Sell ​​one order and lose one order, instant retail volume cries for flash warehouse

This article explores in depth a special business model in the field of instant retail - Lightning Warehouse. This 24-hour online supermarket meets the instant consumption needs of modern people with its quick response and convenient services.

After five years of running a flash warehouse, Lao Xu saw an increasing number of flash warehouses around him. He searched on the food delivery platform and found that there were more than a dozen flash warehouses within three kilometers.

Different from offline supermarkets, Lightning Warehouse is mainly a 24-hour online supermarket that only accepts online orders. The warehouse store area is usually about 100 square meters, located on the underground floor or other areas with lower rents. The warehouse store is filled with rows of dense shelves, and the pickers pack the goods and hand them over to the riders waiting at the door. Some warehouses are small in size, and the pickers can only run sideways to get the goods under the urging of the riders.

Correspondingly, consumers see a wide variety of goods when they enter the store on the food delivery platform. At present, the SKUs of Lightning Warehouse are mostly between 5,000 and 10,000, covering everything from daily necessities, flowers, beauty products, wine and beverages to digital accessories, targeting users' immediate consumption needs.

Behind the flash warehouse is a trillion-dollar instant retail blue ocean market that platforms, physical supermarkets, and retail brands are all competing for. Meituan announced this year that by 2027, the number of flash warehouses will increase from the current over 30,000 to over 100,000. Chain brands such as Miniso and Sam's Club are also rushing to join the game.

For individual practitioners who were once at the forefront of the lightning warehouse boom, this was once a good business that could earn 100,000 yuan a month. But now, with low-price competition, 0 yuan for delivery, and increased density of warehouses and stores, the elimination round has begun.

01 "One order for one loss" rolls out low prices, and the flash warehouse elimination competition begins

The changes started in 2023, Lao Xu, who operates eight flash warehouses in multiple cities, lamented to Tech Planet.

During the epidemic, users' immediate demand for everything from buying meals to purchasing everything increased dramatically. At that time, a store with an investment of 600,000 yuan could recover its investment in three or four months. Even if it could not achieve refined operation and management, it could still earn 100,000 yuan a month.

Now the number of flash warehouses has at least increased tenfold. Lao Xu said that the order volume of a flash warehouse he runs in Beijing has dropped from 25,000 orders in the past to about 16,000 orders in half a year.

In essence, the entry threshold of flash warehouses is low, and small and medium-sized players are flocking to it. There is no so-called regional protection in the industry. A flash warehouse usually radiates a 3-kilometer radius. The increase in the number of flash warehouses in the surrounding area means that the market share is eroded. Take the underground floor of a business district near a large supermarket in Chaoyang District, Beijing as an example. Within less than 200 meters, three new flash warehouse merchants have been added.

However, there are limited low-rent, large-scale warehouse and store locations available in first-tier cities. A person in charge of a Lightning Warehouse brand directly told Tech Planet that the high-quality Lightning Warehouse locations within the Fifth Ring Road in Beijing are now saturated.

The cost of investing in a flash warehouse is not low. In Beijing, it costs at least one million yuan to start. Many people leave the market with losses within half a year, and a round of elimination rounds has already begun. "If you are lucky, you will lose half, and if you are unlucky, you will lose 700,000. Now the industry has people constantly coming in and leaving," added the person in charge of the flash warehouse brand.

At present, the merchants of lightning warehouses are mainly divided into three categories: first, lightning warehouse brands represented by Tesco and Dolphin Shopping, which entered the market early and already have more than 100 lightning warehouses across the country, and are expanding into the sinking market through the franchise model; second, chain brands such as MINISO, Watsons, and Hualian Supermarket, which will differentiate themselves from offline store inventory and tap into the incremental online market; third, there are many novice players, usually individual practitioners, who have transformed from offline mom-and-pop stores to online.

According to data disclosed by Meituan, in the third quarter of this year, the average daily number of Meituan flash sales exceeded 10 million orders, and the number of transaction users and transaction frequency both achieved double-digit growth. On the day of "Chinese Valentine's Day", the peak order volume exceeded 16 million orders.

