Laundry Dilemma: Outsource or Build In-House

Topic Guests:

Yao Zongchang, Founder of Taidi

Yu Haiyang, CEO of Drycleaner

Mike, Head of Information Department at Tiantian Laundry

Li Jingjin, Chairman of Yibeijie

Pan Wei, Executive Deputy Director and Secretary-General of the Professional Committee of Laundry and Dyeing of China General Chamber of Commerce

The online laundry brand Taidi, which secured three rounds of financing in half a year, recently launched a flower delivery service. Founder Yao Zongchang clearly told Southern Metropolis Daily that what they really want to build is a 24-hour on-demand service lifestyle platform. As for laundry itself, which serves as the entry point, it is completed by integrating offline laundry suppliers. It is understood that many in the industry adopt this light-asset model. However, from the perspective of traditional laundry companies, they are not necessarily willing to be just suppliers. Guangzhou's long-established laundry chain Tiantian Laundry recently declined a cooperation invitation from an online laundry company. Mike, head of Tiantian Laundry's information department, explained that using only the other party's logo for packaging and promotion actually weakens their own brand. "Embracing the internet, we prefer to develop our own online platform," he told Southern Metropolis Daily.

Offline Laundry Not Buying In

Online laundry currently focuses on two models in the washing process: building their own central washing plants or connecting with existing washing suppliers. Yao Zongchang analyzed that professional matters should be left to professionals. Traditional laundry businesses have been operating for more than ten years and have accumulated their own set of experience, which internet companies cannot surpass in just a few years. Therefore, he does not intend to disrupt traditional laundry but to build an online platform to bring more orders to partners.

Pan Wei, Executive Deputy Director and Secretary-General of the Professional Committee of Laundry and Dyeing of China General Chamber of Commerce, believes this model is feasible. He told Southern Metropolis Daily that many traditional laundry brands intend to transform to O2O, but since they operate on a franchise chain model, franchise stores operate relatively independently, and headquarters generally do not build unified online platforms, so there is room for cooperation with third parties.

However, Tiantian Laundry, which has dealt with online laundry platforms, has a different view. Mike, head of the information department, told Southern Metropolis Daily that small companies focus on order volume, but for large companies that have reached a certain scale, brand enhancement is more important. Looking at several online laundry platforms in the market, none highlight the washing service providers, and all users acquired belong to the platform's brand. Such cooperation is not very attractive to them. "From what I know, some franchise chain peers have cooperated with third-party platforms, but the relationship is loose, and whether it can be maintained is questionable. Frankly, our laundry companies do not have to rely on others to 'go online.'" He revealed that Tiantian Laundry will launch internet products in the second half of this year.

This is also the issue considered by Drycleaner, which chose to build its own central washing plant. Yu Haiyang, CEO of Drycleaner, admitted: "If you leave all the laundry work to others, they might as well do their own laundry O2O. After all, the online part can be done with money." When Drycleaner replicates in other locations, they also integrate local suppliers but take over the original factories and operate according to their own procedures. "In short, we must wash the clothes ourselves; this is the core," he told Southern Metropolis Daily.

Mixed Feelings About Competing on Low Prices

Regardless of the model used to enter the laundry market, online laundry competes for market share with low prices.

Taidi has launched promotions such as the first order free, e-bag wash for 99 yuan per bag, and Drycleaner recently announced a flat rate of 8 yuan per item regardless of the clothing type. "This is cost price; internet companies should not have high profit margins," Yu Haiyang told Southern Metropolis Daily. He said this move is particularly effective! After calculating washing costs, packaging materials, and operations, he believes profitability can be achieved after scaling up, so the 8 yuan laundry is not just a gimmick.

But this move seems almost crazy to traditional laundry industry insiders. Mike gave an example: excluding washing costs, packaging for a shirt already costs more than 15 yuan if done well; for a suit, to ensure the product is not damaged, packaging costs reach 30 yuan, plus the most significant logistics costs. No matter how large the order volume, prices cannot be pushed that low. "After calculating all process costs, the laundry industry's gross margin is actually not much. We will not follow the trend to engage in price wars," he said.

