About half a month ago, Wang Puzhong, CEO of Meituan's core local business, disclosed shocking figures at the 2024 Meituan Instant Retail Industry Conference: currently, the number of Meituan Flash Warehouses has exceeded 30,000, achieving full-category coverage.

Looking back, the growth rate of Meituan Flash Warehouses has been astonishing. In 2021, there were only 600-plus warehouses, but by 2023, the number had soared tenfold to over 6,000. Now, in less than a year, the number of Flash Warehouses has grown from 8,110 to over 30,000.

The internet world always favors fast-paced stories. Amidst fierce competition and rapid sprints, the number of Flash Warehouses opened and outstanding cases seem to narrate Meituan's victory.

However, when we shift perspectives and stand from the viewpoint of Flash Warehouse franchisees, the story becomes less rosy. Many brick-and-mortar retailers saw this opportunity and hoped to join the Flash Warehouse express train, sharing this massive market pie. But reality is often more complex and brutal than imagined.

A few days ago, I received an email titled "The Painful Experience of Joining Meituan Flash Warehouse and Being Scammed." I immediately contacted the sender, Mr. Liu, and his partner, Mr. Zheng. Through interviews, I learned that Mr. Zheng opened a Flash Warehouse in Yanjiao last year, but it has since closed down.

He recounted his experience of losing over 200,000 yuan in a year with the Flash Warehouse, his tone filled with helplessness and regret.

Mr. Zheng's experience serves as a loud warning bell for brick-and-mortar retailers eager to join Meituan Flash Warehouse. Potential franchisees must delve deeper into operational details, risk control, and other aspects beyond the glossy exterior of Meituan Flash Warehouse.

After all, a misstep in decision-making could cost franchisees their hard-earned money.

"Liar" Operators

September 8, 2024, was a heavy day for Mr. Zheng, who joined the Meituan Flash Warehouse project.

Hive Convenience's store in Jinyan Plaza, Yanjiao Town, Sanhe City, Hebei Province, closed its doors on this day. Shelves were sold as scrap metal, merchandise was liquidated at low prices, and employees were laid off. Mr. Zheng watched helplessly as everything fell apart.

Back in June 2023, Mr. Zheng joined Meituan Flash Warehouse full of anticipation. However, from that moment to September of this year, he accumulated losses exceeding 200,000 yuan. In detail, franchise fees amounted to 74,000 yuan, shelving cost 15,000 yuan, six months' rent 44,500 yuan, one employee's annual salary 60,000 yuan, plus licensing fees and 22,000 yuan in liquidation losses – each item a heavy burden.

The story began on March 31, 2023, when Mr. Zheng received a call from Mr. Li, purporting to be the head of Meituan Flash Warehouse recruitment at Qinhuangdao Wendao Culture Communication Co., Ltd., a small and micro-enterprise. Mr. Li confidently promised guaranteed profits, easy monthly profits of 30,000 yuan, and access to Meituan executives for convenience and resources.

To enhance credibility, Mr. Li sent Mr. Zheng introductions to Flash Warehouse and operational data from other stores, reiterating 100% profitability, monthly profits exceeding 30,000 yuan in Yanjiao with minimal competition.

Amid the booming instant retail market and Mr. Li's exaggerated promises, Mr. Zheng, an experienced retailer, believed it a sure-win investment and promptly made the payment.

However, upon receiving the contract, Mr. Zheng found many terms unsatisfactory. Yet, having already paid 90,000 yuan and with the store practically set up, he pressed on. Little did he know this was the beginning of his nightmare.

Firstly, Mr. Zheng later learned that Flash Warehouse itself didn't charge franchise fees; the 75,000 yuan fee went entirely to the operator.

Secondly, the store never turned a profit. Opened last year, it struggled by July-August. The operator showed little interest in orders or profits, failing to fulfill initial promises.

Worse, despite operating in an exclusive area, nearly 20 stores opened nearby within a year, surrounding and squeezing Mr. Zheng's store. The final straw came when a Flash Warehouse opened across the street, forcing Mr. Zheng to consider closing down.

But when he tried to shut down, he found no one addressing the operator's promises regarding after-sales, inventory, equipment, and shelving issues.

