Need for Speed 3: Coming soon, from a Meituan warehouse near you!
About 'front-end warehouses' and 'lightning warehouses'
Things that caught our attention
Things that caught our attention
Tech Buzz China founder Rui Ma has made her TV debut in an episode of the documentary series NOVA called ‘Inside China’s Tech Boom’. You can watch the episode here. Rui and Kaiser Kuo (of Sinica podcast fame) will host a screening and panel discussion on Tuesday, November 14th, from 6:30-8:00 PM in New York City, organised by the AsiaSociety. Tickets can be bought here.
In 2018, Alibaba opened an experimental shopping mall called Qinchengli next to its Xixi campus. Chinese media outlet Lianshang recently wrote about the disappointing status quo of the mall. Tech Buzz China writer Ed Sander, who has visited the mall many times with his study tours, summarized the article and added his own thoughts in a LinkedIn post.
Latepost recently published interesting new figures on Temu, Pinduoduo’s cross-border e-commerce platform. Ed summarized them in a LinkedIn post. (source) You can read more on Temu in one of our most popular articles of 2023 so far, Temu: from $0 to $3 billion in 10 months.
The Wire China published an article on Cotti Coffee (paywalled). Tech Buzz China provided information and opinions about Cotti for this publication, based on our recent deep-dive Coffee Wars: How the arrival of Cotti has sparked a price war.
E-commerce on Douyin is hitting new highs with a staggering nearly 2 trillion yuan GMV from Jan-Oct this year, soaring close to a 60% year-on-year increase. (Source)
Chinese EV makers are revving up for a blockbuster 2024! Exclusive scoop from 36Kr: Li Auto's forecast to zoom past 800,000 units, doubling their 2023 sales. NIO's gearing up for a 230,000+ finish line, while XPeng targets 280,000+ (not incl. sub-brands like Alps & MONA). (Source)
Earlier this year we wrote about Douyin’s food delivery initiatives in Food Fight! Douyin’s local services business. Douyin’s main competitor, Kuaishou, has now also started to offer home delivery with some group-buying deals of KFC, Haidilao and other restaurants. As with Douyin’s earliest moves into food delivery, the merchant arranges delivery for orders he received through Kuaishou. (Source)
Introduction
We have taken two deep-dives into China’s bustling instant-retail market in the past months. First, in Need for Speed: Instant Retail, we looked at the marketplace platform model operated by the likes of JD Daojia, Meituan Shangou (Flash Shopping) and Alibaba’s Taoxianda. Later, in Need for Speed 2: Can the front-end warehouse model ever be profitable?, we looked at the model operated by MissFresh, Dingdong and Pupu Supermarket.
In both articles, we skipped over two related aspects: the front-end warehouse business of Meituan Maicai and the Meituan Shangou-related operating model of ‘lightning warehouses’. In this article, we will return to the instant retail market once more to explain how Meituan delivers goods from different types of warehouses hidden within residential areas.
We suggest reading the previous two articles if you are unfamiliar with the business models of front-end warehouse and instant retail marketplaces.
Freya Zhang, Ed Sander & Rui Ma
(click on the images above for information on the Tech Buzz China team)
Meituan Maicai
An Ella supermarket in Beijing, early 2019.
In 2019, Meituan closed its failed Ella (小象, Xiao Xiang, literally ‘Little Elephant’) supermarket business, which had been an attempt to copy Alibaba’s Hema. The concept was replaced with initiatives in community group buying, Meituan Select (Meituan Youxuan, 美团优选), and the front-end warehouse model, Meituan Grocery (Meituan Maicai, 美团买菜). The latter continued to use Ella’s elephant logo, albeit with a green instead of brown colour. Later, Meituan hired some retail experts to build the business.
Meituan Maicai (‘Meituan Grocery’) is an app separate from Meituan's main app and was launched in January 2019 with around 1,500 SKUs. Meituan Maicai opened front-end warehouses in the first-tier cities (Beijing, Shanghai, Guangzhou and Shenzhen) as well as in Foshan, Dongguan (both close to Guangzhou), Langfang (between Beijing and Tianjin) and Wuhan. It later closed down Meituan Maicai in Wuhan and Dongguan. It replaced it with Meituan Select. [2] After the demise of MissFresh (see Need for Speed 2), Meituan Maicai is the third largest player in the front-end warehouse market after Dingdong Maicai and Pupu Supermarkets. Meituan sales volume is about 60% of Dingdong’s, while Pupu’s volume is close to Dingdong’s.
