Introduction: Traffic-generating products and profit products determine profitability, and the strength of the supply chain determines the level of profit. Author 丨Wang Shiqin Review 丨Gou Gou Layout 丨He Wen

You may have heard of lightning warehouses. Unlike the previous heavy-goods, asset-heavy model of fresh food, they quickly capture the consumer market through cheap prices and low costs.

In fact, lightning warehouses are what we often call convenience store front warehouses, providing an online super convenience store with 30-minute delivery, offering merchants a space focused on online operations. Instant retail's share in China is increasing year by year. According to relevant data, from 2020 to 2023, same-city e-commerce grew at an annual rate of over 50%. During the pandemic, logistics were inconvenient, causing e-commerce to fail to deliver on time, especially for immediate needs.

Special circumstances gave rise to users' extremely strong demand for same-day and next-day delivery, leading to the explosive development of lightning warehouses and accelerating the pace of same-city instant retail. In the blink of an eye, lightning warehouses have quietly entered more than 100 cities across the country in three years.

Everything now (万物到家) is no longer just a dream. Users are no longer satisfied with long-distance e-commerce that requires waiting for days; getting what you want when you want it has become the trend.

Revolutionizing Convenience Stores?

In 2014, with the popularity of smartphones, Wang Yongsen, who had worked at Alibaba for ten years, saw a new blue ocean and immediately founded Shandian Gou, stepping into the instant retail track. At that time, Meituan, Ele.me, and JD Daojia all sourced goods from offline supermarkets and convenience stores, and then used local rider teams to ensure timely delivery to homes. This was the initial form of front warehouses.

Later, players like Dingdong Maicai, PUPU, and Miss Fresh chose to build their own warehouses, while also building their own supply chains and delivery chains to carry out instant retail business.

One day in July last year, Miss Fresh announced the shutdown of its Jisuda business, which accounted for 85% of overall revenue, marking the first failure of the front warehouse asset-heavy model. Unlike Miss Fresh, Hema was advancing rapidly. As the creator of the "front store, back warehouse" model, Hema's leader has repeatedly stated publicly that front warehouses have no future.

Relying on Alibaba's strong supply chain capabilities, Hema has run with style. The upstream "Hema villages," origin warehouses, and sales warehouses form a wide moat, making 3-5 km, 30-minute delivery the standard for the instant retail track.

Northeast Securities once proposed in a research report: The fulfillment cost of the front warehouse model is 3 times that of traditional central warehouse e-commerce, 2 times that of platform e-commerce, and 6 times that of community group buying. But what does not match the high fulfillment costs is the low gross margin and high loss rate of fresh food categories.

Some industry insiders believe: The business logic of the front warehouse model itself is not problematic, but this model has very high operational requirements for scaled profitability, and long-term and comprehensive profitability requires time to verify.

Subsequent facts proved that improving organizational capabilities, Everything Now is the new race point for same-city instant retail, and it is also a small store revolution.

No need for street-facing prime locations, light decoration in the warehouse (shelves, freezers, operating systems), and no need for offline salespeople or cashiers are the most cost-saving aspects of lightning warehouses. Unlike traditional convenience stores that need to upgrade their storefronts every three to five years according to brand regulations, lightning warehouses do not meet users face-to-face, so all brand potential only needs to be built online.

In June 2022, Meituan's lightning warehouse project had already covered more than 100 cities nationwide, with over 500 partner merchants, over 1,000 warehouses built, and SKU counts reaching 3,000-5,000. According to Meituan's Q2 2022 financial report, Meituan's new business revenue, mainly from grocery shopping and Youxuan, reached 14.2 billion yuan.

Around 2020, Meituan's flash purchase business reached a scale of 10 billion yuan. When encountering problems such as monopolized supply from large offline supermarkets, low willingness of small stores to cooperate, and high operational difficulty, lightning warehouses were proposed as a means to alleviate supply shortages. This also indicates that it has always been a supplement to flash purchase, not a replacement.

The latest 2023 "Instant Retail Alcohol White Paper" shows that Meituan Flash Purchase currently has 230 million annual active users, and 64% of users are under 30 years old. Urban blue-collar workers, urban Gen Z (born between 1995 and 2005), small-town youth, urban white-collar workers, and sophisticated mothers constitute over 80% of Meituan Flash Purchase's customer base.

