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Bianlifeng, a Chinese internet retailing startup with nearly 100 outlets, attracted much attention recently in the Chinese internet circle as it is connected to something that’s at odds with a rising internet startup: lay-off.

According to Jiemian news, Bianlifeng fired almost 10 per cent of its employees at the headquarter (around 50 employees) at the end of August.

However, Bianlifeng soon issued a statement to refute the rumor, saying that:

The truth is, after we adjusted our HR standards in the middle of the year, we decided to fire around 2 to 3 per cent of our employees due to their incompetence.

As a result, Jiemie News withdrew the report. After all, this is the first time Bianlifeng said anything in public since its foundation.

For a long time, many industry insiders have cast doubt on Bianlifeng’s business model. On February 14th, Bianlifeng opened five new outlets in Zhongguancun, Beijing together, leading to heated discussion in the Chinese internet and retailing circle. At present, nobody can tell exactly how many Bianlifeng outlets are out there.

To find out the “truth”, we contacted with Zhuang Chenchao and convinced him of accepted an interview with us, perhaps the first time in the Chinese tech media circle. It is our wish that we could help our readers have a glimpse of Bianlifeng and its investor (Zebra Capital) and attempt to figure out its business logic.

“My wish is that people can just forget me. We don’t really care what other people say. After all, we are still in the experimental stage, in a field unfamiliar to most people, so it’s okay if people don’t understand us,” Zhuang told TMTPost.

Zhuang pointed out to us that he and his partner didn’t get involved in the business to make money. Before we decided to leave Qunar and get into the business, I and other co-founders had an in-depth research for a long time. Our goal at that time was very simple: doing something no other people are doing right now in China.

Zhuang admitted that profitability is already something he didn’t worry much about. Instead, his goal is “just to do something interesting”. When we first attempted to look for LPs (Limited Partners), most people didn’t quite understand our business logic. However, there were people who got us immediately and were patient enough to wait for our success, since there were already precedents overseas.

“In short, we only do one thing: investing in a world driven by software and algorithm,” Zhuang concluded. However, this is something only venture firms looking for long-term promising companies will understand. Therefore, Zhuang defined Zebra Capital’s model as “stake-holding investment”.

What exactly did he mean? What’s “stake-holding investment”? What are the risks and opportunities underneath “stake-holding investment”? With these questions in mind, we had an in-depth conversation with Zhuang.

Bianlifeng, a convenience store brand driven by algorithms

Since its foundation, Bianlifeng’s team and management-level executives haven’t ever appeared in public. Therefore, most people came to know anything about Bianlifeng through all sorts of rumors. For example, it is said that its chairman is Wang Zi, founder of Lingjia.com, and that its founding teams are mostly from 7-Eleven and Lingjia. Besides, rumor has it that Zhuang already raised RMB 18.8 billion and was ready to open 1,000 outlets within two years.

Zhuang didn’t know whether to laugh at or cry over the rumor. “We’ve never said anything like that, and this is absolutely nonsense. Even 7-Eleven only opened around 2,00 outlets in total for the past several years. I don’t really know who could boast like that,” Zhuang said, jokingly.

However, Zhuang revealed to us that existing outlets and outlets under preparation together, it already had nearly 100 outlets in total.

On the one hand, Bianlifeng’s money all came from Zebra Capital, so there’s no need to worry about PR and look for other investors; on the other hand, we don’t really have any time to respond to all kinds of doubts and worries.

“At present, we are still in the experimental stage. Therefore, we want our data to be clean and true. Once media covered us a lot, our user data will be contaminated. Media will only bring passers-by who don’t reflect the real user behavior pattern of our ordinary users. Therefore, contaminated data might affect or even undermine the decision-making process of our operation strategy,” Zhuang explained to TMTPost as to why Bianlifeng kept such a low-profile.

As to the “downsizing”, Zhuang explicitly denied. “We fired only 2 to 3 per cent of employees who didn’t pass the probation test,” he explained. If so, then the rumor might be spread by these workers intently due to their grievances.

From the aspect of him, there’s nothing more common for a company to adjust its business and labor force from time to time in a market featuring so fierce competition. According to him, when he was back in Qunar, they would lay off 5 per cent of employees every half a year.

However, prior to Bianlifeng, nobody really cared too much convenience stores in Beijing. After all, convenience stores used to be in a quite awkward position. While three new convenience stores opened here, two other convenience stores were closed.

