"My Insights and Analysis on Dingdong Maicai"

Since moving, I haven't been able to find a nearby vegetable market. A while ago, I tried buying groceries online, and the experience was quite good, with new users also getting some perks.

At first, I thought Dingdong Maicai was similar to a delivery service, with dedicated people going to the market to buy groceries. I was wondering why not just use a delivery or takeaway service for this? But after using it, I found that the bags and some products all had the Dingdong Maicai brand on them. I needed to make Tom Yum soup, so I bought some shrimp and discovered that the shrimp were alive when they were delivered. This piqued my curiosity, and I researched Dingdong Maicai's business model.

Dingdong Maicai originated from Dingdong Community, which had been advertising extensively at major subway stations in Shanghai a few years ago.

Currently, Dingdong Maicai is still rooted in the East China region and has not expanded beyond it, mainly operating in Shanghai, where it has covered almost all areas except Chongming.

Dingdong Maicai uses an online app for ordering, with free delivery starting from 29 minutes. After using it multiple times, I found that deliveries usually arrive within 40 minutes. There was one time when Grandma Shao wanted to make sweet potato soup but forgot to buy sweet potatoes, so she placed another order for a few items, and they were delivered to me shortly after. The experience was very good, but I always feel that the free delivery threshold won't last long.

Dingdong Maicai primarily operates on a model of front warehouses + urban wholesale procurement + high-quality service. It seems quite ordinary, but delivering live fish and shrimp to your door is something you probably won't find anywhere else.

Front Warehouse

The concept of front warehouses was first tried by Meiri Youxian. Their model involves sending goods directly from the source to Meiri Youxian's central warehouse, which requires managing logistics and sourcing. The central warehouse serves as a major hub for each large area, and then front warehouses are set up in each district, meaning that every small area within 1-3 kilometers has an 80-square-meter small warehouse serving it. All items are sent from the central warehouse to the small warehouse, which then delivers to users within a 1-3 kilometer radius.

Dingdong Maicai's approach is slightly different. First, it doesn't handle sourcing and logistics like Meiri Youxian, saving on various labor, management, and logistics costs. Secondly, it establishes a front warehouse in almost every 1-kilometer area, with over 1,500 SKUs, ensuring delivery to nearby users in about 29 minutes. Currently, there are at least 200 front warehouses in Shanghai, each about 300 square meters, effectively covering user demand in the city. Additionally, because it relies on local wholesale, it can use big data analysis to make more precise predictions on product selection and quantity, ensuring that current wholesale items are sold the same day. This significantly reduces reliance on cold chain logistics. Currently, the warehouses only operate online, saving on offline labor costs and management, as well as avoiding various offline payment and ERP expenses.

Is it profitable?

From the previous analysis, it seems to be in a money-burning phase. Free delivery, no minimum order, self-built logistics, promotional coupons, and front warehouse construction—all these aspects require significant investment. According to some public data, the current average daily order volume is 400,000, with 345 front warehouses, averaging 1,159 orders per warehouse. Based on some public estimates, Haitong Securities' report on Dingdong Maicai suggests that reaching 1,250 orders per warehouse could break even. The gross profit margin could also reach 30%.

If profitability is needed, it could increase the average order value like Hema, but for Dingdong Maicai's users, the focus is not just on the bi-weekly repurchases by white-collar workers, but also on further compressing the survival space of traditional markets, attracting the main grocery-buying demographic, and using operational strategies to increase user engagement time, thereby maximizing the value of online traffic. Another strategy is to reduce supply chain costs, such as opening more warehouse locations to increase order volume and enhance bargaining power.

Currently, the delivery cost per order is 4.9 yuan, far below the industry average of 8 yuan. They will gradually adjust this cost, moving from free delivery to a minimum order requirement. With the current average order value around 50 yuan, the minimum order price should be around 30 yuan. Additionally, they plan to gradually charge delivery fees, making paid delivery a norm. They are also considering partnerships with companies like Ele.me and Dada, which have their own logistics teams, to further reduce logistics costs.

Quality Control

Currently, Dingdong Maicai implements several quality control measures, which is why their produce is often better than that of competitors.

Future Outlook

At present, it seems that Dingdong Maicai sells a lot but loses even more. However, market cultivation takes time, similar to Didi Chuxing.

Another interesting example is Luckin Coffee, which claims to be a conscientious national enterprise, specifically targeting American consumers to benefit the public.

However, according to Luckin's Q3 financial report, revenue reached 1.54 billion yuan, a year-on-year increase of 540%; 717 new stores opened, bringing the total to 3,680; 7.9 million new users were added, with a cumulative total of 30.7 million trading users. Most importantly, store operations generated a surplus of 186 million yuan, making the "losing money on every cup sold" a thing of the past; net losses were 530 million yuan, with a loss rate of 35% (compared to a 201% loss rate in Q3 2018).

User Habits

Luckin's users have developed a habit of spending money even without free drinks.

This aspect is quite similar to Dingdong Maicai; although discounts are decreasing, the 57% repurchase rate speaks for itself.

Repurchase and New Users

Luckin's users average 15 cups per season, or about one cup every six days.

For Dingdong Maicai, two purchases per week is already the limit for most white-collar workers, so when the white-collar demographic reaches a certain scale, they should also attract users outside this group.

Gross Profit

Meituan's delivery service has a gross profit of only 0.9 yuan per order, with net profit being just a few cents, having completed over 6 billion orders in 2018. By combining different SKUs, they can increase gross profit, similar to Luckin's coffee + light meal combination. They also provide offline self-pickup services to reduce losses from delivery.

Conclusion

Burning money is a technical skill; looking at Luckin, Didi, and Pinduoduo, you need to master it to understand the intricacies involved. Of course, I still can't see through it all; even buying a bag of cat food requires calculations, especially since I have four cats at home.

Finally, the usual practice. Today, Old Four is here to kick things off.

References:

"Dingdong Maicai: Will it be a fleeting phenomenon?"

"How did fresh O2O Dingdong Maicai rise rapidly in a short time?"

"Luckin Coffee: 'Making Money on the Side'"