Brand Owners and Distributors: Don't Underestimate Lightning Warehouses!

Recently, the hottest topic in the retail industry is undoubtedly instant retail. Among all new formats in instant retail, lightning warehouses have seen rapid growth and expansion, but also sparked controversy. In recent visits to brand owners and distributors, everyone is asking whether lightning warehouses are viable and how to approach them. Clearly, when a format develops exponentially and impacts existing channel systems, it is not just a new channel but a business variable that must be re-evaluated.

Why have lightning warehouses succeeded?

What risks lie behind the rapid expansion?

How should distributors and brands respond? Why Lightning Warehouses Are Expanding Rapidly**** Look at a timeline: In 2022, Meituan launched its lightning warehouse project. In September 2023, the number of Meituan lightning warehouses exceeded 5,000. In October 2024, at the Meituan Instant Retail Industry Conference, it was announced that Meituan lightning warehouses exceeded 30,000, with projections to exceed 100,000 by 2027, with a scale exceeding 200 billion yuan. By 2025, Meituan Flash Purchase and Taobao Flash Purchase both announced that the number of lightning warehouses on their platforms had exceeded 50,000. Over the past two years, the growth rate of the entire lightning warehouse format has far exceeded industry expectations. Why have lightning warehouses succeeded? On the demand side, consumer behavior is undergoing structural changes. Instant retail is gradually becoming a definitive lifestyle for consumers, with significant increases in various consumption scenarios such as morning, noon, evening, overtime, and temporary emergencies. These demands share common characteristics: fragmentation, unpredictability, extreme sensitivity to fulfillment, and relative insensitivity to price. Convenience stores and community stores are inherently closer to consumers, but issues such as SKU limitations, low-frequency restocking, and weak nighttime fulfillment prevent these terminals from meeting instant demand. Lightning warehouses fill this gap perfectly. They offer a wider SKU range than convenience stores (4,000–10,000 SKUs), faster delivery than express (30 minutes), and more flexibility than physical stores, catering to long-tail, emergency, small-item, and special-taste personalized needs. More critical changes are occurring on the supply side. On the surface, lightning warehouses are just "warehouse + delivery." But what truly drives their explosion is their overwhelming efficiency advantage over traditional terminals: wider SKUs, denser restocking, and faster fulfillment. Comprehensive lightning warehouses typically have over 5,000 SKUs, and some highly competitive merchants even exceed 10,000. The abundance of SKUs essentially reflects the matching of consumer demand. Lightning warehouse merchants can use data feedback from user search terms and browsing behavior to quickly eliminate slow-moving items and introduce trending new products or long-tail items, precisely matching surrounding demand. Denser restocking is attributed to the online front-warehouse model, which eliminates the need to consider offline customer flow and display aesthetics. Warehouse-style shelving allows for higher-density storage. Leading lightning warehouse merchants have upgraded traditional retail's weekly restocking frequency to daily or even multiple times per day, significantly reducing out-of-stock rates. Previously, I communicated with a distributor in Nanjing who runs a lightning warehouse supply chain. He told me, "Fulfillment is a necessary condition for a good lightning warehouse supply chain. Without this prerequisite, merchants won't want to cooperate with you. He supplies FMCG to lightning warehouses, basically with two deliveries per day, ensuring orders are delivered within 24 hours." Therefore, compared to formats that require complex inventory structures, lightning warehouses have extremely low risk, stable inventory structures, and low inventory with high turnover. With wide SKUs, high-frequency demand, dense restocking, and rapid turnover, the lightning warehouse model not only sustains itself but also reduces costs as it scales. Because inventory is loss-free, restocking costs are controllable, and products are highly standardized, lightning warehouses can quickly replicate across cities without complex supply chain setup or high labor, rent, and shrinkage pressures. This lightweight supply chain structure is the key foundation for lightning warehouses to achieve scale. Of course, what ultimately pushed lightning warehouses from "can run" to "run fast" is the strategic shift on the platform side. Instant retail competition has shifted from traffic competition to supply competition among major internet platforms. Major internet platforms are increasing resource investment. Meituan is supporting lightning warehouse brands that deeply cooperate with it, while also opening self-operated lightning warehouse brands like "Squirrel Convenience Store" in some regions. Taobao Flash Purchase is offering merchant opening incentives to quickly cover blank areas. Platforms are clear that what truly determines user experience is not coupons and subsidies, but whether they can meet "diversified consumer needs" and "deliver immediately." Demand, supply, and platform forces converge in the same time window, making lightning warehouses the most growth-oriented foundational format in the instant retail era. It is foreseeable that in the coming years, as supply networks continue to densify, lightning warehouses' share in offline retail formats will further increase. After Rapid Expansion, Lightning Warehouses Enter a Shakeout Period**** Over the past two years, lightning warehouses have expanded at an astonishing pace, but behind the rapid expansion, structural problems are beginning to emerge. In some cities and core business districts, the number of lightning warehouses has increased rapidly in a short period, and overlapping radii have made competition between warehouses direct and fierce. A lightning warehouse owner in Shenzhen told me, "The density of lightning warehouses in Shenzhen is now very high. Previously, everyone tried to avoid competitors, but now if your store is doing well, others will immediately open stores to compete with you." Consumers see more choices, and platform recommendation logic increasingly favors price and