Coupang, Inc. (NYSE:CPNG) Q3 2021 Earnings Conference Call November 12, 2021 7:00 AM ET
Michael Senno – Vice President of Investor Relations
Bom Kim – CEO
Gaurav Anand – CFO
Conference Call Participants
Eric Cha – Goldman Sachs
Susie Lee – Bank of America
Stanley Yang – JPMorgan
Seungjoo Ro – CLSA
James Lee – Mizuho
John Yu – Citigroup
Good afternoon. My name is Josh, and I will be your conference operator today. At this time, I would like to welcome everyone to the Coupang Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you.
Now I would like to turn the call over to Mr. Michael Senno, Vice President of Investor Relations. Please go ahead.
Thanks, operator. Welcome to Coupang, Inc.'s quarterly earnings conference call for the third quarter ended September 30, 2021. I'm pleased to be joined on the call today by our Founder and CEO, Bom Kim; and our CFO, Gaurav Anand.
The following discussion, including responses to your questions, reflects management's views as of today's 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 filings, each of which is posted on the Company's Investor Relations website at ir.aboutcoupon.com. And I'll remind you that these numbers are unaudited and maybe subject to change.
Let me now turn the call over to Bom.
Thanks, Michael, and thank you to everyone for joining us today. 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 two-year compounded annual growth rate of 70%. That 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 compounding customer loyalty and long-term shareholder value is reflected in our core operating tenants.
One, we exist to deliver new moments of WOW for customers and create a world where they asked, "How did we ever live without Coupon? " Two, we don't start with what looks easy. We embrace the hard work of challenging trade-offs customers take for granted. Three, we will employ technology, process innovation, and economies of scale to create an amazing customer experience and drive operating leverage and significant cash flows over time. Four, We prioritize growth in long term cash flows. Five, we are a disciplined capital allocators. We start with small investments, then increase investments over time in 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 that broader retail market tailwind, the total e-commerce 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 Korean e-commerce, we continue to grow at a multiple of the e-commerce segment. And our growth is broad-based with all of our offerings growing at least twice as fast as the respective segments.
The backbone of our sustained growth is our strong customer retention and engaging. 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 wide flywheel. The result is that the customers spend for 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 4 COVID restrictions starting in July, stricter than at any point in the pandemic, contributing to a decline in attendance and 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 operations 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 average Rocket delivery times under 12 hours and delivered nearly 99% of orders in 1 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 we'll add millions more over the next year. 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 a fresh offering, which has been particularly capacity constrained since COVID started and accelerated adoption. We're on track to double our fresh performance that are footprint in 2021. And we believe we now have more than doubled the total infrastructure footprint of our largest online first competitors combined.
We're cautiously optimistic that attendance and higher enrolled 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 this strong demand tailwinds, our underlying profit drivers are also improving the 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 off 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. We're 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 offering are seeing a significant sales uplift. And we expect fulfillment and logistics by Coupang 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 in Fresh recently opened or are still under construction. These centers generate a 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 improve profitability as we scale.
Third, we're also investing in WOW membership benefits, expanding our free shipping services, and delivering more orders by same-day or dawn delivery. The rapidly growing share of orders by WOW members creates higher costs in the short-term, but over time, as this share stabilizes, we expect cost per order to improve at 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 investments. As was the case with previous investment cycles, we expect to ramp up our new facilities, drive process improvements, and leverage increasing order density and other economies of scale to improve unit costs over time.
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 as it scaled, and turned profitable in time [Indiscernible] is much earlier on that [Indiscernible]
It's been our fastest scaling major offering marked by strong customer adoption and retention. The monthly order frequency for our early cohorts where we first launched, 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 Eats. In closing, we're encouraged by the underlying trends of the business and confident that continuing to execute on our operator principles will lead to significant shareholder value creation in the long Now I will turn the call over to Bom, to go through the financials.
