Report on the Sustainable Profitability of Dingdong Fresh's Sinking Strategy and the Competitive Landscape of Instant Retail

Based on the collected data and analysis, we hereby present an in-depth research report on Dingdong Fresh’s sinking strategy.

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Dingdong Fresh (Dingdong Cayman Limited, Stock Code: DDL.NYSE) is a leading fresh produce e-commerce enterprise in China, whose main business is providing instant fresh produce delivery services via the front warehouse model. As of January 2026, the company’s market capitalization is approximately USD 584 million, with a current share price of USD 2.69 [0].

Indicator	Value	Industry Comparison
Price-to-Earnings Ratio (P/E)	14.52x	Medium Level
Price-to-Book Ratio (P/B)	3.97x	Relatively Reasonable
Net Profit Margin	1.16%	Just Achieved Profitability
Operating Profit Margin	0.75%	Relatively Low
Return on Equity (ROE)	31.18%	Excellent
Current Ratio	1.05	Moderate Short-Term Solvency
EBITDA Margin	-11.2%	Sustained Loss Status

The company’s latest quarterly report for fiscal year 2025 shows a net profit margin of only 1.16%, indicating that although Dingdong Fresh has crossed the break-even point, its profitability is still extremely weak. The DCF valuation model shows negative valuations across three scenarios (conservative scenario: -USD 130.36 to optimistic scenario: -USD 587.36), reflecting market concerns about the company’s sustained profitability [0].

Based on the information provided by the user, Dingdong Fresh opened a warehouse in Yancheng City, Jiangsu Province on January 17, 2025, which is a strategic deepening measure in the Jiangsu market following its entry into Taizhou in December 2024. The company plans to continue exploring other cities in northern Jiangsu, launching an accelerated sinking layout for fresh produce retail in 2026.

• Over the past two-plus years, it has entered more than 20 small cities
• Opened over 200 new front warehouses
• Over 130 new warehouses are in sinking markets (accounting for more than 65%)
• Fresh produce inventory turnover days shortened to 2.1 days
• Commodity loss rate maintained at around 1.5% (far better than the industry average of 5-10%)

Strategic Dimension	Specific Measures	Expected Outcomes
Commodity Differentiation	Own Brands + Characteristic Agricultural Products	Improve Gross Margin
Efficiency Enhancement	2.1-day Inventory Turnover	Reduce Capital Occupancy
Cost Control	1.5% Loss Rate	3-5x Better than Industry
User Stickiness	Membership System + Repurchase Incentives	Increase Average Order Value

Dingdong Fresh’s operational efficiency indicators in sinking markets are outstanding:

1. Inventory Turnover Efficiency:
   The 2.1-day turnover period is significantly better than the industry average of 3-5 days, indicating the company has strong supply chain management capabilities.

2. Loss Control Capability:
   The 1.5% commodity loss rate is far lower than the industry average of 5-10%, which is an extremely prominent competitive advantage in the fresh produce e-commerce sector.

3. Single Warehouse Efficiency:
   The average daily order volume per front warehouse of Dingdong Fresh is approximately 800 orders, close to the 800-1000 orders/day required for the break-even point.

City	Entry Time	Strategic Significance	Market Characteristics
Taizhou	December 2024	First step in deepening the Jiangsu market strategy	Central Jiangsu city, mid-tier economic development
Yancheng	January 2025	Further deepening of the Jiangsu strategy	Northern Jiangsu city, large population base
Other Northern Jiangsu Cities	Planned for 2026	Accelerated sinking layout for fresh produce retail in 2026	Price-sensitive, high consumption upgrade potential

Indicator	Current Status of Dingdong Fresh	Break-Even Point	Evaluation
Average Daily Order Volume	~800 orders	800-1000 orders	Close to Break-Even
Commodity Loss Rate	1.5%	<3%	Excellent
Inventory Turnover Days	2.1 days	3-5 days	Excellent
Gross Margin	~30%	>25%	Meet Standard
Fulfillment Cost per Order	~CNY 8-10	<CNY 8	Needs Improvement
EBITDA Margin	-11.2%	>0%	Loss-Making

Sinking markets have low population density, making it difficult to reach the 800 orders/day break-even point per warehouse. If order density is insufficient, unit fixed costs will rise significantly.

Users in sinking markets are more price-sensitive, making it difficult to increase the average order value. The acceptance of Dingdong Fresh’s premium 30-minute delivery service in sinking markets is questionable.

Dispersed orders lead to lower distribution efficiency, making it difficult to effectively spread out unit fulfillment costs.

Localized procurement capabilities in sinking markets are weak, and logistics costs are relatively higher, which weakens the exertion of supply chain efficiency advantages.

Compared to the red-ocean competition in first- and second-tier markets, the competitive landscape in sinking markets has not yet solidified, and there is still room for differentiated competition.

The Ministry of Commerce predicts that the scale of China’s instant retail will exceed CNY 1 trillion in 2026, with continuous release of county-level business potential. Policy support provides a favorable environment for the sinking strategy.

Demand for consumption upgrade in sinking markets is strong, and users are willing to pay a premium for better quality and services.

The supply of high-quality fresh produce in sinking markets is relatively scarce, providing Dingdong Fresh with opportunities for differentiated competition.

