The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong was off 2.76 percent as of 12:40 p.m. On the Mainland side, the CSI 300 index of the top 300 stocks trading in Shanghai and Shenzhen fell 2.1 percent. The US stock market is closed Wednesday to honor former US President George H.W. Bush.
Shares of Huawei’s main rival ZTE nosedived nearly 6 percent in Hong Kong by midday. Meng’s news also hit the suppliers of employee-owned Huawei across the Asian stock markets. Among the worst performers is Shennan Circuit, which slipped nearly 10 percent in Shenzhen as of this writing.
Huawei and its main rival ZTE have been targets of the US government that worries about the alleged ties between the telecom equipment makers and the Chinese governemnt. The US’s ban on ZTE sparks concerns that Huawei will face a similar fate. In April, the US Department of Commerce announced a seven-year ban that would restrict American component makers from selling to ZTE, which in 2017 pleaded guilty to violating sanctions on Iran and North Korea.
Chinese stocks had been on a downward trend prior to Meng’s arrest as a result of rising US tarrifs over the last few months. In October, the Shanghai benchmark index dropped to a four-year low.
A major player in the race to transport Chinese people around is losing steam. Meituan Dianping, the Tencent-backed all-encompassing platform for local services, continues to put the brakes on bike-sharing and ride-hailing, the company said on its earnings call on Thursday.
The eight-year-old firm is best known for competing with Alibaba-owned Ele.me in food deliveries — the segment that makes up the majority of its sales — and hotel booking, but it’s aggressively branched into various fronts like transportation.
In April, Meituan entered the bike-sharing fray after it scooped up top player Mobike for $2.7 billion to face off Alibaba-backed Ofo. Over the past few years, Mobike and Ofo were burning through large sums of investor money in a bid to win users from subsidized rides, but both have shown signs of softening their stance recently
Mobike is downsizing its fleets to “avoid an oversupply” as the bike-sharing market falters, Meituan’s chief financial officer Chen Shaohui said during the earnings call. Ofo has also scaled back by closing down many of its international operations.
In the meantime, Meituan said it has no plans to expand car-hailing beyond its two piloting cities — Shanghai and Nanjing — after venturing into the field to take on Didi Chuxing last December. The update is consistent with what the firm announced in its prospectus ahead of a blockbuster $4.2 billion initial public offering in Hong Kong this September.
The halt is likely related to changing dynamics in the country’s shared rides. Following two passenger murders on Didi, the Softbank-backed transportation platform that took over Uber China in 2016, Chinese regulators launched their strictest verification requirements for drivers across all ride-hailing apps. The mandate has squeezed driver numbers, making it harder to hire rides on Didi and its competitors.
During its third quarter that ended September 30, Meituan posted a 97.2 percent jump on revenues to 19.1 billion yuan, or $2.75 billion, on the back of strong growth in food delivery transactions. The firm’s investments in new initiatives – including ride-hailing and bike-sharing – took a toll as operating losses nearly tripled to 3.45 billion yuan compared to a year ago. Meituan shares plunged as much as 14 percent on Friday, the most since its spectacular listing.
Since its entry into China in 2016, WeWork has extended from four to around 60 locations across the country’s megacities like Shanghai, Beijing, and most recently, Shenzhen.
That’s one-sixth of WeWork’s 360 locations worldwide. It’s also equivalent to what WeWork has achieved in its early five to six years globally, Sern Hong Yu, regional head of project delivery at WeWork China, said at TechCrunch Shenzhen recently.
“Next year, it will be even faster,” he added, without revealing the exact number of offices that will open.
The executive confirmed that China will be one of WeWork’s fastest growing region and much of that boom will come from the rising number of enterprise clients.
While the coworking titan strives to redefine office spaces for old-school companies, these larger corporations are presumably a more reliable income source than long-shot early-stage startups.
But Yu said WeWork is also supporting nascent companies. The office operator runs a program called WeWork Labs that gives startups discounted desk space, an educational program, and mentorship without taking stakes in them.
The incubator is just one facet of WeWork’s expanding ventures. It’s been keen to distinguish itself from a pure coworking space. Besides offices, it manages a raft of ventures around the world that include shared apartments, wellness complexes, and even wave pools, all based on the tenet of “make a life, not a living.”
When it comes to China, WeWork says this package of services could help combat the country’s notorious “996” work regime, an acronym short for working from 9 am to 9 pm for six days a week.
“A lot of people like the [WeWork] workplace so much that stay longer than usual,” Yu said. “But in the meantime, we do remind them of the work-life balance.”
