In-Depth Analysis of the Profitability Prospects of Dingdong Fresh (DDL)’s Dark Store Model in Third- and Fourth-Tier Cities

Based on the obtained financial data, news reports, and market research information, I will systematically analyze the profitability prospects of Dingdong Fresh (DDL)’s dark store model in third- and fourth-tier cities.

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Dingdong Fresh listed on the New York Stock Exchange in June 2021, and is a representative enterprise of the dark store model in China’s fresh produce e-commerce sector. As of December 31, 2024, the company’s market capitalization is approximately USD 589 million, with a current stock price of USD 2.72 [0].

Indicator	Value	YoY Change
Full-Year Revenue	RMB 23 Billion	+5.0%
GAAP Net Profit	RMB 301 Million	First Annual Profit
Gross Profit Margin	30.11%	Increased by 11 percentage points (since 2019)
Fulfillment Expense Ratio	21.7%	Decreased by 28.2 percentage points (since 2019)
ROE (Return on Equity)	31.18%	Significantly Improved
Net Profit Margin	1.16%	Turned from Loss to Profit

Dingdong Fresh has achieved and , proving the sustainability of the dark store model [1][2].

The biggest challenge of the dark store model is fulfillment cost control. Dingdong Fresh has achieved significant cost optimization through digital upgrades:

• Fulfillment Expense Ratio:
  Plummeted from 49.9% in 2019 to 21.7% in 2024, a decrease of
  56.5%
  [1][2]
• Inventory Turnover:
  Shortened to within 24 hours
• Wastage Rate:
  Controlled at 1%-2% (far lower than the industry average of over 5%)
• Average Daily Orders per Dark Store:
  Approximately 1,000 orders, with over 1,500 orders in Shanghai
• Break-Even Period for New Dark Stores:
  Shortened to 3-6 months

By the end of 2023, 90% of Dingdong Fresh’s procurement decisions were automatically completed by algorithm systems, with a prediction accuracy rate of over 85% even in extreme weather conditions [2].

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City Tier	Share of Instant Retail Transaction Value	Annual Growth Rate	Development Potential Rating
First-Tier Cities	Approx. 35%	8%	Mature Stage
Second-Tier Cities	Approx. 35%	12%	Growth Stage
Third-Tier Cities	Approx. 18%	18%	High Growth
Fourth-Tier and Below	Approx. 12%	25%	Huge Potential

Data from iResearch shows that the share of instant retail transaction value in third-tier and lower cities is less than 30%, but the growth rate is significantly higher than that of first- and second-tier cities [3]. This means that lower-tier markets are the

for instant retail.

With the increase in the number of people returning to their hometowns for employment, acceptance of instant retail among young people in small towns is continuously rising. Since 2025, platforms such as Gua Gua Supermarket have clearly felt the rapid growth in the volume of lower-tier markets [3].

• Population in lower-tier markets is scattered, with the average daily delivery volume per delivery driver being only a fraction of that in first- and second-tier cities
• The cost per delivery is approximately
  2-3 times
  that of first- and second-tier cities
• Insufficient coverage of cold chain facilities increases the risk of fresh produce wastage

• Dark stores in third- and fourth-tier cities struggle to reach the efficiency threshold of “1,000 orders per day”
• Average order value is generally lower than that of first- and second-tier cities (approx. RMB 50-60 vs over RMB 70)
• Difficulty in achieving economies of scale

• Middle-aged and elderly groups prefer offline shopping
• Low acceptance of premiums for instant delivery
• Higher price sensitivity

• Local suppliers are scattered, making it difficult to form a large-scale supply system
• Low digitalization level and weak online operation capabilities

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After strategic contraction from 2021 to 2022 (reducing the number of covered cities from 37 to 25), Dingdong Fresh established the strategic principle of

[2]:

Region	Number of Cities	Percentage	GMV Growth Rate (2025 Q1)
Jiangsu, Zhejiang, and Shanghai (Yangtze River Delta)	16	64%	Average 15%+
Including: Shanghai	-	-	+5.0%
Zhejiang	-	-	+17.8%
Jiangsu	-	-	+13.9%
Beijing	-	-	+10.5%
Guangdong	-	-	+8.2%

• High order density: Dark stores in Shanghai have an average of 1,500 orders per day, far higher than the national average
• Mature supply chain system
• Relatively high consumption capacity and acceptance
• Achieved stable profitability

, further deepening its layout in the Yangtze River Delta region [1].

• Geographical Advantage:
  Yancheng is located in the hinterland of the Yangtze River Delta, and can leverage the existing supply chain network
• Consumption Potential:
  Residents of third- and fourth-tier cities in Jiangsu have relatively strong consumption capacity
• Growth Space:
  Fills regional gaps and captures new growth points

• Over
  200 new dark stores
  have been opened in the past two years, with
  over 60%
  located in third- and fourth-tier cities and county-level regions
• New dark stores achieve break-even within 3-6 months
• 130 new dark stores were added in 2024, with continuous improvement in single-store efficiency

According to internal data from Dingdong Fresh, the

is:

• Average daily orders per dark store reach
  over 1,000 orders
• Number of dark stores in a city reaches
  over 300
  (taking Shanghai as an example)
• Fulfillment costs decrease
  exponentially

“When Dingdong has 300 dark stores in Shanghai, each with over 1,500 orders per day, fulfillment costs will decrease exponentially.” — Wang Song, Vice President of Dingdong Fresh [2]

