Dada Nexus Limited (DADA) Q2 2021 Earnings Call Transcript

Dada Nexus Limited (DADA 1.32%)
Q2 2021 Earnings Call
Sep 07, 2021, 9:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and thank you for standing by for Dada's second-quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded.

I will now turn the meeting over to your host for today's call, Ms. Caroline Dong, head of investor relations for Dada. Please proceed, Caroline. 

Caroline Dong -- Head of Investor Relations

Thank you, operator. Hello, everyone, and thank you for joining us today. Our second-quarter 2021 earnings release was distributed earlier today and is available on our IR website at ir.imdada.cn, as well as on GlobeNewswire services. On the call today from Dada, we have Mr.

Philip Kuai, chairman and chief executive officer; Mr. Beck Chen, chief financial officer; and Mr. Jun Yang, co-founder and chief technology officer. Mr.

Kuai will talk about our operations and company highlights followed by Mr. Chen, who will discuss the financials and guidance. They will all be available to answer your questions during a Q&A session that follows. Before we begin, I'd like to remind you that this conference call contains forward-looking statements as defined in the Section 21E of the Securities Exchange Act of 1934 and the U.S.

Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the current -- management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control. These risks may cause the company's actual results or performance to differ materially. Further information regarding these and other risks, uncertainties, or factors is included in the company's filings with the U.S.

SEC. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required under applicable law. In addition, please note that unless otherwise stated, all figures mentioned during this conference call are in RMB. It is now my pleasure to introduce our chairman and chief executive officer, Mr.

Kuai. Philip, please go ahead.

Philip Kuai -- Chairman and Chief Executive Officer

Thank you, Caroline, and thank you all for joining us today. We are pleased to announce another set of solid results for the second quarter of 2021. I would like to start by providing updates on our operations and highlights. Then I will turn the call over to Beck to dive deeper into our financial and operating results.

As a leading local on-demand delivery and retail company, we have long served the real economy and been growing together with the brick-and-mortar retailers and brand partners. Leveraging our unique advantages of retail plus delivery capabilities, we are fully committed to supporting the healthy development of China's real economy and promoting domestic circulation. We believe this is the key element of the country's dual circulation strategy. Especially, we enable our retailer and brand partners in achieving their digital transformation and adoption to the new O2O era.

As a pioneer of the on-demand retail and delivery model, we empower our retailer and brand partners with our five core pillars of open platform, fulfillment, marketing, user engagement, and digital empowerment. Recently, we have seen an evolving regulatory environment in China. While our governments fully support the development of innovative Internet companies that can enhance China's international competitiveness, the authorities also aim to create a sound legal environment to ensure that companies maintain compliant operations. For example, the government recently strengthened antimonopoly efforts to prevent the disorderly extension of capital.

Our business model is in line with policy directives. We welcome the strengthening of regulations and believe an orderly and a fair environment will lead to the long-term sustainable development of the industry. Now, I will move on to the update of our JDDJ platform, the leading local on-demand retail platform. For the June '18 shopping festival, we have achieved extraordinary results.

Our total GMV more than doubled, and GMV of consumer electronics, cosmetics, and home appliances all grew more than double year over year. It's vital for China to boost domestic market and build new expansion models by enlarging domestic demand and promoting high-quality economic development. We will leverage our strength to support national economic policies to help foster win-win situations and common prosperities. As such, I would like to discuss JDDJ's progress on four fronts: serving users, enabling retailers, boosting brand promotions, and technology in commerce.

So, overall, by creating value for participants along the value chain, we aim to drive long-term sustainable value creation. First, in terms of serving evolving consumer needs, we continue to win customers' trust by providing timely, efficient, and high-quality services. Number of active consumers increased significantly by around 50% year over year to 51.3 million. We will continue our in-depth cooperation with JD to better serve the omnichannel and on-demand needs of JD's over 530 million active users.

In July, our JDDJ one-hour e-commerce platform project were selected as a demonstration project for new form of retail by the State Ministry of Industry and Information Technology [Inaudible], which demonstrated the government's recognition in our innovative model and our ability to satisfy the growing needs of consumers for a better and more convenient life. Second, in terms of empowering retailers, we provide integrated digital solutions, encompassing open marketplace, fulfillment, membership management, and technology platform to help resellers improve sales and enhance operating efficiencies. We continued to see enormous growth potential for local on-demand retail services. So according to the National Bureau of Statistics, off-line retail still accounts for 76.3% of consumer goods sold in the first half of the year.