Thanks, Bom. Our reported revenue growth of 48% and constant currency growth of 44% are driven by strength across all our product offerings. Net [Indiscernible] revenue exceeded $500 million for the first time in Q3, increasing 113% year-over-year, led by our Eats and [Indiscernible] offerings. The flywheel we ignited with our 1P offering continues to strengthen and it is fueling strong growth in 3P and our new product offerings and we expect that momentum to only [Indiscernible]. Quarterly, active customers increased 20% in Q3 to $16.8 million. Year-over-year growth on a turning customer has been fading and remain consistent throughout 2020 until there is 2021.
And customers engagement is rising with customers buying across more categories, and an optimum new offering. Revenue per customer grew 23% in Q3, driven by our compounding spend across all our customer cohorts. Even our oldest consistent cohort grew over 25%. Further evidence that we still have significant potential to capture [Indiscernible]. We were less aggressive on customer acquisition this quarter to [Indiscernible] the experience for existing customers. Prioritizing what's best for customers, drives 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 and active customer count over time as we systematically penetrate the 27 million active internet shoppers in Korea.
As Bom noted, we invested nearly $95 million in implemental labor and operations to service as much customer demand as possible in the face of the COVID related headwinds. This included increased operations costs to keep our employees safe and healthy, and higher worker incentives and recruiting costs to navigate deliver constrain. When COVID cases spiked and restrictions increase in Q3 last year, it led to a similar increase in COVID related costs. These costs then decline when restrictions were loosened in the first half of 2021. While we expect these labor and operating investments to remain elevated, at least in Q4, we believe they are temporary and [Indiscernible] costs to diminish when COVID conditions normalize. Moving down the P&L, gross profit increased 62% year-over-year to $755 million in Q3 with gross margin expanding 130 basis points to 16.3%.
Prior to COVID, our gross margin was approaching 20%, and underlined fundamental drivers. And even stronger during the incremental COVID, related costs. And investments will expand infrastructure and grow our long service obscure the full extent on the progress. But we are confident that as we move past these short-term headwinds, we'll unlock meaningful margin expansion. The increased adjusted EBITDA losses in Q3 compared to Q2, primarily spend from the incremental COVID-related labor and operations costs. Excluding such costs from all periods the Q3 adjusted EBITDA margin was similar to the margin in the first half of the year. Investments to scale Fresh and Eats and to develop new long-term growth initiatives continue to drive the balance of adjusted EBITDA loss, offset in part by increasing profits from our mature offerings.
[Indiscernible] operating cash flow was negative $191 million in the third quarter due to higher losses and a modest working capital [Indiscernible] The working capital reflects less management from accounts payable. Our cash conversion cycle is unchanged and we expect the combination of favorable working capital dynamics in our business and improving profitability to drive [Indiscernible] cash flows over time. With nearly $4 billion of [Indiscernible] cash on our balance sheet, we are well-positioned to invest aggressively to extend our lead in Korean e-commerce and capitalize on the significant demand product offerings. And we're excited to build on our momentum and continue driving strong growth for many years to come.
Operator, we're now ready to begin the Q&A.
[Operator Instructions]. Your first question comes from Eric Cha with Goldman Sachs. Please go ahead.
Yes, hi. Thank you for the opportunity. I think you mentioned in the presentation that was disclosed earlier, there was $95 million incremental labor and operational costs, mostly related to COVID-19 issues. I think this probably refers to the capacity issues that you flagged during the last quarter earnings call. And I'm sure there's also may have partially affected the Company's top line as well, considering the Company's 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 top line growth to its full potential?
My next question is, and I'm pretty sure that people will be wondering about this as well -- the active customers. The 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 could we get some color on this, please? Thank you.
Hi, Eric. Thanks for the question. You're right. There was a strong effect on the top line as well that not only affected our revenue growth, but also affected 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. We sacrifice to preserve customer experience, several percentage points of revenue growth. Per our estimates, we sacrifice at least 5 percentage points. And it was done through measures such as not taking orders when we reach 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've made difficult choices like this in the past, like it preserves the long-term customer trust, is one of the reasons you see our customer cohorts compounding at the rate that they are. And even in spite of that constraint, we still saw not only strong growth in active customers, but we're growing at a multiple of the 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 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 attendance. As restrictions were loosen and social unease and concerns 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, and 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 to attempts of normalcy, we saw those constraint on labor, particularly hiring and attendance dissipate. As the restrictions have been loosened as of November 1st, but cases still remained 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 and 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 and recruiting, for example, that we think will help us scale more efficiently. There have also been efforts, projects on automation and process improvement, that's a source of capacity increase. Some of those projects have been delayed because we have 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 transitory in short-sell.
