The corner store is almost a shared memory for those born in the 1980s and 1990s. This ubiquitous micro-retail unit once handled a large amount of fragmented, local, and immediate consumption needs. It was like a giant Doraemon pocket: soy sauce running low during lunch cooking, a suddenly broken light bulb, notebooks that needed replacing, and all kinds of snacks and drinks could be found there. In the 30 years since the 80s and 90s generations grew up, their interactions with corner stores have dwindled, and the internet has changed almost everything. Today, when there's no oil for cooking, more people choose to pull out their phones and place an order; 30 minutes later, a large bottle of oil appears at their doorstep. You can even buy an ornamental goldfish along with the oil, with fish food and a fish tank thrown in. As neighborhood interactions, collective life, corner stores, and wet markets gradually disappear from young people's lives, the 'disappearing neighborhood' is repeatedly mentioned. Behind the change in consumption behavior is the penetration of instant retail. The corner stores of childhood have now become 'front warehouses' accompanying urban youth.
Speed is King Front warehouse, as the name suggests, replaces traditional stores with warehouses. In this model, delivery personnel can pick goods directly from the warehouse and deliver them to customers' homes. Objectively, warehouse rent is cheaper than store rent, but the front warehouse model means the owner loses offline foot traffic. Initially, this concept of front warehouses was born alongside fresh food e-commerce platforms. Miss Fresh built its first 'front warehouse' in Wangjing in 2015, serving users within a 3-kilometer radius. Faster turnover, lower loss, and higher operational efficiency brought front warehouses into the public eye. The front warehouse model opened up possibilities for fresh food e-commerce. After 2017, Dingdong Maicai, Pumo Supermarket, Meituan Maicai, and others were born, continuously investing through self-operated front warehouses or a self-operated plus franchise model. Product manager Kevin Su told the author that many e-commerce platforms are laying out front warehouse business out of a pursuit of timeliness. "In a self-operated model, using traditional express delivery for transportation results in particularly high loss of fresh goods." In the traditional model, fresh goods are first centralized at a city center warehouse, then dispatched to consumers based on orders. Center warehouses are usually located in remote suburban areas, which reduces delivery efficiency and increases fresh product loss. Front warehouses, on the other hand, are set up near concentrated residential communities, covering a radius of 3 to 5 kilometers. Goods are transported from the center warehouse to the front warehouse, and after customers place orders, riders complete the final 3 to 5 kilometers of delivery to home. Order response is fast, enabling delivery within half an hour to two hours. The pandemic brought a wave of growth to fresh food e-commerce, but it soon fell into difficulty with the crisis of Miss Fresh, and doubts about the front warehouse model have never ceased. "From a supply chain efficiency perspective, front warehouses are not efficient; it's like adding an extra handling of goods. Its warehousing costs are also high because locations are more central than large warehouses, and fresh products require temperature-controlled zones. Also, express delivery can consolidate orders and then dispatch, but front warehouses are for immediate orders and immediate delivery, making it impossible to achieve a high degree of consolidation," Kevin Su said. This leads to high fulfillment costs for front warehouses. Dingdong Maicai's fulfillment expense ratio in Q3 2021 was 37.3%. Huatai Securities' single-warehouse model calculation showed this includes front warehouse rent at 2.7%, delivery at 9.8%, front warehouse labor at 5.2%, and large warehouse rent allocation at 11.1%, utilities and depreciation at 1.2%, and large warehouse sorting/logistics at 7.4%. In the front warehouse model, single-warehouse profitability depends on sufficient order volume and relatively high average order value within the coverage area. Huatai Securities estimated at the time that under neutral optimization assumptions, if a single front warehouse reaches 1,500 orders per day with an average order value of 75 yuan, it could achieve an operating profit margin of 0.4%, excluding management and R&D expenses. During the exploration of front warehouses, some fresh food practitioners with a warehouse-store integrated model argued that the 'home delivery + store visit' model is superior. In-store consumption not only generates revenue and profit but also has a higher average order value than online. If both foot traffic and average order value achieve economies of scale, the profits from in-store customers could cover the delivery costs of online customers. But for front warehouses, this balance does not exist. Hou Yi, original founder of Hema, even stated that the front warehouse model is not viable and is a model made for VCs. However, in subsequent years, many platforms still made aggressive attempts at the front warehouse model. On one hand, front warehouse site selection is simple and flexible, easier to replicate, and can maximize the solution to the 'timeliness' problem. On the other hand, platforms have also explored 'lightweight' operational models. Hema, after a series of changes including Hou Yi's retirement, recently restarted the front warehouse model in Shanghai that was abandoned four years ago. Hema responded: In cities where Hema stores are already very dense, there are still some areas that fresh food stores cannot cover temporarily. To further enhance user experience, Hema will pilot front warehouses to densify service radius, providing fastest 30-minute delivery to residents within 3 kilometers.