To realize quality growth and stay competitive, we believe accelerating digital transformation will continue to be the strategic focus of physical retailers. With our mission of bringing people everything on demand, our JDDJ platform keeps expanding category and merchant coverage. We maintained the leading position in the supermarket category by deepening our strategic cooperation with existing partners and establishing a partnership with new supermarket chains. We have now onboard 80 out of the top 100 supermarkets, including nine out of the top 10.

In the smartphone category, we are glad to see that the value of on-demand retail is increasingly recognized by smartphone manufacturers. To ensure sufficient and high-quality supply of smartphones, we have already partnered with hundreds of authorized distributors. In the second quarter, we went further and established direct partnerships with smartphone brands, including Apple and Vivo. In the PC category, we have newly partnered with Microsoft, ASUS, Dell, and Alienware.

We are helping these brands strengthen O2O presence by gradually onboarding their offline stores onto JDDJ. We also continuously roll out value-added services to retailers. For example, our Dada Picking service helps retailers to improve order picking efficiencies while reducing their store personnel costs and staff shortages. Currently, Dada Picking is deployed by Walmart, CR Vanguard, Yonghui supermarket, 7Fresh, and other merchant stores.

During the second quarter, Dada Picking gained significantly. The number of stores, number of units picked and income from pickers all increased by around 60% quarter over quarter. During August 8 promotional campaign, the average picking time for Walmart stores, which utilize our Dada Picking service, was reduced down to just three minutes. And third, online marketing service for brand partners.

During the second quarter, online marketing revenues from brand partners remained very strong, increasing by more than 110% on a high base in Q2 last year. This further demonstrates our unquestionable leading position in the on-demand retail sector for brand partners. On top of deepening our cooperation with existing brands, we have also signed several new domestic FMCG brands, including WH Group, C&S, and Bluemoon, and emerging global brands such as [Inaudible]. We're promoting the China national [Inaudible] and are riding on emerging consumption trends.

Lastly, technology empowerment. As enterprise become more digitized, network and intelligence, they will add new momentum to economic development. Under the backdrop of the state's promotion of digital economy developments and industrial digitalization, we abide by the national policy directives of building Digital China. Our Haibo system can be a good example.

Haibo is a SaaS product that enables retailers to drive O2O sales while streamlining operations. As of the end of August, Haibo has been adopted by more than 4,300 retail chain stores, up significantly from 3,300 stores as of the end of April. Our Haibo system now covers over 30% of the top 100 supermarket chains. In the second quarter, we launched a new intelligence pricing model to replace manual pricing adjustments.

This model helps merchants improve their O2O promotional efficiency and profitability. As a result, stores that have utilized the new model has seen a 50% increase in profit and a 5 percentage point improvement in gross margin. Let's move on to Dada Now. As a platform that connects consumers and merchants with crowdsource-based delivery services, we provide a large number of flexible employment opportunities.

And at the same time, we are committed to protecting the rights and the interest of every worker as is encouraged by the authority. On rider caring, we listen to and understand riders' pain points and needs in time via multiple channels. Accordingly, we continuously optimize our platform to help riders deliver more efficiently and safely. At the same time, we regularly host training sessions to improve rider delivery experience and service capabilities.

In addition, we have upgraded our rider stations. In the new stations, we have not only set up rest areas but also provided convenience amenities, including drinking water, medicine, epidemic prevention materials, and battery charging services. On business progresses. During the second quarter, our on-demand delivery service to chain merchants, so-called key accounts, continued to see explosive growth.

The revenue year-over-year growth accelerated to over 140%. In the supermarket category, revenue increased by 70% year over year. We have recently announced partnership with Citigroup. We provide comprehensive on-demand delivery services for the omnichannel for orders of CP Lotus.

In the restaurant category, year-over-year revenue growth was over 200%. We have seen significant growth from our existing partners, merchants such as McDonald's. This was driven by an increase in the number of stores and the increase in order volume per store. In the meantime, we have expanded into the tea beverage category and have signed a number of new tea brands in the second quarter.

Small and medium-sized merchants are very important to the country's economy. Dada Now allows small business owners to gain access to on-demand delivery service at a reasonable cost. The number of merchants that place orders continued to double year over year in the second quarter. For our last-mile delivery business, we successfully transitioned to a more asset-light model this quarter.

Based on our crowdsource rider network, we provide comprehensive and cost-effective last-mile delivery and picking solutions, especially during the peak season. Going forward, we will continue to deepen our cooperation with JD Logistics. Last but not least, I'd like to talk about our exciting technology developments in the logistic industry. Technology innovation is an important driver to promote a positive change in quality, efficiency, and growth engine of China's economy.

