Q3 2021 Coupang Inc Earnings Call
Welcome to coupons, Inc. Quarterly earnings conference call for the third quarter ended September 32021, I'm pleased to be joined on the call today by our founder and CEO, Kim and our CFO gaurav on them.
The following discussion including responses to your questions reflects management's views as of todays date, only we do not undertake any obligation to update or revise this information except as required by law.
Certain statements made on today's call are forward looking statements you should not place undue reliance on forward looking statements actual results may differ materially from these forward looking statements. Please refer to today's earnings release as well as the risks and uncertainties described in our most recent quarterly report on Form 10-Q filed with.
The SEC on August 16, 2021, and then other filings made with the SEC for information about factors, which could cause our actual results to differ materially from these forward looking statements.
During today's call, we will present, both GAAP and non-GAAP financial measures additional disclosures regarding these non-GAAP measures, including reconciliations of non-GAAP measures to the most comparable GAAP measures are included in our earnings release, and our SEC filing each of which is posted on the company's investor Relations website at IR.
About coupons dot com and I'll remind you that these numbers are unaudited and may be subject to change let me now turn the call over to Bom.
Thanks, Michael and thank you to everyone for joining us today we.
We continue to extend our lead in the fast growing Korean E. Commerce segment, posting total revenue growth of 48% in the third quarter that builds on last year's massive growth for a two year compounded annual growth rate of 70%.
Our growth is underpinned by our expanding customer base and compounding customer cohort behavior.
Even against elevated Covid comps, we posted our 15th straight quarter of at least 20% year over year growth in active customers and spend grew at least 25% year over year for every annual customer cohort, including our oldest cohort from 2010.
Our strategy to build compound in customer loyalty and long term shareholder value is reflected in our core operating tax one we exist to deliver new moments of wild for customers and create a world where they asked how did we ever lived without coupon too.
We don't start with what looks easy we embraced the hard work of challenging tradeoffs customers take for granted three we will employ technology process innovation and economies of scale to create amazing customer experiences and drive operating leverage and significant cash flows over time for <unk>.
Prioritize growth in long term cash flows.
We are disciplined capital allocators, we start with small investments then increase investments over time and the opportunities with the best long term potential.
The opportunity of the Korean market remains as attractive as ever the total retail market in Korea, excluding autos was up 10% year over year in Q3 and boasts a two year CAGR of 5%.
Bolstered by the broader retail market tailwind. The total ecommerce segment grew 20% year over year in Q3 and E. Commerce. Excluding travel has now grown at least 20% for 12 straight quarters.
The Korean E. Commerce segment is on track to reach annual sales of approximately 200 billion.
By 2024 and is projected to become the third largest in the world after only the U S and China.
Even at our scale as the leader in Korea ecommerce, we continue to grow at a multiple of the E Commerce segment.
Our growth is broad based with all of our offerings growing at least twice as fast as their respective segments.
The backbone of our sustained growth is our strong customer retention and engagement, while members who spend and purchase frequency are significantly higher continue to grow faster than active customers. The number of active customers buying across six or more categories has more than doubled from just two years ago further.
Evidence of our strengthening flywheel.
The result is that the customer spend for our newer cohorts is starting higher and compounding faster, what's more the 25% or higher growth across every one of our annual customer cohorts did not reflect the full customer demand that we saw in Q3.
Korea imposed level for Covid restrictions starting in July stricter than at any point in the pandemic contributing to a decline in attendance in hiring at our facilities.
The shortage was exacerbated by the loss of one of our largest fulfillment centers to a fire in June and continued operation Center closures due to Covid cases.
We sacrifice some growth by taking measures such as not accepting orders beyond daily capacity to preserve our delivery promise to customers.
In doing so we maintained the average market delivery times under 12 hours and delivered nearly 99% of orders in one day.
We're investing to expand capacity to keep up with high demand and extend our competitive mode.
We increased our fulfillment and logistics infrastructure footprint by over 8 million square feet year to date through Q3 and will add millions more over the next year for.
For context, we've now added as much square footage of infrastructure since the beginning of 2020 as we did in every year prior to 2020 combined.
This includes a significant expansion for our fresh offering which has been particularly capacity constraints as COVID-19 started and accelerated adoption.
We are on track to double our fresh fulfillment center footprint in 2021, and we believe we now have more than doubled the total infrastructure footprint of our largest off my fresh competitors combined.
