Source | Qujie Business Recently, major companies have been fiercely competing in the instant retail battlefield. Meituan launched a new brand 'Flash Purchase' to directly challenge JD's 'Seconds Delivery'; Taobao Tmall's instant retail business 'Hourly Delivery' announced an upgrade to 'Taobao Flash Purchase', inviting consumers to enjoy Heytea and Luckin for 3-4 yuan. Amid the melee of giants, users have reaped benefits, but it has brought considerable pressure to the original small and medium-sized players in the track. On May 16, Dingdong Maicai released its Q1 financial report for this year. In 2024Q1, Dingdong Maicai's revenue was 5.48 billion yuan, a year-on-year increase of 9.1%; under Non-GAAP standards, net profit was 0.3 billion yuan. Growth rate dropped from double digits in the previous two quarters back to single digits. Image source: Dingdong Maicai financial report screenshot Dingdong Maicai is one of the few survivors of the fresh food e-commerce money-burning war five years ago, relying on 'cutting losses' to gradually turn losses into profits in Jiangsu, Zhejiang, Shanghai, and Shenzhen. At each earnings meeting, company executives emphasize that Dingdong Maicai has been profitable for multiple consecutive quarters (Non-GAAP). However, even after entering a stable profit period, the road ahead for Dingdong Maicai has not become easier. Deeply Rooted in Jiangsu, Zhejiang, and Shanghai Dingdong Maicai's first quarterly profit began in Q4 2022. That year, Miss Fresh collapsed, and Dingdong Maicai also began to shrink sharply, successively withdrawing from some prefecture-level cities in Tianjin, Guangdong, Anhui, Hebei, and in 2023, withdrew from the Sichuan-Chongqing region. According to financial reports, the number of cities covered by Dingdong Maicai decreased from 37 in 2021 to 25 in 2024, with main revenue coming from the Yangtze River Delta region. First Financial reported that Dingdong Maicai operates different supply chains in the southwest region compared to the Yangtze River Delta and Pearl River Delta, with high operating costs in the southwest. In contrast, the Yangtze River Delta region has strong demand for fresh food consumption, high highway density, and developed logistics, which is more conducive to running the fresh food e-commerce model. After shrinking and focusing on Jiangsu, Zhejiang, and Shanghai, Dingdong Maicai's revenue scale sharply decreased, but profitability steadily improved. Net profit (Non-GAAP) hit a new high in Q3 2024, up 942% year-on-year to approximately 160 million yuan. Consumers in Jiangsu, Zhejiang, and Shanghai have indeed made 'outstanding contributions' to Dingdong Maicai, even directly affecting its performance changes. In Q1 this year, Dingdong Maicai's GMV in Zhejiang and Jiangsu grew by 17.8% and 13.9% year-on-year, respectively, far higher than the overall GMV growth rate. Additionally, Dingdong Maicai mentioned in its financial report that the decline in total revenue growth in Q1 was mainly due to the suspension of some stations and the increase in Jiangsu, Zhejiang, and Shanghai residents traveling during the Spring Festival. Image source: Dingdong Maicai financial report Based on this, Dingdong Maicai continues to densify its front warehouses in Jiangsu, Zhejiang, and Shanghai, having opened 14 new front warehouses in Wenzhou, Huzhou, and other places this year. For areas outside Jiangsu, Zhejiang, and Shanghai, Dingdong Maicai is quite cautious. In the first half of 2024, Dingdong Maicai successively closed 27 stations in Guangzhou (Jiahe, Longdong, Tangxia) and 11 stations in Shenzhen. Efficiency and cost structure optimization remain the company's top priorities. Besides strategic contraction, Dingdong Maicai's stable profitability also relies on strict control of fulfillment costs. Selling fresh food is a low-margin, hard business where procurement and fulfillment are major expenses. Self-built warehousing brings fulfillment costs including delivery costs, warehouse-related operating expenses, rent, and depreciation. Fulfillment efficiency can even determine a company's survival. Miss Fresh, which collapsed three years ago, once had fulfillment costs accounting for nearly 60% of total operating expenses. Before 2021, Dingdong Maicai's fulfillment cost ratio remained above 35%; now it has stabilized below 25%, with a slight year-on-year increase of 0.1% to 22.9% in Q1 this year. Previously, company executives revealed at an earnings meeting that the decline in fulfillment cost ratio was mainly due to improved station delivery efficiency and warehouse staff efficiency, but did not explain the specific methods. Zhuang Shuai, an expert in the retail e-commerce industry, stated that the greater the density of instant retail stores, the more regional