Upholding the spirit of national guidance of building a digital China and benefiting the public, we have always been the pioneer of developing cutting-edge technology. Recently, on-demand consumption is becoming the new norm of how people shop. We believe the use of unmanned vehicle for on-demand delivery is paramount to improving both our operational efficiency and consumer shopping experience. In July, we officially launched the Dada autonomous delivery open platform, which is open to autonomous vehicle companies, leveraging our on-demand orders, operational know-how, and order disbursement capabilities.

Our open platform accelerates the application of unmanned delivery in the on-demand retail industry. Currently, unmanned delivery powered by our open platform is on trial run in selected districts in Beijing and Shanghai. In the short term, autonomous delivery will be utilized to supplement manual delivery and help to ease the capacity constraints, especially during peak order seasons or periods of extreme weather conditions. Over the longer term, we will significantly reduce the cost of delivery as the scale becomes larger.

I would like to end with a brief recap of how we are shouldering social responsibility. Dada Group has made social responsibility an essential aspect of the company and its leadership. While creating value for business partners and our users, we also adhere to our original intention to fulfill our corporate social responsibility initiatives. Recently, we made more efforts to improve people's livelihood.

For example, we ensured living needs during pandemic containments in Guangdong and Jiangsu, provided a disaster relief in response of Hunan flood, promoted Internet inclusion among the elderly and launched a series of programs aimed to support the social work theme. With that, I will now pass the call over to Beck to go over our financials for the quarter. Thank you. 

Beck Chen -- Chief Financial Officer

Thank you, Philip. And before we go over the numbers, just a few housekeeping items in advance. We believe year-over-year comparisons are the most useful way to judge our performance. Therefore, all percentage changes I'm going to give will be on a year-over-year basis, and all figures are in renminbi, unless otherwise noted.

Total net revenue increased to 1.5 billion. Aligning the revenue recognition method of Dada Now last-mile delivery services to a comparable net basis, pro forma revenue growth would have been 81% year over year. Net revenues from Dada Now were 594 million. The pro forma revenue growth rate was 81% year over year, mainly driven by the increases in order volume of intra-city delivery services to chain merchants.

Total net revenues from JDDJ also increased by 81% to 881 million, mainly due to the increase in GMV from the same quarter last year, which was driven by increases in the number of active consumers and average order size. The increase in online marketing services revenue as a result of the increasing promotional activities launched by brand owners also constituted an increment of the net revenues generated from JDDJ. Operations and support costs were 1.1 billion. The rise was primarily due to an increase in rider costs as a result of increasing order volume for intercity delivery services provided to key chain merchants on the Dada Now platform and the retailers on the JDDJ platform, partially offset by the decrease of rider-related costs incurred by the business upgrade of our last-mile delivery services.

Selling and marketing expenses were 824 million, mainly due to growing absolute dollar amount of incentives to JDDJ consumers and an increase in advertising and marketing expenses, which was primarily attributable to the increase in referral fees paid to the staff at retailer stores and third-party promotional service providers for their efforts to attract new consumers to the JDDJ platform. G&A expenses decreased to 100 million, mainly due to the decreased share-based compensation expenses, as share-based compensation expenses were recognized immediately in the second quarter of 2020, resulting from options granted to employees with an IPO performance condition. R&D expenses were 132 million, mainly because of the increase in research and development personnel cost as the company continues to strengthen its technology capabilities. Non-GAAP net loss attributable to ordinary shareholders was 549 million versus 390 million in Q2 last year.

Non-GAAP diluted net loss per share was negative RMB $0.58 compared with negative RMB 0.80 in the second quarter of last year. As of June 30, 2021, we had 4.7 billion in cash and cash equivalents, restricted cash, and short-term investments. Under the $150 million share repurchase program announced in June, we have repurchased approximately $73 million of our ADSs as of August 31, 2021. For the third quarter of 2021, we expect the total revenue to be between 1.63 billion and 1.68 billion, representing a pro forma growth rate of 80% to 86%, adjusting Dada Now last-mile revenue to a comparable net basis in Q3 of both years.

In addition, net revenues from JDDJ increased by 81% in Q2 this year, and we also expect a revenue growth of JDDJ to accelerate in the second half. With continuous improvement in operating efficiency, we expect that the pro forma non-GAAP net loss margin after adjusting revenues of last-mile delivery services to a comparable net basis to further narrow in the third and the fourth quarter of 2021 on both year-over-year and sequential basis. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session.

Thank you. 

Questions & Answers:

Operator

[Operator instructions] First question comes from the line of Ronald Keung from Goldman Sachs. Please ask your question.