fulfillment. Since warehouses find it hard to differentiate significantly by category, supply, or service, the first variable to be amplified is price. The higher the density, the more intense the price competition, and the more frequent the price-matching behavior among warehouse owners. From beverages to snacks, from general merchandise to emergency items, many products' gross margins are compressed to negative levels. This contrasts sharply with the early days of the lightning warehouse format. Two years ago, New Distribution had in-depth exchanges with the first batch of lightning warehouse merchants. As the first to enjoy the dividends, their data was excellent at the time. One merchant case showed top stores achieving net margins of around 15%; another case showed comprehensive gross margins translating to net margins of around 10%. But recently, when communicating with some lightning warehouse merchants, overall net margins have dropped to 3%–5%, and in highly competitive areas, breaking even is considered good. Declining gross margins are the most typical phenomenon of the industry entering white-hot competition. Early warehouses, due to less competition and strong user demand, could maintain reasonable gross margins on beverages and snacks; but as warehouse density increases, supply homogenizes, and platform recommendation mechanisms favor low prices, gross margins are continuously squeezed. High-turnover categories like beverages experience the most price volatility, with many SKUs even seeing "final price below purchase price" during platform subsidy periods. While gross margins are being compressed, the industry is also rapidly consolidating. Early lightning warehouses were mostly individual stores with rough management, arbitrary SKU selection, chaotic pricing systems, unstable restocking frequencies, and coexistence of out-of-stocks and slow movers. At that stage, as long as you opened a warehouse and the platform gave traffic, you could do some business; the industry was more like rough expansion. But as scale grew, the inefficiencies of single warehouses quickly surfaced. Consumers began demanding more stable product structures, consistent fulfillment capabilities, fewer out-of-stocks, and clearer pricing systems; platforms also raised basic thresholds, requiring higher inventory accuracy, fulfillment speed, and product richness. Consequently, increasingly prominent head warehouse groups emerge in regions. These head warehouses perform significantly better in SKU management, supply chain stability, daily delivery efficiency, inventory forecasting, and picking accuracy. They can achieve higher efficiency at the same gross margin level, thereby gaining more traffic from platforms, forming a positive cycle where the strong get stronger. Overall, the lightning warehouse business is transitioning from quantity growth to efficiency competition, and the industry's overall problems are surfacing at this turning point. How Should Distributors and Brands Respond to Lightning Warehouses?****** From expansion speed exceeding expectations, to margin decline due to density increase, to the gradual formation of regional heads, the lightning warehouse business has passed the rough phase and entered a differentiation stage where efficiency wins. In this context, both distributors and brands can no longer treat lightning warehouses as just "another channel." They must reposition themselves in this supply chain; otherwise, growth may be short-lived, while pressure will persist. For distributors, there are two paths to engage in the lightning warehouse business. One is to open their own warehouses, but based on cases seen by New Distribution, the success rate for distributors building their own warehouses is very low, mainly because most distributors do not understand online retail. The other path is to supply goods to lightning warehouses. Lightning warehouses naturally require supply chains with "warehousing and distribution capabilities, daily delivery capabilities, and wide SKU supply capabilities," which are exactly the capabilities local distributors possess. For distributors willing to adjust their warehousing structures, establish fast-turnover inventory pools, improve restocking organization, and deeply understand product structures, lightning warehouses represent one of the few growth points that can still expand scale, improve profit structures, and upgrade supply chain capabilities. For brand owners, the challenge is even more direct. At this stage, FMCG sales in lightning warehouses are essentially offline market share, just shifting from old channels to new ones. If brands fail to observe and adjust channel strategies in time, sales will inevitably be impacted. But the difficulty lies in the fact that past brand strategies in traditional retail relied more on store displays, price band management, sales promotion activities, and promotional resources. However, in lightning warehouses, consumers do not browse shelves, and platform display pages lack rich display space. What truly determines sales are three variables: whether SKUs can enter the warehouse, whether restocking is stable, and whether the pricing system is clear. When communicating with a distributor supplying lightning warehouses, he told me, "Brand regional managers at junior levels don't really understand online business. For example, when we talk about magic prices, coupons, or how to get these merchants to run promotions, they basically don't understand." Traditional brands have inherent rules: cannot sell too cheap, cannot sell too expensive, promotions require approval, cross-region sales are strictly prohibited, and regional protection is overly rigid. These rules stem from traditional channel management but are not suitable for the new retail environment. Therefore, for brands, the first step to truly succeed in lightning warehouses is not to stock many SKUs or invest in subsidies, but to adjust at the organizational level. Brands must establish regional management capabilities that understand instant retail. If brand regional managers do not understand the product logic, pricing logic, operational rhythm, platform algorithms, or promotion mechanisms of lightning warehouses, then brands will find it difficult to succeed in lightning warehouses, and may even continuously lose share to competitor brands. Readers interested in the article content can scan the QR code to add the author for further communication.