Your next question comes from the line of Susie Lee with Bank of America. Your line is open.
Hello. Thank you very much for the opportunity. I have two questions. First, on 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 Coupang Fresh and Coupang Eats, almost break-even. I was wondering that if this -- such a trend continues, hopefully in third quarter, the traditional e-commerce business was able to turn to profit in EBITDA line? So that is my first question.
And then the second question is about Coupang Eats. I think investors are quite interested in your initiative in Coupang Eats further market share gains. So, is there any indicator that the management could share with us to help us better understand your presence in this market? Like could be traffic or number of orders or probably the best indicator would be a market share in terms of GMV or the total gross order value? So anything you can share will be super helpful. And thank you.
Thanks for the questions. I'll start with the second one first on Eats. It continues to --- we continue to see great momentum in that service. It remains our fastest-growing service in the Company's history. And 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 in Android in all 2021 to date. The only app that has been downloaded more than our Coupang Eats App, which was on Android is the government released app for COVID vaccine.
And what's actually more encouraging than that than 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're still far from where we want to be. But we believe we want -- 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 areas where we launched our earliest cohorts, we're 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 as well as merchants.
To your first question on profitability, the underlying drivers of profitability are improving. And as you pointed out, there are always some short-term noises that -- quarter-to-quarter, there is 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, the store remains consistent. But if you exclude that there's COVID impact in $95 million.
Fresh and Eats continues to be our focus for investments. Mature parts of our business are investing, we're able to take the cash flow for mature investments -- mature offerings, and reinvest it in areas like Fresh and Eats. And of course, there are additional initiatives. There is international small amounts and new initiatives like international FinTech and so forth, that we continue to make. But the overall dynamics are moving in the 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 open ed, 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, continue to expand our value proposition to more customers, but creates some noise in the short-term that might ob secure the improvements that we're making.
Your next question comes from the line of Stanley Yang with JPMorgan. Please go ahead.
Well, thank you. I have two questions. First question is about this ongoing margin pressure. You attribute it to margin pressure to COVID 19 driven labor and logistic close pressure. But how about this competitive landscape perspective, the competitors are trying to catch up the faster delivery logistic capabilities? Is this another reason of structural close pressure in the mid-term? And also separately, when do you expect each digit to reach breakeven [Indiscernible] or EBITDA at which scale. And the other [Indiscernible] my question is actually the -- your logistic capacity. So, are you on track with your previous guidance of 50% growth of the footprint center capacity over the next 1 year? And when do you think your 3P fulfillment service to meaningfully take-up? Those are my questions Thanks.
Stanley, your last question was that around 3P or -- sorry, could you repeat your last question again?
I didn't hear the 3P.
Yeah. So, the -- all right. Sure. Actually, the 3P fulfillment service is now --
-- on the testing stage.
[Indiscernible] We was -- the market was anticipating the meaningful take off. When it's going to be the right timing?
Yeah. Got it. Thanks for the questions. There are several things to unpack there. On the competitive front, we did not see -- we saw virtually no impact from competitive factors. I think, it's safe to say from our perspective, more so than at any point on our Company's history, we think the drivers of our business are unaffected by competition. As you saw, our demand was not constrained. There's really our capacity. In fact, this past quarter, we reduced efforts to acquire new customers, for example, because we're trying to protect customer experience.
Now, there's 37 million new customers who are well on that track and we've had periods like this where we've leaned into more customer acquisition. Other periods where we leaned back, this was a quarter where we leaned back because we wanted to protect customer experience. So, it hasn't been demanding constrained, it really has not -- we did not see that [Indiscernible] pointed out, we're seeing more momentum in terms of taking share of every incremental dollar of growth in the market. On the Eats front, we’ve been encouraging, we've had projects trying to optimize our efficiency there, the gains that we've been able to draw.
