Recently, after the New Distribution Dealer Member Club organized a study tour to lightning warehouses, many friends have asked questions about them. "What is the business model of lightning warehouses? Can I do it?" Before answering, let's look at two cases of lightning warehouse operations.
Case 1: Traditional convenience store transformation. In 2020, the first lightning warehouse was opened. By August this year, 21 stores were operating, with average daily sales per store exceeding 10,000 yuan, top stores exceeding 18,000 yuan, gross margin of 45%, and net profit of 15-20%.
Case 2: B2B practitioner entrepreneurship. The first store opened in August 2022. By August this year, a total of 13 stores were operating, with average daily sales per store exceeding 10,000 yuan, top stores exceeding 20,000 yuan, gross margin of 55%, and net profit of 10-15%.
Both cases were obtained through field research and in-depth interviews by New Distribution. Based on these cases, I'd like to share a few viewpoints:
First, the lightning warehouse is still in a stage of rapid development, and most markets are not yet saturated, meaning the dividend period is still ongoing. Once the single-store profit model is proven, it can be quickly replicated.
Second, lightning warehouses will inevitably cut into the existing local market business, and this is irreversible. Whether distributors, retailers, or brand owners, all should pay attention to this business format.
This article shares what I've observed and related thoughts, hoping to provide some inspiration and reflection.
What is the relationship between lightning warehouses and instant retail?
In essence, lightning warehouses are a new supply model extended from the instant retail format. Before analyzing, let's discuss the development history of instant retail, which can be divided into three stages:
Stage 1: Embryonic stage, with platforms and retailers as core participants. Brand owners participate indirectly and observe. This stage is characterized by野蛮 growth; simply uploading products and users can achieve high-speed growth.
Stage 2: Expansion stage, with platforms, brand owners, and retailers as core participants. Brands begin to play important roles, with tripartite co-creation and more marketing methods integrated. This stage still sees high-speed growth.
In these two stages, it's evident that the instant retail format has little connection with distributors; it's more about brand owners and retailers participating.
Now, instant retail has reached the third stage, entering a breakthrough period, where brand owners, retailers, distributors, and platforms—all links of retail—are involved.
In this new stage, new business models are naturally needed to drive growth. Against this backdrop, in 2020, Meituan took the lead in launching the "lightning warehouse" new supply model. This is a retail front-warehouse project for merchants, targeting the instant retail format. As an extension of the instant retail format, the high-speed growth of lightning warehouses is easy to understand. The overall user growth of instant retail is rapid; according to Meituan's data, the compound growth rate of instant retail is as high as 47%, especially with young consumers shifting to online shopping.
As users migrate online in large numbers, it naturally brings high-speed growth to instant retail as a whole. As an extended format of instant retail, lightning warehouses will also enjoy the dividend of user growth. In 2021, Meituan's lightning warehouses expanded from 1 to 300 stores; in 2022, they covered over 2,000 stores. As of September 2023, lightning warehouses have been established in 200+ cities, with cooperative merchants opening over 5,000 stores. According to relevant data forecasts, by 2025, the revenue scale of lightning warehouses will reach approximately 83 billion yuan, with an annual compound growth rate as high as 58.3%, accounting for about 22% of the total convenience store market size. From these data, lightning warehouses are indeed a good business at present. But data alone isn't enough; let's break down the model.
What kind of business is a lightning warehouse?
As mentioned above, lightning warehouses are essentially a new supply model extended from the instant retail format. On instant retail platforms (Meituan, Ele.me, etc.), a lightning warehouse appears as a convenience store, but the difference is that its offline store is not open directly to consumers; it can only be purchased online. For a more intuitive feel, I've included a picture; the stores in the picture are typical lightning warehouses. Typical features: 24-hour operation, large order volume (7000+), and rich SKU assortment (4000+). It can be expressed with a simple formula: Lightning warehouse = convenience store (+ department store) + pure online sales + delivery within an hour/half-hour.
The essence of a lightning warehouse is the same as an offline convenience store: serving consumers around the offline store. To facilitate understanding, let's compare lightning warehouses with traditional convenience stores.
First, product structure.
Lightning warehouses have a more complete product structure, better meeting users' immediate needs compared to convenience stores. Traditional convenience stores typically have 1,000-1,500 SKUs, focusing on FMCG categories; lightning warehouses have an area of 150-300 square meters, with 4,000-5,000 SKUs, core categories being FMCG plus general merchandise, with more long-tail products. Products are a very important moat for lightning warehouses. This is also the essence of lightning warehouses: solving the mismatch between online consumer demand and offline product supply.
In the past, many consumer needs in offline stores could not be met in a timely manner. Through efficient fulfillment by lightning warehouses, these unmet needs are reactivated and satisfied instantly.
Second, average order value. In 2020, the average order value for convenience stores was 18.1 yuan. With the high SKU combination in lightning warehouses, consumers tend to make bundled purchases, driving up the average order value. New Distribution interviewed three lightning warehouse owners, and the average order value basically reached 35 yuan per order.
