---
title: "Dingdong Maicai's Puzzling Expansion"
description: "The profitability of the online grocery business is on the agenda. Even as the Spring Festival approaches, Dingdong Maicai's ground promotion team is still visible everywhere in Beijing. In the spring of 2020, after the first phase of the pandemic, Dingdong Maicai set a plan to open 200 front warehouses in Beijing."
author: "赵小米"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2021-01-30"
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# Dingdong Maicai's Puzzling Expansion

> The profitability of the online grocery business is on the agenda. Even as the Spring Festival approaches, Dingdong Maicai's ground promotion team is still visible everywhere in Beijing. In the spring of 2020, after the first phase of the pandemic, Dingdong Maicai set a plan to open 200 front warehouses in Beijing.

**The profitability of the online grocery business is on the agenda.**
Even as the Spring Festival approaches, Dingdong Maicai's ground promotion team is still visible everywhere in Beijing.
Not only at the entrances of residential communities, around business districts, and on the streets, but also in the initial stages, Dingdong Maicai's ground promoters can be seen. As long as you are in Beijing, the APP's opening screen, Moments ads, and online promotions for Dingdong Maicai are everywhere. Some ground promotion staff have even begun to go deep into various residential areas, knocking on doors door-to-door to promote and attract new users.
**In the spring of 2020, after the first phase of the pandemic, Dingdong Maicai set a plan for itself to open 200 front warehouses in Beijing.** This means that according to the plan, by the end of 2020, Beijing's layout in Dingdong Maicai would become the second largest single market in China, second only to Shanghai. However, as of now, Dingdong has not yet disclosed its performance in Beijing.
Media reports show that **Dingdong Maicai also plans to invest a total of $600 million in 2021 to build a fresh food complex in Kunshan, Jiangsu.** This complex, similar to a fresh food base, will have operational capabilities including the processing of semi-finished fresh food and pasta. This level of spending makes one feel that Dingdong is not short of money. But the last public information about Dingdong Maicai's financing was a year and a half ago.
Whether Dingdong Maicai obtained financing in 2020 is even a "rumor" that has been exposed multiple times and denied multiple times by Dingdong officially.
At the end of June 2019, Dingdong Maicai revealed that the company had 2 billion yuan in cash on its books. In July of that year, Dingdong received a Series B round of financing, but the specific amount was not disclosed. In May 2020, according to Reuters, Dingdong received a $300 million investment from General Atlantic, but Dingdong denied this news.
Over the past year, Dingdong's expansion has been extremely aggressive. In addition to Shanghai, Hangzhou, and Beijing, it has also entered Jiangsu's Nanjing, Guangdong's Guangzhou, Hebei, Zhejiang, Anhui, Sichuan, and other provinces and cities. In just one month in November last year, Dingdong entered nearly 10 new cities. Currently, **the total number of cities covered by Dingdong exceeds 20.**
But for Dingdong, these cities are only "entered"; objectively speaking, the time of entry determines that it is far from being able to talk about "coverage." The total number of front warehouses in 20 cities is roughly the same as the coverage of Beijing or Shanghai alone. **The front warehouse model, a small retail format that relies heavily on dense locking to achieve profitability, for Dingdong, the scattered few warehouses in the 20 cities it has entered obviously cannot generate positive revenue at present.**
We are not nitpicking by questioning revenue immediately after entering a city. Rather, we want to emphasize that the front warehouse, as a small format, cannot naturally exist in isolation. **A warehouse in a city cannot be seen as just a warehouse, but rather as a new company behind it, with a whole business system (supply chain + marketing + operations + logistics, etc.) landing in a city.**
Therefore, small-format retail companies usually use a dense locking expansion method, from multiple warehouses (stores) in one point to occupy a city area, then gradually occupy a city, then gradually expand to a province, and finally replicate province by province. Convenience stores are a typical example of this approach. In the fresh food track, excellent brands like Qian Nv Ma, and even Puyu Supermarket, which also uses the front warehouse model, all do this.
Except for Yipin Fresh, which is an outlier.
Because the expansion of small formats also requires costs. Several independent supply chains, rent and labor costs for self-operated front warehouses, and long payback periods; the expansion of front warehouses in each new city is a multiplied expansion of the problems Dingdong currently faces.