Meituan Maicai delivers goods within a radius of 3 kilometres from its warehouses and has no guaranteed delivery time. However, like others, the app promises delivery within 'as short as 30 minutes'. Above 29 RMB, Meituan Maicai delivers the goods for free; below that amount, they charge 3 RMB.
Most front-end warehouse companies initially focussed on high-frequency fresh products. Meituan and Pupu have gone beyond fresh food (30% of their assortment) and added other food products to increase their average order value. Reducing the share of fresh produce means lower loss rates (spillage and spoilage) and a potentially higher gross margin of the product mix. Unlike its competitors, Dingdong Maicai tends to stick to the fresh food category (50-60%), hoping to bind customers with its wider variety of fresh food. [1]
Compared to its competitors, Meituan Maicai followed a different growth strategy, limiting geographical expansion, focusing on the first-tier cities, and not investing upstream into the supply chain. Instead, it cooperated with large, high-quality distributors. [2] In November 2021, Meituan Maicai added live seafood to their assortment. [6] Unlike some of its competitors, Meituan Maicai never rushed into the sinking market but stuck to the four first-tier cities and their surrounding areas.
As we have seen in Need for Speed 2: Can the front-end warehouse model ever be profitable?, the front-end warehouse model can survive in first and some second-tier cities because consumers have the required spending power of RMB 65-80. In lower-tier cities, insufficient consumer demand, purchasing power and order sizes cannot support the costs of front-end warehouses, distribution and product loss. As such, the front-end warehouse model can only cover a few dozen cities at most. Therefore, The reserved strategy of Meituan Maicai seems to have been a wise one. [8]
In 2021, seeing the changing consumer habits due to the pandemic, Meituan increased the number of front-end warehouses from 200 to more than 400. In September 2021, Meituan upgraded its ‘food + platform’ strategy to ‘retail + technology’, stressing its entrance into the physical e-commerce market. It aimed to use technological means and basic retail skills to improve efficiency to meet consumer’s need for convenient shopping. [5] A month later, three business units, Meituan Maicai, Meituan Select and B2B food distribution division Kuailü, were integrated into a special retail group managed by five core managers of the company. [8]
Meituan Maicai app.
In early 2022, Meituan began cost reductions and efficiency improvements in its retail business. When Meituan was reported to start job cuts to lower costs in April 2022, Meituan Select (Community Group Buying), Meituan Maicai, and Kuailü (‘Fast Donkey’) faced the deepest cuts of up to 20%. [7]
Some of its 400 front-end warehouses showed poor sales and unit economics. Meituan closed warehouses with low square meter efficiency and spent the year reducing loss of goods, optimising assortment and controlling labour costs. [1]
In the first three quarters of 2022, the impact of the pandemic in Beijing, Shanghai, Guangzhou and Shenzen led to a decline in GMV, while order volume increased again in the fourth quarter. That year, gross profit margins were acceptable, exceeding 20% (but remember that Dindong needed more than 30% to become profitable). Meituan, like Dingdong, has also launched private labels.
In the first quarter of 2023, Meituan Maicai’s transaction volume increased 50% year-on-year [4] and was said to have reached a positive operating result. In 2023, Meituan Maicai claimed its turnover speed had tripled, and warehouse costs were reduced by 60%. [5] In early 2023, Meituan’s average order value had reached RMB 50.
Meituan Maicai started a new round of expansions in East China, (re)entering Suzhou. Having lowered costs and improved efficiency, Meituan seemed no longer reluctant to enter a more competitive market where Dingdong had a strong presence. In the first quarter of 2023, Meituan had 500 front-end warehouses and 1.1 million daily orders. [1]
Meituan uses big data of its 678 million transacting customers (2022) to drive the company's decision-making and to determine its product assortment. To ensure 30-minute delivery, Meituan regulates manpower by analyzing real-time conditions like weather, the impact of marketing activities, etc.
Outside a Meituan Maicai front-end warehouse, Beijing, July 2023.
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