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Restructuring auto parts distribution in the world’s largest car market: Inside China’s Startups

Written by Song Jingli Published on 

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Mancando manages a network of franchises and auto parts brands such as Shimo, Zhiding, and Madun.

China is home to the world’s largest auto market, with 21 million new vehicles registered in 2019, marking a 9% year-on-year drop, while the average age of cars has been rising, prompting a surge in demand for auto repair solutions.

Preeminent tech giants Alibaba (NYSE: BABA) and Tencent (HKSE: 0700) have both began expansions into the auto repair sector to streamline the historically fragmented supply chain for auto repair shops, but a smaller company founded in 2016, Guangzhou-based Mancando, had a headstart on China’s techno-duopoly in its efforts to digitize and enhance the efficiency of auto repair shops’ supply chain.

KrASIA spoke with Mancando’s chairman and founder Song Jibin to understand his company’s business and its impact on the Chinese automotive aftermarket.

Reliance on domestic manufacturing

Song worked in a tire factory for seven years before setting up his own plant, dedicated to the production of automobiles’ brakes in 2004. From 2007, his plant started to serve as a contract manufacturer for auto part companies in the United States and Europe.

“Products made in China are actually as good as those under foreign brands, although many Chinese consumers do not trust such products,” Song told KrASIA. “It is a pity that China doesn’t have famous brands for auto parts, and lacks well-known auto parts distributors due to historical reasons,” he added.

Song decided to set up Mancando aiming to streamline the auto parts supply chain and build the company as a recognized distributor brand.

The company entrusts around 70 local manufacturers to produce the necessary parts used in systems such as braking, filtering, ignition, and lights, which are deemed as consumable products in the industry, under a line of self-owned auto part brands, such as Shimo, Zhiding, and Madun.

“Out of our 20,000 stock-keeping units (SKUs), 93% of them are under our own brands and 7% of them are under international brands,” said Song.

Mancando
Song Jibin, chairman and founder of Mancando. Photo provided to KrASIA

A franchise model in the middle of the supply chain

While traditionally, auto repair shops in China source their parts from large local wholesale markets, Song decided to change this by building a network of retail stores under the Mancando franchise.

“Mancando has gathered about 2,300 franchisees nationwide by now, allowing us to have the largest auto parts distribution network in China,” said Song.

Mancando 5
A franchise store of Mancando in China. Photo provided to KrASIA

Hua San, who used to be an insurance salesperson, opened a Mancando franchisee retail store in 2016 in the township of Lecong, Foshan, in southern China’s Guangdong province. Under Mancando’s franchise model, stores buy products directly from Mancando, at much lower prices compared with international brands, which can then resell the parts to auto repair shops.

Hua explained to KrASIA how his original 90-square meter store has been profitable since the first month, and he expanded in 2017 to a location covering about 500 square meters. He has also opened another two new stores in 2018 and 2019, and enlarged his staff from three to 10 employees, serving nearly 120 auto repair plants in his township.

“As we mainly sell products under self-owned brands, we offer a healthy profit margin for my own company and for franchisees as well,” Song told KrASIA.

Software is key for the distribution business

Behind Mancando’s fast expansion lies its in-house developed software infrastructure. Functioning similarly to other e-commerce platforms such as Taobao or JD.com, the company’s Santou Liubi platform allows franchisees to easily identify all auto parts for a certain car model by just providing the identity of the vehicle.

“Even with enough money, if you do not know which cars need which parts, you are excluded from the auto parts retail sector,” Hua said, adding that such knowledge takes at least three years to accumulate and is usually only shared between family members.

Under Mancando’s franchise model, auto repair shops are not allowed to buy directly from the company but instead buy from franchisees.

Repair shops can go and visit any franchisee store to select the parts they need, phone a franchisee store to deliver the products, or order online through a portal called Kuaixiubao, another one of Mancando’s online platforms. Kuaixiubao also enables repair shops to keep a digital record of vehicles they have repaired, improving transparency.

Out of 450,000 repair shops in Mancando’s distribution network, only 50,000 are now shopping on Kuaixiubao, as the majority just call the closest store to deliver the parts.

A promising market over the next 20 years

Although companies like Casstime, KZmall, and Alibaba-backed New Carzone are also digitizing the automotive auto parts market, Song deemed none of them as rivals.

“Our real rivals are the brick-and-mortar auto parts wholesale marketplaces in China,” said Song.

He explained that competition between such tech-driven companies happens when each of them has grown to take a considerable market share, but currently, they are still “too small” in a market worth RMB 1.33 trillion (USD 195 billion) as of last year.

New Carzone and KZmall made RMB 3.8 billion (USD 557.5 million) and RMB 1.5 billion (USD 220 million) in revenue in 2019 respectively, according to Chinese media outlet ASWORLD. Mancando’s spokesperson confirmed with KrASIA that the company made more than RMB 600 million (USD 88 million) in revenue in 2019. This means that each of these tech-driven companies accounts for a very minor stake in the massive automotive aftermarket.

“In the next twenty years, there is almost no ceiling for the automotive aftermarket, as the average age for automobiles in China just reached five years and demand for repairs is increasing,” Song said.

 Think tank Forward·The Economist estimated earlier this year that the e-commerce penetration rate in China’s automotive aftermarket will reach 17% in China by 2025, up from 7% in 2019.

To further expand, Mancando has invested in a startup called Mannkando, which focuses on the Russian automobile aftermarket by connecting Chinese manufacturers with repair plants in Russia. Mannkando has just closed an angel round led by Source Code Capital, collecting several tens of millions of RMB.

“Since China has the largest automotive aftermarket, we aim to book RMB 100 billion (USD 15 billion) in revenue in the future to be the largest auto parts distributing brand, beating US peers including AutoZone, Advance Auto Parts, O’Reilly, and GPC,” said Song.

This article is part of KrASIA’s “Inside China’s Startups” series, where the writers of KrASIA speak with founders of tech companies in the country.

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