(Yicai Global) May 22 -- Online grocery platform Dingdong Maicai plans to stop serving customers in Chengdu and Chongqing, two major cities in China’s southwest, in order to reduce costs.

More than 100 distribution centers in Chengdu and Chongqing will stop deliveries from 6 p.m. on May 29, Dingdong announced today. The Shanghai-based company will refund users' account balances and valid membership cards, it added.

The move is a cost-cutting and efficiency exercise, The Paper reported today, citing a person connected with the company. It will not affect normal operations in other areas, he noted, adding that the firm will raise spending on supply chain and food development while maintaining partnerships with food businesses in Sichuan province and Chongqing. 

Most of the affected distribution centers are in the red, Chongqing-based media outlet Shangyou News reported today.

“Consumer demand on fresh food e-commerce platforms has fallen this year, with the average number of daily orders at many local [distribution] centers being just over 200,” a Dingdong employee said, according to Shangyou News. “To be profitable, the number must reach at least 600 a day at each center.”

Founded in 2017, Dingdong entered the southwestern market in November 2020 when it opened its first distribution center in Chengdu. The company went public on the New York Stock Exchange in June 2021.

Shares of Dingdong [NYSE: DDL] closed down 3.8 percent at USD3.04 on May 19, extending this year’s decline to 29 percent. In pre-market trading today, the shares were down a further 1.3 percent as of 6.18 a.m. local time.

Dingdong’s revenue fell 8.2 percent to CNY5 billion (USD712 million) in the three months ended March 31 from a year earlier, mainly because demand for online groceries dropped after China eased its Covid-19 controls and the platform exited some cities it deemed impossible to turn profitable in the short turn, its latest earnings report showed yesterday.

But the firm’s net loss narrowed 89 percent to CNY52.4 million (USD7.5 million) in the same period, thanks to strategic contraction, according to the report. The three months ended Dec. 31 was Dingdong's first quarter in the black.

Editor: Martin Kadiev