Ronald Keung -- Goldman Sachs -- Analyst

Thank you. Thank you, Philip, Beck, and Caroline. Two questions. Firstly, we would like to hear our latest deepening cooperation with JD, as this omnichannel continues to be a key focus.

Just want to hear, is there any updates for the changes for the natural selection or any further dedicated projects that you're working on from kind of dedicated channels? Or how are we planning to expand categories in order to promote this higher on-demand shopping, not only for our own JDDJ app users but also into the JD users? My second question would be, Beck, you talked about the accelerating growth for JDDJ in the second half. Just want to hear within our revenue guidance, what is the kind of embedded JDDJ stand-alone growth that we're expecting in the third quarter? Do we expect any seasonality between third and fourth quarter to drive your expectation of a faster JDDJ growth in the second half of this year? Thank you.

Philip Kuai -- Chairman and Chief Executive Officer

Thank you, Ronald. So, I will take the first question, and I will have Beck to address the second one. So the -- our partnership with JD Group has been like really, really important and a win-win for both parties. And we have together dedicated to provide good services to the customer needs and to improve the consumer experience.

So in Q2, we are very happy to see that our partnership has significantly strengthened. In Q2, the GMV from the JD one-hour shopping, the Jingdong [Inaudible] which has empowered buyers, had a quarter-over-quarter growth of 90%. And you perhaps have already noticed that if you open up a JD app, in many cities, including Shanghai and Shenzhen and many cities, you have seen on the very top on JD's homepage, there's a new entry point called Fujin or nearby or local. This is in test.

And we plan to roll out this new service to more cities and have a bigger scale of expansion. This will essentially bring our customers more on-demand delivery experience and shopping experience. At the same time, we are working closely with JD to improve the penetration into the JD's 530 million annual active consumers for more and more of them to experience the on-demand retail services, and we'll continue to do that. And we'll continue to work very closely with JD to improve the shopping experience and to streamlining the products and services and to improve the penetration.

So, our partnership with JD not only happens with the JD Retail but also with JD Logistics. So, in addition to the existing order picking and order delivery partnerships, we have recently launched a new partnership with JD Logistics on the Dada autonomous delivery open platform, and we will jointly promote the upgrade and transformation of the intelligent delivery business and to jointly improve the infrastructure of intra-city delivery and on-demand delivery. So, we are, again, very happy and excited with what's happening with JD Group, and we jointly will push this forward, and it's a highly win-win partnership.

Beck Chen -- Chief Financial Officer

OK. So, for the second question about JDDJ, basically -- JDDJ growth, basically, I would -- to add more color on the expansion of categories. So, by cooperation with JD, we are expecting to explore into or just extend our cooperation into more categories, including home appliances. So, not only just like supermarkets, FMCG products, and smartphones products previously, we will explore into more businesses, including home appliance and cosmetics by cooperation with the JD Group.

So, there is some seasonality for the second half when we expect Q4 revenue growth of JDDJ would be even more than more than Q3 numbers because usually for Q4, there will be our big campaign and also for all those businesses like apparel and smartphones, there will be new products launched. We expect Q4 will be even better than Q3. And also, we are confident that the online marketing revenues growth rate because in Q2, as we have discussed that the online marketing revenue is increasing by over 100% on the higher pace of Q2 last year. If everybody is remembering Q2 last year, the brands have actually spent a lot of marketing dollars on different e-commerce platforms, not also us but also JD and Baba as well.

But in Q2 this year, we still witnessed a triple-digit growth rate of the marketing dollars, and we also expect that for the second half of this year, for each quarter of this year, our online marketing revenues will continue to grow like triple digit year over year. So, with that part, we believe that our overall monetization rate will be also growing not only on a year-over-year basis but also on a sequential basis for Q3 and Q4. Yes. So this is, like, the guidance for the JDDJ growth for the Q3 and Q4, Ronald. 

Ronald Keung -- Goldman Sachs -- Analyst

Wonderful. Thank you, Philip and Beck.

Operator

Your next question comes from the line of Eddie Leung from Bank of America. Please ask your question.

Eddie Leung -- Bank of America Merrill Lynch -- Analyst

Good morning, guys. I have two questions. The first one is about the rider costs. We saw that on your press release, you mentioned that the operations and support costs went up partly because of an increase in rider costs.

So, just wondering if you could give us more color on the rider costs. For example, any trend in terms of the rider costs per order? And is that anything that going forward we need to buffer for extra costs because of the call for protection of worker benefits? And then secondly, about sales and marketing, just wondering if you could give us a color -- some color about the customer incentive portion versus advertising and staff costs? Thank you. 