orders, and the lower regional delivery costs. Once order density is insufficient, regional delivery costs become the major part of fulfillment expenses. Image source: Xiaohongshu screenshot The improvement in fulfillment efficiency inevitably puts pressure on delivery riders. In 2022, media reported that Dingdong Maicai reduced the number of riders at each station. The author noticed that in the past year, Dingdong riders often complained on social platforms that working at Dingdong has 'low cost-performance', with two orders to the same address counted as one order's price. Consumers also frequently complain on Xiaohongshu that Dingdong Maicai's delivery 'overtime' is exaggerated, with the app often overwhelmed during bad weather, but 'Dingdong Maicai's overtime often extends by one to two hours, which is very exaggerated.' Profit Relies on 'Non-Fresh'? Besides fulfillment costs, there are many other reasons why the front warehouse model was initially not favored. Hou Yi, former CEO of Hema, once summarized the 'three sins' of front warehouse fresh food: customer unit price cannot rise, loss rate cannot fall, and gross margin is not guaranteed. Due to heavy assets and low margins, many investors jokingly call it 'using a Fuxing train to haul coal.' Like traditional supermarkets, fresh food e-commerce wants to live comfortably in a low-margin business, so they need to control prices and improve quality upstream along the supply chain, while also increasing the proportion of non-fresh products with higher gross margins. According to Fortune Chinese website, the SKU proportion of Dingdong Maicai's non-fresh standard products and prepared dishes has exceeded fresh food, totaling 62.5% in 2023. Among them, prepared dishes are one of Dingdong Maicai's most valued categories. In 2022, it established a prepared dishes business unit as a first-level department. Now, 'Cai Changqing' focuses on home-style dishes and cooked marinated products, 'Liangxin Jiangren' makes frozen dim sum like custard buns and soup dumplings, and 'Dingdong Grand Slam' does hot pot series—all popular brands incubated by Dingdong Maicai itself. In 2024, an internal source told the media that currently, fresh food is the basic plate for Dingdong Maicai, while differentiated products like prepared dishes and private brands bring sufficient gross profit. According to incomplete statistics, Dingdong Maicai's private brands cover meat, eggs, milk, grains, and other foods, including the baking track with gross margins above 50%. The author noticed that Dingdong Maicai's dessert and pastry products receive many positive reviews on social platforms, including internet-famous items like durian mille crepe and Swiss rolls, as well as exclusive specialty desserts like 'yogurt sandwich' and 'crispy dun dun'. Image source: Xiaohongshu screenshot Supermarkets doing private brands can bypass middlemen and directly customize with source factories, using large demand to improve bargaining power. Announcements show that in 2024, Dingdong Maicai's direct sourcing costs accounted for 85% of total procurement costs. Through years of 'specialization', Dingdong Maicai has established deep cooperation with multiple suppliers in East China. Previously, Dingdong Maicai signed an exclusive supply agreement with Gaojin Food, which focuses on meat processing, for the East China market. This year, both parties jointly invested in a black pig breeding company to further enhance its black pig brand 'Heizuan Shijia'. Additionally, Dingdong Maicai stated at an earnings meeting that some of its private brands have entered other domestic supermarkets such as Hualian and JD Seven Fresh. Zhuang Shuai believes that Dingdong Maicai's supply chain advantage lies in deep participation in the entire process from planting, processing to delivery. Its private brands and industrialization capabilities are relatively strong, and the average daily order volume per warehouse and fulfillment efficiency in Jiangsu, Zhejiang, and Shanghai are higher than the industry average. However, the disadvantage is obvious regional limitations, and the self-operated front warehouse model has high rent and loss rates. Retail is a hard business of bending down to pick up coins, requiring cost optimization and efficiency improvement from details. This also includes internal personnel management. Recently, Dingdong Maicai's supply chain planning director, Yan, was sentenced to imprisonment for accepting 950,000 yuan in bribes from suppliers. In 2022, procurement heads for vegetables and aquatic products at Dingdong Maicai were also convicted by courts for bribery. Image source: Weibo screenshot The author noticed that not only Dingdong Maicai, but also procurement or logistics heads at multiple retailers like Hema and