Li Jingjin, Chairman of Yibeijie, shares a similar view with Mike. In fact, as Taiwan's largest chain laundry brand, Yibeijie entered Shanghai and launched laundry O2O at the end of last year, also capturing the market with low prices. However, he made it clear that this is only a short-term promotional behavior. Continuously burning money to pursue the low-end market has a bleak future; for consumers, no matter how low the price is, if laundry quality is not guaranteed, they still cannot be retained.

Topic 1: Comparing Integrated Laundry Suppliers and Self-built Central Washing Plants, Is There Really a Big Difference in Laundry Quality?

Yao Zongchang: Before Taidi was established, we conducted in-depth research on washing plants. We have our own set of standards for suppliers, and we only cooperate with suppliers who strictly follow Taidi's standards. In addition, Taidi has an elimination mechanism for suppliers; those who perform poorly will be eliminated.

Pan Wei: As a light-asset laundry platform, it is necessary to pay attention to the washing quality of partners and have a set of supervision and evaluation systems. I know that some online laundry platforms have achieved good cooperation with franchise stores of first-tier brands. Besides that, I think some small laundry shops can also cooperate. Their washing technology is not bad; they just lacked sufficient funds before and could not expand capacity and sales. If a third-party platform is willing to integrate them and bring more orders, they will be very willing.

Li Jingjin: Finding good laundry suppliers is not easy. First, first-tier laundry brands may be unwilling to cooperate. If you look for washing plants, they have their own work and will definitely prioritize their own orders during peak seasons. If you look for laundry shops, it is even more troublesome. They are not standardized, and compared to washing plants, single shops have weaker capacity and quality. Without good OEM, how can quality be controlled?

Topic 2: Traditional Laundry Consumers Cannot Know the Laundry Process; Can Online Laundry Improve This?

Yao Zongchang: Currently, our App can track the entire process but only at major nodes, such as receiving, washing and care, sorting, and delivery. We still need to improve this by adding more nodes so users can know the location of their clothes at any time, which is an effective way to enhance user experience.

Mike: If it's just simply describing which stage the clothes are at with text or pictures, it doesn't really have much meaning. Because laundry is highly specialized and each piece of clothing is non-standardized, if users are not clearly informed about the laundry process, it can easily cause misunderstandings or even complaints. Therefore, we plan to make it visualized, allowing users to understand the status of their clothes in real-time through video, essentially participating in the entire laundry process. This service is for all users, whether washing a single shirt or a full suit. Of course, the investment cost is very high, and for us, it is more about word-of-mouth marketing.

Pan Wei: I think it depends on the category. If it's for luxury goods laundry, real-time tracking can make consumers trust more, but for ordinary clothes, it's unnecessary; general process tracking is enough. After all, visualization investment will greatly increase the company's costs.

Topic 3: With the market engaging in such price wars, how much profit space is left?

Yu Haiyang: Pricing for laundry involves market competition considerations. But we are not engaging in price wars; we are just stimulating a large amount of potential demand by compressing gross margins. Simply put, we use internet thinking to cultivate the market first, increase volume, and don't worry about profitability.

Mike: Logistics costs are a reality. If the clothes are cleaned well and there are no other requirements, going towards the low-end is not impossible. But I prefer to move towards the mid-to-high end because only then is there enough profit margin to support high-quality service. Our upcoming laundry O2O is positioned at the mid-to-high end, targeting luxury goods.

Pan Wei: Various money-burning behaviors in online laundry are marketing tactics, and I believe prices will eventually return to normal. But if we talk about moving towards the mid-to-high end, I think it's debatable because many people try online laundry because it's cheap and convenient. For mid-to-high-end consumers, they are used to face-to-face communication at laundry shops, and they may not be willing to hand over expensive clothes to unfamiliar logistics personnel. So I think online laundry should still follow a mass-market approach.