Small factories can t do fresh e commerce

Text|Financial Story Collection Wang Shuran.

Edit|Wan Tian Nan.

According to the financial report, last year's Q4 Dingdong grocery revenue was 49900 million yuan, down 19 percent year-on-year5%, which is the fourth consecutive quarter of revenue decline. Meanwhile, its 2023 full-year GMV is 219700 million yuan, down 16 percent year-on-year3%。

The main reason for the decline is that Dingdong withdrew from many cities and sites in Q2 last year, combined with its recent closure of a total of 38 sites in Guangzhou and Shenzhen, it is not difficult to see that Dingdong is shrinking.

Small factories have either exited or contracted, while large factories have been a different story, some have never stagnated, and have been moving forward, such as buying more groceries, and more have shrunk in the middle of the battle, and now they are making a comeback and expanding again, but without exception, they have always remained at the table.

For example, since Meituan explored fresh e-commerce, it has closed a number of projects such as "Zhangyu Fresh" and "Little Elephant Fresh", and closed the Meituan Grocery pre-warehouse business in some cities, but since last year, it has re-energized Meituan Grocery to upgrade Meituan Grocery to Little Elephant Supermarket, and continues to develop new sites, opening a city in Suzhou in February and entering Hangzhou, the base camp of Dingdong Grocery in December.

The financial report shows that in Q3 last year, Meituan's revenue from new businesses such as Meituan Buying, Meituan Preferred, and B2B catering ** chain increased by 15% year-on-year3% to 1877.6 billion yuan, and Meituan specifically stated in its financial report that "Meituan's grocery transaction volume has grown strongly".

*: Meituan's financial report.

Hema has also tried to miss more than 10 fresh retail forms, and the main format of Hema Fresh has also been "**", but in November last year, it began to launch a high-profile discount reform. Recently, it has started a new round of cost reduction and efficiency increase.

JD.com also restarted the front-end warehouse vegetable selling business and JD.com's spelling community** business last year, and both parts of the business have shrunk halfway.

It can be seen that in the battle of fresh e-commerce, although large factories often recover, they are stronger than small factories as a whole, and they are still at the table.

Big waves wash sand, small factories have many folds, large factories have many strong fresh e-commerce models such as front warehouses and communities, but no matter which mode, small factories have suffered heavy losses, and those who have withdrawn from the stage abound.

For example, Yiguo Fresh, the originator of domestic fresh e-commerce using the central warehouse model, went bankrupt and reorganized in 2020; The front-loading model of Daily Youxian announced its dissolution in 2022; Under the community ** model, Dull Radish and Tongcheng Life will both close down in 2021, Shihuituan will be closed in 2022, and Yipin Fresh will close a large number of stores last year, etc.

Even the small factories that survived gradually withdrew their tentacles, narrowed to a corner of safety, and shrank in advantageous areas.

For example, Dingdong Grocery in the front-end warehouse model, since 2021, when the strategy of "efficiency first, taking into account scale" was clarified, it has been unable to stop on the road of contraction.

In 2022, Dingdong will close its sites in Zhuhai, Tangshan, Xuancheng, Chuzhou, Tianjin, Xiamen and other sites one after another; In 2023, the operation of the Chengdu and Chongqing markets will be suspended; Recently, it has closed a total of 38 sites in Guangzhou and Shenzhen.

Nowadays, Dingdong Grocery is biased towards East China - Dingdong Grocery APP shows that Dingdong Grocery is currently in Shanghai, Nanjing, Suzhou, and Beijing, with a total of 25 cities in Shanghai, Nanjing, Suzhou, and Beijing, of which 18 cities are located in East China, 5 cities are located in South China, and 2 cities are in North China.

The value of Dingdong grocery shopping on the capital side is also shrinking. Since December 7 last year, its share price has been below $2. As soon as the latest financial report came out recently, its stock price was ** to 1 on March 1$16, approaching the delisting threshold of $1.

Pupu Supermarket, which also takes the front-end warehouse model, is trapped in Fuzhou and Xiamen, "others can't get in, and he can't get out."

