CHINA CRACKED THE ‘DARK STORE FLASH DELIVERY’ FORMAT

Recently, I have been writing about the instant retail marketplaces that are in a fierce battle (Meituan Shangou, JD Miao Song, Taobao Shangou). Meanwhile, there is a different instant retail format, the front-end warehouse, that needs our attention. It partially resembles the models of companies like Gorillas, Getir, and Flink in Europe, but the Chinese have made it work.

The front-end warehouse is a self-operated ‘dark store’ from which platforms like Meituan Xiaoxiang, Dingdong Maicai and Pupu are delivering goods within an hour.

Recently, Meituan Xiaoxiang, which had about 800 front-end warehouses by the end of 2024, was rumoured to have had RMB 30 billion in sales in 2024. A Chinese instant retail watcher I follow, made his own calculation and arrived at RMB 40 billion (€4,8 billion). For comparison, Alibaba’s Hema supermarkets saw RMB 55 billion, Yonghui and RT Mart both roughly RMB 70 billion and Walmart (including Sam’s Club) over RMB 100 billion in China in 2024.

Pupu, which mainly operates in the south of China, also had RMB 30 billion in sales in 2024 (and is profitable with a 22% gross margin). In other words, this business model is approaching the volume of some major players in the supermarket sector.

The front-end warehouse model has become profitable by:

▶️Reducing loss rate below 3%, lower than regular supermarkets, by ensuring more stable sales through avoiding promotions that could cause fluctuations. But if a product batch risks spoiling, it will be discounted and promoted.

▶️ Reduced customer acquisition cost. Consumers are now accustomed to instant retail formats and require minimal education. Promotion of other formats and brands drives the whole sector.

▶️ Picking and packing is done by very efficient, dedicated staff who get paid per order and work on an hourly basis. New staff can be trained in a day and work independently, and process 30 orders per hour. Picking and packing costs are only RMB 0.8 (€0.10).

▶️ Delivery fee of RMB 3.7 (€ 0.44) per order in a city like Beijing. This is much lower than for meal delivery because of the high number of orders from one location and the very high order density in the service area. Mature warehouses receive 2,300 orders per day. In some cities, like Beijing, they can even have 3,000 orders per day. Warehouses need at least 2,000 orders to break even. Couriers deliver 5-10 orders per ride (on scooters).

Note: The average order value is RMB 75, roughly €9. This is a fact I often point out when people claim that instant retail works in China because of low labour costs. The labour costs might be lower, but so is the AOV! So I don’t think this is the most important factor.

Currently, Meituan Xiaoxiang already has 1,000 front-end warehouses, and it keeps opening new ones.

-Ed

Source: Lao Zhang

Picture: visit to a Xiaoxiang front-end warehouse during the K5 - Future Retail X-pedition in October 2024.