New trends in instant retail in 2024: Forward warehouses will become the mainstream, surpassing stores

This article deeply analyzes the new trends in the instant retail industry in 2024, especially how the forward warehouse model will surpass traditional stores and become the mainstream. The article explores the strategic adjustments of JD.com's instant retail business and the industry competition pressure it faces. It also analyzes in detail the growth rate, ecological advantages of the forward warehouse model and how it will affect the future of the instant retail industry. For retail industry practitioners, strategy analysts and readers interested in instant retail, this article provides valuable market insights and forward-looking thinking.

Recently, JD.com’s instant retail business has integrated its original instant retail brands JD.com 24-hour delivery and JD.com home delivery, and fully upgraded it to JD.com instant delivery.

Dada Group's first-quarter financial report showed that JD.com's home delivery (i.e. JD.com Express) had revenue of 1.279 billion yuan, a year-on-year decrease of 28.4%; total net income was 2.4518 billion yuan, a year-on-year decrease of 3.3%.

The performance of JD.com's instant retail business is under obvious pressure. First, JD.com's instant retail platform adjusted its business strategy, lowered the threshold for free shipping and reduced promotional activities, resulting in a decrease in online advertising and marketing service revenue and a decrease in fulfillment service revenue.

Second, competition in the industry has become more intense, especially the growth rate of the forward warehouse "platform warehouse" model has surpassed that of stores for the first time this year. JD.com's instant retail, which relies solely on store development, naturally faces greater growth pressure.

According to the relevant data of the "Instant Retail Industry Development Report (2023)" released by the Ministry of Commerce Research Institute, combined with the survey data of leading instant retail companies such as Meituan Flash Purchase, from the perspective of market size growth, the average annual growth rate of the forward warehouse model market size in 2022 and 2023 will exceed 50%, while the average annual growth rate of the store model market size will be 47%.

Judging from the growth in the number of warehouses and stores, the average annual growth rate of the number of front-end warehouses in 2022 and 2023 will exceed 100%, especially the average annual growth rate 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 forward warehouse business in Beijing and provide "hourly delivery" service for Dongfang Selection, "Zhuang Shuai Retail E-commerce Channel" believes that with the general trend of forward warehouses growing faster than stores, JD's instant retail business can also form a synergistic effect with JD Logistics' forward warehouse business, and regain new growth while increasing transportation capacity investment.

Next, this article will analyze in detail why the growth rate of the forward warehouse model has exceeded that of stores? How will the ecology and advantages of the forward warehouse affect the instant retail industry?

1. Platform warehouses become mainstream

The instant retail industry actually started to accelerate with the forward warehouse model represented by MissFresh and Dingdong Maicai. However, with MissFresh's delisting and operating difficulties, and Dingdong Maicai's withdrawal from multiple cities and closure of a large number of warehouses in recent years, the industry is full of controversy over the forward warehouse model.

Recently, Dingdong Maicai released its first quarter financial report. Its founder and CEO Liang Changlin also reflected on the forward warehouse model, believing that the first principles of traditional retail do not work in the fresh food forward warehouse model, "does not have much scale effect" and "cannot reduce operating costs through large scale."

“Since the launch of Dingdong Maicai, we have been constantly trying to understand the fresh food industry we are engaged in, and we have discovered two characteristics.

First, the first principle of traditional retail is to gain scale through low prices, and then reduce purchasing prices through scale, thereby maintaining lower prices. However, fresh products are primary agricultural products and are limited by supply and demand relationships and growth cycles. They do not have much scale effect. Therefore, the first principle of traditional retail does not work in the fresh food industry.

Second, traditional retail also reduces operating costs through large scale, but the forward warehouse model we adopt requires certain distribution costs, and will not drop significantly as the scale grows. We concluded that the first principle of traditional retail is invalid 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 make profits and competitiveness from the supply chain, and we must serve more consumers by improving the supply chain capability to achieve scale growth. "

Fresh produce, as a non-standard product, is a "traffic-generating product" for retail companies. It draws people into the store and drives sales of other categories such as fast-moving consumer goods, thereby achieving the goal of acquiring scale at a low price and reducing supply chain costs on a large scale.

Dingdong Maicai's financial report data for the first quarter of 2023 showed that GMV reached 5.53 billion yuan, with a year-on-year growth of only 1.4%; revenue was 5.02 billion yuan, with a year-on-year growth as low as 0.5%, gross profit margin was 30.6%, and net profit margin under Non-GAAP standards was only 0.8%, with a net profit of 41.482 million yuan.

Although it remains profitable, the revenue growth rate in the peak demand season in the first quarter can clearly be described as "dismal"; and the gross profit margin of 30.6% and net profit of less than 1% further indicate that Dingdong Maicai's operating costs remain high.

Since the beginning of this year, Dingdong Maicai has been continuously optimizing its product structure, especially in categories such as fruits, dairy products and beverages, leisure general merchandise and baking. However, as of March, the combined 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 Maicai has not done well enough in expanding the categories of standard products such as fast-moving consumer goods and innovating the model of forward warehouses.