The American giant envisages a future where it exists in every other block down the street. But it has some serious contestants in China.
UCommune, which rebranded from UrWork after WeWork sued it over the name similarity, is one of them. The rival is founded by Chinese real-estate veteran Mao Daqing and claims to operate more than 200 co-working spaces across the world, most of which are in China.
The arms race to build the future of grocery stores is heating up in China. To no one’s surprise, the main contestants are the country’s ecommerce titans Alibaba and JD.com, which are turning offline for growth.
Online retail has flourished in China, but it still accounts for less than 20 percent of the nation’s overall consumption, according to the Ministry of Commerce. The goal of internet players is not to steal business from the offline counterparts, but to digitize old-fashioned merchants.
Entrance to 7Fresh, which stands for “fresh seven days a week” / Credit: TechCrunch
JD, of course, conjured up its own digital-first grocery store called 7Fresh. The supermarket opened this January and has since added three more locations, though JD’s founder and CEO Richard Liu had an ambition for 30 by the end of 2018. I recently visited one of them in Beijing and, as it turned out, it shares a lot of similarities with its opponent but also diverges in some aspects.
Unlike most supermarkets in China, the 7Fresh store I visited sits in a low-density community away from lively residential neighborhoods. You will need to drive or hail a taxi there, or do what JD.com wants you to — order online.
Upon arrival, you will immediately notice some of the Whole Foods rustic chic. An array of fruits, vegetables, fishes, meats, artisan bread, imported drinks lie graciously on wooden shelves, punctuated by 7Fresh’s dark green brand color.
Well, perhaps slightly more futuristic than its American counterpart.
The a-ha moment comes when you get to the fruit section, which lets you scan barcodes on meticulously wrapped items. Details of the fruit then pop up on a screen above your head, showing where it comes from, how sweet it is, and et cetera.
Scan to get details on your fruits. / Credit: TechCrunch
It says this particular pear I have comes from China’s northeastern Liaoning province, with a sugar level at 8 to 12 percent, and is recommended by 99 percent of the customers who bought and reviewed it on the 7Fresh app.
Yes, to shop at 7Fresh, you must download its app and register an account. Hema exercises the same mandate. The implication is that shoppers will help themselves at checkouts, although there is still human staff on hand to assist the less digital savvy. The drill won’t be new to most Chinese people as millions of them already shop online and pay offline with their smartphones every day.
When done with scanning products, you pay with JD’s digital wallet or the more popular WeChat Pay, the payment solution linked to Tencent, a major shareholder in JD.
Human staff assist the less digital savvy at self-checkouts. / Credit: TechCrunch
The 7Fresh app, of course, also lets you buy what’s in-store remotely. Customers who are less than three kilometers away can buy online with 30-minute delivery. In other words, the supermarkets are not stuck with store visit conversions.
“Customer conversions now take place anywhere within the three-kilometer range on people’s handsets. It’s all happening invisibly,” Zhao Heshan, a Shanghai-based farm produce supplier for several major Chinese ecommerce platforms, told TechCrunch.
Like Hema, 7Fresh doubles as a warehouse and distribution hub, and so is larger than the old-fashioned grocers, which focus on capturing in-store traffic.
The most forward-looking device in the store is arguably its ceiling conveyor belt – though it still requires human help. Once a customer places an order online, an in-store fulfillment staff packs it up in a bag and loads it onto the conveyor belt. The item then zooms across the store over your head to a nearby delivery center, a system that also powers Hema.
As such, Hema and 7Fresh are going after users online and trying to digitize those who used to shop at brick-and-mortars. As of September, online sales account for more than 60 percent for Hema stores that are 1.5 years or older, Alibaba says.
With the addition of physical footprints, ecommerce players gain a deeper understanding of how people shop and can thus optimize logistics efficiency.
Jack Ma came up with the catchphrase “new retail” to describe this online-and-offline retailing integration, and Richard Liu’s equivalent is “borderless retail.”
Ceiling conveyor belt at Alibaba Hema. / Credit: Alibaba
Besides the much-coveted customer insights, Alibaba and JD are going offline for cheaper user acquisition. “The golden age of cheap internet traffic is gone. Now it’s the opposite. Customer acquisition is much cheaper offline,” suggested Zhao.
Both Alibaba and JD have continued their old playbooks at physical stores, with the former running a marketplace model that takes a cut from merchants, and the latter staying consistent with direct sales. That holds true to how the rivals handle deliveries. While Alibaba relies on a network of third-party logistics services, JD has its own in-house fleet, which could be costly to operate.