Mr. Zheng tried contacting Qinhuangdao Wendao's Deputy General Manager, Mr. Li, only to be told he had left. Later, he learned Mr. Li hadn't left and was still recruiting.

The Dark Side of Flash Warehouse's Rapid Growth

The instant retail industry is booming, with industry size growing 26.2% from January to August this year, according to public data from the National Bureau of Statistics and others.

Many have noticed the drawbacks of traditional supermarkets like Wumart, with rich product variety but long delivery times (30 minutes to an hour). While convenience stores are abundant and convenient, limited SKUs often disappoint shoppers. Meituan Flash Warehouse addresses this pain point.

Xiao Kun, Vice President of Meituan and head of the Flash Delivery Business Unit, has stated that Flash Warehouse presents a significant opportunity in instant retail, potentially revitalizing any town with food delivery services.

Meituan compared stores and warehouses of equal size, finding Flash Warehouses superior in rent costs, SKU display, operating hours, sales per square meter, monthly sales, and profitability.

Under the Flash Warehouse model, partner merchants handle site selection, warehousing, procurement, and daily operations, focusing solely on online sales. Meituan leverages big data to guide merchants, offering tailored product sourcing, assortment planning, location and pricing advice, and order delivery services.

As a result, Flash Warehouse has become attractive to brick-and-mortar retailers. A notable example is Miniso's strategic partnership with Meituan, planning to open over 800 Flash Warehouse-style "24H Super Stores" on Meituan by year-end to meet instant shopping demands.

Small retailers like Mr. Zheng also have high hopes for Flash Warehouse, seeing it as a future-oriented investment.

They appreciate Meituan's digital product selection, site selection, and category precision. Mr. Zheng notes unified product sourcing, with stores having some autonomy but subject to approval. Meituan Flash Warehouse also offers unique sourcing channels for lower prices.

Regarding Mr. Zheng's unprofitable operations, Meituan Flash Warehouse suggested replacing the operator (whose other stores were struggling or closed) and promoting sales through discounts or additional products to boost orders.

However, Mr. Zheng hesitated. Replacing the operator would require reinvestment, unfeasible for those who've already invested heavily. Frequent discounts mean losing money; a disillusioned franchisee just wants to recoup some losses.

Image Source: Internet

As an asset-light model, Meituan Flash Warehouse relies on operators for recruitment. Unreasonable behaviors like exaggerated profit claims and false promises have become a hindrance to its rapid growth.

With the increasing number of stores, effectively managing operators poses a challenge for Meituan Flash Warehouse.

Conclusion

About half a month ago, Wang Puzhong, CEO of Meituan's core local business, announced at the 2024 Meituan Instant Retail Industry Conference that Flash Warehouse numbers had surpassed 30,000 and were projected to exceed 100,000 by 2027, with a market size of 2 trillion yuan.

This trend is undoubtedly appealing, but ordinary people face challenges in capitalizing on it. How can we avoid investment failures?

Mr. Zheng shared his insights. Firstly, conduct on-site investigations of actual orders, profits, and costs, calculating based on actual profitability. Supported by success stories, this is a prudent investment strategy.

Secondly, avoid blind trust. Mr. Zheng overtrusted Mr. Li, paying an extra 70,000 yuan in franchise fees with disappointing results. He advises caution before making decisions, signing contracts before payments, and avoiding verbal promises.

Of course, not all Flash Warehouse projects fail. Yanjiao boasts successful cases with responsible operators, systematic management methods, and frequent communication between operators and franchisees, contrasting sharply with unscrupulous companies focused solely on collecting fees.

Mr. Zheng has filed a lawsuit, which the court has accepted. He hopes to recoup his deposit and some losses. If not, he wishes his experience serves as a warning to invest wisely and avoid scams.

References:

1. "Expanding to Full Categories, Retailers Join In: What's the Deal with Flash Warehouse?" E-commerce Headlines

2. "Retail Seeks New Paths, Meituan Offers Insights" LatePost

3. "Meituan Flash Warehouse Hits 30,000, Growing from 8,000 in the First Half: Mysterious Growth" Lao Zhang Talks Retail