We're cautiously optimistic that attendance in hiring will rebound much as they did after the government relax the previous round of restrictions in early 2021.
In addition, our operational teams are focused on enhancing recruiting processes and making technology improvements that we believe will also help scale, our workforce with greater efficiency in the future.
Amid these strong demand tailwind our underlying profit drivers are also improving with scale.
Retail product level profit before operational costs has increased in each of the past six quarters.
Our highest profit categories are also growing the fastest.
We're still far from entitlement on both margin and mix and we see a long runway for continued improvement. Our monetization efforts are also gaining traction advertising revenue nearly tripled year on year in Q3.
Still in the early innings and expect advertising to contribute significantly to margins in the future.
Other merchant services are also showing promise merchants beta testing, our fulfillment and logistics offerings are seeing a significant sales uplift.
And we expect fulfillment and logistics by coupons to become another meaningful contributor to profits over time.
These improving profit drivers were obscured by short term disruptions and timing of investments first we invested approximately $95 million in incremental labor and operational costs. Following the increase in COVID-19 cases, and heightened restrictions in Korea in Q3.
Second a higher percentage of capacity was underutilized due to the timing of infrastructure investments for example, as part of our aggressive expansion efforts in fresh nearly half of our fulfillment centers and fresh recently opened or are still under construction.
These centers generate little to no revenue today, but account for a sizable portion of our fresh investments. We believe this capacity will enable us to capitalize on the massive demand for our offerings drive strong future growth and improved profitability as we scale.
Third.
We're also investing in while membership benefits expanding our free shipping services and delivering more orders by same day or Don delivery.
Rapidly growing share of orders by while members creates higher costs in the short term.
But over time as this share stabilizes, we expect cost per order to improve as operating leverage against fixed costs will only continue to grow with scale.
Meanwhile, the higher loyalty and engagement from these differentiated experiences will further broaden our customer funnel and accelerate our flywheel.
We've also seen some productivity decline as we add record levels of capacity and reduced delivery times for an increasing number of orders in the current environment.
We have seen similar dips in past periods of heavy investment.
As was the case with previous investment cycles, we expect to ramp up our new facilities drive process improvement and leverage increasing order density and other economies of scale to improve unit costs over time. Additionally.
Additionally, we have significant opportunities to amplify efficiency gains with continued investment in technology and automation.
Our size and scale put us in a unique position to make such investments and in doing so further differentiate our offerings for customers while building on our structural cost advantage.
We're also excited to continue investing in our most promising new offerings demand for fresh has outpaced capacity for much of the past year. As I noted we are aggressively expanding to capitalize on that opportunity and expect significant operating leverage as we grow into the new capacity fresh is following a similar trajectory as rocket.
Which gained leverage on investments added scale and turned profitable in time.
Each is much earlier on that Jordan, it's been our fastest scaling major offering marked by strong customer adoption and retention.
The order frequency for our early cohorts, where we first launch is now approaching the same level as while members.
And we're increasingly confident in the long term profitability that gives us conviction to continue to invest in the near term to scale.
In closing, we're encouraged by the underlying trends of the business and confident that continuing to execute our operating principles will lead to significant shareholder value creation in the long run now I will turn the call over to <unk> to go through the financials.
<unk>.
Reported revenue growth of 48% and constant currency growth of four people person were driven by strength across all our product offering.
Net revenue exceeded $500 million on the first time in Q3.
Increasing nearly 30% below a year.
Led by each and advertising offerings.
The flywheel, we ignited with our <unk> offering continues to strengthen and it is fueling strong growth in CP and our new product offerings.
And we expect that momentum to only be.
Quarterly active customers.
Kris when people listen in Q3 was $16 8 million.
Year over year growth returning customers has been and remains consistent we wont go into <unk> and <unk> one.
And customers and engagement is rising.
Customers buying across more categories and are nothing new offerings.
Revenue per customer grew 23% in Q3, driven by a compounding spanned across all our customer requirements.
Even our oldest.
Cohort grew over 25 countries.
Further evidence that we still have significant potential to cap Gen. One.
We were less aggressive on customer acquisition this quarter to predict the expedient on existing customers.
What's best for our customers drive loyalty and engagement and we believe that is the best long term approach.
We are still very early in our growth potential with the opportunity to more than double on active customer down overtime as we systematically penetrate there could be 7 million active internet choppers and Kodiak.