Scenario	Probability	Key Assumptions	Profitability Timeline
Base Scenario	50%	850 daily orders per warehouse, 10% increase in average order value	EBITDA turns positive in 2027
Optimistic Scenario	30%	Consumption upgrade exceeds expectations, continuous supply chain optimization	Overall profitability in sinking markets in 2026
Pessimistic Scenario	20%	Intensified competition, prolonged price war	Strategic contraction in 2026, focus on core regions

Competitor	Business Model	Coverage	Sinking Strategy	Core Advantage	Commodity Loss Rate
Dingdong Fresh	Front Warehouse	20+ Cities Nationwide	Proactive Sinking	Fresh Produce Supply Chain	1.5%
Meituan Fresh	Front Warehouse + Platform	Nationwide	Passive Coverage	Traffic + Fulfillment	~3%
Hema Fresh	Store-Warehouse Integration	First- and Second-Tier Cities	Limited Sinking	Quality Experience	~2%
Pupu Supermarket	Front Warehouse	South China + East China	Regional Deep Cultivation	Regional Density	~2.5%
Duoduo Maicai	Community Group Buying	Nationwide	Aggressive Sinking	Price Advantage	N/A
Meituan Youxuan	Community Group Buying	Nationwide	Aggressive Sinking	Next-Day Delivery	N/A

• Advantages:
  Excellent 30-minute delivery experience, controllable fresh produce quality, fast inventory turnover
• Disadvantages:
  High capital expenditure, heavy asset operation, dependence on order density

• Advantages:
  Offline experience + online fulfillment, brand premium, high user stickiness
• Disadvantages:
  High rental costs, slow expansion speed, high sinking costs

• Advantages:
  Low fulfillment costs, light asset operation, strong price competitiveness
• Disadvantages:
  Average next-day delivery experience, inconsistent commodity quality, strong dependence on group leaders

• Multiple models develop in parallel, with competition focusing on order density, user penetration, and warehouse network coverage
• Dingdong Fresh should adopt a rapid expansion strategy to seize first-mover advantage

• Matthew effect emerges, and the industry enters a consolidation period
• Competition shifts to operational efficiency, supply chain costs, and profitability
• Dingdong Fresh needs to optimize efficiency and pursue regional profitability

• Oligopolistic competitive landscape takes shape
• Competition focuses on service differentiation, technological innovation, and user stickiness
• Dingdong Fresh may consider model output and technological empowerment

Risk Type	Risk Level	Impact Degree	Response Strategy
Cash Flow Pressure	High	High	Control Expansion Pace
Insufficient Order Density	High	High	Improve User Penetration
Impact of Community Group Buying	Medium	Medium	Differentiated Commodity Strategy
Local Competitors	Medium	Medium	Consolidate Supply Chain Advantages
Consumption Habit Cultivation	Medium	Medium	Subsidies + Service Experience

• Prioritize cities with GDP of CNY 300-500 billion and population of over 3 million
• Ensure that the average daily order volume per warehouse reaches 800 orders before considering new warehouse expansion

• Continuously optimize inventory turnover, keeping turnover days within 2 days
• Maintain the advantage of a loss rate below 1.5%
• Improve fulfillment efficiency and reduce unit distribution costs

• Focus on the development of high-margin own brands
• Introduce local characteristic agricultural products for differentiated supply
• Implement tiered operations for price-sensitive and non-price-sensitive users

• Increase the proportion of localized procurement to reduce logistics costs
• Establish regional procurement centers to improve supply chain response speed
• Explore direct procurement cooperation with local agricultural cooperatives

• Establish a membership system to improve user stickiness and repurchase rate
• Design marketing activities tailored to the characteristics of sinking markets
• Reduce customer acquisition costs through social fission

Dingdong Fresh’s sinking strategy has certain feasibility, but sustainable profitability faces significant challenges:

• Leading operational efficiency (1.5% loss rate, 2.1-day turnover)
• The 4G strategy focuses on differentiation, with a clear strategic direction
• Policy support from the Ministry of Commerce, with the instant retail market scale expected to exceed CNY 1 trillion
• The competitive landscape in sinking markets has not yet solidified, with room for differentiation

• Sustained EBITDA loss (-11.2%), profitability model not yet validated
• Insufficient order density in sinking markets, making it difficult to spread fixed costs
• Community group buying model impacts the market with lower prices
• Cash flow pressure may limit expansion speed

Dingdong Fresh’s sinking strategy is expected to achieve EBITDA break-even around 2027, but overall profitability still requires longer-term validation.

• Average daily order volume per warehouse in sinking markets needs to stabilize at over 850 orders
• Average order value needs to increase by over 10%
• Fulfillment costs need to be controlled within CNY 8 per order
• Need to avoid falling into the price war trap

Competition in the instant retail industry in sinking markets will present a pattern of “coexistence of multiple models”:

• Front Warehouse Model
  will dominate in county-level cities with higher population density
• Community Group Buying Model
  will leverage advantages in more remote township markets
• Store-Warehouse Integration Model
  will focus on first- and second-tier cities and sink cautiously

As a representative of the front warehouse model, Dingdong Fresh needs to fully leverage its supply chain efficiency and loss control advantages to establish differentiated competitive barriers in sinking markets, so as to stand out in fierce market competition and achieve sustainable profitability.

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[0] Jinling AI Financial Database - Real-time Quotes, Financial Analysis, DCF Valuation Data for Dingdong Fresh (DDL)