---
title: "One Closes Stores, Another Prepares for IPO: The 'Ice' and 'Fire' of Fresh Food Retail"
description: "The development of fresh food e-commerce has a long way to go. As online retail grows, the industry has evolved from traditional models to new ones like front-warehouses, integrated store-warehouses, and community group buying. However, due to persistent profitability issues, major players like Xingsheng Youxuan, Shihui Tuan, and Miss Fresh have exited. On May 22, news broke that Dingdong Maicai would withdraw from the Sichuan-Chongqing market, signaling a cold winter for fresh food new retail. Yet, amidst the turmoil, Alibaba announced on May 18 that it had approved IPO plans for Hema, which is expected to list within 6-12 months, showing contrasting fortunes in the same sector."
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published: "2023-05-31"
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# One Closes Stores, Another Prepares for IPO: The 'Ice' and 'Fire' of Fresh Food Retail

> The development of fresh food e-commerce has a long way to go. As online retail grows, the industry has evolved from traditional models to new ones like front-warehouses, integrated store-warehouses, and community group buying. However, due to persistent profitability issues, major players like Xingsheng Youxuan, Shihui Tuan, and Miss Fresh have exited. On May 22, news broke that Dingdong Maicai would withdraw from the Sichuan-Chongqing market, signaling a cold winter for fresh food new retail. Yet, amidst the turmoil, Alibaba announced on May 18 that it had approved IPO plans for Hema, which is expected to list within 6-12 months, showing contrasting fortunes in the same sector.

**Introduction: The development of fresh food e-commerce has a long way to go.**
**Author** | Gou Gou

With the increasing development of online retail, the fresh food e-commerce industry has broken away from traditional fresh food models, successively introducing new models such as front-warehouses, integrated store-warehouses, and community group buying, resulting in a coexistence of multiple business models. However, in recent years, due to deep-rooted problems and difficulty in achieving profitability, several heavyweight players including Xingsheng Youxuan, Shihui Tuan, and Miss Fresh have successively exited. Just recently, on May 22, news spread that Dingdong Maicai would soon withdraw from the Sichuan-Chongqing market, making the battlefield of fresh food new retail seem to enter a cold winter. But even under the overturned nest, there are intact eggs. On the evening of May 18, Alibaba Group released its Q4 and full-year results for fiscal year 2023. The financial report disclosed that the group's board of directors had approved the listings of Cainiao, Alibaba Cloud, and Hema. According to the schedule, Hema will become the first subsidiary to independently list, completing its IPO within 6 to 12 months. In the same fresh food track, why do companies show two extremes of development: ice and fire?

**Ice and Fire: Two Extremes**

Under the internet money-burning model, both Hema and Dingdong Maicai have had a path of expansion. But now, the situation is: **one is contracting its front due to cost factors; the other is sprinting towards an IPO with strong growth.** On May 22, users in the Sichuan-Chongqing region received a service adjustment notice on the Dingdong Maicai app, stating that to serve users more efficiently, adjustments would be made to the operation of front-warehouses in the region. Meanwhile, stations in the area would stop delivery services at 18:00 on May 29, 2023. If users need to refund account balances or unexpired green card memberships, they can contact customer service for assistance with refunds and card cancellations. Station community services will also be adjusted simultaneously. As soon as the news came out, opinions varied.

**Dingdong Maicai officially stated that the company adjusted its business in Chongqing and Chengdu based on considerations of cost reduction and efficiency improvement.** The shift may have started in 2021. From June 2020 to June 2021, Dingdong Maicai was at its peak of expansion, opening an average of 2.4 new cities per month. Meanwhile, Dingdong Maicai's Q3 2021 financial report showed that as of the end of that quarter, the company had 1,375 front-warehouses in 37 cities nationwide, with the number of cities increasing by 185% year-on-year. Since August 2021, Dingdong Maicai has adjusted its operational strategy from "scale first, efficiency second" to "efficiency first, scale second." Since 2022, Dingdong Maicai has successively withdrawn from several second- and third-tier cities. Currently, it has withdrawn from Xiamen, Zhuhai, Tianjin, Zhongshan, Chuzhou, Langfang, Tangshan, and other cities. As of now, the Dingdong Maicai app shows 28 cities in normal operation (including Chengdu and Chongqing), of which 18 are Yangtze River Delta cities, accounting for 66.7%. The total number of cities has decreased by 9 compared to September 2021, a reduction of nearly a quarter.