Who Has Carried Forward the Front Warehouse The fall of Miss Fresh did not end the front warehouse story; instead, with the development of instant retail, front warehouses have gained new momentum. Not long ago, the Ministry of Commerce issued the 'Notice on Implementing Actions to Boost Digital Consumption', encouraging the construction of instant e-commerce and fulfillment integration systems, and innovating various instant retail formats based on front warehouses, such as front-store-back-warehouse, convenience store front warehouses, and unmanned front warehouses. When the front warehouse supply chain model is reused from fresh food to FMCG, it spawns more possibilities, especially in the convenience store industry, which has sparked new sparks with front warehouses, extending to new models like JD Convenience Store franchising and Meituan Flash Warehouse. JD.com, known for its supply and logistics, after years of developing JD Convenience Stores, has combined front warehouses to seize a wave of instant retail orders. In this model, merchants can choose to join JD Convenience Stores, with JD providing supply and operational advice, while merchants become front warehouses, sharing most of the warehousing costs. A Suning Xiaodian recruitment person told the author that including Suning, most online convenience store franchise brands are still in the expansion stage, preferring to temporarily forgo price differences to support 'model warehouses'. But if the model matures, it may also become a profit point. The 'Meituan Flash Warehouse' project was established in September 2020. In July 2021, the project opened 300 warehouses with partner merchants; by the end of 2023, there were 6,000 warehouse stores, with an average SKU count of about 5,500 per warehouse nationwide, and daily orders exceeding 2 million. In this model, Meituan leverages its home delivery advantage, connecting with chain supermarket brands and individual merchants, providing delivery, data, and traffic support services. Currently, many instant retail brands, including Suning Xiaodian, rely on Meituan Flash Warehouse as a platform, and site selection must be within Meituan's delivery capacity. The aforementioned recruitment person said that many front warehouses rely on order data generated by Meituan's food delivery, and those who order food delivery are also potential customers for instant retail. Fresh food has too high supply chain requirements; if you want to do it, you must invest heavily, which is why internet giants are personally involved. FMCG products have lower transportation and storage costs, and can reduce operational costs through scale expansion. Therefore, while fresh food platforms 'invented' the front warehouse model, it is FMCG that truly carried it forward. Contrary to what supporters of the warehouse-store model expected, front warehouses actually cover a considerable number of SKUs: a warehouse of 150 to 200 square meters can hold 7,000 to 8,000 SKUs, but the stock of each product is quite small. The site selection for such non-fresh warehouses is also relatively flexible. An operator told the author that in first-tier cities, you can even rent an apartment as a warehouse, but whether the 'corner store' can cover costs or even be profitable is a matter of opinion. The author learned from multiple online supermarket brands that to franchise such an online corner store, the initial investment is about 350,000 yuan, including store deposit, purchase costs, franchise fees, shelf fees, etc. If things go well, monthly revenue can reach about 300,000 yuan, with a profit margin of 10% to 15%, and monthly net profit of 30,000 to 40,000 yuan. Meanwhile, large supermarkets like Sam's Club and Yonghui have also used front warehouses as a supplement, greatly expanding their service radius while compressing costs like rent. According to industry estimates, by the end of 2023, Sam's Club had nearly 500 front warehouses nationwide, with an average of 1,000 orders per warehouse, an average order value of 230 yuan, and annual GMV accounting for about half of its revenue. Kevin Su told the author that for large supermarkets, doing online and offline as one inventory is quite difficult, involving many inventory management details. So setting up front warehouses specifically for online business is a relatively simple approach. In terms of implementation, Yonghui sets aside a few hundred square meters within its thousands-of-square-meter supermarket stores specifically for online business front warehouses. Sam's Club, with a higher proportion of online sales, rents dedicated front warehouses as warehouses for online goods. Public data shows that in 2023, Sam's Club's online sales accounted for 47%, almost equal to offline, thus enough to afford this expense.