An offline push, however, could boost revenues for the online retailer. “Richard Liu often talks about feeding JD’s one million or so delivery staff. Growing online orders from 7Fresh could help him fulfill that promise,” Zhao observed.
China’s Ucommune, the country’s largest rival to WeWork, has been on a busy acquisition spree to build out its domestic business and now it is looking at overseas opportunities after it closed a $200 million Series D funding round.
Founded in 2015, Ucommune has emerged as WeWork’s main rival in China since the U.S. firm acquired Naked Hub earlier this year in a deal said to be worth $400 million. Ucommune claims to operate more than 200 co-working spaces, most of those are in China but its overall footprint of 37 cities also includes Singapore, New York, Taipei and Hong Kong. Clients include unicorns ByteDance, Ofo and Mobike, as well as streaming service Kuaishou, according to Ucommune.
Co-working has been a major buzzword in China following the growth of WeWork but as time went on a mixture of competition and China’s slowing economy saw a number of the field struggle. That presented an opportunity for Ucommune, which has aggressively gone after growth in China with a consolidation strategy that has seen it acquire no fewer than seven companies this year.
Now, Ucommune is looking for ambitious international growth that’s aimed at expanding its reach to 350 cities across 40 countries. The ultimate goal, it explained in an announcement today, is to double its capacity from 100,000 workstations today to 200,000 over the next three years.
Ucommune’s space at Suntec is one of two locations it operates in Singapore
Going global is no easy thing, particularly when WeWork is on the case in many parts of the world with buckets of cash. The U.S. firm is currently making a big push in Southeast Asia — the most logical market for Ucommune to target first — with plans to launch locations in Vietnam, the Philippines and Thailand in the coming months. That would take WeWork to five countries in Southeast Asia, where it got a head start thanks to its acquisition of Singapore’s SpaceMob.
Ucommune has two locations in Singapore already but next time up is Hong Kong, where it says it is on track to open an inaugural space in December with a second slated for the first quarter of next year.
But WeWork is also strong its U.S. home market, Europe, Japan — where it works with SoftBank — and Korea, where it already has more than a dozen spaces.
The new financing was led by Essence Ventures — and it represents the first outside investment by the holding company owned by serial entrepreneur Richelieu Dennis .
A millionaire many times over, Dennis was the founder and chief executive of SunDial brands — a line of skin and haircare products which sold to Unilever for $240 million. He used that exit to create Essence Ventures with the acquisition of Essence magazine from Time Inc. and has now, with Mayvenn, is working to create a media and investment powerhouse.
Dennis joins a clutch of celebrity investors and venture capital firms in backing Mayvenn. Previous investors include Andreessen Horowitz, Cross Culture Ventures, Trinity Ventures along with a clutch of super famous athletes and music moguls like Serena Williams, Andre Iguodala, and Jimmy Iovine.
Dennis says the new capital infusion for Mayvenn is a testament to the vision of its founder and chief executive Diishan Imira.
“Diishan’s vision is very big,” Dennis said. “He’s building a platform to service a space and a consumer that has not been served and certainly not in this way.”
With the new cash in hand Mayvenn is going to market with a new value proposition for its network of stylists and their customers. Before, Mayvenn would sell hair direct to consumers and then provide those consumers with a marketplace of stylists that would install the hair.
That’s a costly proposition for customers who can spend as much as $250 for the hair and another $250 for the service.
Now, Mayvenn is going to make it so customers can buy the hair directly from the company, and Mayvenn will match that customer with a hair stylist who will install the hair. All for the cost of the hair itself.
“Customers will be able to buy hair and the installation service for probably 40% less than what they normally would have paid,” says Imira.
Imira first got started selling hair while he was living overseas in Shenzhen in Shanghai from 2003 to 2005. A world traveler who has spent time in Brazil, Ethiopia, France, Japan and China, Imira always had an entrepreneurial spirit, but it was after his stint in business school that he returned to Oakland with the idea for Mayvenn.
The company was accelerated through 500 Startups in 2013 and before that Imira was buying and selling hair for relatives who worked at salons and barbershops.
“I’m just a kid from Oakland selling hair out of the trunk of my car,” Imira says, laughing. “I always saw these barbershops and hair salons as points of commercial distribution. When I started selling hair i said, ‘This is crazy. How come you guys are not making any money off of selling this product?’”