As Bob noted, we enlisted nearly $95 million and incremental labor and operations to service as much demand as possible in the face of the COVID-19 related headwinds.
This included increased operations costs.
Keep our employees safe and healthy.
And I hadn't Walter incentives and recruiting cost to navigate the labor constraints.
When Covid cases, bi and restriction increased in Q3 last year.
To a similar increase in cooling and related costs.
These cost declines in the <unk>, we're losing in the first half of 2021.
While we expect these labor and operating investments we remain elevated in Q4, we believe that temporarily and expand the boss can diminish when COVID-19 conditions normalize.
Moving down the P&L.
Gross profit increased 62% below.
$755 million in Q3 with gross margin expanding 130 basis points to 16, 3%.
Prior to Covid, our gross margin was approaching 20% and our mainline unlimited gave us an even stronger great.
Incremental COVID-19 related costs and.
And investments, we expand infrastructure and gone wrong corners obscure.
On the progress.
But we are confident that as these short term headwinds.
Unlock meaningful margin expansion.
The increased adjusted EBITDA losses in Q3.
To keep blue Diamond really spend from the incremental COVID-19 related labor and operations costs.
Excluding such costs from all periods. The Tpa adjusted EBITDA margin was similar to the margin in the first half on the yield.
Investments to scale fresh and E <unk>.
And to develop new long term growth initiatives continue to drive the balance on the adjusted EBITDA loss.
And by increasing profit from our mature offering.
Trailing 12 month operating cash flow was negative $197 million in.
In the current quarter due to higher losses in a more or less working capital and then.
Working capital reflects less management from accounts payable.
Our cash conversion cycle is unchanged and we expect the combination of the level of working capital dynamics in our business and improving profitability to drive healthy cash flows over time.
With nearly $4 billion of unrestricted cash on our balance sheet, we are well positioned to invest aggressively to <unk>.
<unk>, our lead ingredient e-commerce.
And capitalize on the significant demand for our offering.
And we are excited to build on our momentum and continue driving strong growth for many years to come.
Operator, we are now ready to begin the Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Please.
Please limit your questions to two per person.
Pause for just a moment to compile the Q&A roster.
And your first question comes from Eric <unk> with Goldman Sachs. Please go ahead.
Yes, hi, thank you for the opportunity.
I think you mentioned in your presentation.
That was disclosed earlier, there was a $95 million incremental labor and operational costs.
<unk> related to COVID-19 issues.
I think that's probably a fresh to the capacity issues that you flagged during the last quarter earnings call and I'm. Sure. This also may have partially affected the companys top line as well.
Considering the Companys philosophy for the consumer experience.
So I think the key question that everybody has now is are you seeing some improvement into the fourth quarter.
And if not when do you expect this to be alleviated.
And normalize the situation not only the cost, but the topline growth.
To its full potential.
My next question is.
Pretty sure.
And people will be wondering about this as far as the active customers today.
Year over year growth still looks pretty solid, but if I'm not mistaken. This would be I think for the first sequential active customer decline for the company. So can we get some color on this please thank you.
Alright, thanks for the question.
Youre right there was some.
Effect on the top line as well.
Not only affected our revenue growth, but also reflect the effect of our active customer growth first thing on the active customer point as you point out it was still strong growth year over year, 20% year over year growth.
It did not reflect just as our revenues now reflect our full demand.
Sacrifice to preserve customer experience several percentage points of revenue growth by our estimates we sacrifice at least five percentage points.
<unk>.
And.
It was.
<unk> gone through measures such as not taking orders when we reached our daily capacity, it's a difficult decision in the short run but for US. It was an easy decision for the under our operating principles, we made difficult choices like this in the past.
It preserves the long term customer trust.
It's one of the reasons you see our customer cohort compounding at the rates that they are.
Yes.
And even in spite of.
Of that constraint.
We still saw.
Not only strong growth in active customers.
But we are growing at a multiple of E. Commerce overall growth rate, we're capturing a higher percentage of every incremental dollar of growth.
Than we ever had Q3 recorded the highest share more cents per dollar of incremental growth than in any quarter in our company's history.
As for how long this will persist it's.
It's difficult to say.
We've been through these cycles before.
As you know Eric last 2020, when restriction levels were heightened in Q3, we saw the same impact on similar impact on our labor on our hiring and our tenants.
As restrictions are loosened and.
And social unease and concern decline cases decline, we saw a return to normalcy and I think that's a very different phenomenon.
