-year growth accelerated to over 140%. In the supermarket category, revenue increased by 70% year-over-year.

We have recently announced partnership with JD Group to provide comprehensive on-demand delivery services for the omni-channel flow orders of [indiscernible]. In the restaurant category, year-over-year revenue growth was over 200%. We have seen significant growth from our existing partners, merchants such as McDonald's.

This was driven by an increase in the number of stores and the increase in order volume per store. In the meantime, we have expanded into the key beverage category and have signed a number of new key brands in the second quarter. Small and medium-sized merchants are very important to the country's economy.

That allows small business owners to gain access to on-demand delivery service at reasonable cost. The number of merchants that place orders continued to double, year-over-year, in the second quarter. For our last-mile delivery business we successfully transitioned to a more asset light model this quarter.

Based on our cross work provider network, we provide comprehensive and cost-effective last-mile delivery and picking solutions, especially during the peak seasons. Going forward we will continue to deepen our cooperation with JD Logistics. Last but not least, I'd like to talk about our exciting technology developments in the logistics industry.

Technology innovation is an important driver, to promote a positive change in quality, efficiency and growth engine of China's economy. Upholding the third of national guidance of building a Digital China and benefiting the public, we have always been the pioneer of developing cutting-edge technology.

Recently, on-demand consumption is becoming the new norm of how people shop. We believe the use of unmanned vehicle for on-demand delivery is paramount to improving both, our operational efficiency and consumer shopping experience.

In July, we officially launched the data autonomous, delivery open platform, which is open to autonomous vehicle companies, leveraging our on-demand orders, operational know-how and other discussion capabilities. Our open platform accelerate the application of unmanned delivery, in the on-demand retail industry.

Currently, unmanned delivery powered by our open platform is on trial runs in selected districts in Beijing and Shanghai. In the short-term, autonomous delivery will be utilized to supplement menu delivery, and help to ease the capacity constraints, especially during peak out other seasons of -- or periods of extreme weather conditions.

Over the longer-term, we will significantly reduce the cost of delivery, as the scale becomes larger. I would like to end with a brief recap of how we are shouldering social responsibility. Dada Group has made social responsibility and essential aspect of the company and its leadership.

While creating, value for business partners and our users, we also adhere to our original intention to fulfill our corporate social responsibility initiatives. Recently, we made more efforts to improve people’s livelihood.

For example, we ensure, living needs during pandemic containments in Guangdong and Jiangsu, provided a disaster relief in response of Hernan flood, promoted Internet inclusion among the elderly and launched a series of programs and to -- as opposed the social work being.

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

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

Total net revenue, increased to RMB1.5 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 81% year-over-year. Net revenues from Dada Now were RMB594 million.

The pro forma revenue growth rate was 81% year-over-year, mainly driven by the increase in order volume of interest safety delivery services to training merchants.

And total net revenues from JDDJ also increased by 81% to RMB881 million, mainly due to the increase in GMV from the same quarter last year, which was driven by increases in the number of active consumers and average order size.

The increase in online marketing services revenue is a result of the increasing promotional activities launched by brand owners, also constituted an increment of the net revenues generated from JDDJ. Operations and support costs were RMB1.1 billion.

The rise was primarily due to an increase in rider costs as a result of increasing order volume for intercity delivery services provided to key chain merchants on the Dada Now platform, and the retailers on the JDDJ platform, partially offset by the decrease of rider-related costs increased by the business upgrade of our last-mile delivery services.

Selling and marketing expenses were RMB 824 million, mainly due to growing absolute dollar amount of incentives to JDDJ consumers, and an increase in advertising and marketing expenses, which was primarily attributable to the increase in referral fees paid to the staff that retailer stores and third-party promotional service providers for their efforts to attract new consumers to the JDDJ platform.

G&A expenses decreased to RMB 100 million, mainly due to the decreased share-based compensation expenses as share-based compensation expenses were recognized immediately in the second quarter of 2020 resulting from offering granted to the employees with actual performance condition.

R&D expenses were RMB 132 million, mainly because of the increasing research and development personnel cost as the company continues to strengthen its technology capabilities. Non-GAAP net loss attributable to ordinary shareholders was RMB 549 million versus RMB 319 million in Q2 last year.

