---
title: "Pupu Supermarket Raises Delivery Fees, Rumored Layoffs: 'Climbing the Hill'"
description: "Pupu Supermarket, a representative of the front-warehouse model, is embroiled in layoff rumors and acquisition talks with JD.com. The company has raised its free delivery threshold in Fujian and Xiamen to 35 yuan, aiming to increase average order value and gross margin, but faces risks of customer loss and increased competition."
author: "十里"
publisher: "New Distribution"
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published: "2024-01-30"
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# Pupu Supermarket Raises Delivery Fees, Rumored Layoffs: 'Climbing the Hill'

> Pupu Supermarket, a representative of the front-warehouse model, is embroiled in layoff rumors and acquisition talks with JD.com. The company has raised its free delivery threshold in Fujian and Xiamen to 35 yuan, aiming to increase average order value and gross margin, but faces risks of customer loss and increased competition.

**Pupu in 'Bad Luck'**
Pupu Supermarket, one of the representative companies of the front-warehouse model, is embroiled in a 'layoff storm'. This mobile internet shopping platform with 30-minute instant delivery has attracted increasing attention. In recent days, employees have successively reported on social media that Pupu is starting a new round of layoffs, with the technology center and procurement/sales departments also taking stock of layoff needs. At the same time, some Pupu employees revealed that JD.com has once again come to negotiate the acquisition of Pupu. As early as half a year ago, there were rumors that JD.com's senior management had inspected Pupu's front warehouses, but the deal fell through due to price issues. 'The main reason for the failure to reach an agreement is price. JD.com only wants to acquire Pupu's markets in Fujian, Xiamen, and South China, but Pupu wants to sell the entire package to JD.com,' an industry insider revealed. From Pupu's current footprint, it mainly covers Fuxia (Fuzhou, Xiamen), South China (Guangzhou, Foshan, Shenzhen), Central China (Wuhan), and West China (Chengdu). The South China and Fujian regions favored by JD.com are important battlegrounds for Pupu. It is reported that 80% of Pupu Supermarket's sales come from these two markets.

Whether it's layoffs or acquisition rumors, it seems to indicate that Pupu Supermarket is climbing a hill. Not long ago, Pupu Supermarket announced an increase in the free delivery threshold. Starting December 1, 2023, it adjusted its delivery policy in Fujian and Xiamen, raising the minimum order amount for free delivery from 28 yuan to 35 yuan. That is, orders with product amount <35 yuan will incur a 3 yuan delivery fee; orders with product amount ≥35 yuan will enjoy free delivery. In Guangzhou, Foshan, and Chengdu, the free delivery threshold has been adjusted to 29 yuan, and in Wuhan to 25 yuan. From a financial perspective, this decision is reasonable, indicating that Pupu is trying to increase gross margin by raising the average order value. The increase in the minimum order threshold needs to be based on the proportion of internal average order value and order volume. By using promotional means to increase the cross-selling rate of user purchases, especially high-value, high-margin products, it aims to achieve a higher delivery threshold, promote higher average order value, and thereby increase gross margin. However, from the perspective of competitors and consumers, this move also carries certain risks.

First, compared with players in the same Fujian and Xiamen markets, Hema has better quality but requires 39 yuan for delivery, Meituan Maicai requires 29 yuan, and local Yonghui only requires 18 yuan. In such a market environment, raising the delivery threshold may lead to customer loss, especially against the backdrop of current low consumer sentiment. Second, raising the threshold may reduce purchase frequency, from once a day to once every two days, potentially lowering total sales. Over the past few years, the front-warehouse + fresh food business model has been fully validated by representatives such as Daily Youxian, Dingdong Maicai, Hema, and Yonghui. This business is essentially a 'money-burning, loss-making venture' that attracts customers but suffers from high operating costs and low profit margins, which are key points difficult to break through.

Moreover, the strong disruption of instant retail businesses represented by JD Daojia and Meituan Shansong has added numerous challenges for Pupu to survive in this track. Looking at Pupu's growth history, it can be described as 'timely, geographical, and harmonious'. Especially in its home base of Fuzhou, Pupu successfully suppressed Yonghui and forced Dingdong Maicai to exit the local market. Although Pupu's number of front warehouses is only a quarter of Dingdong Maicai's, its revenue is not that far behind. In 2021, Pupu Supermarket's revenue exceeded 10 billion yuan, while Dingdong Maicai's revenue was 20.12 billion yuan. The rapid rise of Pupu can be attributed not only to fast delivery but also to the surge in user demand during the pandemic. It is reported that during the pandemic, Pupu Supermarket's order volume reached 60,000 to 80,000 orders per day, but Pupu failed to seize the opportunity to expand and go public. Therefore, despite Pupu's high market share of 70% in Fuzhou, its overall market penetration is only 7%, reflecting its predicament in the face of fierce competition and profitability pressure.

**The Dilemma Faced**
The core of Pupu Supermarket's, or even the front-warehouse model's, business strategy can be summarized as 'SKU diversity, extreme cost-effectiveness, and half-hour fast delivery'. From the SKU perspective, Pupu has indeed made efforts over the years. The front warehouse area has expanded from the early 300-500 square meters to the current over 1,000 square meters, and the number of SKUs has increased from 3,000 to 5,000. In comparison, Dingdong Maicai and Daily Youxian, which also use front warehouses, have single warehouse areas of around 300 square meters. Pupu's interpretation is that the logic of finding a breakthrough in front warehouses is to go from small stores to large stores, shifting focus from pursuing 30-minute delivery speed to enhancing customers' overall experience. At the same time, order volume and average order value have also increased. However, there is a reason for Pupu's large warehouse model. After all, Daily Youxian also tried this model but faced difficulties due to high loss rates in fresh food categories, extremely high cold chain requirements, high logistics costs, and high management costs for non-standard products, ultimately abandoning its main business. In contrast, Pupu Supermarket, despite choosing a multi-category business model combining fresh food, daily necessities, mother and baby products, alcoholic beverages, and healthcare, uses low-margin but high-frequency fresh products to attract customers, while selling high-margin essential goods to improve overall profits and reduce operational risks. Although this product structure seems flawless, with the increase in product categories, it has to face more intense competition. Besides competing with the two main market players in fresh food e-commerce and instant retail, Pupu also needs to compete with numerous traditional large supermarkets and countless community small stores. Therefore, the difficulty of this logic is by no means easy.

