Click to read the original article for details Grid warehouses serve as crucial transfer stations linking the backend central warehouses of community group buying platforms to frontend offline service stores, playing a pivotal role. While established players and newcomers in the sector are flocking to this model, for many entrepreneurs, this business is far more complex and less glamorous than it appears from the outside. Winter mornings are exceptionally cold, but in the eyes of workers, there is no distinction between seasons. Have you ever seen a grid warehouse at 2 a.m.? The warehouse is brightly lit, and rows of turnover baskets are neatly stacked on the floor. Sorters shuttle back and forth in the gaps, performing "seeding" to ensure that goods and baskets are correctly matched—one basket per group leader. A slight error in the warehouse can lead to a huge discrepancy during delivery. Image source: Internet Actually, logically speaking, community group buying was introduced to compress the product circulation chain and achieve cost reduction and efficiency improvement. So why did it suddenly add the grid warehouse link, creating an obstacle for itself? -01- Originated with Xingsheng, Popularized by Meituan Early community group buying, including current regional group buying, had no concept of grid warehouses because most group buying companies started from grassroots, with small warehouses and short delivery distances, and even group leaders could drive to pick up goods themselves. As numerous giants entered and catalyzed the community group buying track, or as platforms continued to grow, it became apparent that within effective time, the central warehouse could no longer complete sorting or solve the delivery problem for thousands of group leaders. A secondary sorting link had to be added to the existing warehousing and logistics foundation. Indeed, the concept of grid warehouses emerged with the entry of internet giants, contributed by internet DNA, such as Meituan's "grid-based management" of rider delivery. But before the concept was clearly defined, it did not mean the laws of things did not exist. Before the concept of currency was proposed, shells, rare metals, etc., all functioned as currency. Similarly, community group buying, which made grid warehouses popular, cannot be denied as a business model just because it was not widely recognized. Currently, platforms such as Xingsheng Youxuan, Duoduo Maicai, Meituan Youxuan, Chengxin Youxuan, and Shihui Tuan all adopt a three-level warehousing and distribution model: central warehouse—grid warehouse—group leader. However, industry insiders know that this model was first run through by Xingsheng, the veteran in the track, through continuous trial and error, and other giants directly copied this model from Xingsheng. When Xingsheng did this, there was no concept of grid warehouses, so after suppliers sent goods to the central warehouse, the large warehouse distributed them to downstream stations. These stations, which provided receiving, sorting, and shipping actions, were named service stations. After internet giants swarmed in, the entire track continued to heat up, and warehousing and distribution logistics directly affected the interests of platforms, consumers, and suppliers. The concept of grid warehouses, which can improve the efficiency of the entire chain, also heated up accordingly. -02- Cost Reduction + Efficiency Enhancement Nowadays, whether it is the new three groups or the old three groups, they are all vigorously promoting grid warehouses. In the entire chain from central warehouse—grid warehouse—group leader, if the central warehouse is the center of a large region, then the grid warehouse is the execution unit for a small region. That is, within the specified "grid" area, the central warehouse sorts according to the grid warehouse's SKUs, the grid warehouse sorts according to the group leader's SKUs, and the group leader sorts according to the user's ordered SKUs. So, compared to traditional fulfillment methods, what industry problems does the emergence of grid warehouses solve? Community group buying has two major practices that are very advanced in the entire retail industry: one is the emergence of group leaders, and the other is the establishment of grid warehouses, which exemplify cost reduction and efficiency enhancement. Take group leaders as an example: because group leaders are not platform employees, they are parallel to the group buying company, not subordinate. Therefore, the platform does not need to pay group leaders a salary; group leaders earn commissions, a cut of the platform's profits. In this way, it is zero cost for the platform, and for group leaders, more work means more pay. Additionally, each group leader manages multiple communities, each connecting countless C-end users, specifically for traffic generation, overall improving efficiency. The principle of grid warehouses is similar to that of group leaders: 1. Cost Reduction Grid warehouses achieve the transfer of goods between the central warehouse and group leaders. The entire process requires: First, a warehouse of 500-1000 square meters; Second, station