Non-GAAP diluted net loss per share was negative at RMB 0.58 compared with negative RMB 0.80 in the second quarter of last year. As of June 30, 2021, we had RMB 4.7 billion in cash and cash equivalents, restricted cash and short-term investments.

Under the US$150 million share repurchase program announced in June, we have repurchased approximately US$73 million of our ADS as of August 31, 2021.

For the third quarter of 2021, we expect the total revenue to be between RMB 1.63 billion and RMB 1.68 billion representing a pro forma growth rate of 80% to 86%, adjusting Dada Now last-mile revenue to a comparable net basis in Q3 of both years.

In addition, net revenues from JDDJ increased by 81% in Q2 this year and we also expect a revenue growth of JDDJ to accelerate in the second half.

With continuous improvement in operating efficiency, we expect that the pro forma non-GAAP net loss margin after adjusting revenues of last-mile delivery services to a comparable net basis to further narrow in the third and the fourth quarter of 2021 on both year-over-year and sequential basis. This concludes our prepared remarks.

Operator, we are now ready to begin the Q&A session. Thank you..

[Operator Instructions] First question comes from the line of Ronald Keung from Goldman Sachs. Please ask your question..

Thank you. Thank you, Philip, Beck and Caroline. Two questions. Firstly, we would like to hear our latest deepening cooperation with JD as this omni-channel continues to be a key focus.

Just want to hear is there any updates for the changes for the selection, or any further dedicated projects that you're working on from kind of dedicated channels, or how are we planning to expand categories in order to promote this higher on-demand shopping not only for our own JDDJ app users also into the JD users? My second question would be, Beck, you talked about the accelerating growth for JDDJ in the second half.

Just want to hear within our revenue guidance, what is the kind of embedded JDDJ stand-alone growth that we're expecting in the third quarter? Do we expect any seasonality between third and fourth quarter to drive your expectation of a faster JDDJ growth in the second half of this year? Thank you..

Thank you, Ronald. So I will take the first question and I will have Beck to address the second one. So the -- our partnership with JD Group has been like really, really important and a win-win for both parties. And we have together dedicated to provide good services to the customer needs and to improve the consumer experience.

So in Q2, we are very happy to see that our partnership has significantly strengthened. In Q2, the GMV from the JD one-hour shopping, the [indiscernible] which empowers buyers had a quarter-over-quarter growth of 90%.

And you perhaps have already noticed that if you open up a JD app, in many cities including Shanghai and Shenzhen and many cities, you have seen on the very top on JD's homepage there's a new entry point called Fuji or nearby or local. This is in test. And we plan to rollout this new service to more cities and have a bigger scale of expansion.

This will essentially bring our customers more on-demand delivery experience and the shopping experience. At the same time, we are working closely with JD to improve the penetration into the JV's 530 million annual active consumers for more and more of them to experience the on-demand retail services and we'll continue to do that.

And we'll continue to work very closely with JD to improve the shopping experience and to streamlining the products and services and to improve the penetration. So our partnership with JD not only happens with the JD Retail, but also with the JD Logistics.

So in addition to the existing order picking and order delivery partnerships, we have recently launched a new partnership with JD Logistics on the data autonomous delivery open platform.

And we will jointly promote the upgrade and transformation of the intelligent delivery business and to jointly improve the infrastructure of intracity delivery and on-demand delivery. So we are again very happy and excited with what's happening with JD Group and we jointly will push this forward and it's a highly win-win partnership..

Okay. So for the second question about the JDDJ, basically the JDDJ growth, basically I would to add more color the expansion of categories. So by cooperation with JD, we are expecting to explore into or just extend our cooperation into more categories including home appliances.

So not only just like supermarkets FMCG products and smartphones products before previously, we will explore into more business including home appliance and cosmetics by cooperation with the JD Group.

So there are some seasonality for the second half when we expect Q4 revenue growth of JDDJ will be even more than Q3 numbers, because usually for Q4, there will be our big campaign and also for all those businesses like apparel and smartphones there will be new products launched. We expect Q4 will be even better than Q3.

And also, we are confidence that the online marketing revenue growth rate because in Q2 as we have discussed that the online marketing revenues is increasing by over 100% on the higher pace of Q2 last year.