There is also the prospering and preferred originator of the community, from the 18 provinces at its peak, retreating to the three provinces of Hunan, Hubei and Jiangxi, and Hunan is its birthplace.

According to the "China Entrepreneur" report, Xingsheng Preferred GMV will increase from about 40 billion yuan in 2020 to about 20 billion yuan in 2023, half of which is half in three years.

Different from the small factories in a safe corner, most of the large factories adopt the dual mode of "left-hand front-end warehouse, right-hand community**", the former mostly covers high-tier cities, and the latter generally operates in low-tier cities, so as to achieve nationwide business coverage.

For example, Meituan's two businesses, Meituan Grocery with a front-end warehouse model, and Meituan Preferred with a community** model, have been in the forefront of their market share with the expansion in recent years.

According to a later report, at the beginning of 2023, Meituan's internal assessment believes that its market share is close to 60% of Dingdong Food, close to the second place Pupu Supermarket.

In the community ** field, Meituan's market share is second only to Duoduo Food, and the two firmly hold the dominant position. According to the research report of Guojin**, as of the first half of 2022, the market share of Duoduo Grocery is 45%, and the market share of Meituan Preferred is 38%, accounting for more than 80%.

Ali、Jingdong is also a dual-mode expansion,In May last year,Ali announced the merger of Taocaicai and Taoxianda,Upgraded to"**Grocery shopping",Provide two modes of one-hour home delivery and next-day self-pickup,It is equivalent to integrating the gameplay of instant retail and community**。

At the first Double 11 merchant conference last year, Maicai established a growth strategy and announced that it would invest the most resources to drive more brand growth with rapid growth and serve the largest number of users. At present, it has covered more than 200 cities across the country.

Jingdong launched the front warehouse business in February last year, and plans to open dozens of ** in Beijing by the end of the year, and at the same time in July last year, it launched the community ** business JD Pinpin, and recruited troops for it.

Why are there so many failures in small factories? An interesting phenomenon is that whether it is the community ** or the pre-warehouse model, it is a precedent for small factories, and then large factories are attracted to follow up.

Taking the community ** as an example, the development of Shihuituan, Tongcheng Life, and Xingsheng Preferred was earlier than Duoduo Grocery and Meituan, and they were also known as the "Old Three Groups", but the big factory came later and replaced it, and now only Xingsheng Preferred is the only seedling left.

Why are there many failures in the field of fresh e-commerce?

The first factor is the issue of funding.

Fresh e-commerce is a money-burning business, whether it is to develop the C-end market, or to build the first chain, warehousing, distribution and other infrastructure, it requires a lot of capital, coupled with the characteristics of high loss rate and low unit price of fresh products, resulting in high costs at the same time, it is difficult to make money.

Many small factories have died due to the rupture of the capital chain, and those that survived have also experienced a stage of serious losses. Dingdong's financial report shows that in the four years from 2019 to 2022, it has accumulated losses of more than 12.2 billion yuan. It wasn't until last year that it was profitable for the first time in the year.

This is no exception to large manufacturers. Meituan's financial report shows that in the first three quarters of 2020-2023, the cumulative loss of new businesses, including Meituan Buying, Meituan Preferred, Kuaidu and other businesses, exceeded 82.7 billion yuan, of which the loss in Q3 last year narrowed by 24% year-on-year5% to 5.1 billion yuan, Meituan attributed the main reason for the loss to Meituan Preferred in its financial report.

Hema has also lost money for many years, and in April last year, Hema CEO Hou Yi revealed to ** that Hema achieved quarterly profits in the fourth quarter of 2022 and the first quarter of last year - the implication is that Hema has not yet achieved annual profits.

However, relatively speaking, large factories have more abundant capital reserves, which can bear more trial and error costs, and can support them to go longer.

Comparing the relevant data of various financial reports, it can be seen that as of the end of Q4 last year, the balance of cash and cash equivalents of Dingdong was 53100 million yuan; Meituan's cash reserves as of the end of Q3 last year were about 148.8 billion yuan; JD.com's cash and cash equivalents as of the end of Q3 last year amounted to 250.3 billion yuan.