Beck Chen -- Chief Financial Officer

OK. So -- thank you for the question. So for the first question about the rider costs, so basically the absolute -- we were talking about, like, the absolute dollar amount of the rider cost increase. So -- because generally, like the chain merchants' business was growing by 100 -- almost 150% year over year, so we will pay like more absolute dollar amount of the rider costs to the riders.

So basically, the order per -- the cost per order value is generally stable this year and also for the sales and marketing customer incentives. So, on a sequential basis, our consumer incentives is still maintaining like the same level, a little bit decreased compared to Q1 this year. And we also expect that on a sequential basis, consumer incentives given to the customers will be increasing in Q3 and Q4 this year. And also in terms of the operating cost as a percentage of the GMV of JDDJ, we also expect a decrease on a sequential level, not only in Q2 but also in Q3 in the second half.

Philip Kuai -- Chairman and Chief Executive Officer

Yeah. Just to add a little bit on top of what Beck just mentioned. So, if you look long term, in terms of sales, marketing, and customer incentives, I think one of the very productive thing we're now looking at is our partnership with JD. So, unlike what happened in the last few years, we need to acquire like brand-new customers for JDDJ.

Now as we are working closely with JD, so we are working together with JD to penetrate into JD's massive active user base. So, we envision that this partnership in the long term will help to drive down the sales and marketing and customer experience -- customer incentive dollars because those customers have already been JD's customers. So, as you might imagine that the acquisition costs or the conversion costs for those customers might be lower than the brand-new customers. And also, for the rider costs, the same thing, if you look the mid- to long-term, we are confident that with the increase of our order density -- as you can see that the growth of our Dada Now on-demand delivery business has been very fast, we are now serving more and more chain merchants.

At the same time, the other members of JDDJ have been growing very fast as well. So, the order density will also help to reduce the rider costs. The higher density, the more numbers of orders that riders can carry and can deliver in, like, a certain period of time. So, this will improve the efficiency and, therefore, reduce the costs.

So, to summarize, I think the -- if you look mid- to long term, the rider costs can be well managed, and the sales and marketing experience can be lower. Thank you.

Eddie Leung -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you.

Operator

Your next question comes from the line of Thomas Chong from Jefferies. Please ask your question.

Thomas Chong -- Jefferies -- Analyst

Hi. It's Thomas, and thanks for taking my question. I have two questions here. So, first, how should we think about the impact from COVID and flood to JDDJ and Dada? And my second question is that are there any changes we are seeing in competitive environment in [Inaudible] for our Haibo system? Are we seeing our peers also offering similar products? Thank you. 

Beck Chen -- Chief Financial Officer

Could you repeat the first question? 

Thomas Chong -- Jefferies -- Analyst

Yes. Yes. My first question is how about the impact from COVID and flood to JDDJ and Dada?

Beck Chen -- Chief Financial Officer

The COVID impact on JDDJ and Dada, right?

Thomas Chong -- Jefferies -- Analyst

Yes, COVID and flood in Hunan province.

Beck Chen -- Chief Financial Officer

OK. 

Philip Kuai -- Chairman and Chief Executive Officer

OK. OK. So, yeah, quick updates on the COVID and the recent flood in Hunan. So in the last few months, we have seen that occasionally in some cities or everywhere in China, we are seeing COVID cases, and we work very closely with local governments to provide the daily supplies and the on-demand delivery for the customers.

So we are -- so almost in every city, we've received a recognition from the government to -- basically giving us very positive feedback on what we have done to help the city and help the society. And certainly, we are seeing Dada customers are getting more and more used to ordering from online instead of going to offline stores all the time. So I think this, in the long term, will benefit us basically to help us to acquire and educate more customers. So this is something that has already happened in the last two years, and we expect this to continue to happen going forward.

And at the same time, this also helped to educate the merchants. So, therefore, we are now seeing almost -- like all of the top supermarkets have been already working with us. And also, we are seeing that more and more leading merchants from other industries are now turning to working with us. I think this also helped to educate the merchants.

Everyone knows that in order to deal with the COVID or to deal with the customer needs' shift, they have to transform quickly and digitally. So I think this also will benefit us.

Beck Chen -- Chief Financial Officer

And also for Q3 financials, we don't think the flood situation in Hunan will have any material negative impact on us. 

Philip Kuai -- Chairman and Chief Executive Officer

Yeah. And then your second question regarding the Haibo competitiveness. So, first of all, we're very proud that the Haibo system has been -- the value of Haibo has been recognized by more and more leading retailers. And at the same time, because of our neutral positioning of JDDJ because we are not a retailer ourselves, so that significantly help us as well in terms of penetrating into more and more merchants.