If everybody is remember, in Q2 last year the brands are actually spend a lot of marketing dollars on different e-commerce platforms not only us but also JD and arrive as well.

But in Q2 this year, we still witnessed the triple-digit growth rate of the marketing dollars and we also expect that for the second half of this year, for each quarter of this year, our online marketing revenues will continue to grow like triple-digit year-over-year.

So with that part, we believe that our overall monetization rate will be also growing, not only on a year-over-year basis, but also on a sequential basis for Q3 and Q4. Yes. So, this is like the guidance for the JDDJ growth for the Q3 and Q4 Ronald..

Wonderful. Thank you, Philip and Beck..

Your next question comes from the line of Eddie Leung from Bank of America. Please ask your question..

Good morning, guys. I have two questions. The first one is about the rider cost. We saw that on your press release, you mentioned that the operations and support cost went up partly because of an increasing rider cost.

So, just wondering if you could give us more color on the rider cost, for example, any trend in terms of the rider cost are per order? And is that anything that going forward we need to offer for extra cost because of the core for protection of worker benefits? And then, secondly about sales and marketing, just wondering if you could give us a color -- some color about the customer incentive portion versus advertising and staff cost? Thank you..

Okay. So, thank you for the question, Eddie. So, for the first question about the rider cost, so basically absolute -- we were talking about like the absolute dollar amount of the rider cost increase.

So, because generally like the trade merchant business was growing by 100 -- almost 150% year-over-year, so we will pay like more absolute dollar amount of the rider cost to the rider. So, basically the order per -- the cost per order value is generally stable this year and also for the sales and marketing customer incentives.

So on a sequential basis, our consumer incentives is still like maintaining like the same level a little bit decreased compared to Q1 this year. And we also expect that on a sequential basis, consumer incentives given to the customers will be increasing in Q3 and Q4 this year.

And also in terms of the operating cost, as a percentage of the GMV of JDDJ, we also expect a decrease on a sequential level, not only in Q2 but also in Q3 in the second half..

Yes. A little bit to talk a little bit on top of what Beck just mentioned. So, if you look long-term in terms of sales marketing and customer incentives, I think one of the very positive thing we're now looking at, is our partnership with JD. So, unlike what happened in the last few years, we need to acquire like brand-new customers for JDDJ.

Now, as we are working closely with JD, so we are working together with JD to penetrate into JD's massive user base. So we envision that this partnership in the long-term will help to drive down the sales and marketing and the customer experience -- the customer incentives dollars because those customers have already in JD's customers.

So as you might imagine that the acquisition cost or the conversion costs for those customers might be lower than the brand-new customers.

And also for the rider cost the same thing if you look, the mid to long-term, we are confident that with the increase of our order density and you can see that the growth of our Dada Now on-demand delivery business has been very fast. We are now serving more and more chain merchants.

At the same time, the other members of JDDJ has been growing very fast as well. So the other density will also help to reduce the rider cost higher density the more numbers of others that riders can carry and can deliver in like a certain period of time. So this will improve the efficiency and therefore reduce the cost.

So to summarize, I think the -- if you look at mid to long-term the rider costs can be well managed and the sales and marketing experience can be lowered. Thank you..

Got it. Thank you..

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

Hi. It's Thomas and thanks for taking my question. I have two questions here. So first question when you think about the impact from COVID and plan to Dada. And my second question is that are there any changes to the incentive environment in [indiscernible] for our Haibo system? Are we seeing our peers also offering similar products. Thank you.

Hello.

Could you repeat the first question?.

Yes. Yes.

My first question is that how about the impact from COVID in the last two JDDJ and Dada?.

The COVID impact on JDDJ and Dada right?.

Yes COVID and flat COVID..

Okay..

Okay. So yes, yes quick updates on the COVID and the recent the flood and Corona. So in the last few months we have seen that occasionally in some cities or everywhere in China that we are seeing COVID cases and we work very closely with the local government to provide the daily supplies and the on-demand delivery for the customers.

So we are -- so almost in every city, we received a recognition from the government to basically giving us very positive feedback on what we have done to help the city and help the society. And hopefully we are seeing Dada customers are getting more and more used to ordering from online instead of going to offline stores all the time.