Based on this, the fresh e-commerce business of large manufacturers is often more resilient, and it can make a comeback if it fails. Once a small factory fails, it is difficult to turn over.

Taking Jingdong Community** business as an example, in 2021, it launched Jingxi Pinpin, and in 2022, it began to shrink the front, from more than a dozen provinces across the country to Beijing and Langfang 2 cities, but last year, it was renamed and upgraded to Jingdong Pinpin, and made another effort.

In addition, the main business of large factories often accumulates a certain infrastructure foundation, which can be synergized with the fresh food business, and the overall cost is evenly shared to a certain extent.

For example, the warehousing and distribution system built by JD.com's self-operated business can be shared with the fresh food business. Vice versa, for example, the front warehouse restarted by JD last year not only stocked fresh products, but also stocked JD's best-selling products in the covered area, and when users buy these goods, they will be shipped from the front warehouse, which can not only spread the cost of the front warehouse, but also improve the distribution efficiency of the main business;

For example, Duoduo can take advantage of the first-class chain of agricultural products built by Pinduoduo to achieve nationwide business coverage.

Small factories do not have such a foundation, Dingdong shopping in the expansion of low-tier cities, encountered the resistance of the first chain radius, "our own brand factories are around the big cities, when expanding to the low-tier cities to the front warehouse, the factory's ability to quickly synchronize, resulting in the richness of goods far less than the first-line." Shen Qiang, vice president of Dingdong Grocery Shopping, said in an interview last year.

In addition, there is also user-level collaboration, and large factories can open an entrance to the main app with huge traffic, which can naturally attract traffic to the fresh business, which is easier than independent apps such as Dingdong to buy food. Taking Duoduo Grocery as an example, Everbright**'s 2021 research report estimates that 60% of Duoduo's traffic** is the diversion of Pinduoduo's main station.

At the same time, the high-frequency consumption of its fresh food business has the opportunity to reverse the consumption of other businesses, and the two can be said to promote each other.

In general, the basic strength of large factories in terms of capital volume, infrastructure reserves and flow is better.

The same problem, convergence strategy, although the big manufacturers with the blessing of various advantages, easy to achieve scale expansion, but this does not mean that they will win. Because of the curse of "it is difficult to achieve both scale and profitability", the collective plagues large factories and small factories.

In this regard, Meituan said in its Q2 financial report last year that the community is facing difficulties in optimizing its business model in the short term.

At present, the situation of "choosing one of the two in terms of scale and profit" has to be staged on large and small players without exception.

Dingdong Grocery achieved its first annual profit last year, but at the cost of shrinking its scale;

According to Zhang Chenyong, an instant retail expert, Pupu Supermarket's sales in 2023 are estimated to be 30 billion yuan, a year-on-year increase of 36%. However, its profitability is confusing, according to the digital retail channel of the Net Economic Society, at the end of 2022, Pu Pu insiders said that they may be profitable in 2023, and their latest statement in 2023 has become "to maintain the ability to make profits at any time, but there is no need to have the burden of profit KPIs", which seems to mean that it has not yet been profitable.

The same is true for large factories, according to a report in January this year, the community leader Duoduo has not achieved overall profitability so far; In terms of Meituan, the financial report shows that the revenue of new businesses, including Meituan Grocery and Meituan Preferred, increased by 15% year-on-year in Q3 last year3%, but a loss of 511.2 billion yuan.

Interestingly, the dilemmas faced are common, and the solutions of large and small players are also convergent.

First, they are expanding multiple categories to overcome the hard flaws of "high loss and low unit price" of fresh food.

For example, Meituan, which renamed Meituan Preferred as Tomorrow Day Supermarket in 2022, and renamed Meituan Grocery to Little Elephant Supermarket at the end of last year, both of which point to the expansion of categories.

At present, in Meituan Grocery and Meituan Preferred, you can see a variety of non-fresh categories such as casual snacks, daily cleaning, personal care and beauty, and drinks and beverages.

