Hong Kong’s Uber-style on-demand delivery firm Lalamove is ramping up efforts to expand into the United States in the third quarter of 2020, as the company seeks to capitalise on the massive demand for tech-enabled delivery solutions accelerated by the COVID-19 outbreak.
The company, which currently has operations across 21 cities in the Asia-Pacific and Latin America, plans to enter the US market this quarter, starting from Texas with a team of about 20 to 30 local employees.
Backed by deep-pocketed investors such as Sequoia Capital China and Asia-focused private equity major Hillhouse Capital, the Hong Kong-born company aims to march into Chicago as the second step and to build a presence in 10 to 15 cities in the new market within one year.
“I think the US presents a very interesting and exciting opportunity for us… Our ambition is not just one or two cities, it is actually to bring our services to as many local communities as possible, particularly during this time when small businesses are struggling,” said Blake Larson, Managing Director (International) at Lalamove, in an interview with DealStreetAsia.
“The pandemic just accelerated this idea of digitization of small businesses. No longer is it optional to go online, it’s about survival now,” he added.
In its latest fundraising efforts, Lalamove secured $300 million through a Series D1 round led by Hillhouse Capital and a Series D2 round led by Sequoia Capital China in February 2019. The financing was used to lift its intra and intercity operational capabilities with an extensive focus on the business-to-business (B2B) segment.
Blake Larson has been instrumental in Lalamove’s growth across Asia, including in Singapore, Thailand, the Philippines, Vietnam, Malaysia and India. In 2019, he spearheaded Lalamove’s global expansion, with the company opening its first offices in Brazil and Mexico.
Edited excerpts of an interview:
Lalamove had laid out plans to expand operations in Malaysia, India, mainland China and other Southeast Asian countries after a Series D round in 2019. How has the journey been so far?
We’ve expanded into Malaysia and Indonesia at roughly the same time. Since then, we’ve also opened up [operations] in India, where we now have a presence in seven cities in just over one year. We also opened São Paulo and Rio de Janeiro in Brazil. And Mexico City was the most recent city [that we expanded into].
We’ve been busy expanding not just in the Asian region but also in Latin America. We are going to be entering the US in Q3. We will start in Texas with a headcount of 20 to 30 local employees from now to the end of the year. I think the US presents a very interesting and exciting opportunity for us… Our ambition is not just one or two cities, it is actually to bring our services to as many local communities as possible, particularly during this time when small businesses are struggling. Starting from Texas, hopefully, we’ll quickly open up Chicago in a couple of months later.
Lalamove does not have operations in mainland China. But we have a sister company, Huolala, which operates in the mainland independently.
What are the major reasons for Lalamove’s expansion into the US market? And why now?
I think the major reasons are the problems that we see with local logistics and local delivery worldwide. They exist everywhere and somewhat in the same form. How you solve them might be slightly different but the inefficiencies, the fragmentation, and the underutilization of vehicles [are everywhere].
When we started looking deeper and deeper, these things are also true in the US market. This is the opportunity that we saw, which is what we do can help companies there make deliveries fast and simple. Given the current economic climate due to the pandemic, this could be truer. Unemployment reached an all-time high in the U.S. even it is temporary. Small businesses are struggling.
For example, in Dallas, which is the first city that we’re going to launch [our services], there are over 400 local logistics companies. There is much fragmentation but not enough scale. Also, in a market where labour and insurance costs are higher, any type of underutilization of a company owning a vehicle and employing drivers is a very expensive value proposition.
That combined with the fact that they’re having to compete with Amazon Prime, where customer expectations of what delivery means and how fast it can be done are going sky-high. How does a small business compete with that?
We basically bring all competitive advantages that they’re looking for to compete against large e-commerce retailers in the market without them having to invest extensively on their own. I think this is something that small businesses globally are looking for. In the US, there is no difference in this respect.
We don’t know when the pandemic will end. We all hope it’s sooner rather than later. But given all of these, right now is a huge opportunity for us to come in and help be part of something that is transforming and providing opportunities to small businesses and drivers.
What is your longer-term ambition in the US, probably after one year?
We tend to be a bit more conservative on this front, in the sense that we plan for the next three years and we use the things we’ve learned on that to really plan out beyond that. That being said, it’s not hard for me to imagine anywhere from 10 to 15 cities within a year.
Could you share Lalamove’s business performance in the first half of 2020? How has it been influenced by the pandemic?
Inbound inquiries have gone up four times since January. That number is about one month old, so it’s probably even more than that now. We’ve seen over two and a half times more first-time customers as well.
It’s not only that people are showing interest in new types of business models to support their businesses. They’re actually actively trying… We’ve seen a lot of development on this front because people have to be very flexible about the circumstance.
Food delivery service is definitely something [largely influenced by the COVID]. This will probably become even more true in Hong Kong starting from Wednesday (July 28, 2020) amid the implementation of the government’s dine-in ban.