So I think this in the long-term will benefit us basically helpers to acquire and educate more customers. So this is something has already happened in the last two years and we expect this to continue to happen going forward. And at the same time this also helped to educate the merchants.

So therefore, we are now seeing almost like all of the top supermarkets have been working -- already working with us. And also we are seeing that more and more leading merchants from other industries are now turning to working with us. I think this also helped to educate the merchants.

Everyone knows that in order to deal with the COVID or to deal with the customer, needs a shift, they have to transform quickly and digitally. So, I think this also will benefit us..

And also for Q3 financials, we don't think the flood situation in Hunan will have any material negative impact on us..

Yes. And then your second question regarding the HIBOR competitiveness. So first of all, we're very proud that the HIBOR system has been -- the value of HIBOR has been recognized by more and more leading retailers.

And at the same time, because of our neutral positioning of JDDJ, because we are not a retailer ourselves, so that significantly as well in terms of penetrating into more and more merchants. So in last quarter, we have now seen over 430 -- sorry 4,300 active stores using HIBOR system and this number keeps going up.

And at the same time, HIBOR system has already been proven that able to increase the efficiency of retailers O2O business and also to increase their revenue from O2O business. So, I think the HIBOR system is unquestionably the most adopted and the most leading system in the market..

That’s very clear. Thank you..

Sure, thank you..

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

Hi. Good morning management. Thanks for taking my questions. My first question is related to the community group platform.

So with the slowdown of many of these platform volume, have you seen any additional demand flowing back to your supermarket retail partners? Any qualitative comment on how the demand trend has trend has changed over the last two months versus what you've seen earlier this year that you could share? And then second is, how much in terms of the longer term, the cost saving that you foresee the autonomous delivery could bring along? And how will the pricing order margin structure that brings along with this autonomous delivery when it gets bigger scale? Thank you..

Thank you, Alicia. So, I'll give you my view and I will see if Beck have anything to add. So first of all, the Hunan or Hubei, I'll give you some data points. So in Q2, the GMV growth of JDDJ in a number of provinces that are most actively developed by community including like Hunan, Hubei, Guangxi, Jiangxi, Jiangsu and Xiangtan.

So in all of those province, the GMV of JDDJ achieved over 100% year-over-year growth. So we are doing very well in all of those province. At the same time, as you I probably have noticed that the regulators have now placed tighter regulation in terms of like unfair competition and also the antimonopoly et cetera.

So this certainly places a lot of pressure on the community group buying players. And -- so we are very confident that, in the long term, we will have more competitiveness. And also because, we always believe that the supply chain capability is a key to win in this market and for few customer needs.

And we are able to work with all the local leading players to have the strongest supply chain capabilities and have the broadest geographic coverage that we can fulfill customer needs nationalized with the broadest SKU assortment. So all those are uncomparable by the community group buying players.

At the same time because we are on our delivery to a much more efficient and a much better customer experience than the next-day delivery. So this also helped us to differentiate ourselves.

And another thing I want to mention is that, for example, like Meituan, they do both community group buying as well as a platform business, which is quite controversial, because for the retailers, they definitely will consider Meituan as a competitor in terms of a neutral player or a partner, right? So we have the position of a platform business only because we are neutral and we only help the retailers that never compete with them.

So I think this is also helping us to differentiate ourselves. So, in short, we are quite confident about the competitiveness against the community group buying players..

Yes. And also for more color and the -- maybe in the beginning of the year, some of the retailers are in fierce competition in their local Tier 3 or Tier 4 cities with the CGP businesses. And right now I think most of those retails are in much more -- much better positioning to grow their businesses.

What we have witnessed is that for those retailers their offline businesses traditional -- their overall businesses gross margin is improving apparently, so which makes them to be in a better position to further invest in the online businesses in the second half of this year and going forward..

Yes. And also for the autonomous delivery, I will give my view and see if Beck or Jun will have anything to add. So we're quite excited to announce our open platform for autonomous delivery in the last few months. We have been working on this for quite a while working very closely with JD Logistics along with a few other partners.