As an important business under the flash purchase business, lightning warehouses mean profits are coming as promised.

But It Has Become a Favorite of Brands

In relevant promotional materials, a Meituan lightning warehouse can radiate to a population within 3-5 kilometers. The location does not need to be a street-facing prime location, simple decoration is enough, low investment for rapid replication, and the platform provides special support, including product assortment, distribution, and operational guidance. Traditional supermarket and convenience store practitioners, community group buying leaders, takeout merchants, and O2O代运营 (O2O agency operations), whether they have industry resources or understand online operations, can operate a lightning warehouse.

Differences between cities determine that after achieving profitability in a single city, you cannot directly replicate the product assortment structure formed in that city for cross-regional expansion.

Securing the supply chain is the focus of lightning warehouses. That is, the source of goods. Everyone uses their own methods. For same-city retail, store owners naturally use the most cost-effective sourcing solutions. This is also why lightning warehouses do not recommend newcomers to join; they cannot obtain high-quality sources of goods.

Through Meituan's massive online operational capabilities, users are funneled from interfaces like the Meituan takeout app into various front warehouses at lightning speed. By using Meituan's self-developed Baichuan system, merchants' supply chain, finance, and fulfillment efficiency are improved. Every piece of data can be viewed in real time on the platform. Meituan is heavily investing in building an online instant retail O2O. Based on the platform attributes of takeout, user mindshare has already been established, so upgrading takeout into a life services entry point has not encountered much resistance.

The official lightning warehouse story tells of an entrepreneur Zhou Qinbo, a former product manager, who used data-driven operational capabilities to open "Su Tun Supermarket." Steady and sure, he quickly expanded to four stores and achieved impressive results. In Zhou's view, choosing Meituan lightning warehouse to start a business and create Su Tun Supermarket is exactly standing at the forefront of online retail, making it easier to gain a foothold in the physical retail industry.

A simple example: a merchant sells Coca-Cola at 1 cent per can, limited to one can, but it attracts hundreds of orders. Buying Coke is just an incidental action; the minimum delivery amount is 10 yuan, requiring other items to be added. In this process, profit naturally arises. If the order includes non-food items, the profit will be higher.

I searched online and found that the data from the three Su Tun lightning warehouses I observed totals over 17,000 orders per month. And Shenzhen's Wanjia Supermarket lightning warehouse, a single warehouse can achieve a monthly turnover of 600,000 yuan, selling dozens of Red Bull in three days.

Competitors' sales, SKU counts, regional rankings, and other information are often used to distinguish strength. Some experienced players, to avoid strong competitors, choose locations on the edge of business district delivery areas, as long as 30-minute delivery is met.

The brand effect spills over significantly in this track, and most players do not have such high data.

But even so, if you entered the lightning warehouse market in early 2022, achieving a monthly profit of 30,000-40,000 yuan was not difficult. Now, entering requires careful thought. The entry barrier has been raised, and pure newcomers basically cannot enter. Entrepreneurs with abundant funds, sources of goods, and internet experience are more suitable to enter.

Rapidly expanding multiple stores and using rich profits to solve operational capability issues. Some large brands are now actively building central warehouses to solve goods supply issues.

Head players like Haitun Gou, Jiamei, and Wanhui are rushing to build regional central warehouses, and the goal of building central warehouses is to optimize supply chain costs and efficiency. For small and medium players, building central warehouses is more of a fantasy, and they can only optimize through boutique SKUs plus high-quality channel supply chain methods.

Lightning Warehouses Are Not Without Defects

With low-quality supply chains and homogeneous competition, as supply increases rapidly, some players will inevitably be cleared out. This means that this year will see the first large-scale elimination round for lightning warehouses. Lightning warehouses have dividends, but they also have a window period.

High gross margins come from non-food categories. By attracting users with low or discounted food prices and using high prices for non-food items to generate profit, the quantity and quality of SKUs are very important for lightning warehouse owners. A leading 200-square-meter lightning warehouse in Shenzhen can achieve 8,000 SKUs with high sales per square meter, and the rent is only over 10,000 yuan. But can ordinary people get so many SKUs? When SKUs are scarce, rent becomes a burden.