Another obvious use case is the delivery of medical supplies to the frontline.
But you’re also seeing a lot of traditional offline retailers, like small clothing sellers and wholesale markets, who had to completely shut down their businesses during the lockdown because nobody could come in. I would say the way that the COVID is impacted is not so much industry-specific, but really it’s about the survival of offline companies. This is where we’ve seen a big shift towards digitization.
Do you think the shift towards digitization is sustainable, or do you expect it to quickly cool down post the pandemic? How does Lalamove seize the opportunity?
What COVID has done is bringing awareness in an even faster manner. There’s already a transformation happening. The pandemic just accelerated this idea of digitization of small businesses. No longer is it optional to go online, it’s about survival now.
I think we’ll just keep doing what we’re doing, trying to increase the different types of services we offer and providing a higher level of customer services amid this influx of demand from both customers and drivers. Unemployment is really hitting a lot of different societies, so we can provide a solution to make an income for people and businesses that might be struggling to not only just survive, but also grow post the pandemic.
If we were to see the pandemic to last for an even longer-term, do you expect any downside challenges that could happen in the on-demand logistics space?
What you might see is the average customer [transaction] volume might go down a little bit across the board because of the depressed economy, but there will be a greater number of customers. In aggregate, I’m still optimistic that the underlying trend of how people are going to look at delivery and actually do their delivery is going in the right direction.
Lalamove raised $300 million in a Series D round led by Hillhouse Capital and Sequoia China in February 2019. Are you planning to raise new financing this year?
We haven’t talked about raising any funds this year, because we’ve really been focused on building a sustainable company. For us, that really means if we’re dependent on outside capital or not. I’m happy to say that we’ve made a lot of progress on this front. Fundraising isn’t one of our active pursuits at the moment.
What have you planned as the future path for Lalamove? Will the company go for an IPO or an M&A?
This is the forever question. We actually don’t spend a whole lot of time talking about it. What we do spend a lot of time is making sure that we are sustainable, that we’re making smart, efficient business decisions, and that we keep creating value for customers and drivers.
We always say that if we build a good company, we will have options. We don’t have a planned timeline for an IPO and we aren’t in conversations about any kind of exit via acquisition or something like this. Even though it’s almost going on for seven years now, we believe we’re just at the beginning of our journey.
Investors are expecting us to keep doing what we’re doing, to keep growing and being sustainable.
How did you address virus-induced concerns like business development, employee health and cash flows to your investors?
We’ve done a lot of things across different markets to take care of employees, as well as drivers and customers that we’re interacting with on a day-to-day basis, including education of potential health risks, remote working, and office disinfection that is probably above most standard cleaning practices. You really have to transform very quickly especially in a company that serves daily needs and high-urgency businesses. I think it’s very important for everybody to understand what the risks are and how they can avoid them.
In addition, we’ve enabled things like contactless delivery, which is becoming more and more of an industry standard. We try to support a more digitized payment means to avoid the literal transaction of cash moving between people in the very cash-heavy Asian economy. For example, we’re using an e-wallet function in Hong Kong to allow users to top up money to a digital wallet from their current e-wallets, credit cards, and debit cards.
Are you seeing any more permanent changes in the way businesses are operated in the overall on-demand logistics industry?
I would say a lot of technology-based on-demand logistics companies have done a pretty good job to ensure the safety of customers and drivers. I think this will become more front and centre as a common practice going forward. And again, the digitization and online payments will be accelerated in a lot of ways due to the pandemic.
Do you expect more consolidation in the sector in the next one to two years?
Logistics is so fragmented, including segments like cross-border, shipping, warehousing, as well as first-mile and last-mile delivery. A lot of these companies are still fairly small, so there is a chance for consolidation. But I haven’t seen an overwhelming trend towards it.
Instead, I’ve seen more investments in some of the lead players. With the economic downturn, I imagine there will be more opportunities. But I really can’t speak for other companies’ strategies. That is not something that Lalamove has really done anything with and we don’t proactively look at it. We focus more on investing in our resources internally.
Apart from the resurgence of the virus, Hong Kong also bears political uncertainties brought by the national security law. Are you seeing the new legislation influencing the development of on-demand logistics businesses in the city?
I can’t say how politics will or will not impact small businesses specifically. But what I can tell you is that logistics is kind of like the lifeblood of a city. Things always have to get moved. Manufacturers always need supplies. People always need to eat.
From a business standpoint, I’m still optimistic about Hong Kong and it is a city that we’re still heavily investing in. Regardless of what’s happening in the external environment, we can play a role in really supporting the local community to make sure that the essential goods and things are moving in the city and to make sure the economic environment is productive and efficient.
Small and big businesses are still coming to us to support their growth. This has been the same seven years ago, as it was last year, as it is today. I don’t see this changing anytime soon, so we’re very much committed to being a part of what makes the city great.