That's the difference between Korea for example in the U S is that we've been through a cycle, where we've seen glimpses of normalcy in the early part of the year when things return.
So our sense of normal normalcy, we saw those constraints on labor, particularly of hiring an attendant dissipate.
As the restrictions have been loosened as of November one, but cases still remain high so in the near term I think the situation still remains very fluid.
But we are cautiously optimistic in the long run.
That we are going to see the kind of return to normalcy that we saw a glimpse of earlier in the year.
But we're also not resting in.
Assuming that that will take care of all the issues.
Even though in the near term we face that uncertainty.
We continue to make investments in process improvements recruiting for example that we think will help us scale more efficiently.
There will also been.
Efforts projects on automation and process improvement that's the source of capacity increase.
Some of those projects have been.
There have been delays because we've been trying to keep up with record demand over the last couple of years. So we'll continue to make investments in automation and process improvements that we believe will help us scale our business going forward certainly again that takes time it will take several quarters, but over the next over the long term.
We are optimistic cautiously optimistic that the current constraints will be.
We will be transitory shortfall.
Yeah.
Your next question comes from the line of Suzy Li with Bank of America. Your line is open.
Hello, Thank you very much for the opportunity I have two questions.
The profitability well I recall that during the second quarter earnings call last time, you mentioned that the EBITDA from traditional e-commerce business. So.
Excluding coupon fresh and coupon E.
Almost.
Uh huh.
Even so.
Wondering back.
Thanks Sachin.
Trends continue hopefully in third quarter.
<unk> E Commerce business was able to trying to profit in EBITDA line. So that is my first question and then the second question is about coupon E I think.
Investors are quite interested in.
Our initiatives in coupon oops, sorry, the market share gain.
Sir.
Indicators that I did.
Management could share with us to help us better understand.
Hi.
Our presence in this market right.
Could be traffic or numbers or years or probably the best indicator would be a market share in terms of GNP.
GNP, Hawaii two grams, Oregon found you.
It can share will be super helpful. Thank you.
Thanks for the questions I'll start with the second one first on <unk>. It continues we continue to see great momentum in that service. It remains our fastest growing service in the company's history.
We shared in the earnings release.
That.
Customer adoption, we're excited by the momentum we're seeing there the eats app as an indication was the most downloaded app in all of Korea on iOS and the second most downloaded app and Android all of 2021 to date.
The only app, that's been downloaded more than our coupon eats app, which was on Android is the government release App for Covid vaccine.
And what's actually more encouraging does that then even the adoption is the retention that we're seeing.
Which we think is always a reflection of the customer value proposition that we're still working we are still far from where we want to be.
We believe we're focused on creating the best experience at the lowest cost and the retention levels that we're seeing in our customer the customer cohort compounding frequency increases are all moving in a positive direction in fact in our earliest.
In our earliest.
Areas, where we launched earliest cohorts.
Seeing now the frequency approaching that of Wow member frequency, which is exceptional. So we're very excited by the momentum there. It's still early we're still focused on improving our customer experience our value proposition around selection service and of course cost structure, which allows us to benefit customers.
Well as merchants.
To your first question around profitability.
The underlying drivers of profitability are improving.
And as you pointed out there are some short term noise.
Quarter to quarter, there's always some noise that might obscure the improvements that we're seeing in the underlying profit drivers.
Short term disruptions like Covid as you point out timing of investments overall.
<unk> remained consistent if you exclude.
Covid impacted $95 million.
<unk>.
Fresh and east continues to be our focus for investment mature parts of our business are investing.
We're able to take the cash flow from mature investments mature offerings and reinvested in areas like fresh meat and of course, there are there's additional initiatives, there's international small amounts of new initiatives like international.
Fintech and so forth.
We continue to make but the overall dynamics.
Our moving into right direction timing of investments as we mentioned we have a record level of capacity that we're building out. So we have a higher rate of underutilized capacity.
Fresh for example, nearly half of the facilities are under construction or just opened so producing no revenue those things will be positive.
Sources of strength for us over the long term, allowing us to create a better experience continues.
Expand our.
Value proposition to more customers, but create some.
The noise in the short term that might obscure the improvements that we're making.
Your next question comes from the line of Stanley Yang with Jpmorgan. Please go ahead.
Thank you I have two questions first question is about <unk>.
Margin pressure so.
So you attribute it to module fresh it's COVID-19 shows in labor and logistic cost pressure.