The data can highlight this even more, according to the research report of Essence International** in October last year, Meituan grocery fresh goods accounted for about 30%, which is close to Pupu Supermarket.

At the same time, it shows that Dingdong Grocery accounts for 50%-60% of the fresh food category in the same period, although it is higher than Meituan's grocery purchase, but it also means that its non-fresh food category has accounted for nearly half.

With the increase in non-fresh categories and other factors, the financial report shows that the overall customer unit price of Dingdong last year was 721 yuan, an increase of 23% compared with 2021.

Second, develop its own brand to improve gross profit margin.

At present, Dingdong has successively launched a number of its own brands such as "Dingdong Good Food", "Dingdong Ace Dish", "Dingdong Grand Slam", "Cai Changqing" and other self-owned brands, covering prefabricated dishes, meat, rice noodles, soy products and other categories.

According to the financial report, in Q4 last year, the GMV of its own brand products accounted for more than 20% for the first time, a year-on-year increase of 31%。At the same time, its gross margin was 306%, compared to 189%, an increase of 62%, and its own brand with high gross profit margin is also one of the key factors for its profitability.

In recent years, Meituan has successively launched a number of its own brands such as "Elephant Chef", "Elephant Preferred" and "Elephant Cost-effective", covering many categories such as daily necessities. According to last year's Q2 financial report, the proportion of Meituan's standard grocery products and its own brand transaction volume continued to rise.

In 2018, Hema proposed to build its own brand, and there are currently Hema Daily Fresh, Hema Workshop, Hema Organic, etc., covering fresh food, cooked food, baking and other categories.

As early as October 2022, at the Hema New Retail Supply Conference, Hema revealed that its own brand accounted for 35% of sales. When the "discount reform" was launched in November last year, Hema once again emphasized that it would strengthen the research and development of its own brand together with the first business based on the first-chain reform to achieve "hard discounts".

Pupu Supermarket has also set a plan to vigorously develop its own brand. According to the "Business Observer", a source from Pupu Supermarket revealed that in 2024, the sales of Pupu Supermarket's own brand will be close to 5 billion yuan, accounting for 15%-20% of total sales, and the main categories are food, daily necessities, frozen aquatic meat and poultry.

Third, the first chain level to develop direct mining from the production area to create a low price advantage.

In 2021, Dingdong Grocery launched the "Lucid Waters and Lush Mountains" plan to develop direct procurement from the base and go deep into the origin of high-quality agricultural products. At the **Chain Ecological Summit in February last year, Xu Zhijian, chief commodity officer of Dingdong Buy, said that for the existing advantageous fresh categories, Dingdong Buycai has developed 565 fresh base merchants, with direct supply accounting for 85%.

Meituan Maicai also said at the **Chain Summit in March last year that Meituan Maicai has more than 450 direct procurement merchants and nearly 400 direct bases.

* Grocery shopping is no exception, last year's double 11, the relevant person in charge said, ** grocery shopping in the country directly connected to nearly 10,000 agricultural products direct procurement bases, the establishment of more than 700 digital agriculture bases, the construction of direct procurement and direct sales network.

In December last year, Hema cooperated with three companies, Newland, Yueshengzhai and Tianpu Leshi, to contract the first batch of three beef direct procurement for pastures in Australia. At that time, He Xiaoqing, purchasing manager of Hema Fresh Products Department, said that direct procurement brought 20% cost optimization.

To sum up, players have their own trade-offs between scale and profitability, but in terms of development strategies, they all focus on the essence of retail, that is, to build a more resilient ** chain and develop better products, which is a benign dispute, but it also means that they must show real skills.

As the survivors who won the fierce battle in the previous years, they have achieved phased results, but it is difficult to say that they can rest easy, because the battle for fresh food continues, and the problem of survival is always a sharp blade hanging over their heads, and only the endless battle can make it possible to survive to the end. As the famous Austrian poet Rilke said, "There is no victory to speak of, and holding on means everything." ”