Meituan Xiaoxiang have experienced fraud incidents of using their positions to accept benefits from partners. Supply chains involve multi-party cooperation. If retail companies want to adhere to long-termism, they may need to build more robust supervision mechanisms internally. Giants Compete in Instant Retail However, as major companies like JD and Meituan increasingly value instant retail, Dingdong Maicai faces growing competitive pressure. In 2024, JD Seven Fresh, Meituan Xiaoxiang, and Hema all accelerated expansion. Xiaoxiang Supermarket's key focus area is exactly Dingdong Maicai's home base of Jiangsu, Zhejiang, and Shanghai; since this year, Hema's discount store formats have also begun opening first stores in batches in East China, including lower-tier prefecture-level cities in Zhejiang like Jinhua and Zhuji. Instant retail players clearly want a share of the mature consumer market. However, many practitioners believe that although leading companies in the instant retail track each have advantages, no company has yet established absolute leading advantages. From a category perspective, Xiaoxiang Supermarket and Dingdong Maicai have the highest SKUs. Huaxi Securities research report shows that Xiaoxiang and Dingdong Maicai both have SKUs above 10,000; followed by JD Seven Fresh (large warehouse 6,000+) and Hema (5,000+). Image source: Huaxi Securities research report screenshot But in consumers' eyes, these supermarkets each have their own 'red and black lists', with both exclusive products with high repurchase rates and products that have been repeatedly criticized as pitfalls. In terms of delivery services, Xiaoxiang Supermarket has relatively fewer negative reviews, while others have almost all encountered complaints about 'overtime' and 'missing deliveries' on social platforms. Zhuang Shuai believes that if divided by different retail models, platform-based leaders are Meituan Flash Purchase, Taobao Flash Purchase, and JD Seconds Delivery; self-operated ones are Dingdong, Pudu, and Xiaoxiang; store-warehouse integrated ones are Sam's Club and Hema. Compared with platform-based retailers backed by major companies, Dingdong Maicai lacks traffic entry points, relying solely on the competitiveness of its own products for user retention; compared with 'store-warehouse integration', Dingdong Maicai's front warehouses cover a wider service range, but as Hema and Seven Fresh begin to deploy front warehouses, this advantage may disappear. At the same time, the recent subsidy war in food delivery between JD and Meituan is also diverting users who order on fresh food e-commerce platforms. It is worth noting that Pudu Supermarket, which also adheres to the front warehouse model like Dingdong Maicai, recently reported news of a Hong Kong listing. Pudu Supermarket is deeply rooted in Fujian, Guangdong, and other South China regions. According to Leiphone reports, in 2024, Pudu Supermarket achieved annual profitability for the first time, with annual revenue of about 30 billion yuan, surpassing Dingdong Maicai, and a valuation of over 6 billion yuan, equivalent to two Dingdong Maicai market values. Image source: Weibo screenshot East China and South China are adjacent, so Dingdong Maicai may likely face direct competition with Pudu Supermarket in the future. Under multiple challenges, Dingdong Maicai proposed a new '4G Strategy' this year, emphasizing 'good users, good products, good services, and good mindshare', further focusing on differentiated products and quality services. It also made significant organizational adjustments: the product development center was divided into 10 independent business units, each led by one of the company's 10 core executives. The Dingdong Maicai app has also undergone obvious changes: launching a 'Quality Love' section; introducing AI features that recommend ingredients and analyze nutritional components. Some users said that using AI to identify products suitable for lactose-intolerant people is very convenient. This shows that the importance of product development and focusing on user experience has significantly increased within the company. Dingdong Maicai CTO Jiang Xu emphasized to the media last year that Dingdong Maicai is essentially a food supply chain company focused on fresh food. The supply chain is the lifeline of fresh food catering companies. Dingdong Maicai, established 8 years ago, has built capital to stay at the table through its supply chain. However, how to break regional limitations, improve quality control, and increase the usage frequency of 'good users' in more regions is becoming a new challenge for Dingdong Maicai. As more and more major companies increase their investment in front warehouse retail, the room for error left for Dingdong Maicai is already limited.