But how about this competitive landscape perspective, the computers are trying to catch up to faster delivery logistics capabilities.
This another vision of structural pressure.
In the midterm.
And also separately when do you expect each business to reach breakeven EBITDA.
EBITDA and with scale.
And the other.
My question is actually the.
No just the capacity so.
On chat with you.
This guidance of 50% growth of the footprint.
Sinter capacity.
Over the next one year.
And when do you think.
Your <unk>, putting in service to meaningfully take us.
Those are my questions. Thanks.
Certainly your last question was that around <unk> or sorry could you repeat your last question again.
Sure I didn't hear so deep.
Oh sure sure.
Actually the three key themes.
So this is now nicely.
Now on the testing stage.
Is that enough.
We was demonstrably anticipating meaningful take up rate when it's going to be the timing.
Yep Yep got it got it no. Thanks. Thanks for the question. So there is several things.
Unpack there on the competitive front.
Did not see we saw virtually no impact from competitive factors.
It's safe to say from our perspective more so than at any point in our company's history.
We think the drivers of our business are unaffected by competition as you saw our demand was not was not constrained.
It was really our capacity.
This past quarter, we reduced efforts too.
Acquiring new customers for example, because we are trying to protect customer.
Our experience.
Now there are 37 million new customers, we're well on that track.
We've had periods like this where.
We've learned leaned into more customer acquisition other periods, where we can get back this was a quarter, where we lean back because we want to protect customer experience.
So it hasnt been demand constrained it really has not reached.
We did not see that in fact that as I pointed out we are seeing more momentum in terms of taking share of every incremental dollar growth in the market.
On the each front.
<unk>.
We've been encouraged when we've had projects trying to optimize.
Our efficiency there.
The gains that we've been able to drive.
We've also been able to leverage technology and processes that we built for e-commerce.
Whether it's around labor management route optimization and so forth.
To improve that efficiency. We also think there are the same structural.
Tailwind or theyre, increasing orders economies of scale from that order density.
Those factors are still applicable there so.
We're excited about that character that trait of each.
We also have plans in the long run to generate more synergies between our core ecommerce.
Just as we've been able to share the economies.
These are scale from our.
Our core commerce with fresh.
We believe there are opportunities to share core ecommerce is.
Economies of scale with eats as well, but it's still very early in that journey.
<unk>.
We're focused on building the right customer experience.
And making sure that it can get to.
Some critical scale, where we can build operating leverage on the logistics capacity.
And growth I think <unk>, you can talk a little bit more about that we've been adding record capacity, we're leaning into what I believe.
Gore can add more color there the three let me quickly address the three people.
I think that what you asked a number of questions just to make sure I get to all of them.
That's been as you pointed out in beta testing.
We've done that to build confidence and also to understand exactly the needs of.
The merchant.
And operations to scale.
We're coming out of our efforts this year in beta testing with very high conviction around this offering <unk>.
Merchant, who have participated in our services and our test services has seen significant sales lift, particularly small medium sized enterprises.
So very encouraged by that.
We think.
We think the value proposition for customers as well as for merchants is very clear.
We're focusing on building the right technology.
And building the capacity to scale this.
That won't happen overnight, we now have a much clearer understanding of exact requirements. That's feeding that we're scaling up our efforts to build the right technology tools to scale. The service capacity as you know we're building out for core, but we're also going to be adding more capacity buildout for Oklahoma in logistics by coupon.
So in the near term.
Really focused on we're focusing on building out those underlying capabilities to scale fulfillment logistics by by coupon.
Youll see.
You'll see it start to become a meaningful contributor.
The business.
In the second half towards the later part latter part of next year towards the end of next year certainly over the long term. We expect this offering to be a meaningful contributor to the top line as well to the bottom line.
And.
To answer your question on capacity buildup we.
Have been about 8 million square feet of capacity just year to date.
And since 2000 B we have.
Based on <unk> capacity.
Again in the multiple years prior to it.
Continue to invest significantly, especially in the context of.
But the minimum.
The merchant services Optum and in logistics.
We would be actually building and continue doing this more.
And what that could be call.
<unk> been capacity constrained Walter Im not saying, 1% that <unk> been capacity constrained on that.
The ability for that going into next year.
Your next question comes from the line of <unk> <unk> with CLSA. Please go ahead.
Yes.
