Source | BohuFN

Author | Lynn

At the beginning of the year, JD.com set three key battles that must be won in 2024, with instant retail being one of them.

As one of the main forces of JD.com's instant retail, 7FRESH has been active this year.

When opening the official account of 7FRESH, the titles of its recent articles have focused on low prices and affordability, such as "Lowest Prices! No Fear of Comparison", "Just Affordable!", "Lowest Prices! Not Just for 11.11", "10% Cheaper! Competitors Dare to Follow, 7FRESH Dares to Continue to Lower Prices"...

01 7FRESH Renews the "Price War"

On November 1, 7FRESH launched the "Lowest Prices! No Fear of Comparison" campaign, with prices generally lower than those on other platforms. Subsequently, Meituan Xiaoxiang Supermarket, although not making an official response, urgently adjusted the prices of over 100 products.

On November 15, 7FRESH announced that from that day on, its Lowest Prices section would be fully renewed, with products in the section being 10% cheaper on average than those on other instant retail platforms. If competitors follow suit, 7FRESH will continue to lower prices, adhering to providing users with a "fast, good, and affordable" shopping experience.

In fact, the concept of "Lowest Prices" is not new for 7FRESH. As early as October 2023, 7FRESH introduced the concept of "Lowest Prices". During the 11.11 promotion that year, 7FRESH launched a "Lowest Prices" campaign, aiming to provide consumers with an ultimate low-price experience. During the campaign, 7FRESH selected some products, with sales prices during the campaign being the lowest in the past 30 days, covering various categories.

In February this year, 7FRESH announced an upgrade to "Lowest Prices", covering more products.

All these actions are based on the development of JD.com's instant retail. In June last year, JD.com completed a new round of organizational restructuring, establishing a new Innovative Retail Department to integrate businesses such as 7FRESH and Jingxi Pinpin, making them independent business units.

This move demonstrates JD.com's ambitions in instant retail. The recent mention of "Lowest Prices" is also due to changes in its dark store model.

In early November, 7FRESH integrated with the dark store. Sources close to JD.com said that 7FRESH has formed an innovative instant retail model combining "offline supermarkets, self-operated dark stores, and e-commerce platforms". After completing the dark store integration, 7FRESH has comprehensively improved its delivery efficiency, with an average delivery time of 27 minutes within a three-kilometer radius.

As early as September this year, 7FRESH opened its first dark store in Beijing.

It can be seen that JD.com is accelerating the integration of its instant retail business layout.

02 Why Integrate Stores and Warehouses?

The accelerated development of the dark store model is a major reason for 7FRESH to promote the integration of stores and warehouses.

According to data from the Ministry of Commerce Research Institute's "Instant Retail Industry Development Report (2023)" and survey data from leading instant retail enterprises such as Meituan Flash, the average annual growth rate of the market size of the dark store model exceeded 50% in 2022 and 2023, while the average annual growth rate of the store model was 47%.

In terms of the growth in the number of warehouses and stores, the average annual growth rate of dark stores exceeded 100% in 2022 and 2023, with the average annual growth rate of platform warehouses exceeding 250% in particular, while the average annual growth rate of stores was 73%.

Zhuang Shuai, an expert in the retail e-commerce industry, pointed out that the growth rate of the "platform warehouse" model of dark stores surpassed that of stores for the first time this year. Relying solely on store development, JD.com's instant retail business would face greater growth pressure.

He pointed out that under the general trend of dark stores growing faster than stores, JD.com's instant retail business can also form a synergistic effect with JD.com Logistics' dark store business, regaining new growth by increasing transportation capacity.

Recently, JD.com's integration of stores and warehouses may have confirmed this.

In addition, fierce industry competition is also driving changes in JD.com's instant retail.

Instant retail meets users' need for "buy now, get now". The industry has developed rapidly in recent years, showing a trend of continuous expansion. In 2023, the scale of instant retail in China reached 650 billion yuan, with a year-on-year increase of 28.89%, and is expected to exceed 2 trillion yuan by 2030.

Among them, many outstanding players have emerged in the dark store sector.

