Like other trends, community group buying started in 2018 and gradually faded after a year and a half, leaving only a few leading companies quietly cultivating and merging. However, the outbreak of the pandemic has brought this business model, which combines fresh produce, home delivery, and private domain traffic, back into the spotlight. For players forced into the game, what kind of market is community group buying now? What possibilities and new opportunities lie ahead? Recently, in a sharing session for members of Langchao New Consumption, Xing Yunfei, who entered the community group buying industry in 2017 and held senior positions at several well-known community group buying platforms, deeply reviewed the current landscape, models, inherent problems, and future directions of community group buying. From products and supply chain to platform mechanisms and stores, Xing Yunfei experienced extensive exploration and practice in community group buying at Songshu Pinpin, giving him a profound understanding of the model, problems, and future directions of the industry. The following is a transcript of the sharing, edited by Langchao New Consumption: Hello everyone, I am Xing Yunfei. Today I will talk about community group buying. In fact, there are two types of business: one is replacement consumption, and the other is supplementary consumption. Based on the current performance of community group buying, it clearly belongs to replacement consumption, with no particular innovation. Next, I will discuss the market, brands, models, and existing problems in the industry. -01- Community Group Buying: A Review of a Trend 1. Market: Facing Multi-Dimensional Competition First, the market. The people and markets that community group buying targets are actually multi-dimensional. Where did original users go to consume? One is traditional supermarkets like Wumart and Walmart; two is membership-based supermarkets like Costco and Sam's Club; three is comprehensive e-commerce like JD.com, Tmall, and Pinduoduo, as well as vertical e-commerce like Benlai Life and Vipshop; Four is new types of retail projects, such as fresh produce brands like Miss Fresh and Hema Fresh, as well as new community convenience stores like Bianlifeng; and also social e-commerce, similar to Meiri Yitao, Yunji, and Zebra Member. So the competitive dimensions that community group buying faces are actually quite numerous. It needs to find differentiation under these six or seven dimensions of competition, split out new consumption units from the original population structure, and then seize the population and consumption scenarios. 2. Brands: Differences in Models Among Five Leading Companies Second, brands. So far, five leading brands have emerged in community group buying, but their operating statuses and models are quite different: First, Xing Sheng You Xuan (XSYX). Its predecessor was Furong Xingsheng, which did FMCG supply chain and had convenience stores in Hunan. In the early stage, XSYX started based on the original husband-and-wife teams of convenience stores for radiation. XSYX is directly operated, but its internal management system is a community distribution system, which is different from the traditional first-level distribution form of community group buying. Therefore, XSYX's entire small B-side is supported by a huge operating organization and system. Currently, XSYX can achieve over 1 billion GMV per month, with 80% from standard products and 20% from fresh produce. But orders are the opposite: fresh produce accounts for 80% of orders, and standard products account for 20%. This product mix is quite innovative: fresh produce is responsible for traffic, new customer acquisition, and order volume; FMCG products are responsible for average order value and high gross profit contribution. Currently, over 70% of XSYX's GMV comes from Hunan local area, so it cannot yet be called a national community group buying company. It has only penetrated a single region thoroughly, achieving extreme density in Hunan. Second, Meicai's C-end business: Meijia Maicai. It started by acquiring several small community group buying companies in North China, based on a scale of over a dozen cities. In 2018, when community group buying just emerged, it and Songshu Pinpin were the earliest to expand nationally. However, Meijia Maicai later contracted its strategic direction, and in 2019, it had a large-scale nationwide withdrawal of stations. So its current scale cannot enter the top three in the system. Third, Tongcheng Life, created through internal entrepreneurship at Tongcheng Travel. It started in Jiangsu and supplemented the South China market after acquiring Qianxianhui in Guangzhou. So its business is basically maintained in the coastal areas of East and South China. Currently, it is building density within the region and has not expanded nationally. Fourth, Shixianghui, founded by Dai Shanhui, co-founder of Benlai Life. Dai Shanhui is one of the earliest explorers in the community group buying industry. Before the term "community group buying" existed, he had already started tentative business in this sector. Shixianghui expanded from Beijing and Jiangsu to the whole country, but its headquarters are now in Wuhan and Nanjing. In the early stage, Shixianghui's financing was not particularly smooth, so it adopted a regional partner mechanism rather than full direct operation. Fifth, Shihuituan, incubated internally by Youhaowu. It started in Beijing and expanded nationally through direct operation. But after receiving investment from Alibaba in 2019, Shihuituan underwent a strategic transformation, starting to acquire and incorporate local community group buying platforms in the form of cooperative partners, and then sharing supply chains. So at this stage, most of Shihuituan's markets nationwide are realized by regional partners, but its cooperation approach is clearly different from Shixianghui. 3. Models: Looking at the Logic of the Entire Retail Industry from Store and Home Delivery Third, models. This chart is our logic for distinguishing business models in the retail industry, which can basically cover all formats in the market. Among them, store formats include traditional supermarkets, membership-based supermarkets, community fresh convenience stores, and new retail formats. Home delivery can be divided into direct to C-end users and to group leaders, because many current formats have added the group leader structure. The formats covered include traditional comprehensive and vertical e-commerce, front warehouses, and social e-commerce. Here, based on delivery time, they are divided into three categories:
First, "T+0", which basically meets immediate needs through large warehouses or front warehouses, with the essence of service being time; Second, "T+1", community group buying is a typical "T+1", with warehousing plus planned procurement, mainly for planned consumer goods; Third, "T+3 or 5", which belongs to online e-commerce consumption, mainly for full categories, including warehousing and one-click drop shipping. JD.com belongs to warehousing, while Tmall belongs to warehousing plus one-click drop shipping. 4. Inherent Problems of Community Group Buying: Supply Chain, Group Leaders, and Fulfillment Fourth, the entire community group buying industry has always had several inherent problems that remain unresolved today. First, the supply chain problem. For all community group buying platforms, the biggest problem on the supply chain side is the product supply rate and fluctuating gross margins. Since its rise in 2018, community group buying has appeared in the form of "T+1" planned procurement. The upfront procurement characteristics mean that products can never provide a 100% supply rate, because procurement is not in the form of warehousing but planned or order-based procurement. Order-based procurement cannot stabilize procurement prices, which means that the so-called cost mechanism and gross margin calculations of the platform are changing at any time. These two points are problems that all community group buying platforms cannot overcome at this stage. Second, the sales ability, churn rate, and growth of group leaders. This is also the most feared point in the community group buying industry at this stage. Among them, sales ability and growth can be solved with methods. You can improve and screen through continuous training and learning, as well as corresponding incentive policies and regulations, and there will be a head effect. But the churn rate problem is difficult to solve. The platform hopes to leverage private domain traffic through group leaders, so as to achieve the advantage of reducing costs in community group buying, but it also means that each private domain traffic package will become the private property of the group leader. Even if there are many binding agreements, and even if many platforms control through customer service or operations personnel participation, it is still difficult. Because the core of user traffic is with the group leader, not the platform itself, the churn rate of group leaders determines whether a platform can survive long-term and whether GMV can continue to grow. Third, the fulfillment problem. Community group buying reduces fulfillment costs through intensive distribution to small B, but because it is urban distribution, the cost and efficiency of fulfillment, as well as the timeliness of products from the central warehouse through multiple layers to C-end users, are unstable across the industry at this stage. The differences brought by fulfillment directly affect user experience, meaning that every user's experience on a community group buying platform is fluctuating. -02- Future Iteration Directions for Community Group Buying The following iteration directions are some explorations we have conducted since entering the community group buying industry in 2018. Because Songshu Pinpin has a Meituan background, the initial platform positioning was largely referenced from Meituan, and we explored in various directions relatively early and extensively. From products, supply chain, platform mechanisms to stores, Songshu Pinpin has invested heavily and experimented in these four areas, so we have a say in this regard and have many cases for your reference. First, the product direction. At this stage, mainstream community group buying platforms mainly focus on fresh produce plus FMCG products. Some players also place high-unit-price durable consumer goods, such as home appliances and mobile phones, at certain times. We also referenced Meituan and added ticketing, local life services, etc., to Songshu Pinpin, and we will treat this as a future derivative direction. Second, the supply chain direction. Because of the T+1 fulfillment form of community group buying, 80% of brands in the industry still maintain a single-city local procurement form for fulfillment. In the future, I think that within the structure of urban local procurement, a portion of inherent consumer goods will be split out and transformed into OEM/ODM private branded products. Then, unified national centralized procurement and distribution will be carried out, followed by separate urban warehouse distribution. At the same time, through the accumulation of large amounts of retail data, it is possible to conduct pre-order procurement from origins, factories, and even brands, but this will indirectly increase the inventory in urban warehouses. In addition, there is the form of central warehouse centralized distribution. Some brands are already doing this, but this direction has not yet been fully realized. Third, the platformization direction, which is more meaningful. Currently, 90% of community group buying platforms are self-operated, with national urban output, separate urban local procurement, warehouse construction, and vertical fulfillment. But XSYX is a special case; it has turned itself into a platform. Its products exist in the form of supplier settlement; the warehouses are its own, but similar to Amazon's cloud warehouses; distribution is completely outsourced and not under its control. XSYX only sets rules and policies, so its distribution efficiency is the highest at this stage. Fourth, the store direction. Since the rise of community group buying in 2018, some brands have tried to radiate around group leaders with branded stores in communities. Although a mature store model has not yet emerged, each is exploring. For example, community group buying may land in physical stores in the future, and the brand extension