So, in the last quarter, we have now seen over 430 -- sorry, 4,300 active stores using Haibo system, and this number keeps going up. And at the same time, Haibo system has already been proven that's able to increase the efficiency of retailers' O2O business and also to increase their revenue from O2O business. So I think the Haibo system is unquestionably the most adopted and the most leading system in the market.

Thomas Chong -- Jefferies -- Analyst

That's very clear. Thank you.

Philip Kuai -- Chairman and Chief Executive Officer

Sure, thank you.

Operator

Your next question comes from the line of Alicia Yap from Citigroup. Please ask your question.

Alicia Yap -- Citi -- Analyst

Hi. Good morning, management. Thanks for taking my questions. My first question is related to the community group buy platform.

So, with the slowdown of many of these platform volume, have you seen any, you know, additional demand flowing back to your supermarket retail partners? Any qualitative comment on how the demand trend has changed over the last two months versus what you've seen earlier this year that you could share? And then second is how much, you know, in terms of the longer term the cost saving that you foresee the autonomous delivery could bring along? And how will the pricing, order margin structure that brings along with this autonomous delivery when it gets bigger scale? Thank you.

Philip Kuai -- Chairman and Chief Executive Officer

Thank you, Alicia. So, I'll give you my view, and I will see if Beck has anything to add. So first of all, the community group buying, I'll give you some data points. So in Q2, the GMV growth of JDDJ in a number of provinces that are most actively developed by community group buying, including like Hunan, Hubei, Guangxi, Jiangxi, and Shandong.

So in all those provinces, the GMV of JDDJ achieved over 100% year-over-year growth. So we are doing very well in all of those provinces. At the same time, as you probably have noticed that the regulators have now placed tighter regulation in terms of, like, unfair competition and also the antimonopoly, etc. So this certainly places a lot of pressure on the community group buying players.

And -- so we are very confident that in the long term, we will have more competitiveness. And also because we always believe that the supply chain capability is a key to win in this market and to fulfill customer needs, and we are able to work with all the local leading players to have the strongest supply chain capabilities and have the broadest geographic coverage, we can fulfill customer needs national wide with broadest SKU assortment. So, all those are incomparable by the community group buying players. At the same time, because we have one-hour delivery to much more efficient and much better customer experience than the next-day delivery, so this also helped us to differentiate ourselves.

And another thing I want to mention is that, for example, like, Meituan, they do both community group buying, as well as a platform business, which is quite controversial because for the retailers, they definitely will consider Meituan as a competitor in terms of a neutral player or a partner, right? So we have the position of a platform business only if we are neutral, and we only help the retailers and never compete with them. So I think this is also helping us to differentiate ourselves. So in short, we are quite confident about the competitiveness against the community group buying players.

Beck Chen -- Chief Financial Officer

Yeah. And also for more color, you know, maybe in the beginning of the year, some of the retailers are in fierce competition in their local Tier 3 or Tier 4 cities with the CGP businesses. And right now, I think most of those retailers are in much more -- much better position to grow their businesses. What we have witnessed is that for, you know, those retailers, their off-line businesses -- their overall businesses' gross margin is improving apparently, which makes them to be in a better position to further invest in the online businesses in the second half of this year and going forward.

Philip Kuai -- Chairman and Chief Executive Officer

Yeah. And also for the autonomous delivery, I will give my view and see if Beck or Jun will have anything to add. So we're quite excited to announce our open platform for autonomous delivery in the last few months. We have been working on this for quite a while, working very closely with JD Logistics along with a few other partners.

And we have already successfully launched the service with, like, Walmart, Sam's Club, 7Fresh, Yonghui in both Beijing and Shanghai. So -- in some districts according to the local government guidance. So, in terms of the process or customer experience, I think those are having -- dramatically improved over the last few months. And all those autonomous delivery are happening in the real environment and serving the real customers every day, every single day now.

And so we are confident that the customer experience is very good. And at the same time, we are seeing that the cost being improving along the time as well. And also, I think in the short term, autonomous delivery will be utilized to supplement manual delivery and to relieve capacity constraints especially during peak seasons or during the extreme weather conditions. And in the longer term, I think leveraging the scale, application of the autonomous delivery, we expect it will significantly reduce the cost of delivery in the long term. 

Jun Yang -- Co-Founder and Chief Technology Officer

Yeah, Alicia, I will add some color on that. So, right now, the trial run is still quite limited. And the whole ecosystem is in its very early stage. So, if you look at the cost per order, I think it's still relatively high because of the hardware cost, as well as the limited trial.

