Last week, Dingdong Maicai (NYSE: DDL), a Chinese quick commerce company based out of Shanghai, reported its 1st full year of net profit.
Founded in 2017, Dingdong Maicai used the “frontline fulfilment stations” (known outside China as the fancier “dark stores”) model to deliver fresh produce and groceries to consumers in 30 minutes.
The Chinese experiment happened before the global investor craze of quick commerce during the pandemic (Getir, Joker etc.). Aside from Dingdong Maicai, Beijing-based Miss Fresh and Fuzhou-based Pupu Supermarket were the other notable startups, joined by giants such as Alibaba (Hema), Meituan, and JD.
However, the economics of quick commerce were difficult to manage. One player told us that it would require a tremendous amount of optimisation – of store network, of delivery fleet, of SKU assortment, and of consumer operations. Empirical results of this player indicated at least 4,000 orders per dark store per day were needed to achieve unit economics breakeven.
Amid the competition, Miss Fresh simply imploded, and its core management went to Indonesia to build other startups. Meituan kept evolving the business model and eventually built Xiaoxiang Chaoshi (or “Little Elephant Supermarket”) to scale.
Dingdong Maicai also took some drastic changes, including scaling down its city footprint and going deep into the supply chain:
- Scaling down city footprint: at its peak, Dingdong operated in 37 cities across China. In 2022, it started shutting cities out of its home base of Shanghai and surrounding Yangtze river delta. This is sensible for two reasons: 1st, the supply of fresh produce is very local, and hard to achieve economies of scale nationally; 2nd, if you are not the strongest player in a region, you are more likely to lose money;
- Supply chain: Dingdong has gone deep into the supply chain and has built more than 20 private label brands, in categories including pre-made meals, meat, grains etc. This has allowed Dingdong to have more control of the supply and better margins.
The company has also set its eyes on global expansion. Last year, it started making preparations to launch in Saudi Arabia in Q1 2025. However, because of Meituan’s fast expansion in the Kingdom, Dingdong might have decided to change course.
In the recent Momentum Works Food Delivery Platforms in Southeast Asia report, we noted that players in many parts of Asia have validated the quick commerce model, which might be a major shake up on ecommerce as a whole. FMCG brands and large ecommerce platforms need to be particularly vigilant about these changes.
As a core value of Alibaba indicates, in ecommerce, “change is the only constant.”