directions brought by stores will be more diverse, because with stores, it may not be T+1; store formats may appear. Because this direction appeared in our initial business model exploration, if most brands lay out offline stores in the future, this direction will definitely be chosen. -03- Community Group Buying Can Be Profitable If It Achieves Three Things Finally, let's talk about the profit model. Although leading community group buying brands are not yet profitable (some platforms may be profitable but choose not to be), many small regional platforms nationwide are profitable. There is a typical feature here: regionalization, and generally, projects with exceptionally good repurchase rates, coverage rates, and penetration rates. So I believe that a good community group buying company can be profitable if it achieves the following three points: First, repurchase rate. That is, a single person has continuous repurchase on a single product or single platform, which indicates that users recognize and are accustomed to your products and platform. Second, coverage rate. If a community has 10,000 households, how many households you cover is your coverage rate. It is not coverage just because the brand lands in the community; that is putting the cart before the horse. The same applies to cities. What you need to do is cover 100% of these communities, not just enter the city. Because coverage rate directly affects your order density, and order density determines the commission group leaders can earn daily on your platform, and also determines your fulfillment cost and efficiency. So coverage rate affects the whole body when one part is moved. Third, penetration rate. Penetration rate is the next GMV growth point that a community group buying brand finds for itself after completing mid-term expansion, and even the future profit point. Because the product selection of community group buying is generally mainly fresh produce plus a small amount of standard products. Although the proportion of standard products is not high now, whether the future SKU direction of community group buying will be from today's 80 to 150 types, or can become 1,500 types, is unknown. So everyone should now extend consumption based on the community group buying platform. Among them, scenarios should be prioritized. Maybe community group buying serves the kitchen scenario today, but in the future, everyone should extend to scenarios like the living room, bathroom, bedroom, etc. In addition, a typical feature of community group buying products today is that the gross profit contribution is extremely low. The gross margin may be quite high, but the gross profit contribution is generally extremely low, which is also the key to platform non-profitability. If platforms want to find new profit and growth directions in the future, they may need to continue to refine and split the original user consumption product structure and transfer it to the community group buying platform, finding new product categories with high gross profit contribution for themselves, so that the platform can complete the profit transformation at a certain point in the future. Q&A Excerpt: Q: This year, many consumer brands have entered community group buying, such as Coca-Cola, Master Kong, etc. How are they developing in this new channel? What is the difference from platform companies? A: A single consumer brand entering the community group buying industry is meaningless and ultimately unsustainable. Because the product matrix of a single consumer brand cannot meet the continuous consumption of users, which means its order density is extremely poor, not in line with the model of community group buying that compresses supply chain and fulfillment costs through order aggregation and distribution. In other words, its entry form is completely inconsistent with the industry characteristics of community group buying. Q: What is the core reason why XSYX is so strong? A: Regarding XSYX, this is only my personal opinion. First, XSYX is a brand that has been running in the first tier since the rise of community group buying in 2018. Second, the founding team of XSYX comes from Furong Xingsheng, and they have extremely strong experience and resources in the front-end FMCG supply chain sector. At the same time, Furong Xingsheng's convenience store chain scale in Hunan, as well as the original small B-side resources, were directly transformed into the community group buying business for re-stimulation, so Furong Xingsheng inherently brought advantages in brand, resources, and layout. Moreover, XSYX's financing status has always maintained the top tier. From Today Capital to Jinshajiang and then Tencent, the entire growth process and capital entry timing of XSYX have been just right. In terms of operating model, XSYX is also different from other community group buying companies. It has always maintained deep cultivation in the Hunan region and has not blindly expanded or subsidized. At the same time, it adopts the form of cloud warehouses and cloud distribution, trying to be as light as possible, and uses rules and policies for strong operations, so XSYX's overall investment has always been relatively small in the first tier. Q: Is community group buying suitable for high-end brands? A: Based on my personal perception and experience, community group buying is actually not very suitable for high-end brands. First, because community group buying covers dimensions where retail business coverage is relatively poor; second, because community group buying has more business in lower-tier cities; third, because the order volume of high-end brands cannot support the landing distribution form of community group buying; fourth, because the average order value of community group buying is generally not high. Without promotional activities, sales of high-end brands will be very limited. It is not ruled out that some platforms use strong subsidies to drive sales of high-end brands, but their main purpose is to boost GMV. Just like many platforms have sold Apple phones, and sold quite well, but all were facilitated through strong subsidies and strong price reductions. Source: Langchao New Consumption (ID: lcxinxiaofei), Author: Xing Yunfei Tips will be paid 400-2000 yuan once adopted.