There are $6 billion worth of haircare products sold in the African American community annually and Mayvenn is grabbing an increasingly larger share of that pie since its launch. Imira says the company has done $80 million in revenue in the five years since it graduated from 500 Startups. And the company has paid out over $20 million in commissions to its hairstylists.
Mayvenn chief executive officer Diishan Imira
“Now we really want to increase that number. Our number one metric is that number. How much are we paying hair stylists?” Imira says.
For Imira, Mayvenn is about developing entrepreneurial talent from within the black community. “Black women are buying $9 billion of hair products in general and they’re buying it from these corner stores and 90% of those are owned by people not in the community,” he says. “All of those dollars flow out of the community and nobody is getting a piece.”
With its new offering, Mayvenn is giving more money back to consumers, getting more money out to stylists and cutting the middleman out of the equation,” he says.
Along with co-founder Taylor Wang, who serves as the company’s chief operating officer, Imira says Mayvenn has built a business whose only real online competitor is the Chinese wholesale service AliExpress.
Indeed, what separates Mayvenn fom the other startups that are trying to sell hair and beauty products directly to consumers is the network of stylists that the company has built.
“The biggest competitor for selling direct to consumers is AliExpress,” and now, with its network and the ability to combine products and services at a wider scale, Mayvenn can provide better service for less, Imira says. “They can’t bundle the hair with the service. We can take the margin out of the hair we can bundle the package. We can be more price competitive than AliExpress and give you better hair and better service.”
China is home to the world’s largest network of CCTV cameras — over 170 million — and its police have adopted Google Glass-like ‘smart specs’ to seek out suspects in crowds, but now its surveillance efforts have hit a new level with technology that can apparently identify individuals based on their body shape and the way they walk.
The ‘gait recognition’ technology is already being used by police in Beijing and Shanghai where it can identify individuals even when their face is obscured or their back is turned, according to an AP report.
The technology is developed by Chinese AI startup Watrix, which recently picked up a $14.5 million funding round to further develop its systems. CEO Huang Yongzhen told the AP that it can ID individuals at up to 50 meters (165 feet) which, in conjunction with existing facial recognition technology, can help police and surveillance systems operate more efficiently in busy areas.
The positive impact is in finding criminals but there’s a less savory edge. Besides law enforcement, media reports have shown that China has deployed surveillance technology for more sinister purposes that include controlling its people.
In particular, the government has been criticized for the way it uses its databases and facial recognition tech to police China’s ethnic minorities. A system deployed in Xinjiang — a Western province with a population of some 10 million ‘Uighur’ Muslims — is reportedly designed to notify authorities when “target” individuals go beyond their home or place of work, according to Bloomberg.
China stands accused of detaining as many of one million Muslims in ‘re-education’ camps in Xinjiang. The province, which includes a number of cities that are located closer to Baghdad than to Beijing, has been the scene of unrest and ethnic tension in the past, and that’s one reason why the government has deployed these systems. It isn’t clear, however, whether the gait analysis tech has made its way to Xinjiang at this point. If not yet, you’d imagine it will soon.
Investors are pouring millions into the creation of a network of shared kitchens, storage facilities, and pickup counters that established chains and new food entrepreneurs can access to cut down on overhead and quickly spin up new concepts in fast food and casual dining.
“We’ve had conversations with the biggest and fastest growing restaurant brands in the country and even some of the casual brands,” said Jim Collins, a serial entrepreneur, restauranteur, and the chief executive of the food-service startup, Kitchen United. “In every board room for every major restaurant brand in the country… the number one conversation surrounds the topic of how are we going to address [off-premise diners].”
Collins’ company just raised $10 million in a funding round led by GV, the investment arm of Google parent company, Alphabet. But Alphabet’s investment team is far from the only group investing in the restaurant infrastructure as a service business.
Perhaps the best capitalized company focusing on distributed kitchens is CloudKitchens, one of two subsidiaries owned by the holding company City Storage Solutions.
Meanwhile, Kitchen United has been busy putting together a deep bench of executive talent culled from some of the largest and most successful American fast food restaurant chains.
Former Taco Bell Chief Development Officer, Meredith Sandland, joined the company earlier this year as its chief operating officer, while former McDonald’s executive Atul Sood, who oversaw the burger giant’s relationship with online delivery services, has come aboard as Kitchen United’s Chief Business Officer.
The millions of dollars spicing up this new business model investors are serving up could be considered the second iteration of a food startup wave.