We've also been able to leverage technology and processes that we built for core e-commerce. Whether it's around labor management, route optimization, and so forth, on each to improve that efficiency. We also think it's -- there are the same structural tailwinds are there, increasing orders, economies of scale from that order density. Those factors are still applicable there. We're excited about that character -- that trade of Eats. We also have plans in the long run to generate more synergies between our core e-commerce and Eats. Just as we've been able to share the economies of scale from our -- in our core commerce in -- with Fresh, we believe there are opportunities to share [Indiscernible] e-commerce's economies of scale with Eats as well.
But still very early in that journey and there we're focused on building the right customer experience and making sure that it can get some critical scale where we can build operating leverage. On the logistics capacity and growth. I think Gaurav you can talk a little bit more about that. We've been adding record capacity, [Indiscernible] leading it do it. I believe Gaurav can add more color there. The 3 -- let me quickly address the 3P performance by logistics. I think Stanley, asked a number of questions [Indiscernible] make sure I get to all of them. That's been as you point out [Indiscernible] testing.
We've done that to build confidence and also to understand exactly the need of the merchants and the operation to scale. We're coming out of our efforts this year in beta testing with very high conviction around this offering. Merchants who have participated in our test services have seen significant sales lift, particularly small, medium-sized enterprises. We're very encouraged by that. 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. It won't happen overnight.
We now have a much clear 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 build-out for [Indiscernible] logistics by coupon. So, in the near-term, we're going to be focused on -- we're focusing on building out those underlying capabilities to scale fulfillment logistics by coupon. I think you'll see it start to become a meaningful contributor to 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 built about $8 million square feet of capacity this year-to-date. And since 2020, we have built our capacity as we have built in the multiple years prior to it and we continue to invest aggressively, especially in the context of [Indiscernible] fulfillment and logistics. We would be actually building and continuing to invest more. And what that could be of we having capacity constrained also and I much a 1% back have been capacity constrained on that but we would plan to avail for that also next year.
Your next question comes from the line of Seungjoo Ro, with CLSA, please go ahead.
Hi, thank you very much for the opportunity. So, I have 2 questions as well. So, the first one would be whether we could have some update or where your overseas expansion plans and share a little bit in terms of how your experiments in markets such as Japan, Southeast Asia are progressing at the moment? And are we near to a point where we will become more aggressive in some of these markets in terms of investments? My second question is related to the growth outlook and apologies if I'm being a bit more short-term sided but what would be your growth outlook in terms of revenue for the next six months?
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 Korean offline space is also gradually opening up. COVID policy has now turn more with COVID from zero COVID. So, are we going to see more continued deceleration into the year-end, 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 a deceleration, as we mentioned our growth did not reflect the full demand. We took active measures to protect customer experience. Now that operating principle will continue to apply in future quarters, so we will continue to take steps to protect our long-term customer trusts, even at the cost of short-term. Our overall philosophy is to not maximize growth quarter-to-quarter. In fact, actually, if you look at our overall business to answer your -- to address your question about what it looks like over the next 2 quarters, all business is really an amalgamation of several offerings at different stages of its life cycle.
The one we [Indiscernible] will take -- make the decisions that optimized for long-term customer loyalty and long-term value maximization and free cash flow over a short-term growth. But we also have certain -- but we also have offerings and services that are at 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 lines, 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 offering lines that are more mature that we now need to build the operating efficiency, the excellence, build operating leverage to start generating meaningful cash flows. We made analogy internally, that many of our offerings are like kids. There are some kids who are toddlers where we just focus on getting them to be physically big and healthy but there are other kids that are in college that are more mature and we need to now build the capabilities for them to become contributing adults. And really, on any quarterly snapshot is going to be a -- an aggregation of these multiple strategies.
But what you should see over time is that not only are we [Indiscernible] areas of investment, leaning in when we know that we have to get to the critical scale. Many of these offerings have to get to some critical scale to generate those operational efficiency -- those economies of scale. But we also should now start to see us consolidating some of that -- the gains from that growth when certain service offerings reach maturity, to get operating leverage. And we've had these periods where you look at our Company’s history, even with Rocket, where we leaned into getting to that critical scale and mass. But then making sure that we turn our focus to generating -- to create that operational excellence then now to create that leverage.