From the data, Dingdong Maicai's profitability seems less than ideal. In the Q1 2023 financial report, Dingdong Maicai's total revenue was 4.9975 billion yuan, a year-on-year decrease of 8.2%; net loss was 52.4 million yuan, significantly reduced compared to the 477.4 million yuan loss in the same period of 2022. As of March 31, 2023, Dingdong Maicai had cash and cash equivalents and short-term investments of 5.7 billion yuan, continuing to decrease from 6.493 billion yuan as of December 31, 2022. In Q1 2023, Dingdong Maicai's debt-to-asset ratio still exceeded 95%, with a current ratio of 0.91 (current assets to current liabilities) and a quick ratio of 0.84 (quick assets to current liabilities). The net cash flow generated from operating activities was negative 307 million yuan.

On the other side, since March 28 this year, Alibaba announced the launch of the "1+6+N" organizational restructuring, laying the foundation for the independent listing of subsidiaries. On May 18, Alibaba announced in its Q4 fiscal year 2023 (natural year Q1 2023) financial report the first batch of subsidiaries heading for listing: "Approved Hema to implement its listing plan, Cainiao to explore the listing process, and Cloud Intelligence Group to be spun off for independent listing." According to the currently disclosed schedule, Hema "is expected to complete its listing within the next 6 to 12 months," and may be the first subsidiary to IPO after Alibaba's organizational reform in March. Alibaba's Q2 fiscal year 2023 report showed that as of September 30, 2022, Alibaba's direct sales and other revenue increased by 6% year-on-year to 64.725 billion yuan, mainly benefiting from the strong revenue growth of Hema, with its online order revenue share maintaining a high level above 65%.

**Two Business Models**

Dingdong Maicai is an old player in fresh food e-commerce. At that time, there were fewer competitors, and the "last mile" had great potential for exploration. The company adopted a "front-warehouse + timely delivery" model, setting up warehouses in residential clusters to improve delivery efficiency and save delivery time. This allows consumers to receive their ordered goods faster, with delivery time controlled within 30 minutes. However, this model requires building many front-warehouses, and since Dingdong Maicai pursued national expansion, cost investment would be higher. Additionally, fresh food is prone to loss and requires high supply chain standards. Yonghui Superstores maintains operations through direct sourcing from production areas and a mature supply chain system, which takes a long time to build. The main advantage of the front-warehouse model is "fast" and "cheap," attracting customer traffic.

**For the entire fresh food e-commerce industry, "efficiency" and "customer traffic" are also two key factors. If delivery efficiency cannot keep up, and if customer traffic cannot be attracted through other means, a crisis will occur.** This may be the reason why Dingdong Maicai chose to shift from scale expansion to efficiency priority. But whether it is still too late to reverse the decline of front-warehouse development remains to be seen.

Hema Fresh is Hema's main core business format. It adopts a "online + offline" new retail supermarket model, which is an integrated store-warehouse model. Consumers within a certain area near offline physical stores can enjoy "online selection, offline delivery" services. Unlike front-warehouses, Hema Fresh forms a closed loop of traffic through the connection of online and offline. In addition, Hema Fresh targets the middle-class population. It co-develops products that meet consumer needs with suppliers, attracts customers through product differentiation, and profits by earning product price differences. Of course, it also requires significant investment in store and labor costs.

Given the current situation, with Miss Fresh exiting, Dingdong Maicai adjusting its strategy, and Hema launching its IPO plan, the development momentum seems better. **The integrated store-warehouse model may be a more promising profit model in fresh food e-commerce.** However, some industry insiders believe that overall, Hema's current layout is very broad, and it is constantly trying to incubate new business formats, but so far there have been no particularly successful or finalized projects. It can only be said that the development of fresh food e-commerce has a long way to go.

Previously, fresh food e-commerce used the internet money-burning model. There was no market that could not be captured, only money that could not be burned. To complete fresh food transactions, hard costs such as outsourced riders, employees, and warehousing are at least included. If cost control is not in place at every link, it will bring increasing consumption. Due to the inability to break through profitability issues, fresh food e-commerce emerged at an astonishing speed and went bankrupt at an even more astonishing speed. Even so, the 3% e-commerce penetration rate in the fresh food industry still makes giants believe this is a blue ocean for e-commerce.

**But with the collapse, closure, transformation, or exit of many heavyweight players, capital's investment enthusiasm has also been consumed.** Relevant data shows that only 1% of domestic fresh food e-commerce companies ultimately achieve profitability, only 4% break even on revenue, 88% fall into losses, and the remaining 7% suffer huge losses. As time moves to 2023, the industry's focus has shifted from pursuing scale to pursuing profitability.

**In such a market environment, fresh food e-commerce companies must focus on cost control and improve profitability. Pay attention to improving user experience. Only by continuously optimizing products, reducing costs, and improving efficiency can they remain invincible in the industry.**


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