Key
- Frontier Warehouse: A small-scale warehousing and distribution center near the community.
- Fulfillment Cost: The full - process cost of order delivery.
- Fresh Food E - commerce: An online retail platform focusing on fresh food categories.
- Average Order Value: The average transaction amount per order.
- Loss Rate: The loss ratio caused by unsold fresh food products.
Abstract
The fresh food e - commerce industry is facing a severe test. In July 2022, MissFresh suddenly terminated its core business and carried out large - scale layoffs. The share price of this listed company, once famous for its "29 - minute express delivery", dropped to less than $1. By analyzing the financial data of Dingdong Maicai, a leading enterprise in the industry, it is found that for every $100 order, it has to bear a cost of $131, and the operating profit margin is as low as - 31.1%. The core problem lies in the natural characteristics of fresh food categories, such as low gross profit (about 15%) and high loss (2 - 3%), as well as the high fulfillment cost (accounting for 36.1% of revenue) brought by the frontier warehouse model. Currently, the industry is trying to improve profitability by increasing high - gross - profit categories such as pre - made dishes (with a gross profit margin of over 30%), but experts point out that "pure fresh food e - commerce may be a false proposition".
Insights
The dilemma of fresh food e - commerce reflects the deep - seated contradictions in the digital transformation of China's retail industry. On the one hand, only 7% of the $3.3 - trillion fresh food market has an online penetration rate, leaving huge room for imagination. On the other hand, the marginal cost optimization space of the frontier warehouse model is limited, and it lacks cost advantages compared with the "in - store + home - delivery" hybrid model of offline supermarkets. It is worth noting that although the pandemic has increased the penetration rate of fresh food e - commerce in the short term, in the long run, this sector needs to compete with multiple formats such as food delivery and community group - buying for the consumption scenarios of "three meals a day".
Views
01 "Use Fresh Food to Attract Customers and Profit from Other Products"
"Almost all retailers selling fresh food make money from things other than fresh food." The gross profit margin of fresh food categories is 11%, far lower than the 15% of other products. Successful cases such as Yonghui prove that high - frequency fresh food consumption must be used to drive the sales of high - gross - profit categories.
02 "Fulfillment Cost Is a Fatal Flaw"
To ensure 30 - minute delivery, the frontier warehouse model has to bear fulfillment costs accounting for 36.1% of revenue, of which 60% is the cost of riders. Compared with the self - pick - up model of offline supermarkets, this "heavy - delivery" model has little room for cost optimization.
03 "The Three - Kilometer Survival Circle"
A single frontier warehouse needs to achieve a daily average of 1,200 orders with an average order value of over $80 to be profitable. Taking Shanghai as an example, Dingdong Maicai needs to deploy 280 frontier warehouses to cover the main urban areas, which brings huge financial pressure.
In - depth Analysis
The Great Retreat of Fresh Food E - commerce: The Industry Earthquake Triggered by MissFresh's Collapse
In the summer of 2022, a landmark event occurred in the fresh food e - commerce industry. MissFresh (MF), a Nasdaq - listed company, suddenly announced the shutdown of its core business. The share price of this once star - enterprise valued at over $3 billion dropped from the issue price of $13 to $0.15, and its market value evaporated by 99%. This collapse is not only a failure of an individual enterprise but also triggers fundamental doubts about the business logic of the entire frontier warehouse model.
Business Model Anatomy: Why Is It Difficult for Fresh Food E - commerce to Make Money?
By disassembling the 2021 financial report data of Dingdong Maicai (DDL), the profit dilemma of this industry can be clearly seen:
- Commodity cost accounts for 79.9% of revenue.
- Fulfillment cost accounts for 36.1%.
- Marketing cost accounts for 7.5%.
- Management and R & D cost accounts for 8%.
This means that for every $100 of revenue, it has to bear a cost of $131, with an operating loss rate as high as 31%. This structural loss stems from two irreconcilable contradictions:
- The Inherent Defects of Fresh Food Categories The perishable nature leads to a loss rate of 2 - 3%, and the loss rate of some categories (such as fresh meat and aquatic products) can reach 40%. At the same time, as a daily necessity, it is highly price - sensitive, and the gross profit margin is difficult to exceed 15%.