At the "2024 Meituan Instant Retail Industry Conference" in October this year, the relevant person in charge of Meituan stated that Lightning Warehouses (retail dark store model) represent the biggest opportunity in instant retail. Currently, there are over 30,000 Lightning Warehouses in the United States, with plans to build 100,000 warehouses by 2027.

According to a report by LatePost, it was learned that by the second quarter of this year, Meituan's self-operated instant retail business, Xiaoxiang Supermarket, had opened over 680 dark stores, with about 550 located in the four first-tier cities of Beijing, Shanghai, Guangzhou, and Shenzhen. The business achieved sales growth of over 30% in the first half of this year.

Dingdong Maicai's achievements in dark stores are also quite remarkable. In the third quarter of this year, it achieved revenue of 6.54 billion yuan, an increase of 27.2% year-on-year, marking the third consecutive quarter of year-on-year positive growth. At the same time, Dingdong Maicai achieved profitability under Non-GAAP standards for eight consecutive quarters. This shows that Dingdong Maicai has successfully and stably implemented the dark store model.

In this regard, industry insiders speculate that JD.com is vigorously promoting 7FRESH's dark stores because it has seen the profitability of mainstream enterprises.

Whether it's pressure or motivation, it can be confirmed that 7FRESH has officially entered the dark store sector. So, what is the development prospect?

03 Advantages and Pressures of Store-Warehouse Integration

At the end of 2022, Liu Qiangdong, the founder of JD.com Group, proposed making the "low-price strategy" the most important strategy for JD.com Retail in the next three years.

During the second-quarter earnings call this year, Xu Ran, CEO of JD.com Group, stated that JD.com's commitment to the low-price strategy remains firm.

Xu Ran mentioned, "JD.com is a retailer based on supply chains. Behind low prices lies JD.com's most basic operational capability for retail essence. We have always been ensuring product quality and service technology to enhance our price competitiveness." JD.com achieves low prices through economies of scale and technology to improve operational efficiency.

This low-price capability will also be further replicated into the instant retail business, driving its development.

Logistics costs are also a common challenge in the development of instant retail business and dark store models. Therefore, strengthening the construction of the logistics and distribution system and optimizing inventory management have become top priorities for players in this sector.

JD.com's advantages in logistics may allow 7FRESH's dark stores to quickly "copy" successful practices.

For example, JD.com's logistics technology, warehouse management technology, and other technologies will be applied to the operation of dark stores, realizing automated warehouse management, intelligent order allocation, optimized delivery routes, and thus improving operational efficiency and service quality of dark stores while reducing labor and management costs.

For 7FRESH, entering the dark store sector has its advantages, but facing the fiercely competitive and brutal dark store sector, significant investment is still required to gain a share.

Research reports from Northeast Securities show that the profit model for dark stores is still being explored. The high fulfillment cost of dark stores requires sufficient order volume and average order value to achieve profitability for individual warehouses. The construction of dark stores necessitates the setting up of refrigerated and ambient zones, which involves high construction and maintenance costs, as well as the need for a certain number of personnel for operation and delivery, resulting in high fixed monthly expenses. Generally, fresh produce has a low gross profit margin. To achieve front-end profitability, sufficient order support is required, and the average order value must reach a certain level for gross profit to cover fixed costs.

References:

1. The Beijing News: Dark Store Competition Triggers Price War? JD.com's 7FRESH: Integration with Dark Stores, No Price War

2. 21st Century Business Herald: Instant Retail Ignites Price War: Initiated by JD.com's 7FRESH, Followed by Meituan Xiaoxiang in a Hurry

3. Zhuang Shuai: New Trends in Instant Retail 2024: Dark Stores Surpass Stores as the Mainstream

4. National Business Daily: Meituan Flash's Zhou Nan: Alcoholic Beverages Will Be One of the Most Promising Categories in Instant Retail by 2025

5. Dingjiao One: Dingdong Maicai Makes It, Giants Intensify Competition, Dark Store Battle Restarts

6. LatePost: Xiaoxiang Supermarket Opens Over 680 Dark Stores

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