managers, drivers, customer service, and sorters; Third, about 10 vans or box trucks; Fourth, infrastructure such as pallets, foam boxes, freezers, and printers. A central warehouse typically radiates 40-70 grid warehouses. If the platform wants to rely entirely on its own strength for rapid expansion, the capital required for this heavy-asset model would be immeasurable. Previously, a local community group buying platform in Henan tested the waters, expanded rapidly after financing, frantically built warehouses, and eventually exited the track after burning through capital, losing everything. With grid warehouses, franchisees will invest in building and operating the warehouses. The relationship between grid warehouses and the central warehouse is not subordinate; for the platform, it is also "zero cost," and partners also earn commissions. 2. Efficiency Enhancement Assume all platforms set the order cutoff time at 23:00. Before 00:00, suppliers will transport goods to the central warehouse in two batches, and then it generally takes two hours to drive from the central warehouse to the grid warehouse. Sorting occurs from 1:00 to 6:00 the next morning, and delivery to group leader stations starts at 6:00. But with the emergence of grid warehouses, n grid warehouses mean a total of n x 6 hours for processing and sorting, which is n times the previous sorting time. A central warehouse radiates 40-70 grid warehouses, and a single grid warehouse covers about 300-500 group leaders. If two group leaders are placed in a community of 500-1000 households, Then a grid warehouse can reach about 150-250 communities. This means a central warehouse can indirectly cover 6000-10500 communities. Overall, the most powerful aspect of community group buying is mobilizing social resources. Shared bikes failed because the hundreds of millions of bikes were not pre-existing idle resources in society but were created out of thin air by burning capital, leading to bike graveyards across the country. Why did ride-hailing succeed? Because it mobilized idle private cars in society, resources that already existed but were being wasted. The emergence of grid warehouses similarly mobilizes idle social resources outside the platform itself, on one hand reducing the cost of building its own warehousing and distribution infrastructure, and on the other hand improving overall logistics and distribution efficiency. -03- How to Run a Grid Warehouse? So, grid warehouses mobilize idle social funds, warehouses, and personnel to empower themselves, far beyond what a platform can achieve by burning its own "small universe." Does this mean the "spring" for many franchisees has arrived? Recently, a large amount of grid warehouse loss news broke out in the industry, but many people are still flocking to the track. As long as grid warehouse videos appear on social media, they are inevitably accompanied by comments like "How to join XX platform grid warehouse" or "Seeking guidance and franchise phone number." 1. What are the barriers to entry for grid warehouses? As mentioned above, to start a grid warehouse project, first, you need a warehouse; if not, you need to rent one, costing about 150,000 yuan per year. Second, you need to equip corresponding personnel, assuming a monthly cost of 50,000 yuan, then 600,000 yuan per year (specific personnel costs vary by region). Then, you need to equip vehicles, most of which are outsourced, costing 800,000 yuan per year. Finally, basic equipment costs about 100,000 yuan. Overall, the annual cost of a grid warehouse exceeds 1.5 million yuan. "Here, taking Meituan as an example, Meituan Youxuan's grid station franchise requirements are relatively high: you need a warehouse of 500-1000 square meters, at least 8 partners per warehouse, each with a vehicle, and at least 8 delivery vehicles. Vehicles must be able to accommodate more than 5 cubic meters, such as Jinbei vans, small box trucks, Iveco, etc. Among these, the venue, drivers, and vehicles can be found or hired by the partners themselves after reaching a cooperation intention. The venue is generally used for temporary storage of goods, and drivers need to deliver goods to the offline stores designated by the platform, ensuring goods are undamaged and delivered on time." But after meeting the hard conditions of feasibility, the next issue is whether it is suitable to do. After all, whether grid warehouses actually make money is still an open question. 