---
title: "Dingdong Maicai's Profitability Still Questioned, but Traditional Retailers Have Already Embraced Front Warehouses"
description: "Two years ago, with the decline of Miss Fresh, there was a view in the retail industry that the 'front warehouse model cannot be profitable.' Miss Fresh has collapsed, and Dingdong Maicai continued to lose money from 2019 to 2022. However, Dingdong Maicai achieved profitability in 2023 and the first quarter of this year. Despite this, Dingdong Maicai is still questioned, and its US stock performance declined after the Q1 earnings report, as the industry doubts its sustained profitability."
author: "周群"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2024-06-07"
language: "en"
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# Dingdong Maicai's Profitability Still Questioned, but Traditional Retailers Have Already Embraced Front Warehouses

> Two years ago, with the decline of Miss Fresh, there was a view in the retail industry that the 'front warehouse model cannot be profitable.' Miss Fresh has collapsed, and Dingdong Maicai continued to lose money from 2019 to 2022. However, Dingdong Maicai achieved profitability in 2023 and the first quarter of this year. Despite this, Dingdong Maicai is still questioned, and its US stock performance declined after the Q1 earnings report, as the industry doubts its sustained profitability.

Two years ago, with the decline of Miss Fresh, there was a view in the retail industry that the "front warehouse model cannot be profitable."
Miss Fresh has already "fallen." From 2019 to 2022, Dingdong Maicai's net losses were 1.87 billion yuan, 3.18 billion yuan, 6.43 billion yuan, and 807 million yuan respectively, with continuous losses. But now, Dingdong Maicai has achieved profitability for the full year of 2023 and the first quarter of this year.
However, Dingdong Maicai is still questioned. After the Q1 profit report was released, its US stock performance continued to decline, because the industry still doubts its sustained profitability, and it was high-level cashing out that led to the stock price drop.
Whether the fresh food front warehouse model is profitable may not yet be fully recognized. But at the same time, **whether it is chain supermarkets and convenience stores like Yonghui, Walmart, Wumart, and Tianfu, or community supermarkets and convenience store operators who use platforms like Meituan and JD.com to open front warehouse convenience stores, they are all accelerating the layout of front warehouses in different ways.**
According to the "Instant Retail Industry Development Report (2023)" and the latest research data from leading instant retail companies such as Meituan Flash Purchase, the average annual growth rate of the front warehouse market size exceeded 50% between 2022 and 2023. In terms of the growth in the number of warehouse stores, the average annual growth rate of front warehouses in 2022 and 2023 exceeded 100%, especially the average annual growth rate of platform warehouses exceeded 250%, while the average annual growth rate of store numbers was 73%.
**The front warehouse model, once not favored, has become a hot commodity for traditional retailers.**
**Front warehouses emerge from the cold:**
**Some enter, some expand**
**A front warehouse is a warehouse set up closest to consumers, with a 3-5 km radiation circle. After consumers place orders, goods are shipped directly from the warehouse.** Early on, it was mainly used in the fresh food retail industry to solve the "last mile" problem in the fresh food industry.
Since the front warehouse model was proposed, it has always been accompanied by controversy. Hema founder Hou Yi once commented that the front warehouse model is not valid and is a model made for VCs.
At that time, the results of some front warehouse startups seemed to confirm this view. Dailuobo, which raised hundreds of millions, went bankrupt and restructured in 2019; "the first fresh food stock" Miss Fresh burned 14 billion yuan in 7 years and finally collapsed in 2022; Dingdong Maicai burned 11.5 billion yuan in 3 years.
The front warehouse model, once hotly pursued by capital, seemed to have confirmed its fate of being eliminated.
**But starting from early 2023, the front warehouse industry has ushered in a new turning point. Dingdong Maicai achieved profitability for six consecutive quarters; over 70% of Puyu Supermarket's stores nationwide are profitable; Meituan's flash warehouse business grew from 600 warehouses to 6,000 in 2 years...**
Through continuous exploration by major internet companies and startups, this difficult business of "bending down to pick up steel coins" has finally been successfully run, and the front warehouse model has regained vitality.
At the same time, **traditional retail giants have also begun to enter or increase their investment in the front warehouse format, becoming the main players in the front warehouse model.**
Sam's Club is a leading player in front warehouses, with more than 500 front warehouses, an average daily order volume of over 1,000 orders per warehouse, and an annual GMV of 40 billion yuan. Online e-commerce sales account for 55% of total sales, with front warehouses accounting for nearly 70% of e-commerce orders.