According to him, when Zebra Capital decided to invest in Bianlifeng, it met the expectation of Zebra Capital in every aspect.

• First of all, the retailing market is already quite mature global-wide;
• Secondly, the entire industry can be driven by algorithm and software;
• Thirdly, substantial increase can be achieved after five years of continued investment;
• Fourthly, few people expected highly of the industry.

Indeed, only “idiots” would dare to open convenience stores in Beijing. Hadn’t Chinese e-commerce giants call on “new retailing” and focus on offline outlets, people might still ignore this sector this year.

Under a hot topic (Are there fewer convenience stores in Beijing than Shanghai? Why?) on Zhihu, the highest-ranking answer summed up the reason into “the three halves”:

1) It’s so cold in Beijing, so people would be unwilling to go outside in winter. Therefore, the convenience stores will have business to do for only half a year.

2) It’s to inconvenient to cross the roads in Beijing, so convenience stores’ business come from only half a street.

3) People aren’t quite accustomed to the nightlife, so convenience stores only have business to do for half a day.

According to Zhuang, however, these factors are too superficial to tell the whole picture. Instead, everything should be concluded based on big data. “For example, while 7-Eleven failed to enter Hokkaido (where the weather is a lot colder than Beijing), SEICO MART succeeded and managed to dominate the market there,” he explained. There must be some other factors underneath and weather is only a secondary factor, he said.

At present, Bianlifeng has opened 21 outlets in business and nearly 80 outlets to be opened soon. As to the reason why Bianlifeng didn’t open new outlets since the 21st outlet, Zhuang explained that they were still accumulating data from the first batch of outlets, so that they could adjust the operation strategy of the second batch of convenience stores. It is their wish that every outlet of Bianlifeng has its own features.

“We are still accumulating and analyzing all kinds of data, so that we could better adjust our goods selection, pricing and display in our future outlets. In fact, every outlet has different implications. Therefore, I believe it’s okay to inject each outlet its own feature,” Zhuang revealed to TMTPost.

While the public didn’t think it a lucrative business to open convenience stores in Beijing, Zhuang entered the market. While the public suddenly became interested in this rising sector, Zhuang, however, didn’t want to see such “fad” at all. In response, he decided to always keep a low profile.

“We invested in convenience stores not because we see a promising sector. On the contrary, we entered this market because we don’t think this market will boom within five years,” Zhuang explained.

He frankly admitted that he himself hadn’t reached a conclusion as to the future development trend of convenience stores in China. According to him, there’s simply not enough data and all they were doing right now was experimental.

What’s Bianlifeng up to, exactly?

As to the reason why Bianlifeng’s convenience stores are typically “spacious”, Zhuang explained:

“We don’t think we are simply doing the retailing business. Instead, it’s more like a data business.”

In fact, Bianlifeng has two subsidiaries: Chongji and Yunding, which were in charge of the development of Bianlifeng’s ERP system and APP, respectively. According to him, the ERP system covers the entire process of opening new outlets, from selecting location, purchasing goods to displaying, etc. It is exactly based on such a comprehensive system that 7-Eleven managed to dominate the convenience store industry.

Next step, however, Bianlifeng has to integrate user data. Thus, it came up with Bianlifeng APP. However, while people might think Bianlifeng’s offline outlets serve as traffic gateway to the app, the reality is the other way around.

“Everything we do are centered around offline outlets, for sure,” Zhuang explained.

In the previous article, we cast doubt on the promotion of the app. Zhuang’s response was:

“We didn’t expect all our users to use the app. Instead, we only need the data of our regular customers, so that we can provide better services for them near each outlet.”

In fact, the radiation zone of any convenience store is quite limited. Therefore, it’s feasible to refine operation through accumulating the information and consumption habit of regular customers.

User habit of passers-by, however, vary drastically from that of regular customers. If their data are mixed with that of regular customers, then we might be misled as a result.

“Unless there are more passers-by than regular customers, we will have to shift our focus and operation strategy accordingly,” Zhuang added.

When journalists and people from rival brands poured into Bianlifeng outlets drawn by curiosity, their data might be contaminated. “Sometimes, we can see a customer go to a couple of our outlets within a single day. This is absolutely abnormal,” he explained.

To improve the accuracy of user data, Bianlifeng would intently filter the data of low-frequency customers. According to Zhuang, Bianlifeng provides different levels of services and discounts for high and low-frequency customers, offline and online customers.