Go, to the Lower-Tier Markets During the pandemic, Beijing saw fresh food platforms competing for front warehouses because there were few suitable warehouses in areas closer to the city center, and renovation costs were high for platforms, so any warehouse meeting requirements was quickly rented out. After experiencing fierce competition and burning cash to expand, fresh food front warehouses in several first-tier cities now present a 'separatist' landscape. For example, Dingdong Maicai holds its stronghold in Jiangsu, Zhejiang, and Shanghai, while Pumo Supermarket mainly operates in Fujian and South China. Players have become very cautious about exploring new markets. Dingdong Maicai, in particular, has written a new chapter for the fresh food platform front warehouse story with its profitability. In the Q2 2024 financial report, Dingdong Maicai saw both revenue and net profit grow, achieving profitability under Non-GAAP standards for seven consecutive quarters. In Q2, Dingdong Maicai's front warehouse daily orders exceeded 1,000, up 29.4% year-on-year, with Shanghai's daily orders exceeding 1,500. The fulfillment expense ratio was 22.4%, optimizing by 1.2 percentage points year-on-year. Dingdong Maicai founder and CEO Liang Changlin stated at an earnings call that in the fresh food industry, the 'first principle' of traditional retail, which is reducing procurement costs and operating expenses through scale, has failed. More importantly, it's about improving end-to-end efficiency and supply chain capabilities. Dingdong Maicai, on one hand, seeks profit and competitiveness from its supply chain; on the other hand, it continuously increases the proportion of private label products, adds categories like prepared dishes and leisure groceries, expands supply, and raises average order value. When everyone in the retail industry is talking about front warehouses, making incremental gains in first-tier cities has become quite difficult. The aforementioned recruitment person told the author that if you want to find a warehouse of 150 to 200 square meters in Daxing, Beijing, the annual rent is about 100,000 to 200,000 yuan, but in surrounding cities like Handan, an annual rent of 50,000 yuan can be achieved. Besides the difference in fixed costs, there is also near-white-hot competition. More than one industry insider told the author that without sufficient funds and industry experience, it's best to give up. "Red Bull at 0.1 yuan, Nongfu Spring at 0.1 yuan, can you afford to fight a price war with your own money?" Another insider said that to establish a foothold in first-tier cities, an initial price war is necessary. Although the recruitment person said that certain verticals like beauty and pet supplies might have opportunities to break through, such vertical stores also face the problem of low exposure: platforms like Meituan control the push traffic, and clicking into a store counts as one exposure, with most exposure coming from customers' searches for products. Therefore, exposure largely depends on SKU count; the more SKUs, the greater the chance of exposure. Additionally, if Meituan has partnerships with online supermarket brands, there will be traffic support, allowing store owners to gain higher exposure. At this point, front warehouses are no longer the absolute focus; the key to opening the door to front warehouses is still 'traffic'. In third- and fourth-tier cities, instant retail is not yet fully popularized, so there is still incremental market to explore. This seems to be the ultimate solution for live-streaming rooms or e-commerce giants facing traffic problems: go, to the lower-tier markets. Thus, instant retail is just the internet redoing the corner store with front warehouses.