In November last year, Dingdong Maicai founder and CEO Liang Changlin revealed the company's profitability path during the Q3 earnings call: first, Shanghai, as the first city where Dingdong operated, would achieve unit economics (UE) breakeven in Q4, subsequently driving positive UE operating profit across the Yangtze River Delta region; second, the company's full-year cash flow was expected to turn positive by end of 2022 to early 2023; third, the company's profit was expected to turn positive by 2023 to 2024. Liang Changlin's plan was realized ahead of schedule. On February 13, Dingdong Maicai released its Q4 earnings report for the period ending December 31, 2022, showing revenue of 6.2 billion RMB in Q4 2022, up 13.1% year-over-year. Under GAAP standards, it achieved a net profit of 49.88 million RMB, marking the first time it achieved full profitability under GAAP. This was the first time since its founding six years ago that Dingdong moved from regional profitability (achieved in Shanghai in Q4 2021) to nationwide profitability. Dingdong's profitability has brought a ray of sunshine to the fresh food e-commerce track after a long period of gloom. Dingdong's Profitability Was Not Easy According to Dingdong's financial data, in Q4 2022, its fulfillment costs (mainly including last-mile delivery fees, front-warehouse rent, and delivery costs from city warehouses to front warehouses) were 1.494 billion RMB, down 16.4% year-over-year; the fulfillment expense ratio dropped from 32.6% in the same period last year to 24.1%, a decrease of over 8 percentage points. For the full year 2022, Dingdong's fulfillment expense ratio (fulfillment expenses as a percentage of total revenue) was controlled at 25.25%. In fact, not only Dingdong, but almost all fresh food e-commerce companies have fulfillment costs as a very high proportion of operating costs. For comparison, Miss Fresh's fulfillment expense ratios from 2018 to 2020 were as high as 34.94%, 30.54%, and 25.72%, respectively. Dingdong's fulfillment expense ratios in 2020 and 2021 were both above 35%. During operations, front-warehouse rent is a fixed cost, while delivery costs are variable. Compared with large-scale e-commerce like traditional e-commerce (JD.com, Alibaba) or local life e-commerce (Meituan), the fresh food market is extremely small, with limited delivery order volume. Whether using self-operated delivery personnel or third-party delivery, the average delivery cost per order tends to be high. To reduce the fulfillment cost ratio, one must expand market scale on one hand, and reduce delivery costs, improve delivery efficiency, and lower warehousing costs such as utilities and rent on the other. In addition to fulfillment costs, Dingdong has also consciously controlled marketing expenses, indicating that fresh food e-commerce is gradually moving away from the expansion strategy of "burning money on subsidies to gain market share." Data shows that Dingdong's marketing expenses in Q4 were approximately 91.1 million RMB, with a marketing expense ratio of 1.47%, a significant decrease from 6.5% in the same period of 2021. For the full year 2022, Dingdong's marketing expense ratio was 2.19%, also the lowest in the past five years. Data shows that Dingdong's gross profit in Q4 2022 was 2.04 billion RMB, up 34.2% year-over-year, and the gross margin increased from 27.7% in the same period last year to 32.9%. According to Tech Planet, some users in Beijing found that Dingdong sometimes takes more than 50 minutes or even longer to deliver, which is clearly a measure to control costs by reducing delivery capacity or the number of front warehouses. Additionally, a former Dingdong employee said that starting around Q4 2021, Dingdong raised prices on its products overall, attempting to retain high-quality users who are less price-sensitive. Dingdong's Ambition Recently, Shen Qiang, Vice President of Dingdong and Head of the Product Planning and Innovation Center, said in an interview with China Business Journal that Dingdong is transforming into a "food e-commerce" company. This largely exposes Dingdong's ambition in terms of product categories. That is, Dingdong has gone beyond fresh food and moved towards "food." The leap from fresh food to food is geometric. Fresh food is limited to vegetables, fruits, meat, eggs, and milk, but food includes snacks, frozen foods, beverages, and even alcohol. If positioned as a "food e-commerce" company, Dingdong has already significantly entered the important territory of traditional e-commerce like JD.com and Alibaba, and for offline supermarkets, Dingdong with its "full food category" has also become a competitor. According to reports, Dingdong has incubated 18 independent brands internally. Dingdong has high hopes for these independent brands, even believing that "these brands are expected to be born and grow at Dingdong, and in the future, they will also go nationwide and even to other global channels. Externally, they are called private brands, but internally, they are independent brands and will eventually go out." With such a vision, Dingdong may one day even surpass retailers and become a "brand manufacturer" with production capabilities. Currently, the first category Dingdong has crossed from fresh food is "prepared dishes." On February 24, at the "2023 Food and Fresh Food Industry Supplier Ecosystem Summit," Dingdong officially announced that it would enter the era of "Health-Oriented Prepared Dishes 2.0" and issued a target order of 5 billion RMB for prepared dishes, recruiting "prepared dish partners" from the entire industry. Compared with fresh food categories, prepared dishes have a higher degree of standardization, are easier to store, and are convenient and practical, making them more suitable for the "online lazy" consumer group targeted by fresh food e-commerce like Dingdong. Whether it is prepared dishes, private brands, or the larger "food e-commerce" positioning, Dingdong has unfolded a very grand strategic goal. From the perspective of the necessary development path, the fresh food category has too small a market size, high costs, and low average order value, so entering the full food category is also a feasible path that must be chosen. As for whether the grand goal can be achieved, the only core question that needs to be answered is: Can costs be effectively controlled, and do product prices have sufficient competitive advantage? Almost all daily foods—except high-end or imported foods that are not high-frequency consumption—are readily available through various channels. Whether it is online traditional e-commerce like JD.com and Alibaba, or local life services like Meituan, or offline supermarkets and convenience stores scattered across streets, when selling a bottle of water or a bag of frozen buns, Dingdong must answer: Is the price cheaper? Is Fresh Food E-commerce Entering a New Development Phase? 