Yonghui, on the other hand, has chosen to open up areas in its more than 1,000 stores nationwide to set up warehouses of different sizes, divided into full warehouses, half warehouses, and sorting areas.
According to media reports, Yonghui's more than 1,000 stores have basically completed the "warehouse-store integration" transformation, which involves opening up an area of several hundred square meters in a supermarket store of several thousand square meters, specifically for the placement and sorting of high-frequency online order products. Compared with the traditional front warehouse model, the warehouse-store integration model has lower costs such as rent and utilities, and better complements store orders.
There are also traditional retail giants such as Walmart, Wumart, and Tianfu convenience stores, which have begun more attempts in front warehouses.
**Among those actively embracing front warehouses, there are also many community convenience store operators with keen insight.** They use instant retail platforms such as Meituan and JD.com, and after successfully running a profitable front warehouse model, they can quickly expand.
**These retail platforms also provide front warehouse merchants with a full set of guidance on product selection, operations, and digital management.** For example, JD Convenience Store has set up a dedicated front warehouse team to provide merchants with full-process services such as site selection, product selection, supply chain screening, and on-site guidance. In addition to warehouse opening, site selection, and marketing, Meituan also provides merchants with the Morning Glory system, which can achieve digital management of the entire chain including products, finance, fulfillment, and supply chain.
From the initial exploration by internet startups, to traditional supermarkets entering as the main force, and small and micro merchants expanding with the help of platforms, a complete front warehouse ecosystem has been formed. So why has the front warehouse, which was previously considered "model not valid," suddenly entered the fast lane of development?
**Front warehouses "revive"**
**What is the reason behind it?**
The front warehouse is essentially a new retail format that has developed alongside instant retail. When looking at the prospects of front warehouses, we can first look at the changes in the instant retail industry.
**From "emergency purchases" to "a certain lifestyle," instant retail continues to maintain high-speed and stable growth.** According to the "Instant Retail Front Warehouse Innovation Development Report" released by the Circulation Industry Promotion Center of the Ministry of Commerce, it is estimated that the sales growth rate of instant retail in 2023 was 52.2%, 45 percentage points higher than the growth rate of total retail sales of consumer goods, and 41.2 percentage points higher than the growth rate of online physical retail sales.
Compared with street-side stores that mainly serve business districts and community offline people buying water, three meals a day, snacks and drinks, front warehouses are mostly open 24 hours and can meet more online long-tail consumption scenarios such as business trips and gift-giving. **Compared with physical stores, the consumption scenarios and consumption times matched are richer.**
Therefore, if you simply copy the products and operating methods of traditional offline stores to online, it will be difficult to efficiently match the consumption needs of online people.
Moreover, the front warehouse model can track changes in people's needs through big data, **and more efficiently and one-stop meet various consumption needs.**
So, from the perspective of consumer demand, the front warehouse model definitely has huge development potential.
The reason why front warehouses did not do well in the past is not that the business logic itself was problematic, but rather the optimization of the profit model.
**On the one hand, front warehouses are heavy asset investments.** Infrastructure such as warehousing and distribution must be built in line with expansion, along with corresponding labor costs and marketing costs, so the initial investment is relatively large.
Moreover, front warehouses must ensure instant delivery, and product sorting must be fast. If self-built distribution channels are used, fulfillment costs are also relatively high.
**On the other hand, early front warehouses were basically mainly fresh food front warehouses.** Fresh food itself is a category with high loss rates and low frequency, so two problems arise: first, high product loss and low gross profit; second, if there are no large-scale orders, costs are higher.
The diminishing marginal cost effect can only be slowly achieved with the growth of GMV and revenue, which means that front warehouses **not only need to achieve profitability through economies of scale, but also need to optimize product mix and improve supply chain to increase sales per square meter.**
Why can front warehouses, which "bend down to pick up steel coins," now bloom everywhere?
In terms of fresh food e-commerce, Dingdong Maicai, Puyu Supermarket, etc. have all achieved continuous optimization of costs and efficiency by adjusting product supply, expanding private label products, reducing loss, and improving fulfillment and delivery efficiency.
