Deal focus: VCs see quality in Yummy Express' asset-heavy business model

Dominated by the likes of Ele.me, Meituan-Dianping and Baidu Waimai, Chinese online-to-offline (O2O) food-ordering services continue to grow. As a result, demand for last-mile food delivery is also on the rise.

Numerous logistics start-ups have emerged to fill this gap in the market. For example, last-mile delivery app Linqu - also known as Linjia.me - raised a Series E round late last year led by Qiming Venture Partners, while VC-backed delivery platform Dada Nexus recently announced it would merge with JD.com's O2O business unit JD Daojia. Most recently, Yummy Express raised a $10 million Series C round led by ClearVue Partners. Existing investor SBCVC also re-upped.

Founded in 2012 by a group of former employees from DHL and YCH Group, Beijing-based Yummy focuses exclusively on delivery services for O2O food-ordering platforms. While the likes of Linqu and Dada Nexus operate under a crowdsourcing model - delivery staff are part-time, and anyone can apply for a job via an app - Yummy Express has built an in-house team to ensure consistency of service.

"If you're running a crowdsourcing platform, you might find it very difficult to get people to deliver goods on a rainy day," says Cecilia Zhao, an investment director at SBCVC. "If the delivery person is running 45 minutes late you can't do anything because they are only working part-time. But you can make deductions for their salary as a punishment if they are a full-time employee."

Yummy primarily works with several major O2O platforms including Baidu Waimai, Meituan-Dianping and Ele.me. Its services also cover traditional retailers that have launched online platforms and want to deliver fresh goods such as cake and fresh fruit. The company claims to have over 5,000 full-time delivery staff who fulfill more than 200,000 orders every day in 18 Chinese cities. A small amount of work is outsourced but partners must have experience in running daily delivery services.

The Yummy value proposition - that it provides a better quality service than crowdsourcing platforms - involves charging a higher delivery fee on each order. As such, three years since inception, the company now breaks even, with average monthly revenue reaching RMB70 million ($11 million).

Yummy received angel funding from iStart VC and Pre Angel in March 2012. SBCVC then came into a Series A round the following year and also featured in the Series B in 2014, participating alongside Baidu, which committed an undisclosed sum for a 15% stake. The Series C funding will be used to consolidate Yummy's market-leading position and broaden its services beyond fresh goods delivery.

Asked if Baidu's involvement means that Yummy will scale back its business with Eleme.me and Meituan-Dianping - which have strong backing from Alibaba Group and Tencent Holdings, respectively - Zhao says it is unlikely. Baidu's financial interest in the company remains small, and for now the main focus of food ordering and delivery platforms is growth, not avoiding the competition.

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• Topics
• Greater China
• Venture
• Expansion
• Technology
• TMT
• Logistics
• Growth capital
• ClearVue Partners
• Softbank China Venture Capital