- The Cost Black Hole of Express Delivery To fulfill the promise of "30 - minute delivery", it is necessary to:
- Build frontier warehouses densely (280 are needed in Shanghai).
- Limit the single - delivery volume of riders (4 - 5 orders).
- Maintain a large rider team. "This model is like dancing on the edge of a knife," said a former operation director of a fresh food platform. "You have to maintain competitiveness in fresh food prices while bearing much higher logistics costs than traditional supermarkets."
Transformation Attempts: From Fresh Food Platforms to Lifestyle Service Platforms
Facing the profit pressure, major players are trying business transformations:
- Category Structure Adjustment Increase high - gross - profit products such as pre - made dishes and private - label products. Take crayfish as an example; its gross profit margin can reach over 30%, and product standardization can be achieved. In 2021, the proportion of non - fresh food categories in Dingdong Maicai exceeded 50%.
- Operation Efficiency Improvement
- Reduce the SKU (single - product quantity) to about 1,000.
- Focus on high - frequency and essential categories.
- Try "one - hour delivery" to reduce fulfillment costs.
- Scenario Extension Some platforms have started to provide catering solutions, competing with food delivery and central kitchens for the "cooking alternative" market.
However, these transformations face fundamental limitations: If fresh food is not the main business, the frontier warehouse loses its value. The cloud - warehouse business of Sam's Club can achieve an average order value of over $100, but it relies on its selected SKU and membership system, which is difficult to replicate for ordinary fresh food e - commerce.
Industry Shuffle: Who Will Survive?
MissFresh's failure has intensified the industry differentiation:
| Company | Current Situation | Differentiated Advantages |
|---|---|---|
| Dingdong Maicai | Focuses on the Yangtze River Delta, and single warehouses in Shanghai were profitable in Q4 2021 | High regional density and strong supply - chain management |
| Pop Mart | Deeply cultivates the South China market | Large - warehouse model with lower fulfillment costs |
| Meituan Maicai | Rely on the Meituan ecosystem | Significant traffic advantages |
| Hema Fresh | Supported by Alibaba - affiliated resources | "Store - warehouse integration" model |
It is worth noting that the online business of traditional supermarkets shows stronger resilience. The online orders of Yonghui Supermarket account for about 20%, but relying on the "in - store + home - delivery" model of offline stores, the overall fulfillment cost is much lower than that of pure frontier - warehouse players.
The Ultimate Question: Is Fresh Food E - commerce a False Demand?
The industry faces fundamental doubts at three levels:
- Economic Level Under the current technological conditions, is the express - delivery fresh food service economically sustainable?
- Demand Level Do young people need "faster food delivery" or do they not need to cook at all? Alternative solutions such as food delivery and pre - made dishes are diverting the target customers of fresh food e - commerce.
- Social Level Fresh food retail has the attribute of a quasi - public product. Is it appropriate to operate it completely in a market - oriented way? During the Shanghai pandemic, the government cooperated with Dingdong Maicai to ensure supply, suggesting another possible development path. "This is not only a competition of business models but also a choice of lifestyle," a retail expert pointed out. "Fresh food e - commerce needs to prove that it is not just a temporary solution during the pandemic but a business form that can continuously create value."
Future Outlook: Integration and Reconstruction
The industry may develop in three directions:
- Regional Deep - Cultivation Abandon national expansion and achieve high - density coverage and profitability in specific regions.
- Model Integration Explore the "frontier warehouse + community store" hybrid model to reduce fulfillment costs.
- Service Upgrade Shift from product sales to providing dietary solutions to enhance user stickiness. The lesson of MissFresh shows that in the $3.3 - trillion fresh food market, simple traffic thinking and subsidy wars are difficult to establish sustainable advantages. As the capital boom fades, the fresh food e - commerce industry is entering a new stage of intensive cultivation. Only those enterprises that can truly solve the paradox of "efficiency and cost" may have the last laugh.