Hi, Thank you very much for the opportunity. So I have two questions as well. So the first one would be whether we could have some update of where your overseas expansion plans and share a little bit in terms of how youre experiments in markets, such as Japan Southeast Asia progressing at the moment and our near to a point, where we were.
Become more aggressive in some of these markets in terms of investments.
My second question is related to the growth outlook and apologies for being a bit more short term sided but what would be your sort of growth outlook in terms of revenue over the next six months I mean on top of the constraints that you have mentioned earlier, we are seeing a bit of a deceleration in revenue growth and partially that's because of the high base, but.
Korea offline space also gradually opening up Covid policy have now turned more with COVID-19 problems here with Covid. There are we going to see more continued deceleration into the year and into first half next year and what will be the degree of such deceleration would be thank you.
Thanks for the question I'll start with the second one first I think you pointed out that there is some.
Deceleration as we mentioned.
Our growth did not reflect the full demand.
We took active measures to protect customer experience now that operating principle, we will continue to apply in future quarters. So we will continue to take steps to protect our long term customer trust even at the cost of short term. So our overall philosophy is to not maximize growth quarter to quarter and fab.
Actually if you look at our overall.
Business.
To answer your to address your question about what it looks like over the next few quarters or if this is really an amalgamation of several offerings at different stages of its lifecycle.
The one we shortly will take make the decisions that optimizes for long term customer loyalty and long term.
Value maximization and free cash flow over short term growth.
But we also have certain.
But we also have offerings and services there are different stages of the lifecycle.
And any quarterly snapshot is really an aggregation of these different.
Offerings.
With different strategies. So for example, certain offering line, we're going to be leaning into growth aggressively even more so.
There are other service lines, where we may be focused on testing and building conviction.
There are other operating lines that are more mature that we now need to build the operating efficiency the excellence build operating leverage.
To start generating.
<unk> meaningful cash flows.
We make the analogy internally that many of our offerings are like kit.
There are some kids were toddlers, where were just focused on getting them to be big and healthy.
Physically been healthy, but there are other.
Kids that are in college that.
At our more mature.
And we need to now build the capabilities for them to become contributing.
<unk>.
And.
And really any quarterly snapshot is going to be a.
<unk>.
These multiple strategies.
But what you should see over time is that not only are we growing areas of investment.
Leaning in when when.
When we know that we have to get to a critical scale. Many of these offerings have to get to some critical scale to generate those operational efficiencies there's economies of scale.
We also should now start to see us consolidating some of that.
The gains from that growth.
Certain service offerings reach maturity.
Get operating leverage.
And we've had these periods, where youll look at our company history, even with the market, where we leaned in to getting to that critical scale in mass.
And making sure that we.
We turn our focus to generating Victor to create that operational excellence the now to create that leverage.
In spite of all of that so I can't predict for you exactly because we don't manage to a quarterly growth rate.
I can't predict for you what it's going to look like on a quarter to quarter basis, but I can tell you that that's the overarching trajectory arc of our of our business and even in spite of us taking those measures.
Taking and taking measures such as.
Sacrificing short term growth, we're still growing at a multiple of the E. Commerce segment this past quarter.
I think that we are in a lot of that is driven by our compounding cohort.
Our compound and customer cohorts, our oldest cohort I don't know if this came through enough our oldest cohort, which is 11 years old.
Still grew and spend over 25% this past quarter, even with those constraints that we talked about.
Every single one of our ports are compounding at an extremely fast rate.
Thats because of the investments we've made.
The hard decisions that we make for the long term that we think are ultimately beneficial to not only customers, but the business and shareholders.
And we also.
We will continue to demonstrate that we do consolidate gains from that scale that we're able to grow the operating leverage.
And we're continuing to make progress.
For our mature offerings towards the entitlement.
Profitability of those of those.
Services and offerings as well.
On a related note on overseas expansion that happens to be in an earlier life stage cycle, that's in our more nascent stage.
Spend some time exploring those market we continue to be very encouraged about what we see we see opportunities to create wow experiences for customers.
Very reminiscent of the kinds of opportunities we saw when we were at the earlier part of our journey in Korea.
But it's still early and we're still building out testing building out the teams.
Making sure that.
Youll start to see is you'll always see a start with small investments and grow investments as we learn more and build more confidence. That's the disciplined approach we've taken with all of our investments and we'll continue to take with our international as well.
Your next question comes from the line of James Lee with Mizuho. Your line is open.