In spite of all of that -- I can't predict for you exactly because we don't manage to our 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 in October of our business, and even in spite of us taking those measures 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 -- and a lot of that is driven by our compounding cohort -- our compounding customer cohorts. Our oldest cohort -- I don't know if this came through -- our oldest cohort which is 11 years old, still grew in 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. That's because of the investments we've made, of 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 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 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 a more nascent stage.
I've spent some time exploring those margins, we continue to be very encouraged by what we see. We see opportunities to create WOW experiences for customers. Very reminiscent of the 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 -- you'll start to see us all -- you will always see us start with small investments and grow investments as we learn more and build more confidence. That's the disciplined approach will -- we've taken with all of our investments and we'll continue to take with our international as well.
Next question comes from the line of James Lee with Mizuho. Your line is open.
Great. Thanks for taking my questions. Two questions here. Any update on the impact your warehouse fire? Did you have to incur additional costs to rent temporary warehousing to the extent that you can maybe quantify those costs? 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.
Thanks for the questions. On the warehouse side, as you pointed out, we did have to take -- there's 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 the network. And over time that will be replaced with more permanent capacity, with better automation, more improved processes. So, there were some terms disruptions as you point out. And there's short term disruption not only with that kind of last-minute capacity but with any kind of additional capacity that we're at.
For example, with [Indiscernible] Fresh [Indiscernible] capacity wasn't planned. Where the customer demand is high and we try to minimize the negative impact -- of course, also not taking orders, for example. But we're working our way through that and we'll continue to improve not only the efficiency of operations within specific warehouse but also the network [Indiscernible] that comes from -- sometimes from unplanned capacity -- last-minute capacity additions. Those things we have seen, are now overtime. On competition, I can't say this with enough emphasis, we just have not seen any impact from it.
Nobody has come -- we have unmatched investments. Just to give you a sense of -- we've added 8 million square feet of pro - forma infrastructure, net of the loss of capacity from the fire. For example, this year so far, we have just an overwhelming massive capacity advantage. And I don't believe anybody had even come close or announced that they're making any investments close to the investments we're making. We spend -- the only -- 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 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 the third quarter. I would like to understand more details, especially if it was more related to labors or more related to physical assets like warehouses. Also recently, local trust is highlighting that there is a shortage of geek workers in and Seoul and nearby metropolitan cities due to the increased demand from food delivery players and also e-commerce warehouses. So, it will be [Indiscernible] to elaborate more on how coupon flat is managing the labor shortage and the increase of daily rates to hire enough number of gig workers Thank you.
Thanks for the question, John. The capacity constraint was both physical and labor. In the case of Fresh, for example, we experienced both and physical capacity is something that we're focused on adding. I think [Indiscernible] the earlier questions, 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. Doubled that. Just continue to build on that and it still is 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 are under construction or just opened and we're not sparing our investments on that front. Labor -- and then the labor, we talked about labor from COVID disruptions and so forth. We've seen [Indiscernible] through the cycles, we hope it will rebound, but we're also taking steps to there again to -- we're continuing to beef up our improvements on recruiting of resources that [Indiscernible], as well as to efficiency improvements, automation that'll also help us with capacity going forward.
On the [Indiscernible] workers capacity side, I think some of the important context to set, 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, you're not seeing this -- one of the biggest employers of [Indiscernible] workers that tends to be at [Indiscernible] is a huge chunk of that supply out is usually ride-hailing. There isn't [Indiscernible] that there. We continue to be -- so that's a positive context so there's 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 shift. Each which is still -- even in food delivery.
We are the largest logistics food delivery service in the market. We're the largest employer of those food deliverers. It’s still early for us. I think there's still a lot -- we believe that there are no macro constraints so far. Of course, it's still taking 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 one might see sooner in more mature situations in other markets.
There are no further questions at this time. And this does conclude today's conference call. Thank you for your participation. You may now disconnect.