According to exclusive observations by Dige Net, Dingdong Maicai's Taizhou station appears to have been shut down. Last June, Dingdong Maicai opened in both Taizhou and Nantong; at that time, Dingdong's Vice President Yan Xianfu said: "The simultaneous opening of Nantong and Taizhou is of great strategic significance to Dingdong Maicai." But just eight months later, "Taizhou" quietly disappeared from Dingdong Maicai's list of operating cities. The retreat and disappearance came too suddenly; yesterday, recruitment websites still showed Dingdong actively recruiting station riders and pork cutters in Taizhou, but today, all those job postings have been taken down. According to Dige Net, Taizhou may be the first city officially closed in Dingdong Maicai's development history. Amid the quiet closure in Taizhou, the market is highly optimistic about Dingdong Maicai's Q4 2021 financial report. In the fourth quarter of 2021, Dingdong Maicai's revenue was 5.484 billion yuan, a year-on-year increase of 72%; the net loss for the quarter was 1.096 billion yuan, narrowing by 12% year-on-year, marking the first time since listing that the quarterly loss narrowed year-on-year. At the earnings conference call, Liang Changlin also revealed that the Shanghai market achieved full profitability in December last year, and emphasized: "Q4 2021 was the best quarter since Dingdong Maicai's inception, with significant efficiency optimization." Behind the impressive Q4 performance, in the front-warehouse sector, Dingdong Maicai surpassed Hema and Miss Fresh in scale, and was once a "darling" of capital. But when the capital and public opinion frenzy faded, Dingdong Maicai had to "guard its legacy." So, how did Dingdong Maicai achieve the so-called "efficiency optimization"? And with profitability improving on one hand, while news of city closures and layoffs continues on the other, how should Dingdong Maicai proceed? It's not easy to conquer a territory, but is it harder to defend it? Profitability "Saved" by Cutting Costs Looking at Dingdong Maicai's Q4 financial report, profitability has indeed improved. In addition to revenue growth and narrowing net losses, Dingdong Maicai's gross margin for the quarter was 27.7%, up from 15.1% in the same period last year. Meanwhile, as of December last year, Dingdong Maicai's Non-GAAP net loss rate was below 13%; in Q2 2021, Dingdong Maicai's net loss rate reached 37.2%. With gross margin improving and net loss rate declining, Dingdong Maicai attributes this change to "efficiency optimization"; however, in the reporter's view, Dingdong's profitability growth this quarter is "saved" by cutting costs. How is profitability "saved"? Taking city openings as an example, as of now, Dingdong Maicai operates in 36 cities, one fewer than the previous quarter; in Q3 2021, Dingdong Maicai only entered one new city. In terms of the number of front warehouses, Dingdong Maicai's front warehouses reached 1,400 in Q4, a net increase of 25, compared to the increase of 239 in Q3 2021, the growth has significantly slowed. The slowdown in the number of operating cities and front warehouses means that the platform's marketing and promotion expenses will be optimized. Without new cities and front warehouses, comprehensive costs such as user activation, new user acquisition, and warehouse operations will decline. The data further illustrates the current situation. In Q4, Dingdong Maicai's marketing expenses were 358 million yuan, narrowing from 428 million yuan in the previous quarter, with a year-on-year growth rate of only 38.3%; in Q2 and Q3 2021, Dingdong's marketing expenses grew 263.6% and 206.8% year-on-year, respectively. At the same time, Dingdong Maicai's main business cost in Q4 reached 6.5 billion yuan, narrowing from 8.208 billion yuan in the previous quarter; the year-on-year growth rate of main business cost was 48%, also the lowest quarterly cost growth rate in 2021. Whether due to the performance pressure of listed companies or its own "efficiency first" strategy, Dingdong Maicai's engine of scale growth has stopped, no longer adding new cities and even starting to close cities, so overall expenses and costs will naturally decrease. Of course, with the scale of operating cities and front warehouses no longer expanding, Dingdong Maicai's revenue growth is also slowing. Dingdong Maicai's Q4 revenue was 6.189 billion yuan in the previous quarter, with a growth rate narrowing by 11.39%. The slowdown in scale growth, with both costs and revenue decreasing, has a double-edged sword effect on Dingdong Maicai. To ensure overall profitability growth, Dingdong has to continue "internal optimization." Therefore, at the beginning of 2020, Dingdong Maicai was rumored to be "laying off employees." In January this year, a suspected former Dingdong Maicai employee revealed on Maimai: Starting at the end of last year, Dingdong launched "mass layoffs," with core departments cutting up to 50% of staff and forcing front-warehouse service station employees to take rest days. In response, Dingdong Maicai stated that individual position changes are part of the company's normal organizational resource adjustments, and that adjustments are made based on the work situation of the stations, especially employees' willingness and work intensity. After investigation, Dige Net found that an employee at a Guangzhou Dingdong Maicai station said that the front warehouse indeed has "efficiency caps," where originally one person