Dada’s third-quarter financial report showed that the total number of JD.com’s operating stores exceeded 600,000, and the average monthly number of users placing orders and the order volume of JD.com’s delivery on the JD.com App continued to maintain a rapid growth momentum, with year-on-year growth rates both exceeding 100%.

Faced with the rapid growth of the flash warehouse business, practitioners in it have mixed feelings. They are facing extreme internal competition in the industry. Fighting low-price wars, increasing investment costs, and expanding SKUs to tens of thousands, operating costs continue to rise.

A lightning warehouse owner told Tech Planet that in Beijing, merchants pay 6.58 yuan for a delivery within one kilometer, and 2 yuan will be added after 9 p.m. In the past, the basic delivery price was set at around 20 yuan, but now it has generally been raised to 9.9 yuan or 8.8 yuan. New merchants directly charge 0 yuan, and they want to achieve high sales in a short period of time through the price reduction of "one loss for one sale", obtain more traffic from the platform, and finally make money through profit products.

The price war has also been further launched. Many Lightning Warehouse merchants have replaced the "1-cent product" that attracts customers from mineral water with the more expensive Red Bull beverage. "For the same type of product, if you sell it for 6.5 yuan, I will sell it for 5.6 yuan. We will even engage in the most simple business war, reporting and complaining about other Lightning Warehouses on the grounds of fire safety failures." The above-mentioned Lightning Warehouse owner said that the average customer unit price in his store has dropped from 50 yuan to 30 yuan this year.

02 The hard business of “bending down to pick up pennies”

Flash warehouses are not a new concept. Internet giants have opened up similar "forward warehouses" before, but they are self-operated models, mainly focusing on fresh vegetables, and generally face the challenges of high loss rates and low gross profit margins.

Large companies that have established instant retail businesses, including Meituan, Ele.me, and JD.com, are open to third-party merchants and practitioners in various retail categories in a platform model, with the platform providing operational guidance and traffic support.

Compared with traditional supermarkets, Lightning Warehouses have lower requirements for store location. Warehouses can be built in residential areas and office buildings, with low rental costs and the ability to accommodate more SKUs.

At the "2024 Meituan Instant Retail Industry Conference", Meituan's core local business CEO Wang Puchong once said that with the same area of ​​200 square meters, the minimum stock keeping unit (SKU) of goods displayed in a convenience store is 2,500-3,500, and the SKU of a lightning warehouse is 6,000-10,000; the monthly sales of a convenience store are about 355,000 yuan, and the monthly sales of a lightning warehouse are about 500,000 yuan; the profit margin of a convenience store is 1%-5%, and the profit margin of a lightning warehouse is 3%-10%.

For every flash warehouse operator, the number of pallets is also one of the huge challenges faced by merchants. Taking second- and third-tier cities as an example, for a pallet of 7,000-7,500 SKUs, merchants usually need to pay around 550,000-600,000 yuan. When exiting the market at a loss, how to clear the pallets is also a big problem.

Zhang Qing, who runs a Lightning Warehouse in Beijing, said that the main consumption scenario of Lightning Warehouse is still to meet the emergency needs of users. They usually enter the store by searching for products, so merchants need to have a sufficient variety of pallets, such as ladders that users use to repair lights and cardboard boxes for moving.

He has a lightning warehouse near Beijing World Trade Center. One of his hot products is folding chairs. Because there are many users who need temporary meetings, they will place bulk orders in the store, and he can make hundreds of yuan at a time. Even though these goods are usually difficult to order in the store, the merchant needs to stock them.

In terms of operations, there will be traffic-generating products, discounted products and profitable products in the Lightning Warehouse store. After the low-priced products attract users into the store, these profitable products are the key to the merchant making money.

For example, as a high-gross-profit alcoholic beverage category, Meituan has personally developed its own alcoholic beverage warehouse "Wai Ma Delivered Wine". Tech Planet saw in an offline warehouse store of "Wai Ma Delivered Wine" that the clerk would focus on promoting a self-operated "Wai Ma Craft German Wheat Beer" product, with a customer unit price of about 30 yuan. According to the clerk, the sales target of 100 orders needs to be completed every month. These self-operated craft beer brands can have higher profits per order.