Great. Thanks for taking my questions two questions here.
The impact of your warehouse fire did you have to incur additional costs to rent temporary warehousing.
To the extent that you can maybe quantify that cost and also secondly on competition can we get an update on that are you seeing your peers, maybe ramping up capacity investment to catch up to your capability.
Thanks for the questions.
Warehouse side as you pointed out we.
We did have to take.
There is always capacity when you add on short notice.
It's going to be inefficient.
If any unplanned capacity that you add last minute tends to be less efficient it did lead to some inefficiency in.
In the network.
Tom.
And over time that will be replaced with more permanent capacity.
With better automation.
More improved.
Processes.
So there was some short term disruption as you pointed out.
And there is a short term disruption not only with that kind of last minute capacity, but with any kind of additional capacity. We add for example, with bright fresh as we're adding capacity it wasn't plan.
Here's the customer demand is high and we're trying to minimize the.
The negative impact of of course also not taking orders for example.
But we're working our way through that and.
And we will continue to improve not only the efficiency of our operations within specific warehouse, but also the network inefficiency that comes from sometimes.
Unplanned capacity last minute capacity additions those things we have seen.
Iron out over time.
On competition.
I can't say this with enough emphasis we just have not seen.
Any impact from it nobody has come.
Unmatched investments just to give you a sense of we've added 8 million square feet of fulfillment infrastructure net of the loss of capacity from the fire for example.
This year so far.
We have.
<unk>.
Justin.
Overwhelming massive capacity advantage.
I don't believe anybody has given.
Come closer announced that Theyre, making any investments close to the investments we're making.
So yes, we.
We spend the only.
It's been very very little time.
Thinking about external factors most of our almost all of our time is really focused on the things that we control the things that we have to do to.
To serve our customers.
And frankly keep up with the demand that we know.
Is waiting for us.
And our last question comes from the line of John Yu with Citigroup. Please go ahead.
Hi, Thank you for the opportunity to ask questions. My question is also about the capacity constraint in third quarter I would like to understand more details, especially if it was more related to labor.
One more related to physical assets like warehouses.
Also recently local crisis, highlighting that there is a shortage of keep walkers and sell and nearby metropolitan cities due to the increased demand from food delivery players and also e-commerce warehouses. So it'll be helpful. If you could elaborate more on how coupon flex is managing the labor shortage.
And the increase of the daily rate to hire enough number of the key well Chris. Thank you.
Yeah.
Thanks for the question John.
So the capacity constraint was both physical and labor in the case of fresh for example, we experienced both in physical capacity is something that we're focused on adding I think to the earlier question as well just to give you a sense.
We are in fresh for example, we were doubling we're on pace to double our physical capacity this year.
We believe now we have doubled the physical capacity of our closest competitors combined double that.
Continuing to build on that.
It was not enough to keep up with.
The full demand.
So there is of course, a physical component of it we're investing in it we're ramping that up.
Aggressively.
About half of our facilities in fresh or are under construction or just opened.
And.
We're not.
<unk> our investments on that front.
Labor and then the labor, we've talked about labor from Covid disruptions and so forth we seem to export through the cycles. We hope it will rebound, but we're also taking steps to there again too.
We're continuing to beef up our.
Our improvements on recruiting or.
Our resources dedicated recruiting as well as two.
Efficiency improvements automation.
It also help us.
With capacity going forward.
On the on the <unk>.
Workers' capacity side.
I think some important context to set it.
At least in the Korean market is that this is different from the U S and I think even Europe in the sense that there isn't a huge ride hailing industry here.
So youre not seeing one of the biggest.
Employers of good workers it tends to be a huge chunk of that supply outlook is usually ride hailing.
There isn't that there.
We continue to be.
So thats a positive comp.
Context, so theres a lot of I think the penetration is still lower.
As a percentage of the total workforce labor.
Compared to other markets, where ride hailing and other services have taken a huge share.
Each which is still even in food delivery, we are the largest logistics food delivery service in the market.
We're the largest importer of.
Of those we delivered right it's still early for us so.
So I think there is still we believe that there are no macro constraints. So far of course, it's still take investment to build that pool.
So we're continuing to make investments in building that pool.
But so far we haven't seen.
The kind of macro constraints.
That.
That one might see I can sooner and more mature.
<unk> and other markets.
There are no further questions at this time. This does conclude today's conference call. Thank you for your participation you may now disconnect.
Okay.