And returning to Dingdong's home base city, Shanghai, it has not yet achieved regional profitability at the city level. Does Dingdong feel this is a serious strategic problem? Another thorny issue is whether the current front warehouse fresh food business model is mature, and the industry has always had serious opposing debates. This track has Puyu Supermarket as a representative brand of front warehouse with stable development, and Dingdong as a front warehouse model that is hard to understand.
But Dingdong's 2020 was a year of aggressive expansion into new cities. It's a bit puzzling.
**-01-**
******Still not profitable, but not short of money!******
Having entered the Beijing market for nearly a year, although Dingdong Maicai has not yet disclosed its operating situation, from the intensity and coverage of ground promotion, it is clear that Dingdong believes the Beijing market is still in the initial stage of layout.
Dingdong Maicai has been criticized many times before, not for not being profitable, but because many people, including investors, cannot see the progression and blueprint for profitability. Founder Liang Changlin himself has said that under ideal conditions, each front warehouse operating for more than a year, with daily orders reaching around 1,000 and an average order value exceeding 65 yuan, can achieve an operating profit per order of more than 3% after deducting fulfillment costs, and thus make money.
This is somewhat too idealistic. What we know is that **Dingdong Maicai's front warehouses are currently the highest operating cost warehouses in the industry.** Because each of Dingdong Maicai's front warehouses is equipped with processing staff far exceeding industry standards. This includes aquatic product processing, batch vegetable sorting and packaging upon arrival, and self-operated delivery riders. These grassroots workers can find employment at Dingdong, which is actually respectable. I just hope that the employment of these grassroots workers can always be guaranteed.
Back to Dingdong's profitability issue. Dingdong has not yet announced regional profitability in its home base Shanghai, where it has been operating for three years. Three years of operation without profitability is not only far from the ideal one-year profitability that Liang Changlin himself mentioned, but also far behind its peers.
On the morning of September 24, 2020, Hou Yi, CEO of Hema, clearly stated at the All Retail Conference held by 36Kr-Future Consumption that Hema's stores in Shanghai and Beijing have achieved full profitability, and it is expected that this year in 2021, the proportion of online orders in both cities will exceed 90%.
The information Hou Yi revealed at our conference contains three key points: **Hema's fresh food retail model is currently the heaviest investment model in the industry; Hema had just entered the Beijing market for exactly three years at that time; Beijing and Shanghai are the two most complex retail competition markets in China.**
But Hema has still achieved full profitability in both places. This does not even count Hema Mini, which is also a community fresh food small format. As early as early July 2020, its project leader Ni Xiaojun stated: **Hema Mini has achieved overall profitability.**
Dingdong Maicai's closest time to profitability was in July 2019. At that time, Dingdong announced that its 345 front warehouses had daily orders exceeding 400,000, with an average of over 1,100 orders per warehouse, exceeding its ideal state per warehouse. According to our survey, this number was once close to Hema's online order volume across all stores nationwide at that time.
But half a year later, at the end of 2019, Dingdong released data showing that its daily orders per warehouse were only 909. During this half year, Dingdong Maicai's front warehouses had increased. Was it that business volume increased but efficiency did not? Or did the volume per warehouse start to decline a year ago?
The only reason observable from the outside is that in September 2019, Dingdong Maicai adjusted the free shipping threshold in Shanghai. At that time, Dingdong raised the free shipping threshold from 0 yuan to 28 yuan, and orders under 28 yuan required a 5 yuan shipping fee. Starting in 2020, Dingdong raised the free shipping threshold in Shanghai to 38 yuan.
Anyone who has done fresh food retail knows that **adjusting the free shipping threshold means reducing user subsidies in operating costs.** The slightly awkward part here is that since Dingdong reduced its high subsidies in the Shanghai market, a year and a half has passed, and now Dingdong's revenue per warehouse in Shanghai has still not reached the level of July 2019. Profitability, naturally, has not been achieved for the time being.
Reducing operating expenses is probably transferred to marketing expenses. Over the past year and a half, Dingdong has been opening new warehouses in Shanghai (and new warehouses have free shipping), increasing market coverage and penetration. When should a unit market be expanded? When should penetration be deepened? When should profitability be pursued? These are precisely evaluated considerations. The Shanghai market should obviously now enter the stage of pursuing profitability, rather than continuing to open new stores.
Because after three years, if it cannot achieve profitability in its own home market, investors will feel that the business model of this Dingdong project is not very clear. Or, even if the business model is valid, is the investment cycle and scale too long and heavy? Does it have to be like JD.com 10 years ago, raising billions and fighting for six years (from expansion to IPO) before seeing hope?