Traffic-generating products and profit products determine profitability, and the strength of the supply chain determines the level of profit. Pure newcomers without a good supply chain can only become servants of the lightning warehouse model, completely unable to become masters.

Take the example of a mom-and-pop store without a good supply chain transforming into a lightning warehouse: investing 400,000 yuan, operating 24 hours a day, all year round. With fewer than 3,000 orders and low exposure, income is limited. The whole family relies on this store, and even supporting themselves is a problem. It would be better to work for someone else, and they also need to invest a large sum of money.

Secondly, it is difficult to distinguish between brand names. Apart from location, the types of promotional items and discount levels are also areas of intense competition. Currently, the scale of lightning warehouses is about 6 million yuan per year, higher than convenience stores, but still far lower than supermarkets. Therefore, lightning warehouses tend to favor franchising, but in reality, the same brand cannot open stores densely.

To solve supply issues, Meituan has built a lightning warehouse procurement platform, but merchants may prefer to use 1688 and Pinduoduo. Currently, Meituan lightning warehouses in a province do not exceed 150, with annual sales of about 750 million yuan. The regional density is too low, making centralized supply difficult. Meituan's system issues quotas monthly by city, resulting in discontinuous locations. But even with suitable locations, competition remains brutal. Various signs indicate that lightning warehouse players have entered a white-hot stage.

Lightning warehouse operations are divided into activity operations and product operations. Activity operations include full reductions, shipping fee deductions, coupons, discounts, etc., while product operations include product selection, product planning, pricing, etc. Therefore, the demand for excellent operational talent is above all else. Store manager and headquarters management talent issues are what many brands currently face.

This again shows that newcomers are not suitable to enter. Recruiting talent costs money. Teams that are not professional enough, have insufficient funds, and cannot form economies of scale will find it difficult to profit significantly and will naturally lose at the starting line of talent reserves. If lightning warehouse product selection is poor, it will lead to low turnover in the entire warehouse, and profit margins will continue to decline.

Exposure determines order volume, and order volume determines ranking and profitability. In big cities, stores generally operate 24 hours a day because there are fewer merchants at night, and all traffic is absorbed.

In 2022, Meituan proposed the concept of "next-day delivery," and Meituan Youxuan was positioned for the first time as a "next-day delivery supermarket," working together with Meituan lightning warehouses to meet users' needs in different scenarios.

At its core, lightning warehouses still cannot escape "more, faster, better, and cheaper."

  1. Near-field retail, fast speed, through 30-minute rapid delivery, combined with a strong rider platform, real-time order generation, and timely delivery.
  2. Meet various instant consumption needs, rigid demand. A classic scenario: at night, supermarkets close, but mosquitoes do not get off work. If you are bitten by a mosquito in the middle of the night, quickly buying mosquito coils is the only thing you want to do, and this is called rigid demand.
  3. 24-hour operation, convenience. No matter how great a supermarket is, it closes. If you want to drink an ice-cold Coke at 4 a.m., a lightning warehouse is undoubtedly the best choice.
  4. The online infinite shelf meets the demand for a wide variety of goods, and the low full-price cost saves users money.

In fact, online instant retail hinges on two key points: one is the distribution rights of traffic, and the other is the delivery capability of orders. The reason Meituan dares to enter is nothing more than having control over these two capabilities.

If we say that KA, mom-and-pop stores, and CVS have not been affected, that is obviously unrealistic. The impact certainly exists. Just 24-hour uninterrupted operation alone is enough to create strong user stickiness in the local life circle.

On the other hand, instant retail has become a favorite of brand owners. Launching new products, attracting new users, promoting activity, and high repurchase rates are the four magic weapons that front warehouses bring to brand owners. It is worth noting that although financial verification issues can be handled through the system, for some large brands, false reporting of data can also occur.

According to media reports, in 2019, a group buying company laid out a large number of front warehouses, renting warehouses with at least half a year's rent, each costing hundreds of thousands of yuan. Two employees at the lowest job levels, handling dozens of warehouses, colluded to earn over 2 million yuan in a year and a half by falsely reporting rents and other means.

The larger the brand, the greater the challenge of corruption. When the scale expands, it becomes more difficult to restrain employees...

But in any case, the revolution brought by lightning warehouses is still ongoing.

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