For traditional supermarkets and convenience stores, with the development of "instant retail," the display and selection of products in offline stores mainly serve customers who enter the store to buy, meeting the needs of consumers for three meals a day and snacks and drinks. The longer-tail and richer consumption needs online have also prompted them to start thinking about a "front warehouse" store model that is different from traditional stores and mainly serves online users.
**At the cost level, through standardization and digital management, hard costs such as rent can be reduced.** For example, convenience store front warehouses usually choose locations in business districts with high foot traffic but not facing the street, and use digital management to improve the speed of sorting online orders and the efficiency of product updates.
Many merchants who choose to open convenience store front warehouses with the help of platforms such as Meituan or JD.com use Meituan's Morning Glory system or JD.com's Haibo system to achieve digital management of the entire process from inventory to procurement to finance.
Some traditional supermarkets, such as Yonghui's warehouse-store integration, set up sorting areas by dividing part of the store for the placement and sorting of high-frequency online order products, reducing costs such as rent, utilities, and labor.
In addition, in terms of fulfillment costs, in addition to some large chain supermarkets building their own distribution channels, many front warehouse merchants **use instant retail platforms for delivery**. These platforms provide front warehouse merchants with a large number of delivery riders, and the scale and synergy effects make delivery costs extremely low.
**At the efficiency level, these retailers have also made deep optimizations around the supply chain.**
The logic of the front warehouse is essentially to be a product selection expert for consumers. Whatever products consumers need, they are put on the shelves, achieving higher sales per square meter in a limited area. Therefore, many front warehouse merchants also use consumer demand to force product structure adjustments, improve overall product turnover, and even achieve deeper cooperation with the upstream supply chain.
For example, Sam's Club has about 1,000 SKUs in one front warehouse, mainly best-selling products in the store, accounting for only 20%-30% of the store's products, so the overall product turnover efficiency is very high.
Moreover, **the current mainstream front warehouses are gradually developing from the past fresh food-dominated front warehouses to multi-category and full-category development**, thereby increasing consumer order frequency and average order value. This change can drive overall order scale and also establish the advantage of scale procurement.
**When cost and efficiency issues are improved and the profit model of front warehouses is further optimized, for traditional retail enterprises, this naturally becomes a good business.**
**The front warehouse ecosystem is still blooming and bearing fruit**
With the continuous expansion of instant retail demand categories and consumption scenarios, and the continuous upgrading, iteration, and maturity of physical formats, some new front warehouse formats are gradually coming into view, such as beauty, pet, and alcoholic beverage front warehouses.
**The evolution and expansion of the front warehouse format also provide new entrepreneurial opportunities for retail practitioners.** For example, some traditional convenience store operators cooperate with platforms in the convenience store front warehouse model, achieving profitability shortly after opening.
Not long ago, I communicated with a flash warehouse merchant. In the early days, he ran an offline convenience store with average daily sales of about 5,000 yuan, and the store nurturing period was relatively long. Later, after doing flash warehouse, the overall growth rate was very obvious. **The average daily sales of TOP stores can basically reach more than 10,000 yuan.**
This kind of convenience store front warehouse, as a new form of physical retail, can **accommodate more SKUs** in terms of products, better meeting consumer needs; in terms of business hours, **24-hour uninterrupted operation**, with stronger user stickiness; in terms of single-store operating costs, there is no need to receive consumers in offline space, **so rent and personnel costs can be greatly reduced**.
Similarly, beauty, alcoholic beverage, pet and other front warehouse formats that emerge in response to demand, after successfully running the profit model, more and more practitioners will participate, which will drive the entire front warehouse ecosystem to be more prosperous.
**Final Thoughts**
In the "Notice on Implementing the Digital Consumption Enhancement Action" issued by the Ministry of Commerce not long ago, it was mentioned to encourage the construction of an integrated system for instant e-commerce and fulfillment, and to innovatively develop various instant retail formats based on front warehouses, such as front-store-back-warehouse, convenience store front warehouse, and unmanned front warehouse.
Combined with the accelerated layout of front warehouses by traditional retail enterprises and the prosperity of new front warehouse formats, it is enough to prove that **front warehouses have passed the survival test and entered a mature stage.**
In the future, with the further integration of instant retail and physical retail, front warehouses with rich categories will also attract more participants, and a new round of "long-distance running" will begin.


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