At the end of this April, Bianlifeng added some share bikes in front of its convenience outlet in Zhongguancun. However, these bikes were not used to promote Bianlifeng or expand its influence, as some people might believe, but rather to better accumulate user data, such as gender and age.

Nevertheless, how will Bianlifeng be able to make profit, especially considering the high cost?

Besides, Zhuang commented on the rumor, saying that the annual rent of the Yinke outlet reached 3 million. “This is ridiculous. On the contrary, that place was hard to be rented out, so we rented the place at a certain discount. Moreover, it’s not necessary that a small store will lose money and a small one will guarantee profit,” Zhuang told TMTPost.

In addition, Zhuang revealed to TMTPost that Bianlifeng had been trying out different models in different types of outlets.

“This has to do with the change we observed in some Japanese convenience stores. In fact, Japanese convenience stores are also constantly adjusting their models. This has become a trend. Nevertheless, data has the ultimate say in our future models,” he said.

As a matter of fact, Bianlifeng did a thorough research over international convenience store giants such as 7 Eleven before opening its own outlets. One of its conclusions is: high-efficiency supply chain management is the trend. Therefore, Bianlifeng didn’t adopt the “franchise model”. After all, “franchise store” is the equivalent of poor quality in China.

Zebra Capital’s marathon-style investment experiment

Another heated topic around Bianlifeng is the relationship among Zebra Capital, Zhuang Cehnchao and Bianlifeng.

According to public information, Zebra Capital was co-founded in 2016 by Zhuang Chenchao, founder of Qunar.com, Zhao Tielu, former CFO of Qunar.com and Wu Yongqiang, former CTO of Qunar.com. According to Zhuang, Bianlifeng was controlled by Zebra Capital since its foundation. Therefore, there’s no such thing as “founder” in Bianlifeng. Instead, there’s only a founding team. As a result, Zebra Capital’s positioning was quite different at the very beginning.

Different from ordinary Chinese VCs and PEs, Zebra Capital attempted to be a dominant stake-holding investor since its foundation. From the aspect of Zhuang, a mature business model has already been formed among Chinese VCs and PEs, so there aren’t many advantages for a late-entrant. This is why Zebra Capital looks so different at the beginning.

In fact, there are already many successful application of Zebra Capital’s model overseas, such as 3G Capital in the US, a global investment firm focused on long-term value, with a particular emphasis on maximizing the potential of brands and businesses.

“While other venture firms are busy managing their investment fund, we spent most of our time managing our own companies. In the long term, we believe this is the best way to make profit,” Jorge Paulo Lemann, one of the co-founders of 3G Capital, once explained.

Zhuang admitted that he and his Zebra Capital attempted to learn from every aspect of 3G Capital, from investment to management.

“We are more inter-connected with companies we invested in and would play a larger role in the management of them. Different ordinary venture firms, we would invest in a project for at least fifteen years. While VCs pay more attention to high growth in a short term, we value long-term growth,” he explained.

In addition, Zebra Capital prefers to widely invest in a certain sector. For example, it has been investing in companies around the convenience store business recently.

“Many people would come look for us and hand in their BPs, but we are only interested in BPs featuring a specific sector. Once we’ve chosen a sector, we would consider investing in relevant startups, whether newly-established or old ones. Our investment is also quite flexible. We can both invest just a little bit or become the dominant stake-holder,” Zhuang explained.

In fact, Zebra Capital has done thorough research into several sectors, such as the second-hand car sector. “We gave up on second-hand car sector not because it’s not a profitable business, but because we would be too late an entrant now,” Zhuang admitted, “we won’t rush to a sector where everybody else are also pouring in. Nevertheless, Zebra Capital did profit from that research and chose to invest in a second-hand car platform in Singapore. This platform developed quite well right now and in fact has already become profitable.” Indeed, as Zhuang has explained, this is a sideline investment, and far from Zebra Capital’s main business.

On the whole, Zebra Capital did inject a new way of thinking in the Chinese investment market. Nevertheless, long-term investment and management would certainly pose a high burden on Zebra Capital. TMTPost shall also look close to Zhuang Chenchao’s next moves and interpret them in-depth to our readers.

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[The article is published and edited with authorization from the author @Xie Kangyu Please note the source and hyperlink when reproduce.]       

 Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.