Q&A: ClearVue Partners' Harry Hui

Q: What was the thinking behind the 1km deal?

A: We like consumer-facing businesses that have technology and data-enabled capabilities, and China is one of the largest car markets in the world. When we were looking at after-sale services, very few companies stood out as a scalable, national play. 1km has developed a system with more than 250 sensors that allow you to customize a wash uniquely to the shape of that car. Its supply chain is seamless and automated, and we don't need to physically service it. The customer service center has fewer than 10 people but is able to service 800 locations. That can easily get to 5,000-6,000 locations. 

Q: How are data leveraged?

A: 1km has developed a very robust data analytics system that allows it to scan and track all the cars that come through. We actually have data on all the license plate, the make, the frequency of which the car is serviced, the tire pressure, the treading and wear on the tires. And over time, we believe that can become valuable to insurance companies and dealerships. It's not the short-term revenue model, but that's definitely something that we think is an interesting future opportunity.

Q: How does this fit in ClearVue's broader automotive and consumer strategy?

A: We have three companies in this ecosystem that are all working together to digitize the consumer experience: 1km, Pony.ai, China's number one AV [autonomous vehicle] driving company, and Aibee, which is digitizing offline retail and parking lots, servicing all the top malls in China. You're going to pull your car with AV capabilities up to a mall, the car will self-park and go to the car wash while you're shopping. When you come back, you will get it cleaned and valeted. This is not the distant future – it's almost here. That's a huge pain point in China because the malls are gigantic, and everyone loses their car.

Q: There is s strong offline element in all this. How confident are you about that aspect of it during COVID-19?

A: We don't think of 1km as an offline experience. We think of it as a continuation toward automation using data for the car wash experience. I think in the future, we're not going to use the words "online" and "offline" anymore. We believe this channel definition as we know it will merge and it's going to be just one omni-channel experience. What we have seen in our portfolio of 30 companies is that this crisis has only accelerated the digitization of the consumption experience, and the companies that have benefited have had that online-to-offline component.

Q: ClearVue's smart vending operator Citybox seems to embody the omni-channel thesis…

A: Citybox is interesting. We have 5,000 boxes. A couple of years ago, there were 7-8 competitors, but now there's only two of us. What Citybox does well is take the best-sellers from convenience stores and put them into a machine that is much more cash efficient than opening a convenience store. We also collect the data of every user and get a good sense of demographic composition. A traditional 7Eleven takes 9-12 months to change a planogram, but Citybox can do it in 2-4 weeks, so it's much more responsive. The problem during COVID-19 was that the boxes were placed at offices, and the offices were closed, so people weren't buying. 

Q: How has COVID-19 impacted your portfolio overall?

A: Our online healthcare investments have boomed. Ping An Good Doctor has done extremely well, and the share price has gone up 30-50%. Our investment in 111.com, the online pharmacy, has done incredibly well, rising 125% year-on-year. Online-offline education has done really well. Restaurants did terrible, as you can imagine. On-premise consumption went to zero, but e-commerce platforms like Fruitday were up 60-80%. Our car platforms have suffered. Dasouche [also known as Souche] sales dropped by 90%. The question is whether this category will come back in the second half, and the initial numbers are positive. It looks like year-on-year numbers are going to be up 5% for May.

Q: How has the pandemic redirected the story of middle-class consumerism in China?

A: Consumption behavior has shifted. Some of those changes will be permanent, and some will be temporary. The middle class in China has changed during this crisis and also during the past two years because economic growth has slowed. As a result, we've seen the middle class get squeezed more toward value. We have seen discount retailers grow much faster relative to department stores. Discount retail is a sector we're invested in, and we're hoping to announce a few transactions soon.

Q: Does that mean luxury is to be avoided?

A: Luxury has stayed relatively robust because many Chinese can't travel so they're buying in the mainland. In that way, this past week's National People's Congress was very telling in its announcement that the country will rely much more on domestic consumption than before, given the US tensions. Some of the biggest luxury groups are up 50-80% depending on the brand. The problem they're going to face is inventory because many of them shipped all their goods outside China at the beginning of the year, thinking the virus was going to be bad [locally]. Now they regret shipping everything to Europe and the US, which are shut down, and their spring-summer collections aren't in China.  

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• Topics
• Greater China
• GPs
• Consumer
• Technology
• China
• ClearVue Partners
• TMT