But JD.com is doing a 3 trillion yuan business. The fresh food industry that Dingdong is in is also only 3 trillion yuan in total. Will investors dare to continue adding investment to Dingdong?
Is this the reason why Dingdong has not officially announced new financing for more than a year, but occasionally has vague financing rumors?
**-02-**
************Online grocery sales, how to make it work?************
But Dingdong in 2020 gives the impression that it is not short of money.
Dingdong announced that in 2020, the company's national monthly sales exceeded 1 billion yuan (i.e., annual turnover could reach over 12 billion yuan). It is foreseeable that the third- and fourth-tier new cities that Dingdong extensively expanded into in 2020 contributed a lot. These new cities' new warehouses and new customers have a large number of new customer and free shipping subsidies.
Combined with the beginning of this article, Dingdong is currently spending heavily on promotion and new customer acquisition in Beijing, as if it is not short of money at all. The issue we want to discuss here is whether it is short of money, but before that, we need to talk about the changes in operational levels in lower-tier cities.
Previously, Dingdong Maicai itself did not shy away from admitting that its business in second- and third-tier cities around Shanghai was not very good. Among them, Wuxi once had a warehouse with daily orders of only 200, and later had no choice but to close the warehouse and withdraw from the area.
This withdrawal is related to the per capita income, population density, and consumption habits of these cities. The problem is that Wuxi, when placed nationwide, is a leading prefecture-level city in terms of economy. If you consider Wuxi's per capita income, it is higher than that of Shanghai, the largest city.
For cities like Tangshan, Langfang, Wuhu, and Ma'anshan, which are not as good as Wuxi overall, the order scale can be imagined. Or rather, the scale of subsidies can be imagined.
From all business indicator evaluations, Dingdong Maicai's seemingly not-short-of-money crazy expansion in 2020 is truly puzzling.
**Cities below the third tier have never been a fully developed market for household shopping online.** The biggest shortfall in household shopping online in third-tier cities, besides the population numbers and consumption power commonly discussed in the industry, is mainly the lack of migrant population—the local population's local life characteristics are very prominent.
**A high proportion of local population in a city means that the local lifestyle and the family structure with complete member composition are very prominent.** With these two stubborn local factors in place, it determines that the supply services of traditional wet markets and supermarkets are actually very complete and mature in the local overall supply level.
The developed supply level of local household shopping also means that **for external merchants, the possibility of achieving normal levels of order volume, repurchase rate, and profit margin through optimization of business chain and operational efficiency is basically behind the decimal point.** For outsiders to gain a foothold in a low-tier city with highly local habits, they usually need to provide services that exceed local common standards and have highlights in one or two service capabilities that reach above industry standards.
Simply put, in the past, hypermarkets swept through low-tier cities by being more, cheaper, better, and one-stop. Hema also does household purchase business, and it is a mid-to-high-end household cost-effective business that exceeds local standards and reaches industry highlight standards. After careful consideration, it was found that it still doesn't work in low-tier cities, so Hema simply announced that it has no intention of going to cities below the third tier.
In the past two years, convenience stores have begun to cluster in cities below the third tier. Convenience stores are a personal consumption format, and changes in personal consumption are naturally easier than changes in household consumption. Online grocery shopping is not only completely household-oriented but also particularly livelihood-related, and it cannot be a high-end project expenditure for most families. Low-tier cities embracing online grocery shopping, whether from model evolution or actual market effects, is not very reliable at present.
Speaking of which, another more troublesome problem emerges: **Is the current online grocery business the most economical and mature channel and model in the fresh food circulation economy?**
Once community group buying came out, even without subsidies from internet giants, it had a price advantage and could play well in low-tier cities. Price killer, bulk purchase, group leader service—combining these killer model weapons is obviously more capable of gaining a foothold, surviving, and developing in low-tier cities than online grocery with instant delivery to home.
Dingdong Maicai, which seems not short of money, is really hard to understand why it chose to crazily develop online grocery business in those low-tier cities in 2020. The only way to find rationality is that the cities Dingdong went to are those where internet giants have not yet laid out their household shopping business. If one day the giants want to go to these low-tier cities, does Dingdong have ready-made resources?
Okay, let's return to Dingdong's business itself.
**A big reason for Dingdong Maicai's popularity in 2019 was that Dingdong was the first to relatively completely provide a wet market business.** Dingdong can buy freshly processed live fish, oxygenated live shrimp, and one-stop fresh food for the family table—a solution for cooking a meal.