2022 was a year of great waves washing away sand in the fresh food e-commerce track. Fresh food e-commerce has shown explosive development since 2012. According to Tianyancha data, as of the end of 2022, there were over 71,000 fresh food e-commerce-related enterprises in China. Over more than a decade of development, fresh food e-commerce has continuously explored new models, with new concepts such as store-warehouse, front warehouse, and community group buying emerging one after another, but none seemed to find the optimal solution, and very few were profitable. Some investors claimed that Miss Fresh, in which they had invested, burned through over 10 billion RMB in eight years before collapsing, causing many investors to completely lose confidence in the fresh food e-commerce track. In the past year, Miss Fresh's app ceased operations, Shihui Tuan collapsed, Chenxin Youxuan transformed, and Xingsheng Youxuan closed stations and laid off employees. On the fresh food track, competitors exited one after another. Public data shows that only 4% of domestic fresh food e-commerce companies broke even, 88% were in losses, and only 1% ultimately achieved profitability. Perhaps this e-commerce model simply doesn't work. Miss Fresh, which went public almost at the same time as Dingdong, almost became a "failed star case" in the fresh food e-commerce track. In June 2021, Miss Fresh went public on the US stock market, and a year later its stock price shrank by 99%. In July last year, news broke that Shanxi Donghui Group planned to inject 200 million RMB into Miss Fresh to help it survive, but the matter later fizzled out. Recently, Tianyancha showed that Beijing Miss Fresh E-commerce Co., Ltd. added a new execution information, with an execution target of over 870,000 RMB, and the executing court is the Beijing Chaoyang District People's Court. The total amount executed for Miss Fresh has accumulated to 2.26 million RMB. Miss Fresh has over 60 consumption restriction orders and over 60 case closure information, with an unfulfilled amount exceeding 5.39 million RMB. Does Dingdong's profitability mean that in 2023, fresh food e-commerce, after undergoing life-and-death tests and the great waves washing away sand, has finally seen a turning point? The author believes that "to be or not to be" depends on whether each company's business strategy has found the right direction. For high-frequency daily consumables such as vegetables, fruits, grains, oils, rice, and flour, the purchase frequency is high, but the average order value is low, profit margins are low, and offline availability is extremely convenient. This forces online e-commerce to compete with offline on price. Only by optimizing the supply chain and reducing operating costs can it be the only bottom-line principle for survival. Therefore, whether it is the group buying model, the front warehouse model, or Miss Fresh's so-called "front warehouse + smart food market × retail cloud" model, they are all more concept than substance. Dingdong and Miss Fresh went public almost at the same time, but one survived and the other died, precisely because Dingdong found the right strategy: emphasizing operations over model. The so-called emphasis on operations has the sole goal of "reducing costs." For example, Dingdong has established its own supply chain, increased direct sourcing from fields, and the proportion of direct sourcing for fresh products reached 79.1%; on the other hand, it has built private brands. According to reports, Dingdong has incubated nearly 20 sub-brands such as "Cai Changqing," "Liangxin Jiangren," and "Baoluo Gongfang," which currently account for 11.4% of total GMV. In the future, Dingdong hopes to increase the proportion of private brands to over 50%. Whether it is private brands or upstream direct sourcing, this model will lead to very high sunk capital in the early stage, but as market share expands and continuous operations optimize, early investments will bring a snowball effect for low-cost operations in the later stage. Fresh food e-commerce is an industry that competes on time consumption and strategic expansion. The choice of strategic path, accumulation of operating scale, penetration of market share, and cultivation of user habits all require long-term testing and operational wisdom. Only by enduring can one become the victorious Buddha. As the fittest survive, industry concentration will correspondingly increase, forming a pattern of big fish eating small fish or big fish eliminating small fish. Is JD.com Arriving Late to the Party? On February 22, industry news broke that JD.com is quietly testing its "JD Buy Groceries" project, and it does not rule out the possibility of a separate channel or app in the future. Unlike Dingdong's self-operated model, JD Buy Groceries has previously operated its grocery business in a platform aggregation model. From the current situation, JD Buy Groceries aggregates multiple well-known fresh food platforms, including not only Qixian and Yonghui, but also third-party merchants such as Baiguoyuan, Wumart, Dingdong Maicai, and Carrefour, and can even purchase on behalf of Hema. "JD Buy Groceries did not adopt self-operation but chose platform-based operation because the self-operated model requires large investment and develops slowly," analysts believe. JD's current strategy is to strengthen platform construction. In addition, the development of front warehouse models and fresh food supermarkets also provides a supply foundation. JD is not entirely without opportunities in fresh food e-commerce, and for JD, fresh food e-commerce is probably "the drunkard's heart is not in the cup." JD's fresh food e-commerce adopts a platform model, which is based on LBS services, inviting local supermarkets, convenience stores, fruit shops, and other merchants to join, which is exactly the same as Meituan's model. For JD, it has never given up its dream of fresh food e-commerce, not because the market cake of fresh food e-commerce is so attractive, but because starting from the fresh food category, it can further cover daily necessities and even later large items—appliances, digital products, etc.—with the goal of targeting the "local life instant retail" model. At present, the rapid rise of this model, represented by Meituan, has already posed a huge threat to JD. Therefore, it can be considered that JD's fresh food e-commerce dream has its imaginary enemy not as Dingdong Maicai but as Meituan. With Dingdong continuously expanding its categories, Meituan vaguely becoming the new e-commerce king, and JD and Alibaba constantly seeking new models, it is foreseeable that a new melee will erupt in the field of "instant retail" in the future.