Recently, JD's instant retail business has integrated the original instant retail brands JD Hour and JD Daojia, and has been fully upgraded to JD Seconds.
Dada Group's first-quarter financial report shows that JD Daojia (i.e., JD Second Delivery) revenue was 1.279 billion yuan, a year-on-year decrease of 28.4%; Total net income was RMB2,451.8 million, down 3.3% year-on-year.
The performance of JD's instant retail business was significantly under pressure, firstly, JD's instant retail platform adjusted its business strategy, lowered the free shipping threshold and reduced promotional activities, resulting in a decrease in online advertising and marketing service revenue and a decrease in fulfillment service revenue.
Second, the competition from the industry has become more intense, especially the growth rate of the "platform warehouse" model of the front warehouse has surpassed the store for the first time this year. JD.com's instant retail, which only relies on store development, is naturally under greater growth pressure.
According to the relevant data of the "Instant Retail Industry Development Report (2023)" released by the Research Institute of the Ministry of Commerce, combined with the research data of leading instant retail enterprises such as Meituan Flash Sale, from the perspective of market scale growth, the average annual growth rate of the market size of the pre-warehouse model in 2022 and 2023 will exceed 50%, while the average annual growth rate of the market size of the store model will be 47%.
From the perspective of the growth of the number of warehouse stores, the average annual growth rate of the number of pre-warehouse positions in 2022 and 2023 will exceed 100%, especially the average annual growth rate of the number of platform warehouses will exceed 250%, while the average annual growth rate of the number of stores will be 73%.
As JD Logistics has also begun to expand its front-end warehouse business in Beijing, it also provides "hourly delivery" services for Dongfang Selection. "Zhuang Shuai Retail E-commerce Channel" believes that under the general trend that the growth rate of front-end warehouses exceeds that of stores, JD's instant retail business can also form a synergistic effect with JD Logistics' front-end warehouse business, and regain new growth while increasing investment in transportation capacity.
Next, this article will analyze in detail why the growth rate of the front-end warehouse model exceeds that of stores? How will the ecology and advantages of front-end warehouses affect the instant retail industry?
Platform warehouses become mainstream
In fact, the real-time retail industry has begun to speed up the front-end warehouse model represented by Daily Youxian and Dingdong Grocery Shopping. However, with the delisting of Daily Youxian and falling into business difficulties, in recent years, Dingdong has withdrawn from many cities and closed a large number of warehouses, and the industry is full of controversy about the pre-warehouse model.
Recently, Dingdong Grocery released its first-quarter financial report, and founder and CEO Liang Changlin also reflected on the front-end warehouse model, believing that the first principles of traditional retail do not work in the fresh front-end warehouse model, "not very large-scale", "unable to reduce operating costs through large scale".
"Since the launch of Dingdong, we have continued to understand the fresh food industry we are engaged in, and we have found two characteristics.
First, the first principle of traditional retail is to obtain scale through low prices, and then reduce the purchase price through scale, so as to maintain lower prices, but fresh commodities are primary agricultural products, limited by supply and demand and growth cycle, and do not have scale effects, so the first principles of traditional retail do not work in the fresh industry.
Second, traditional retail will also reduce operating costs through large scale, but the front-end warehouse model we adopt requires a certain amount of distribution costs, and it will not decline significantly with the growth of scale. We conclude that the traditional retail first principles have failed in the fresh food industry. The first principle of the fresh food industry is to continuously improve end-to-end efficiency, which is the supply chain capability of fresh food. We must ask the supply chain for profits, we must demand competitiveness from the supply chain, and we must serve more consumers by improving the supply chain capacity, so as to achieve scale growth. ”
Originally, as a non-standard product, the fresh food category is a "drainage product" for retail enterprises, attracting people to enter the store and then driving the sales of other categories such as fast-moving consumer goods, so as to achieve the purpose of obtaining scale at low prices and reducing supply chain costs on a large scale.
According to the financial report data of Dingdong Grocery in the first quarter of 2023, GMV reached 5.53 billion yuan, a year-on-year increase of only 1.4%; The revenue was 5.02 billion yuan, a year-on-year increase of 0.5%, the gross profit margin was 30.6%, the net profit margin under the non-GAAP standard was only 0.8%, and the net profit was 41.482 million yuan.
Although it remains profitable, from the perspective of revenue growth, the peak demand season in the first quarter can obviously be described as "bleak"; The gross profit margin of up to 30.6% but the net profit of less than 1% shows that the operating costs of Dingdong grocery are still high.
Since the beginning of this year, Dingdong has continued to optimize its product structure, especially in categories such as fruits, dairy wines, leisure department stores and bakery. However, as of March, the total sales of these four categories increased by less than 8% year-on-year.
"Zhuang Shuai Retail E-commerce Channel" believes that the two characteristics and financial report data mentioned by Liang Changlin can only show that Dingdong has not done a good enough job in the expansion of standard product categories such as fast sales and the model innovation of front warehouses.
If the front warehouse is expanded and operated with the idea of socialization and platform rather than just the self-operated model, and the proportion of various categories such as fast-moving consumer goods is increased, or even the fresh goods are not operated, then the unit operating cost of the front warehouse will not only be greatly reduced, but also the scale and profit margin will have the opportunity to be better improved.