Third, coverage.
Traditional convenience stores cover about 1 kilometer around the store, but lightning warehouses cover 3-5 kilometers. The physical radius determines the number of consumers. A merchant who transformed from a traditional convenience store told New Distribution that it's not difficult for a high-quality lightning warehouse to achieve daily sales of 300 orders, but it's very difficult for a traditional convenience store to achieve 300 transactions a day.
Fourth, fulfillment. Convenience stores rely on in-store traffic, which is limited; lightning warehouses, with online orders, greatly improve fulfillment efficiency, and with 24-hour operation, they are not constrained by space or time.
Fifth, data capability. Most convenience stores have data systems, but the degree of digitalization in inventory management is actually not high, and they cannot do real-time forecasting. However, because lightning warehouses are purely online operations, data is synchronized in real-time, giving them stronger data platform capabilities, whether for sales forecasting or inventory management.
Sixth, site selection requirements.
Traditional offline stores have high requirements for site selection, including foot traffic, location, storefront, and decoration, and rent is high; if the location is not good, it's hard to succeed. Lightning warehouses have no storefront requirements; residential houses, basements, etc., are all acceptable.
After comparing with traditional convenience stores, let's look at the sales model of lightning warehouses: Origin/Brand → Distributor (partially bypassed) → Lightning warehouse → Consumer.
From the perspective of the supply chain, currently, most lightning warehouses do not compress intermediate links. Many lightning warehouses source goods from distributors or other channels, so the advantage in the distribution chain itself is not obvious.
Advantages of lightning warehouses:
Low cost, high turnover, high profit, and instant satisfaction. The cost of opening a lightning warehouse is much lower than that of a traditional offline store, generally requiring an investment of 300,000 to 500,000 yuan. Because order volume is high, the payback period is relatively fast. Below are two cases from New Distribution's field interviews for reference.
From the order volume, it's clear that their order volume far exceeds that of most traditional small retail stores. Achieving 300+ orders per day offline would require 300 people entering the store, which is very difficult. Therefore, in lightning warehouses, best-selling items turn over very quickly. Additionally, through product bundling, lightning warehouses can achieve higher gross margins. (New Distribution will publish a dedicated article on lightning warehouse operations later; I won't elaborate here.)
In essence, lightning warehouses are still offline businesses, with the core being to solve the mismatch between online consumer demand and offline product supply. Of course, lightning warehouses will not only seize part of the original offline base but also create more new consumer scenarios, stimulating potential incremental demand that was previously unmet.
From an industry perspective, how should we respond to this business format?
Undoubtedly, lightning warehouses are a sustainable business format.
Horizontally, consumer trends are irreversible. Instant retail's share of total retail sales is increasing, which aligns with the shopping habits of today's young consumers, who complete most of their daily needs on their phones. "Everything delivered to home within half an hour" directly appeals to human laziness.
Vertically, the model has high barriers. Lightning warehouses will replace the business of many traditional offline small stores. The business of small stores is无非即时性购买和计划性购买. Instant purchases, except for the "on the go" scenario, can all be replaced by lightning warehouses. Planned purchases need no mention; they can be done in one stop. Additionally, the SKU count of lightning warehouses far exceeds that of traditional small stores, and with efficient fulfillment, this advantage is too obvious.
Since the impact is inevitable, how to respond?
From the brand owner's perspective, it's necessary to accelerate the development of new scenarios with instant retail platforms and deeply explore consumer needs. Some leading FMCG brands are already doing this, such as the appearance of "brand special" categories on lightning warehouse pages.
From the retailer's perspective, attention should be paid to the lightning warehouse format. The shift of consumers online is a fact, and retailers should adjust their strategies in a timely manner. Many traditional retailers are already trying the front-warehouse model, such as Yonghui and Sam's Club.
From the distributor's perspective, distributors' advantage lies in their product supply chain. Distributors with strong supply chains can try opening warehouses, while those with weaker supply chains or insufficient energy can try supplying goods to lightning warehouses.
Final Thoughts
Recently, we've talked a lot about B2B, snack systems, and today we've shared about lightning warehouses. Returning to the essence, it's still about channel changes.
We see that today's channels are not like twenty years ago, when changes were slow. In recent years, various channels have emerged: B2B, community group buying, live-streaming e-commerce, O2O, etc. Almost every year, a new channel emerges to capture market share. Although no single format will achieve 100% penetration, the cake is only so big; if someone grabs it first, it means someone else will have to leave. Therefore, for the entire industry, everyone must have a sense of preparedness for danger.
From October 9-11, 2023, the Fifth China FMCG Conference will be held in Shenzhen. Among them, the Instant Retail Forum on October 10 is co-hosted by Heyin Network. At that time, we will invite instant retail platforms, brand owners, service providers, and industry experts to share their thoughts on instant retail. We look forward to witnessing the first China FMCG Distributor Conference with you!