And we have already successfully launched the service with like Walmart, Sam's Club, 7Fresh, Yonghui in both Beijing and Shanghai so -- in some districts according to the local government guidance. So in terms of the process or customer experience, I think those are having dramatically improved over the last few months.

And all those autonomous delivery are happening in the real environment and serving the real customers every day, every single day now. And so we are confident that the customer experience is very good. And at the same time we are seeing that the cost being improving along the time as well.

And also, I think, in the short-term autonomous delivery will be utilized to supplement menu delivery and to relieve capacity constraints, especially during peak seasons or during the extreme weather conditions.

And in the longer-term, I think, leveraging the scale application of the autonomous delivery we expect it will significantly reduce the cost of delivery in the long-term..

Yes, Alicia, I will add some color on that. So, right now the trial run is still quite limited. And the whole ecosystem is in its very early stage. So if you look at the cost per order, I think, it's still high because of the hardware cost as well as the limited trial.

But we are seeing already a trend and also the projections to the hardware cost is going to go down quite significantly over the next few years. So, we are expecting probably two to three years I think, there is a chance that the cost will be lower than the human cost in a way.

And another kind of to - watch out is the human cost in the next few years expect to probably get even higher given what the population looks like. So that's why we are investing really early stage to making sure we can accelerate the commercial use of the autonomous delivery..

Great. Thank you for the color..

Your next question comes from the line of Wei Fang from Morgan Stanley. Please ask your question..

Thank you. Good morning, Philip, Beck and Caroline. I have two questions. The first is on the monetization side. I thought that the total monetization rate seems to be stable quarter-on-quarter, but it seems like the structure has been changed. I noticed that the delivery fee as a percentage of GMV has dropped by something like 0.5 percentage points.

Is there any particular reason behind that that we are lowering the targets from the customers, or it's just due to the mix of the other types? And the second question is on the cost side. It's still about the rider cost. I'm trying to reconcile the overall -- like the support and fulfillment cost items.

I have noticed that it seems like the cost – rider cost increase is higher than what I can calculate from the JDDJ's rider cost increase and Dada Now’s rider cost increase.

So, I just wonder whether in the second quarter are there any one-time or one-off items in the rider cost side, such as some special subsidies riders during the pandemic or something like any like one-time impact? That's my questions. Thank you very much..

Thank you, Wei. So yes, for the first question about the monetization rate. So basically the overall monetization rate is increasing by 20 bps on a sequential basis.

And I also said that for the second – for the third quarter and fourth quarter, we expect monetization to be stably growing on a sequential basis as well, in which online marketing manufacturing rate is increasing significantly to like 2.9% in Q2 this year versus 2.5% Q2 last year.

And as you mentioned that every service fees or commission fees percentage – percentage of the GMV is dropping a little bit. This is mainly because of the mix of – mix change about the product categories to smartphone is increasing relatively faster than the average.

And because their commission rate is lower than the average and their LV is higher – much higher than the average platform AOV, so which means, less orders compared to the other categories. And also, we will just receive less percentage – less delivery fees as a percentage of the GMV of the smartphones in business.

And we also believe that in Q3, the commissioning and delivery fees as a percentage of GMV will be a little bit growing on a sequential basis compared to Q2 because in Q3 usually this is a little bit slack season for the smartphone businesses. So, the growth rate of smartphone businesses will be lower than Q2.

So, the overall commission rate and the delivery services fee will be growing as a percentage of GMV, while we still maintain a relatively higher growth rate of online marketing, which makes a steadily growing manufacturing rate in Q3 and Q4. And in terms of the second question about the rider cost, yes, there is like one-time issue.

But basically, it's not a onetime issue because as we mentioned things effective from April this year, we successfully transitioned the business model of last-mile delivery services from gross basis to net basis. But actually, it's starting from like mid of April.

So, accounting-wise for the first half of April for the last-mile businesses we’re still counting on a gross basis, which makes us more – had more rider cost in the operation, and the supported cost line, because we need to pay some rider-related cost to the last-mile riders in the first half of April.

But for the rest of the quarter and also for Q3 there is no such issue..

Thank you, Beck for a very detailed answer. Thank you..

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

Thank you management for taking my questions. My first question is on the growth outlook for our Dada Now business in KA, because in the past we have seen this business growing quite well.