An earlier generation of prepared food startups crashed and burned while trying to spin up just this type of vision with investments in their own infrastructure. New York celebrity chef David Chang, the owner and creator of the city’s famous Momofuku restaurants (and Milk Bar, and Ma Peche), was an investor in Maple, a new delivery-only food startup that raised $25 million before it was shut down and its technology was absorbed into the European, delivery service, Deliveroo.
Ando, which Chang founded, was another attempt at creating a business with a single storefront for takeout and a massive reliance on delivery services to do the heavy lifting of entering new neighborhoods and markets. That company wound up getting acquired by UberEats after raising $7 million in venture funding.
Those losses are slight compared to the woes of investors in companies like Munchery, ($125.4 million) Sprig, ($56.7 million) and SpoonRocket ($13 million). Sprig and Spoonrocket are now defunct, and Munchery had to pull back from markets in Los Angeles, New York, and Seattle as it fights for survival. The company also reportedly was looking at recapitalizing earlier in the year at a greatly reduced valuation.
What gives companies like Kitchen United, Pilotworks and Cloud Kitchens hope is that they’re not required to actually create the next big successful concept in fast food or casual dining. They just have to enable it.
Kitchen United just opened a 12,000 square foot facility in Pasadena for just that purpose — and has plans to open more locations in West Los Angeles; Jersey City, N.J.; Atlanta; Columbus, Ohio; Phoenix; Seattle and Denver. Its competitor, Pilotworks, already has operations in Brooklyn, Chicago, Dallas, and Providence, R.I.
While the two companies have similar visions, they’re currently pursuing different initial customers. Pilotworks has pitched itself as a recipe for success for new food entrepreneurs. Kitchen United, by comparison is giving successful local, regional, and national brands a way to expand their footprint without investing in real estate.
“One of the directions that the company was thinking of going was toward the restaurant industry and the second was in the food service entrepreneurial sector,” said Collins. “Would it be a company that served restaurants with their expansions? Now, we’re in deep discussions with all kinds of restaurants.”
Kitchen United is looking to create kitchen centers that can house between 10-20 restaurants in converted warehouses, big box retail and light industrial locations.
Using demographic data and “demand mapping” for specific cuisines, Kitchen United said that it can provide optimal locations and site the right restaurant to meet consumer demand. The company is also pitching labor management, menu management and delivery tools to help streamline the process of getting a new location up and running.
“In all of the facilities, all of the restaurants have their own four-walled space,” says Collins. “There’s shared infrastructure outside of that.”
Some of that infrastructure is taking food deliveries and an ability to serve as a central hub for local supplier, according to Collins. “One of the things that we’re going to be launching relatively soon here in Pasadena, is actually in-service days where local supplier and purveyors can come in and meet with seven restaurants at once.”
It’s also possible that restaurants in the Kitchen United spaces could take advantage of restaurant technologies being developed by one of the startup’s sister companies through Cali Group, a holding company for a number of different e-sports, retail, and food technology startups.
The Pasadena-based kitchen company was founded by Harry Tsao, an investor in food technology (and a part owner of the Golden State Warriors and the Los Angeles Football Club) through his fund Avista Investments; and John Miller, a serial entrepreneur who founded the Cali Group.
In fact, Kitchen United operates as a Cali Group portfolio company alongside Miso Robotics, the developer of the burger flipping robot, Flippy; Caliburger, an In-n-Out clone first developed by Miller in Shanghai and brought back to the U.S.; and FunWall, a display technology for online gaming in retail settings.
“Kitchen United’s data-driven approach to flexible kitchen spaces unlocks critical value for national, regional, and local restaurant chains looking to expand into new markets,” said Adam Ghobarah, general partner at GV, and a new director on the Kitchen United board. “The founding team’s experience in scaling — in addition to diverse exposure to national chains, regional brands, regional franchises, and small upstart eateries — puts Kitchen United in a strong position to accelerate food innovation.”
GV’s Ghobarah actually sees the investment of a piece with other bets that Alphabet’s venture capital arm has made around the food industry.
Ghobarah sees an entirely new food distribution ecosystem built up around facilities where Bowery’s farms are colocated with Kitchen United’s restaurants to reduce logistical hurdles and create new hubs.
“As urban farming like Bowery scales up… that becomes more and more realistic,” Ghobarah said. “The other thing that really stands out when you have flexible locations … all of the thousands of people who want to own a restaurant now have access. It’s not really all regional chains and national chains… With a satellite location like this… [a restaurant]… can break even at one third of the order volume.”