But this is a trap, at least through the front warehouse instant delivery to home model, it is a trap. Sometimes one has to think about a question: the concept of fresh food itself may be problematic.
Fresh food purchased by households is actually a whole set of dietary services built around "eating." In addition to conventional uncooked fresh ingredients (i.e., fresh food in the narrow sense), there are semi-finished cooked foods, various seasonal fresh goods, and various restaurant-style dishes.
That is, as people often see: fruits, vegetables, aquatic products, meat, eggs, and poultry; as well as braised foods, packaged foods, condiments, rice, flour, oil, kitchen utensils, etc. In short, although fresh food seems to be an independent category, the single products involved and the eating needs across seasons and time periods throughout the year are very complex.
What's more troublesome is that each fresh food single product is an independent operational methodology. A company that can do well with large lobsters may not necessarily do well with frozen seafood. And these two are just the seafood series within the aquatic category of fresh food.
Above fresh food is the complex household "eating" demand, and below fresh food is the complex methodology of subdivided single products. Haven't you noticed that supermarkets have been in China for 40 years and have always wanted to play fresh food. But until today, they are still held down by the seemingly rustic wet market, unable to break through the 20% share.
What we see is that Dingdong, in 2020, reduced the number of fresh food single products in a rhythmic and batch manner. Many fruits and aquatic products with low sell-through rates quietly went off the APP. It is normal for different fresh food single products to have different sell-through rates. The wet market method is that different small vendors divide labor and cooperate, disperse risks by doing different categories, and combine them to form a complete family "eating" service.
Dingdong may not have time to think about these fundamental issues of the fresh food circulation business. What Dingdong has been emphasizing externally is still superficial operational issues such as the low average order value of just over 60 yuan and high subsidy discounts.
Liang Changlin's public statements also reflect that Dingdong Maicai does not do the "store + warehouse" model, only the 60-70 yuan grocery business. These two characteristics immediately strictly limit Dingdong Maicai's business to a range: instant delivery online grocery sales.
Therefore, regarding the two complex issues of upward and downward fresh food circulation mentioned earlier, Dingdong really may not have time to think about them.
Actually, Dingdong Maicai has made improvements.
Under the first category of the Dingdong Maicai APP, there is a "Eat It All in One Meal" category, where the products under this category are all the fresh ingredients needed for a dish. For example, "Hand-Torn Cabbage" includes cabbage + millet pepper + green pepper, and it is exactly the amount for one dish. There is also a "Thoughtful Seasoning Combo" that includes a 150-gram small pack of scallions, ginger, and garlic. Although the SKU is limited, Dingdong Maicai intends to move closer to the direction of "cooking solutions."
Following this idea, **in the function bar at the bottom of Dingdong Maicai, the most central part is its live streaming section.** In addition to live streaming content such as coupons, there are more recipe functions similar to "Next Kitchen." Clicking into these cooking tutorials, users can directly click the lower right corner to purchase all the ingredients needed to make the dish. The purchase page is divided into main ingredients and auxiliary ingredients, and users can choose and purchase as needed.
Dingdong Maicai's recipe classification is very detailed, divided into 7 major categories based on ingredients, scenes, tastes, and people, with several subcategories under each. Users can easily find recipes that suit them. After cultivating user consumption habits, the order of shopping behavior will change from deciding what to eat first, then opening Dingdong to buy, to opening Dingdong to see, then deciding what to eat, and then making a purchase. In this way, the APP usage rate will increase, and the average order value will also rise due to associated purchases and impulse consumption.
But these improvements and efforts are partial capability improvements of the Dingdong model. They are not a model breakthrough for online grocery to fully replicate a one-stop purchase of a family's "eating" needs.
This is the ultimate challenge of Dingdong Maicai's business model. Many problems are actually stage limitations of the model, limitations that online grocery cannot break through at present. But if Dingdong wants to break through, it is Dingdong's own problem, and it cannot leave the problem to the industry to improve together and get free dividends. For any improvement efforts, Dingdong must consider: can costs be borne? Will consumers pay? How is the cash flow?
From this point of view, Dingdong Maicai as a company has actually developed with great difficulty. However, with Dingdong Maicai not yet profitable and its model not very clear, can investors patiently accompany and wait?
Everything comes back to the profitability issue.
Source: Future Consumption (WeChat ID: lslb168)
Tips will be paid 400-2000 yuan once adopted.


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