was responsible for one position, but now two people are responsible for three positions, with one person resting, to improve personnel efficiency. At the same time, a warehouse keeper in Yangzhou told Dige Net that all locally directly hired employees were laid off. Clearly, while reducing the basic operating costs of opening warehouses and cities, capping personnel efficiency, laying off employees, and closing cities without profit prospects... these are Dingdong Maicai's further cost-cutting measures from within; one less loss-making city might mean an overall gross margin increase of 0.1%. The improvement in financial performance is thus "saved." On the other hand, Dingdong Maicai's previous flood-like city openings and expansion seem to be showing adverse effects. Replicating the "Shanghai Model"? In addition to improved profitability, another highlight of Dingdong Maicai's Q4 report is that Shanghai took the lead in profitability. Dingdong Maicai stated in the report that Shanghai's operating margin has turned positive, and the front-warehouse model has been validated. However, can Dingdong's "Shanghai model" profitability be replicated on a large scale? Shanghai is Dingdong Maicai's home base, and also the place where Dingdong founder Liang Changlin fell and got back up. In 2017, Dingdong Maicai was established in Shanghai; at that time, Hema Fresh had no more than 20 stores nationwide, Miss Fresh had not yet expanded south, and Meituan Maicai had not even been established. In Shanghai, Dingdong Maicai seized the first-mover advantage in the fresh e-commerce market. Rooted in Shanghai, Dingdong Maicai demonstrated a combat quality of "fierce firepower and quick response." Dingdong's ground promotion team was almost stationed around various residential areas in Shanghai, using the model of "register and order to get free soy sauce, eggs, and fruit" to quickly acquire new users and accumulate a large base of seed users. With early establishment and concentrated efforts on a single city, Dingdong Maicai quickly built a consumption base in Shanghai, and sales revenue grew day by day. As of January 2019, Dingdong had more than 200 front warehouses in Shanghai, covering all districts and counties except Chongming, with monthly sales exceeding 100 million yuan. In 2018, Hou Yi had "never heard of" Dingdong Maicai; now, Hema has truly felt the threat from Dingdong Maicai. In comparison, Hema took four years to achieve profitability in Beijing and Shanghai, and Dingdong Maicai also took four years to prove that "front warehouses can be profitable in a single region." In Shanghai, due to the fast pace of work and life, young office workers are more receptive to the "instant delivery" grocery model, and from the perspective of front-warehouse rules, over four years, Dingdong Maicai has also passed the initial stage of "living beyond its means." The scale of front warehouses and basic costs are relatively fixed, and product sales revenue covers costs, creating profitability. Earlier entry, longer time, and a larger consumer market are the "secret recipe" for Dingdong's profitability in Shanghai. But the "secret recipe" is clearly not replicable. First, since the outbreak of the COVID-19 pandemic, new formats of community e-commerce and retail have entered a period of rapid development. In an environment with Hema, Guoquan, Qian Dama, and a host of community group-buying giants, Dingdong Maicai finds it difficult to establish a time-based first-mover advantage. Second, most of Dingdong Maicai's current operating cities were entered after 2020. For example, from June 2020 to June 2021, Dingdong Maicai opened 29 new operating cities, an average of 2.4 cities per month. But among the new cities opened after 2020, second- and third-tier cities like Jinhua, Taizhou, and Nantong are in the majority; Dige Net previously analyzed that the demand for "instant delivery" products in second- and third-tier cities is easily saturated, and the user base is smaller compared to first-tier cities. For example, in Langfang City, where Meituan Maicai entered, order volume and sales accounted for only 0.4% of Meituan Maicai's national data, while other first-tier cities contributed 98% of order volume. Most critically, many of Dingdong's new cities are in the new stage of "living beyond their means," which means Dingdong Maicai must sustain huge losses to ensure the normal operation of more than 30 cities. The road is treacherous, and the "Shanghai model" may be difficult to promote. Looking back now, Dingdong Maicai's large-scale city openings after 2020 are not unrelated to the industry explosion and capital enthusiasm after the pandemic. In the just-concluded 2021, Dingdong Maicai completed a Series D financing of over $1 billion. However, now that capital has receded and Dingdong Maicai has successfully listed, it needs to prove its self-sustaining ability and the sustainability of the front-warehouse model, and gradually move toward the goal of "striving for profitability by the end of this year." Of course, Dingdong Maicai has its own advantages in fresh products. Currently, the platform's direct procurement ratio for fresh products reaches 79%, and in mature Shanghai areas, the ratio reaches 85%, with an overall loss rate below 1%. Fresh categories are indeed Dingdong Maicai's strength, but can this advantage continue to support Dingdong's long-term development amid fierce competition? Defending the Territory is Hard