But we are seeing, you know, already a trend and also the projections to the hardware cost is going to go down quite significantly over the next few years. So, we are expecting, you know, in probably two to three years, I think, there is a chance that the costs will be, you know, lower than the human cost in a way. And another trend to watch out is the human cost in the next few years is expected to probably get even higher given what the population looks like. So that's why we are investing really early stage to making sure we can accelerate the commercial use of the autonomous delivery.

Alicia Yap -- Citi -- Analyst

Great. Thank you for the color.

Operator

Your next question comes from the line of Wei Fang from Morgan Stanley. Please ask your question. 

Wei Fang -- Morgan Stanley -- Analyst

Thank you. Good morning, Philip, Beck, and Caroline. I have two questions. The first is on the monetization side.

I saw that the total monetization rate seems to be stable quarter-on-quarter, but it seems like the structure has been changed. I noticed that the delivery fee as a percentage of GMV has dropped by something like 0.5 percentage point. Is there any particular reason behind that, that we are lowering the targets from the customers or it's just due to the mix of the other types? And the second question is on the cost side. It's still about the rider cost.

I'm trying to reconcile the overall, like, support, and fulfillment cost items. I have noticed that it seems like the cost -- rider cost increase is higher than what I can calculate from the JDDJ's rider cost increase and Dada Now's rider cost increase. So, I just wonder whether in the second quarter, are there any one-time or one-off items in the rider cost side, such as some special subsidy to riders during the pandemic or something like any one-time impact there? That's my questions. Thank you very much.

Beck Chen -- Chief Financial Officer

Thank you, Wei. So yes, for the first question about the monetization rate, so basically, the overall monetization rate is increasing by 20 bps on a sequential basis. And I also said that for the second -- for the third quarter and fourth quarter, we expect monetization to be stably growing on a sequential basis as well, in which online marketing manufacturing rate is increasing significantly to like 2.9% in Q2 this year versus 2.5% Q2 last year. And as you mentioned that delivery service fees or commission fees percentage -- as a percentage of the GMV is dropping a little bit.

This is mainly because of the mix of -- mix change about the product categories in Q2 and smartphone business is increasing relatively faster than the average and because their commission rate is lower than the average and their AOV is higher, much higher than the average platform AOV, so which means less orders compared to the other categories. And also, we will just receive less percentage -- less delivery fees as a percentage of the GMV of the smartphones in businesses. And we also believe that in Q3, the commissions and delivery fees as a percentage of GMV will be a little bit growing on a sequential basis compared to Q2 because in Q3, usually, this is a little bit slack season for the smartphone businesses. So the growth rate of smartphone businesses will be lower than Q2.

So the overall commission rate and the delivery services fee will be growing as a percentage of GMV, while we still maintain a relatively higher growth rate of online marketing, which makes a stably growing manufacturing rate in Q3 and Q4. And in terms of the second question about the rider cost, yes, there is like one-time issue. But basically, it's not a one-time issue because as we mentioned, effective from April this year, we successfully transitioned the business model of last-mile delivery services from a gross basis to net basis, but actually, it's starting from, like, mid of April. So accounting-wise, for the first half of April, for the last-mile businesses, we're still counting on a gross basis, which makes us have more rider costs in the operations and the support cost line because we need to pay some rider-related costs to the last-mile riders in the first half of April.

But for the rest of the quarter and also for Q3, there is no such issue.

Wei Fang -- Morgan Stanley -- Analyst

Thank you, Beck, for a very detailed answer. Thank you. 

Operator

Your next question comes from the line of Ashley Xu from Credit Suisse. Please ask your question.

Ashley Xu -- Credit Suisse -- Analyst

Thank you, management, for taking my questions. My first question is on the growth outlook for our Dada Now business in KA because in the past, we have seen this business growing quite well. So looking forward, what's our expansion plan and outlook on this from? And my second question is about the potential impact from social security requirement on the riders. Any recent updates or change on that front? Thank you.

Beck Chen -- Chief Financial Officer

Thank you, Ashley. Let me just take the two questions. So, for the first question about the growth rate of Dada Now, yes -- so in the first half of this year, the Dada Now key accounts chain merchant business is growing very quickly by 140% for the first half. And we also expect that I think today, in the second half, these businesses will be -- continue to grow at triple digit just like we mentioned earlier.

So -- and also for the next year, we also expect these businesses growing at a, you know, relatively higher speed. And we expect, right now, we are almost close to the -- like the top -- No. 1 player in the chain merchants services businesses. We expect that in the fourth quarter or like -- in the fourth quarter or early next year, our business volume in the chain merchants sector in China should be, like, almost the No.