If the forward warehouse is expanded and operated with a socialized and platform-based approach rather than just a self-operated model, and the proportion of various categories such as fast-moving consumer goods is increased, or even fresh food categories are not operated, then the unit operating cost of the forward warehouse will not only drop significantly, but the scale and profit margin will also have the opportunity to be better improved.

This is the operating logic behind Meituan’s flash purchase “Lightning Warehouse”.

According to the "Zhuang Shuai Retail E-commerce Channel", by 2023, Meituan will open more than 6,000 lightning warehouses, and plans to add 2,000 more in 2024.

Dingdong Maicai's first quarter performance conference revealed that it had added 15 new forward warehouses in Jiangsu and Zhejiang regions alone. In comparison, it is difficult to compare the development speed and scale of self-operated forward warehouses with the socialized "platform warehouses".

In other words, the reason why the growth rate of forward warehouses can exceed that of stores is mainly because they have broken through the shackles of the original self-operated model, adopted an open platform business approach, and developed "platform warehouses" in a socialized way.

2. Forward warehouses have obvious advantages and the ecosystem is becoming more mature

"Zhuang Shuai Retail E-commerce Channel" believes that with the rapid growth of "platform warehouses", the self-operated model dominated by forward warehouses will give way to an open platform model, thereby forming a complete and mature forward warehouse ecosystem.

According to the "Instant Retail Industry Development Report (2023)", the forward warehouse model involves multiple entities, mainly including forward warehouse merchants, instant retail platforms, suppliers, instant delivery companies, supply chain companies and technical service companies.

Among them, the forward warehouse merchants are the owners and operators of the forward warehouses, 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 to forward warehouse merchants.

Suppliers provide goods to forward warehouse merchants, mainly including brand owners, manufacturers, upstream distributors, etc.

Instant delivery companies provide instant order fulfillment and delivery services to forward warehouse merchants. Supply chain companies provide warehousing and logistics services to forward warehouse merchants. Technical service companies provide digital marketing, digital management of purchases, sales and inventory, and other related technical services to forward warehouse merchants.

At present, the forward warehouse model has initially formed an ecological system with forward warehouse merchants as the main body, instant retail platforms as the core, and covering upstream and downstream service companies in the supply chain.

The improvement of the forward warehouse ecological system has made the development of forward warehouses more diversified. From the perspective of the types of goods sold, forward warehouses can be divided into comprehensive convenience warehouses and vertical category warehouses.

A comprehensive convenience warehouse refers to a forward warehouse that sells a variety of goods such as fast-moving consumer goods and daily necessities, such as the Xiaoxiang Supermarket and Tianfu Convenience Store forward warehouses.

A vertical category warehouse refers to a forward warehouse that mainly sells single categories such as alcoholic beverages, medicines, cut fruits, fresh produce, flowers, and beauty products, such as Waima Wine Delivery, Fahrenheit Pharmacy Digital Medicine Warehouse, and Cut Fruit NOW.

The operating advantages of forward warehouses are becoming more and more obvious. The inventory of forward warehouses is based on consumers' online orders, mainly meeting consumers' immediate needs such as emergencies, gifts, and parties.

The product inventory of a store is generally determined based on consumers' offline purchasing needs, mainly to meet consumers' needs for stockpiling, experience, etc., and supplemented by meeting immediate needs.

Compared with the store model that also provides instant retail services, the forward 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.

The consumption scenarios of forward warehouses have also become more diversified. With the changes in consumer demand, the new consumption scenarios provided by forward warehouses are covering from immediate emergency scenarios of "uncertainty" to daily scenarios of "high certainty", which will be better integrated into the daily lives of various consumer groups, and the consumption period covers almost 24 hours.

The growth in the demand for "certainty" and the increase in consumption periods have made the location layout of forward warehouses more optimized.

From the perspective of single warehouse site selection, stores that provide instant retail services mainly consider offline factors such as regional population density, economic development level, and number of merchants. In addition to considering offline factors, forward warehouses focus on online consumer traffic, and the site selection is more optimized.

From the perspective of the overall regional layout, compared with the situation where stores may have oversupply or shortage in local areas, forward warehouses focus on various local immediate needs, complement each other with offline stores, and better optimize the online and offline retail layout.

In terms of operating costs, forward warehouses are much lower than stores. Forward warehouses are generally not located on the street, and the average rental cost is equivalent to 50% to 70% of retail stores.

A forward warehouse with a size of about 250 square meters only requires 2-4 people to complete operations such as inventory inspection, sorting, and packaging, while a retail store generally requires 5-6 people.

A department store convenience warehouse of about 150 square meters stores an average of 3,000-4,000 SKUs, and a convenience store of the same size stores an average of about 2,000 SKUs.

The "platform warehouse" model of the forward warehouse has developed over the past two years, especially based on the big data of sales and user behavior of the instant retail platform. A relatively standardized operating system has been formed in terms of site selection and layout, product selection and replenishment, online marketing, pickup and delivery, after-sales service, and technical systems. Coupled with the gradually improving ecological system, it has the conditions for developing chain operations. In the future, it is expected to be rapidly replicated and expanded through chain operations. With the help of the "platform warehouse" model, the instant retail platform will usher in a new round of high growth.