This is the business logic of Meituan's flash sale "flash warehouse".
According to the "Zhuang Shuai Retail E-commerce Channel", in 2023, Meituan will open more than 6,000 lightning warehouses, and plans to add 2,000 in 2024.
Dingdong's first-quarter performance will reveal that only 15 new front-end warehouses have been added in Jiangsu and Zhejiang, and in comparison, self-operated front-end warehouses are difficult to compare with the development speed and scale of socialized "platform warehouses".
In other words, the reason why the growth rate of the front warehouse can exceed that of the store is mainly because it breaks through the shackles of the original self-operated model and develops the "platform warehouse" through socialization with the business idea of an open platform.
The advantages of the front warehouse are obvious, and the ecology is becoming more and more mature
"Zhuang Shuai Retail E-commerce Channel" believes that with the rapid growth of "platform warehouse", the pre-warehouse will be dominated by the self-operated model and will give way to the open platform model, and thus form a complete and mature pre-warehouse ecosystem.
According to the "Instant Retail Industry Development Report (2023)", the front-end warehouse model involves multiple entities, mainly including front-end merchants, instant retail platforms, suppliers, instant delivery companies, supply chain enterprises and technical service companies.
Among them, the front-end warehouse merchant is the owner and operator of the front-end warehouse, responsible for the operation of online stores and the management of offline warehouses.
The instant retail platform provides online sales, digital empowerment and other services for front-end merchants.
Suppliers provide a source of goods for front-end merchants, mainly including brands, manufacturers, upstream distributors, etc.
Instant delivery companies provide fulfillment and delivery services for instant orders for front-end merchants. Supply chain enterprises provide warehousing and logistics services for front-end warehouse merchants. Technical service companies provide digital marketing, digital management of purchase, sale and inventory and other related technical services for front-end merchants.
At present, the front-end warehouse model has initially formed an ecosystem with front-end warehouse merchants as the main body, real-time retail platform as the core, and covering upstream and downstream service enterprises in the supply chain.
The improvement of the front-end warehouse ecosystem has made the development of the front-end warehouse show a diversified trend, and from the perspective of sales categories, the front-end warehouse can be divided into comprehensive convenience warehouses and vertical category warehouses.
Comprehensive convenience warehouse refers to the front warehouse that sells a variety of goods such as FMCG and daily necessities, such as the front warehouse of Little Elephant Supermarket and Tianfu Convenience Store.
Vertical category warehouses refer to the front-end warehouses that mainly sell a single category such as alcohol, medicine, fruit cutting, fresh food, flowers, and beauty products, such as Crooked Horse Delivery, Fahrenheit Pharmacy Digital Medicine Warehouse, and Fruit Cutting NOW.
The operating advantages of the front warehouse are also becoming more and more obvious, and the inventory of the front warehouse is determined according to the online orders of consumers, mainly to meet the immediate needs of consumers such as emergencies, gifts, and gatherings.
The product inventory of the store is generally determined according to the offline purchase needs of consumers, mainly to meet the needs of consumers such as stockpiling and experience, supplemented by meeting immediate needs.
Compared with the store model, which also provides real-time retail services, the front-end warehouse distributes goods according to immediate demand, and has a variety of product categories and product structures, which is equivalent to the optimal combination of goods in different retail formats such as supermarkets, convenience stores, specialty stores and department stores.
With the change of consumer demand, the new consumption scenarios provided by the front warehouse are covering from the "uncertain" instant emergency scenario to the "high certainty" daily scene, which will be better integrated into the daily life of various consumer groups, and the consumption period covers almost 24 hours.
The growth of "certain" demand and the increase in consumption time have made the location and layout of the front warehouse more optimized.
From the perspective of single warehouse location, stores that provide instant retail services mainly consider offline factors such as regional population density, economic development level, and number of merchants, while front-end warehouses focus on online consumption flow in addition to offline factors, and the site selection is more optimized.
From the perspective of the overall regional layout, compared with the situation that the stores may have local oversupply or insufficiency, the front warehouse focuses on the immediate needs of various local areas, complements each other with offline stores, and better optimizes the online and offline retail layout.
In terms of operating costs, the front warehouse is much lower than the store, the front warehouse is generally not located on the street, and the average rent cost is equivalent to 50%~70% of the retail store.
A front warehouse with a scale of about 250 square meters only needs 2-4 people to complete the warehouse inspection, sorting, packaging and other operations, while retail stores generally need 5-6 people.
A department store of about 150 square meters stores an average of 3,000-4,000 SKUs, and a convenience store of the same size stores stores an average of about 2,000 SKUs.
After nearly two years of development, especially based on the big data of sales and user behavior of the instant retail platform, a relatively standardized operation system has been formed in terms of site selection and layout, product selection and replenishment, online marketing, pickup and distribution, after-sales service, technical system, etc., coupled with the gradual improvement of the ecosystem, it has the conditions for the development of chain operation, and it is expected that the future will be rapidly replicated and expanded through chain operation, and the instant retail platform will usher in a new round of high growth with the help of the "platform warehouse" model.
*The data and charts in this article are from the "Instant Retail Industry Development Report (2023)" released by the Research Institute of the Ministry of Commerce