2. Do grid warehouses make money or lose money? Currently, many grid warehouse profit systems have shifted from per-order to per-order + per-stop settlement. Originally, the platform gave a commission of 0.5-0.7 yuan per order; now it is a rule of 0.35+3: a commission of 0.35 yuan per order plus an additional 3 yuan for each delivery stop. In addition, the platform will set a guaranteed minimum of about 3000-5000 items; if the number is below this, it will still be calculated based on this number. According to field visits, grid warehouses generally report that to be profitable, the cost per sorted order must be controlled below 7 cents to 1 mao (0.1 yuan). Now let's do the math: assume the cost of sorting one order is 0.1 yuan. A grid warehouse normally has about 10 sorters. If each person is paid 100 yuan per day, the daily wage for sorters is 1000 yuan. Therefore, these 10 sorters must sort at least 10,000 orders per day to avoid losses. As mentioned above, a grid warehouse radiates 300 stops, so these 10,000 orders will bring revenue of 10,0000.35 + 3003 = 4,400 yuan. If a grid warehouse has 8 drivers, and one driver's daily wage + vehicle depreciation + fuel costs are set at 300 yuan, then vehicle expenses are 2,400 yuan per day. Revenue of 4,400 yuan - sorter wages of 1,000 yuan - vehicle expenses of 2,400 yuan = 1,000 yuan. This remaining 1,000 yuan must cover the wages of station managers, customer service, etc., which were not counted before, as well as warehouse rent, utilities, and other losses. In this way, it seems reasonable that many grid warehouses are reported to be losing money. 3. Variables Affecting Grid Warehouse Profitability The grid warehouse model can be directly copied, but operations cannot. Here are several typical variables: (1) Order Volume Community group buying has economies of scale in costs, which are reflected in both single-warehouse models and distribution efficiency. However, when actually running a grid warehouse, you will find that the concern is not the warehouse's capacity but whether the order volume in the area can reach 10,000 orders/day. (2) Personnel Cost control and refined management capabilities in operations are also important factors affecting costs and efficiency. With 10,000 orders, setting different numbers of sorters and drivers will result in completely different costs. (3) Density The concentration of orders in a region greatly affects logistics and distribution efficiency. That is, the number of vehicles is affected not only by order volume but also by the degree of regional dispersion. At this time, routes need to be reasonably planned according to network density. (4) Supervision Each platform will send corresponding channel managers to grid warehouses to assist management. Through field visits to a real case of an internet giant's grid warehouse, with 22,000 orders per day but 28 drivers configured, the franchisee complained bitterly, "The platform limits a single route to a maximum of 850 orders; if exceeded, the route automatically switches. Configuring so many drivers is completely unavoidable." This is also one of the important reasons for grid warehouse losses. -04- The Future of Grid Warehouses As mentioned earlier, the establishment of grid warehouses and group leaders is a very advanced practice, with the underlying logic of mobilizing idle social resources. However, different voices have already begun to emerge about the future of group leaders. Some say the future of community group buying must be weakening the role of group leaders; others say the future of group leaders must be standardized and professionalized. So what will be the future of grid warehouses? Or do grid warehouses have a future? Whether grid warehouses have a future is not yet determined, but certainly not all grid warehouses will have a future. If you choose the wrong side, and platforms that hastily entered the game get off midway, the remaining grid warehouses will be in a mess. Because then grid warehouses will face oversupply of resources, the market will enter vicious competition, and the entire grid warehouse industry will be unprofitable. Even if industry insiders clearly state that this battle in community group buying is a protracted war, the future is too unpredictable. No one can be sure when this battle will suddenly end. After franchisees invest large amounts of money in infrastructure, facing three months of depreciation versus three years of depreciation are completely different concepts. Similar to group leaders, will giants also "de-grid-warehouse" in the near future? Will platforms conduct survival of the fittest and develop grid warehouses into front warehouses? No one wants to put the most important link involving fulfillment and delivery in the hands of a third party, just as they do not want to put the lifeline of traffic in the hands of group leaders. Having said all this, these are risks. So where are the future opportunities for grid warehouses? The future of grid warehouses lies in: "Similar to group wholesale, can you make yourself a differentiated supply chain, provide differentiated services, and serve differentiated group leaders." In the end, a grid warehouse is not a business that can be done as a primary business. This business must be secondary, not as a first business. For example, traditional distributors with idle warehouses and vehicles, or service providers with a foundation in logistics services. Avoid the later "mess" from the source. After all, no one is sure that after this rapid expansion and layout phase, when the "honeymoon period" between platforms and grid warehouses ends and subsidies disappear, whether more grid warehouses will be profitable or loss-making remains to be seen. Please think twice before joining a grid warehouse. Responsible Editor | He Nian Proofreader | Asher | Chen Feng Important Conference Notice! 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