So, looking forward what's our expansion plan and [indiscernible]? And my second question is about the potential impact from social security requirement on the riders, any recent updates or changes on that front? Thank you..

Thank you, Ashley. Let me just take the two questions. So for the first question about the growth rate of Dada Now. Yeah. So in the first half of this year, the Dada Now key accounts merchant business growth is growing very quickly by 140% for the first half.

And we also expect that, I think today, in the second half, this business will be continue to grow at triple digit just like we mentioned earlier. And also for the next year, we also expect this business growing at a relatively higher speed.

And we expect right now, we are almost close to the – like the – like the top – the number one player in the chain merchants services businesses. We expect that in the fourth quarter, or like in the fourth quarter, or early next year our business volume in the chain merchants sector in China shall be like almost the number one leader.

And in terms of the potential impact from the rider cost from the law so yeah I – so the guiding opinions on protecting labor and social rights and the interest of workers engaging new forms of employment and was jointly released by eight central departments of the government in July.

And we fully understand the government's policy to better protect effectively employ social workers and are pushing forward with the implementation of the guidelines. So, while like we created a large number of flexible employment opportunities through our cross sourcing network.

We are also committed to safeguarding the rights and interest of data riders.

And specifically, in terms of the work-related injury insurance, we have been – just like I think we have discussed in the last earnings call that we have been actively participating in discussion panels hosted by the government the initial pool and strictly strict to the principle of safety production.

And under the guidance of the relevant authorities, we are also right now preparing for the test run pilot phase of work created injury insurance in selected provinces like Shanghai, Guangdong and Beijing, and the incremental cost of purchasing the work-related injury insurance for riders is estimated to be like RMB 0.04 per order just like we mentioned in June.

And we think this could be well offset by our increasing order density.

And based on the opinion and authorities, and local governments are formulating specific measures for different industry, for example, for food delivery, the state administration for market regulation SAMR subsequently took the lead in the formulation of the guideline to specify the responsibility of food delivery platforms and protect the rights of food delivery riders.

So based on our communication with SAMR, the guideline released by SAMR is not applicable to us, because we do not operate a food delivery platform and our riders do not work for self-owned food delivery platforms.

So this is just now -- right now the impact for us and we expect that only RMB 0.04 per order on the work-related injury insurance will be well digested in our cost improvement next year..

That’s very clear. Thank you..

Your next question comes from the line of Robin Leung from Daiwa. Please ask your questions..

Hi. Thanks management for taking my question. Could management comment on the mix of the supermarket and supermarket contributions and as management set with the deepened cooperation with JD and that will have more contribution from home appliances and cosmetics.

Should we expect the supermarket mix to increase meaningfully? And also, what is the AOV this quarter? So with the non-supermarket mix even higher, would that lift the AOV even more? And given the subsidies are mostly spent on the supermarket category.

So when the non-supermarket category increased, should we expect that to benefit the margin more in the second half? Thank you..

Okay. So, thank you for the question, Robin. So, basically, for Q2, for the mix contribution, supermarket is contributing about 70% to the total GMV, while the smartphone or 3G businesses, I would say, 3G including smartphone and home appliances is like around 20% of the total GMV.

And with the further cooperation with JD, just like we mentioned in the earnings call in June that, we expect the non-supermarket categories will gradually continue to increase the total market share in our GMV amount. And in terms of the average order value.

So in Q2 this year, our average AOV of the platform is about RMB 180, while for the AOV of the supermarket categories is still as high as RMB 140. And we think in the second half of this year, we should be still able to maintain like the higher AOV for our compound average and also for supermarket average. And you're right.

So not only because of the mix contribution, but also we are slight -- gradually increase the subsidy level or the consumer incentives given to the shoppers. So our average -- the cost percentage and GMV of JDDJ will be also slightly down in the second half.

That's why for Q2 this year, our direct margin is minus 2.3% versus 2.8% in Q1 this year, which is improving by 50 bps on a sequential basis, while in Q3 we are seeing further improvement by -- like almost 100 bps to minus 1.3%..

Thank you. Very helpful..

I would like to hand the conference back to Ms. Caroline Dong for closing remarks. Please continue..

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..

This concludes today's conference call. Thank you for participating. You may now disconnect..