Few people realize that it was a little-known startup that masterminded the phenomenal expansion of Starbucks's on-demand delivery business in China. Founded only in April 2017, Shiheng Tech won the contract to manage the delivery services for Starbucks's online business in 2018. Starbucks launched its first online delivery services in Beijing and Shanghai amid great excitement that August. By the end of the year, the delivery services were extended to 30 cities, with about 2,000 outlets offering online ordering.
Starbucks, which houses its online store on Ele.me, China's largest on-demand takeout delivery platform, chose Shiheng Tech for its hotspot data-mapping technology connecting and tracking movements between the bricks-and-mortar cafes and customers.
“There's a Starbucks store downstairs in my office building, always packed with customers. The business, whether online or offline, is always beyond its capacity. But just across the road, there's another Starbucks that's not so busy. So we just re-assigned the surplus orders from the packed one to the other outlet,” said Shiheng Tech's Senior VP Huang Nian at a Guangzhou forum in December 2018.
After securing two funding rounds of over RMB 100m each in 2018 and Series B+ funding in 2019, Shiheng Tech became China’s first and only third-party service provider valued at over RMB 1bn in the online food delivery sector. The young startup is also well on its way to helping many traditional restaurants boost revenue by 20–30% with online orders.
Rise of smart data providers
In 2015, Shanghai-based serial entrepreneur Fang Shihun noted that online food orders and home deliveries were becoming popular in China. An Alibaba-backed third-party, last-mile service provider Baozun had just gone public in the US. The market value of Baozun, which serves e-stores of big retail brands like Nike, Philips and Apple, soared to nearly $3bn.
At the same time, China's market for third-party e-commerce solutions, valued at RMB 400bn, was expanding fast with about 2,000 service providers nationwide. With less than 200 third-party providers for online food deliveries, the local market was dominated by established platforms like Ele.me and Meituan, in a market expected to hit RMB 800bn this year amid 10–20% monthly growth.
Fang was already in the food business then and was eager to ride on the growing market. In 2017, he co-founded Shiheng Tech as CEO with COO Zhang Wei, a former purchasing director at Tesco China. Instead of becoming a direct competitor, Fang opted to manage the online delivery business for restaurants.
By mid-2017, the rapid growth of business and client base made data support a priority for future expansion. The team decided to embark on the costly task of building a real-time data management system, even though the startup had not yet secured any external funding.
“Though online food delivery is essentially different from e-commerce, building a data system is the key to success in both sectors,” said Fang. For him, what's important is using big data to help clients to optimize business operations, instead of just helping them with online orders and deliveries.
On-site teams, big data and new retail services
The iShiheng smart data platform can create customer profiles based on their purchases and shopping behavior. The customized data management services also include the tracking of specific operations like online orders, passenger flow and promotions. All the transactions are monitored in real time to help clients to quickly resolve any issues, such as adjusting menus to avoid loss of sales due to a shortage of popular food items.
“We can't purchase or cook for the restaurants. What we can do is plan for them and provide them with advice and guidance,” said Fang.
Unlike many other competitors that rely entirely on centralized online data management, Shiheng Tech has operations staff based in various cities to service local clients. “Our system can only reflect declining transaction volumes in numbers. We have to send our staff there to figure out what went wrong in those stores and come up with solutions,” he added.
On one occasion, Fang had noticed that customers in the same neighborhood always gave low ratings for a particular store, complaining about long waiting times for deliveries. The customers, in fact, lived very close to the store. It was only after a field visit by the operations team that the reason for the delay was revealed. There was a small river separating the store from the homes of the customers. A long detour was required to get to a bridge to cross the river to the other side. As a result, Shiheng Tech changed the travel distance on the website to reflect the longer delivery route. This helped to adjust customer expectations of the store's delivery times.
Today, Shiheng Tech manages over 1,400 F&B brands with tens of thousands of outlets in over 240 cities, with monthly gross merchandise value (GMV) exceeding RMB 400m in 2019. The company has also secured several tens of millions of RMB in Series B+ funding led by TPG-SV China Ventures, a joint investment vehicle of Softbank. The next milestone is to expand into non-food sectors, offering Alibaba-styled “new retail” services to convenience stores, shopping malls, pharmacies, fruit and flower shops.