Since the second half of 2021, the community e-commerce industry has staged a "battle royale." Dailuobo fell, Tongcheng Life collapsed, Chengxin Youxuan contracted... The community e-commerce track has started a new round of reshuffling, with very few remaining at the table, and even fewer achieving overall profitability. However, the strong get stronger. The participation of internet giants has raised the investment threshold for community group buying to the "tens of billions" level, while the front-warehouse duo Dingdong Maicai and Miss Fresh have both listed, opening up secondary market financing channels. As a result, external capital began to recede. For Dingdong Maicai, although community e-commerce is an incremental market, user demand for "delivery to home" or "delivery to doorstep" is still unsaturated; but the reality is that multiple formats coexist, such as Guoquan Shihui, Hema, and community group buying, giving users many choices, but people only buy groceries once a day. Therefore, even when competing for share in a broad incremental market, Dingdong Maicai will fight "bloody battles." Moreover, from an internal operational perspective, Dingdong Maicai's main business is "delivery to home," and to ensure the improvement of delivery service quality, the platform needs to increase investment in technology, plan delivery routes for riders reasonably, and equip front warehouses with more riders based on delivery distance to ensure faster order delivery. In short, "high fulfillment costs" will be a long-term pain point for Dingdong Maicai. The Q4 2021 financial report shows that Dingdong Maicai's per-order fulfillment cost is still 17.9 yuan, while community group buying's per-order fulfillment cost is even less than 1 yuan. In the future, as policies continue to call for improving rider rights, Dingdong Maicai's fulfillment costs may continue to increase. Facing internal and external difficulties, Dingdong Maicai, which has built scale advantages through rapid expansion, should now consider how to "guard the fruits of victory." It's not easy to conquer a territory, but it's harder to defend it. As mentioned earlier, Dingdong Maicai's cost reduction and efficiency improvement will be a long-term strategy, especially in "cutting expenses" across all links, such as reducing labor costs through layoffs to ensure "maximum personnel efficiency" for everyone. But for large-scale enterprises, the effect of "cutting expenses" on cost reduction and efficiency improvement will only diminish, because business expansion inevitably requires fixed expenditures and manpower to match, and operating costs are hard to reduce after reaching a certain threshold. Essentially, "increasing revenue" is the key strategy for Dingdong Maicai to defend its territory. As mentioned earlier, Dingdong Maicai's advantage is direct procurement from fresh produce origins, compressing intermediate links to ensure optimal product cost performance. To this end, Dingdong Maicai has deployed about 60 city sorting centers and 3 agricultural demonstration parks nationwide, and signed 118 order-based planting bases. From 2017 to now, "ensuring cost performance through direct fresh procurement" is undoubtedly a growth curve that Dingdong Maicai has carved out, especially in the process of continuous growth in user demand for "instant delivery." Dingdong's "affordable fresh produce" has also become one of its customer acquisition tools. However, as the number of "cost performance" players in the community e-commerce industry increases, users are being divided and migrated, and the revenue from instant fresh delivery often cannot cover the extremely high fulfillment costs. Dingdong Maicai needs more ways out. Clearly, continuously improving "product strength" will be a long-term strategy for Dingdong Maicai. For example, in terms of private brands, as of the third quarter of 2021, Dingdong Maicai had over 20 private brands, including Dingdong Wangpai Cai, Dingdong Daman Guan, and Quanji Xia. The advantage of private brands is that the platform participates in the entire process of product production and brand building, with lower distribution costs and higher average order values, which greatly benefits Dingdong Maicai's profitability improvement. Data shows that in Q4 last year, sales of Dingdong Maicai's private brand products accounted for 10.2% of overall GMV, and sales of products developed and processed by its own factories accounted for 6.5% of overall GMV. Of course, besides products, the front-warehouse format is still innovating. Meituan Flash Purchase is currently piloting "flash purchase warehouses," focusing on daily necessities and general merchandise in convenience stores; Meituan Maicai is also imitating Pupu's "large warehouse model," building front warehouses of about 1,000 square meters to cover more SKUs... The river waves surge endlessly. Dingdong Maicai, having gone through the stage of large-scale expansion, must continue to break through its own boundaries in operations, products, and formats. Defending the territory is hard. For Dingdong Maicai, under the guidance of the "efficiency first" strategy, the significance of "increasing revenue" is greater than "cutting expenses," especially in key product and operational links. Dingdong Maicai should see that more key nodes still need optimization. Otherwise, can Dingdong Maicai still "lead" the front-warehouse track? Source: IT Old Friend (ID: itlaoyou-com) -END-