Having been engaged in flash warehouse business for many years, Lao Xu calls this business "bending over to pick up pennies" and "very tiring. Now I can only make a little money."

Individual practitioners who are still at the table need to significantly reduce costs in all aspects. Lao Xu said that he is now adopting a mixed delivery model of "crowdsourcing riders + merchant self-delivery". The latter mainly involves merchants delivering some short-distance orders during their off-peak hours to reduce delivery costs.

According to a Meituan crowdsourcing rider, the Lightning Warehouse can earn 4 yuan for each order. Usually a dozen riders are responsible for two Lightning Warehouses. At 3 pm, the orders of a top-ranked Lightning Warehouse brand that he showed to Tech Planet had reached more than 300 orders.

User demands are very diverse. The rider said that, for example, someone in a nearby hospital placed an order for a folding bed, which his electric vehicle was simply unable to deliver. He also often receives orders for large products such as boxes of bottled water and beer.

Pallets are one of the core competitive advantages of Lightning Warehouse, but homogeneity is also serious. In addition, the prices in the daily necessities market are transparent and the premium space is not high. Lao Xu said that in order to increase profits, some merchants will now adjust their goods so that half of them are white-label products. However, the disadvantage is that the most common problem encountered in 24-hour online supermarkets is counterfeiting and reporting. There are even special "counterfeiting teams" who make a living from this, and ask merchants to compensate on the grounds of "three-no products."

03 New battlefield for Internet giants

After community group buying, the trillion-dollar instant retail market behind Lightning Warehouse is a new battlefield for Internet giants to compete for. Lightning Warehouse serves not users of food delivery, but users who need daily necessities, flowers, medicines, digital products, etc.

Based on the data disclosed by various companies, Bocom International estimates that in 2022, the instant retail business will be ranked first by transaction volume, with Meituan (Meituan Flash Purchase and Xiaoxiang Supermarket) accounting for about 34% of the market. This is also one of Meituan's fastest growing businesses. Ele.me (excluding food delivery) ranks second, with a market share of about 26%; JD.com ranks third, with a market share of about 15%.

The two major local life platforms disclosed their respective goals at this year's instant retail conference. Meituan announced that it would add 70,000 lightning warehouses in the next three years, which means that an average of 70 Meituan lightning warehouses will be added every day in the next three years. Although Ele.me has not announced the specific number of warehouses and stores to be stationed on the platform, it has vowed to open 100,000 "near-field brand official flagship stores" in the next three years.

According to the self-media "Jingxuan Pro", JD.com's instant delivery business has not yet set specific performance targets. The internal goal for JD.com's instant delivery is to fully match Meituan's flash purchase business.

The imagination of the flash warehouse market lies in the fact that people have further developed the habit of moving from emergency consumption needs to daily consumption needs. For the platform, the richness of the supply side has greatly increased, and the willingness to actively participate is strong, with large supermarkets as a typical representative.

According to the 2024 semi-annual report, Lianhua Supermarket, Zhongbai Group, Jingkelong, BBK, and Renrenle suffered losses, and Zhongbai Group's net profit fell by 614.42% year-on-year. These supermarket brands have begun to actively embrace instant retail and explore incremental markets.

A person in charge of a lightning warehouse at a traditional supermarket told Tech Planet that online pallets will be differentiated from offline pallets, with the overlap being less than 30%, mainly to tap into the incremental market.

When these professional players rushed into the market, the flash warehouse market entered the stage of competing for supply chain and resources, and began to march into the sinking market to grab land.

There are already enough players on the field, and self-operated warehouses have also gathered in this instant retail battlefield by expanding product categories and increasing delivery speed. Dingdong Vegetables and PuPu Supermarket have also expanded their warehouses from fresh vegetables to all categories.

A flash warehouse owner told Tech Planet that there are not many opportunities for newbies who follow the trend and may even be the first to be eliminated. The trillion-dollar instant retail market is still in its early stages of development, and competition will only become more brutal.

(Note: Lao Xu and Zhang Qing in this article are both pseudonyms.)