Second, market competition has come in waves. As early as the end of 2019, Hou Yi questioned the feasibility of the front-warehouse model, calling it merely a model to attract venture capital. Subsequently, Hema's failure in the Fuzhou market further proved this point. As of May 2020, Hema's daily order volume in Fuzhou was approximately 1,900 to 2,200 orders, far lower than the local Yonghui Supermarket's 50,000 to 60,000 orders, and Pupu Supermarket's 200,000 orders. The reason for Hema's retreat was the overly long logistics chain, lack of competitive advantages in products, and difficulties encountered due to regional procurement strategy issues. At the same time, after achieving a phased victory, Pupu Supermarket did not continue to expand its advantages. Instead, consumers in the market exclaimed 'can't understand it': Pupu still lags behind Hema and Sam's Club in product differentiation, especially in the implementation of internet-famous products and brand awareness. Furthermore, changes in the post-pandemic market have not brought significant profit opportunities for Pupu, but instead allowed some 24-hour online convenience stores like Duo Jingxuan and Shan Go to seize a portion of market share. More critically, internet giants have begun to heavily invest in the fresh food e-commerce track. Besides Meituan Maicai, which has been lurking, JD.com has also integrated and established an innovative retail department, restarting front warehouses and community group buying. In the major adjustment of Taobao and Tmall Group, high-frequency driven businesses such as Tmall Supermarket, Taocaicai, Taoxianda, and food fresh have strengthened their layout in the fresh food e-commerce market. In such a fiercely competitive environment, almost all similar enterprises are facing challenges.

**The Endgame?**
For a long time, various e-commerce companies in the front-warehouse model have been in a state of burning money and incurring losses. Daily Youxian, Dingdong Maicai, and Meituan Maicai have all failed to achieve profitability. The high-cost operating model is predetermined by the front-warehouse model. Only by continuously expanding categories, increasing private labels or self-made dishes to improve gross margin and reduce costs, and also continuously raising funds, can they ensure sufficient safety. Pupu Supermarket has also had multiple rounds of financing in the past. According to Qichacha, during its establishment, it completed six rounds of financing in six years, with the last round in November 2021. It has been more than two years without new financing moves. Although this financing speed is not slow by ordinary standards, compared with peers, its development pace appears relatively slow. Data shows that Dingdong Maicai received nine rounds of financing in the four years starting from 2018, completing four rounds in the second half of 2018 alone. Daily Youxian, after receiving angel round financing in 2014, also maintained a similar rapid financing pace until its US listing in 2021. Pupu Supermarket's slowing financing pace, coupled with the highly competitive and expensive operating costs of the fresh food e-commerce market, has attracted widespread attention from the outside world regarding its future development and long-term sustainability.

Among many predictions, one possibility is that Pupu Supermarket will be acquired by JD.com. An industry insider revealed that JD.com's interest in Pupu Supermarket's Fujian and Xiamen regions stems from the high revenue in these areas. The large order volume and high order density in these regions can effectively reduce fulfillment costs. Although this move would help expand JD.com's front-warehouse territory, considering multiple factors, this possibility seems unlikely. Additionally, Daily Youxian has also been repeatedly rumored to be acquired by JD.com, but it never materialized. Even Daily Youxian's cloud supermarket business was delivered by JD Logistics from large warehouses, without the need for front warehouses. Industry insiders pointed out that JD.com once experimented with front-warehouse business in Beijing and briefly cooperated with Daily Youxian, but due to the high cost of front warehouses, the project was terminated after about two months. Unfortunately, Daily Youxian has now been delisted. On November 15, 2023, the Nasdaq Hearings Panel notified Daily Youxian that the Panel had decided to delist the company's securities from the Nasdaq Stock Market LLC ('Nasdaq') and suspend trading in these securities.

Another possibility is going public. 'Fujian's local market is still profitable, but outside Fujian, the probability of burning money is relatively high. After all, due to the front-warehouse model, it has to rely on financing to stay strong,' the above-mentioned insider predicted, while also stating that Pupu will likely go public. Although there were rumors that Pupu Supermarket planned to go public in mid-2023, this plan has clearly been delayed. Pupu Supermarket's slowdown in financing has limited its scale expansion. Its 2023 store opening plan was flat compared with 2022, far below the expansion speed in 2021. For Pupu, scale expansion is key to a successful IPO. But the reality is that the slowdown in financing has already limited scale expansion, which is a major obstacle for Pupu to open up the national market. Against the backdrop of stabilizing market growth, if Pupu wants to keep up, it can only rely on 'price wars' to enter, labeling itself as 'low price'. But this will put cost pressure back on brand owners, suppliers, and internal delivery and grassroots employees. However, from the current market environment, it seems unsuitable to burn money to grab market share. From a GMV perspective, Pupu Supermarket's scale benefits are not obvious. In the current market environment of front-warehouse e-commerce, even if it successfully goes public, its valuation may be difficult to meet expectations. Therefore, although Pupu Supermarket's current market position may be its best state, facing the expectations of investors, suppliers, and executives, this strategy of 'content with one's lot' may not be the best choice.

But in the current market environment, companies that can still survive are good companies.

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