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Factor	Impact
Low Rental Costs	Rents in third- and fourth-tier cities are approximately 30-40% of those in first-tier cities
Low Labor Costs	Salaries for delivery drivers and sorters are relatively low
Relatively Mild Competition	Giants such as Meituan and Hema have not yet penetrated on a large scale
Growth Market	Large growth space with relatively low user acquisition costs

Factor	Impact
Insufficient Order Density	Difficult to reach the threshold for economies of scale
Low Average Order Value	Approx. RMB 50-60, 15-20% lower than first-tier cities
High Logistics Costs	Long delivery distances and scattered routes
Consumer Habits to Be Cultivated	Requires more marketing investment

According to industry research, the following conditions must be met for the dark store model to achieve profitability in third- and fourth-tier cities:

Profit Formula = High Repurchase Rate × Reasonable Average Order Value - Fulfillment Costs - Commodity Costs

1. Order Density:
   Must reach over 800 orders per day to cover fixed costs
2. Customer Stickiness:
   In Q4 2024, the user repurchase rate increased by 22% YoY, driving a 3.7% growth in ARPU [1]
3. Commodity Differentiation:
   Increasing the proportion of private brands is the key to improving gross profit margin
4. Operational Efficiency:
   Digital precise forecasting and inventory management

Dingdong Fresh needs to adopt differentiated strategies for different city tiers:

City Tier	Strategy Positioning	Expected Profitability Cycle
First-Tier Cities	Profit Center, Benchmark Market	Already Profitable
Strong Second-Tier Cities	Growth Engine, Regional Center	Break-even in 12-18 months
Third-Tier Cities	Key Breakthrough, Replication and Verification	Break-even in 18-24 months
Fourth-Tier and Below	Prudent Layout, Market Testing	Depends on the Situation

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Competitor	Advantages	Strategy
Meituan Maicai	Traffic Advantage, 30-Minute Delivery	High-Density Store Opening, GMV Growth Rate Exceeded 20% in 2024
Hema Fresh	Commodity Strength, High-Margin Categories	Gross Profit Margin Reaches Over 25%
Pupu Supermarket	Regional Deep Cultivation	First Annual Profit in 2024
Sam’s Club	High Average Order Value (RMB 230)	Dark Store + Membership System

• Focuses on the Yangtze River Delta region to avoid direct competition with giants
• Differentiated commodity strategy with continuous increase in the proportion of private brands
• Rejects price wars, focusing on profitability rather than scale expansion [2]

1. Profitability Sustainability Risk
   • The sales expense ratio rebounded to 7.5% in Q4 2024, and user growth relying on promotional subsidies may erode profits
   • Low gross profit margins of fresh produce categories limit overall profit margins

2. Risk of Intensified Competition
   • Giants such as Meituan, JD.com, and Hema increase investment
   • Regional market share may be eroded

3. Expansion Risk
   • Insufficient order density in third- and fourth-tier cities may lead to losses in new dark stores
   • Difficulty in replicating the successful Yangtze River Delta model across regions

4. Macroeconomic Risk
   • Consumption downgrade trend may affect average order value and order frequency
   • Continuous rise in labor costs compresses profit margins

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Assessment Dimension	Score	Explanation
Business Model Verification	★★★★☆	Achieved GAAP profitability, leading industry fulfillment efficiency
Adaptability to Lower-Tier Markets	★★★☆☆	Needs to overcome challenges of order density and consumer habits
Competitive Barriers	★★★☆☆	Digital capabilities are core advantages, but easy to replicate
Expansion Feasibility	★★★★☆	High feasibility of replication in the Yangtze River Delta region

• Short-Term (1-2 Years):
  Profitability is feasible in third- and fourth-tier cities in the Yangtze River Delta, but expansion must be prudent
• Mid-Term (3-5 Years):
  Economies of scale are expected to emerge, but the bottleneck of order density must be broken
• Long-Term:
  Depends on the evolution of the competitive landscape and the company’s strategic execution capabilities

1. Focus on Core Regions:
   Continue to deepen presence in the Yangtze River Delta, avoid premature cross-regional expansion
2. Differentiated Competition:
   Strengthen advantages in private brands and fresh produce categories
3. Digital Upgrade:
   Continuously optimize algorithm capabilities to improve operational efficiency
4. Prudent Expansion into Lower-Tier Markets:
   Prioritize third- and fourth-tier cities with strong consumption capacity

• Continuous downward trend of fulfillment expense ratio
• Profitability performance in regions outside the Yangtze River Delta
• Progress in increasing the proportion of private brands
• Impact of changes in the competitive landscape on market share

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[0] Jinling API - Dingdong Fresh Company Profile and Financial Data (https://www.nyse.com/quote/XNYS:DDL)

[1] Jiemian News - “Dingdong Fresh Turns Profitable, but Still Faces Multiple Threats” (https://www.jiemian.com/article/12481491.html)

[2] 36Kr - “How Did Dingdong Fresh Survive Surrounded by Giants?” (https://m.36kr.com/p/3310788097269506)

[3] Linkshop - “Is It Feasible for Instant Retail to Seek Growth in ‘Lower-Tier Markets’ in 2026?” (http://m.linkshop.com/article/news/542159)

[4] Leiphone - “Hema Reaches an Inflection Point” (https://www.leiphone.com/category/industrynews/ZkKy5birRATikoqV.html)

[5] FoodTalks - “With Annual Revenue of RMB 23 Billion, Dingdong Fresh Makes a Comeback” (https://www.foodtalks.cn/news/58551)