1 leader. And in terms of the potential impact from the rider cost from the law, so the guiding opinions on protecting labor and social rights and interest of workers engaging new forms of employment was jointly released by eight central departments of the government in July. And we fully understand the government's policy to better protect flexibly employed social workers and are pushing forward with the implementation of the guidelines. So, you know, while we create a large number of flexible employment opportunities through our crowdsourcing network, we are also committed to safeguarding the rights and interest of Dada riders.

And specifically, in terms of the work-related injury insurance, we have been -- just like I think we have discussed in the last earnings call that we have been actively participating in discussion panels hosted by the government [Inaudible] and strictly stick to the principle of safety and protection. And under the guidance of the relevant authorities, we are also right now preparing for the test run or pilot phase of work-related injury insurance in selected provinces like Shanghai, Guangdong and Beijing and the incremental cost of purchasing the work-related injury insurance for riders is estimated to be like RMB 0.04 per order just like we mentioned in June. And we think this could be well offset by our increasing order density. And based on the opinion, authorities and local governments are formulating specific measures for different industry.

For example, for food delivery, the State Administration for Market Regulation, SAMR, subsequently took the lead in the formulation of the guideline to specify the responsibility of food delivery platforms and protect the rights of food delivery riders. So based on our communication with SAMR, the guideline released by SAMR is not applicable to us because we do not operate a food delivery platform and our riders do not work for self-owned food delivery platforms. So this is just, you know, right now the impact for us, and we expect that only RMB 0.04 per order on the work-related injury insurance will be well digested in our cost improvement next year.

Ashley Xu -- Credit Suisse -- Analyst

That's very clear. Thank you.

Operator

Your next question comes from the line of Robin Leung from Daiwa. Please ask your questions.

Robin Leung -- Daiwa Capital Markets -- Analyst

Hi. Thanks, management, for taking my question. Could management comment on the mix of the supermarket and non-supermarket contributions and as management set -- with a deepened cooperation with JD that will have more contribution from home appliances and cosmetics, should we expect the non-supermarket mix to increase meaningfully? And also what is the AOV this quarter? So, with the non-supermarket mix even higher, would that lift the AOV even more and given the subsidies are mostly spent on the supermarket category? So, when the non-supermarket category increased, should we expect that to benefit the margin more in the second half? Thank you.

Philip Kuai -- Chairman and Chief Executive Officer

OK. So, thank you for the question, Robin. So basically, for Q2, for the mix contribution, supermarket is contributing about 70% to the total GMV while the smartphone or 3C businesses, I would say, 3C, including smartphone and home appliances, is like around 20% of the total GMV. And with further cooperation with JD, just like we mentioned in the earnings call in June that we expect the non-supermarket categories will gradually continue to increase the total market share in our GMV amount.

And in terms of the average order value. So in Q2 this year, our average AOV of platform is about RMB 180, while for the AOV of the supermarket categories is still as high as RMB 140. And we think in the second half of this year, we should be still able to maintain like the higher AOV for our platform average and also for supermarket average. And you're right, so not only because of the mix contribution, but also we are slight -- gradually increased subsidy level or the consumer incentives given to the shoppers.

So our average cost percentage as GMV of JDDJ will be also slightly down in the second half. That's why for Q2 this year, our direct margin is minus 2.3% versus 2.8% in Q1 this year, which is improving by 50 bps on a sequential basis, while in Q3 we are seeing further improvement by like almost 100 bps to minus 1.3%.

Robin Leung -- Daiwa Capital Markets -- Analyst

Thank you. Very helpful.

Operator

I would like to hand the conference back to Ms. Caroline Dong for closing remarks. Please continue. 

Caroline Dong -- Head of Investor Relations

Thank you, operator. In closing, on behalf of Dada's management team, we'd like to thank you for your participation on today's call. If you require any further information, feel free to reach out to us directly. Thank you for joining us today.

This concludes the call.

Operator

[Operator signoff]

Duration: 67 minutes

Call participants:

Caroline Dong -- Head of Investor Relations

Philip Kuai -- Chairman and Chief Executive Officer

Beck Chen -- Chief Financial Officer

Ronald Keung -- Goldman Sachs -- Analyst

Eddie Leung -- Bank of America Merrill Lynch -- Analyst

Thomas Chong -- Jefferies -- Analyst

Alicia Yap -- Citi -- Analyst

Jun Yang -- Co-Founder and Chief Technology Officer

Wei Fang -- Morgan Stanley -- Analyst

Ashley Xu -- Credit Suisse -- Analyst

Robin Leung -- Daiwa Capital Markets -- Analyst

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