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No one in the entire large retail industry has yet come forward to systematically elaborate on the influence and cross-border impact of the community group buying market. A few well-known industry figures have given scattered opinions. Wang Tian of Bubugao Supermarket directly stated in a proposal during the Two Sessions that relevant departments must strictly regulate the expansion of community group buying, strictly implement the State Administration for Market Regulation's "Nine No's" regulations, and prohibit internet giants from dumping through price means in community group buying.
Of course, Bubugao itself was doing community group buying in Changsha a year ago. Ye Guofu of Miniso said that if community group buying continues for another year or two, supermarkets over 500 square meters will basically have no future. Hou Yi of Hema said that community group buying is the first time e-commerce can truly enter all parts of China with all categories, especially the lower-tier markets. However, the current transaction form and business model of community group buying are still very early, and the model of the entire track still has a long evolution possibility. The few players who have spoken out in the entire track basically have a particularly strong defensive mentality from traditional retail regarding the existence of community group buying and the high-profile attention of the three major internet companies over the past six months. However, according to the previous practice of relevant departments regulating new internet businesses, as long as the ultimate value of an innovative consumer internet business benefits consumers and can optimize the industrial efficiency of the original track, the overall regulatory attitude of gradual observation and adjustment has always been open and supportive. Traditional retail, based on physical store operations, should have a far greater defensive mentality towards community group buying than towards previous cross-border species like traditional e-commerce and digital retail. Community group buying provides cost and efficiency optimization for household purchases through wholesale-style retail, clearly having a model advantage and representing more advanced productivity for family scenario purchases. Household purchases have always been the largest retail territory that e-commerce has not fully occupied, or only partially occupied. Just like JD.com, which started with 3C & home appliances, explicitly stated in its earnings conference call that JD.com's first category in the future is FMCG—meeting one-stop household purchase needs through e-commerce solutions. The quality and difficulty of the household purchase scenario lie in the fact that it is the most certain retail circulation solution between demand and supply at the fulfillment level. Simply put, it is a certain circulation relationship between inventory and housing. We usually think that when a person goes to Walmart to buy daily necessities for the family, it is a buying relationship between him and Walmart. Actually, for Walmart, it makes no difference which person lives in which house within three kilometers around its store. Whether Zhang San moves out and Li Si moves in, Walmart's customer logic is the same. This is also why traditional retail places extreme importance on store location (except for Costco in the US). If the newly moved-in Li Si doesn't go to Walmart, it's not that the circulation relationship between the store and Li Si's house has changed, but that Li Si believes that under the effective conditions of Walmart's three-kilometer coverage, Walmart cannot replace the one-stop value of household purchases (if Walmart indeed cannot meet them). The emergence of community group buying upgrades the certain circulation relationship between stores and houses to a certain relationship between stores and communities (multiple houses). The quantitative expansion of purchase scenarios brings about the scaling of this certain relationship, well optimizing the cost and efficiency of single orders (whether in-store, home delivery, or e-commerce). Since then, multiple favorable conditions have begun to converge on the community group buying business scenario: the general similarity of household purchase goods ensures relatively concentrated single-item volume; price advantages can be created even with thin price margins in household categories; cost advantages of community-level intensive fulfillment; and the certainty of inventory preparation through pre-sale order aggregation (if fully platformized, even zero inventory can be achieved). Community group buying is truly the first time that the advancement of business model, platform organization mechanism, and front-end experience price have been synchronized in a trinity. Meituan Select, a community group buying platform that fully platformizes its business chain, can even rapidly increase order volume in a short time under zero inventory conditions. This makes the main platform task of Meituan Select to expand into more cities. According to information we at 36Kr-Future Consumption have gathered from various sources, Meituan Select is currently the community group buying platform with the highest overall order volume. In comparison, the businesses that bring direct competitive relationships to community group buying should mainly occur in other retail circulation channels that provide purchases with cross-border but overlapping characteristics. This cross-border and overlapping relationship is similar to how convenience stores' main competitors actually come from cross-border formats like dining, baking, and tea drinks around the store. The business models are very different, but they all provide community-level daily household purchases. -01- The Hub Value of the Group Leader in the Chain
A large part of the model innovation of community group buying indeed lies in the group leader. Community group buying without the group leader can easily be confused with community store self-pickup business, which is very similar to the community store next-day self-pickup business of the bankrupt Hefei Dailuobo. With the group leader, the platform can fully let go and focus on a few things that are unique to the platform and dominate the bargaining power of the entire chain.
First, there is no need to directly face end users for marketing and customer acquisition and fulfillment services; all are handed over to the group leader. However, in 2020, the three major internet giants Meituan, Didi, and Pinduoduo invested heavily, breaking the industry tacit understanding that was previously innovated by small companies like Xingsheng Youxuan, directly giving subsidies to end users. The purpose is to quickly end competition and territory division in this track in the short term. Overall, community group buying cannot take away the vegetable business of small vendors, but it does hurt Xingsheng Youxuan's feelings, and it also affects the business of channel merchants like community supermarkets, Pagoda, and Qian Dama. Second, the platform can focus on building a system with the group leader as the interaction node, with platform-group leader-end user as the interaction relationship (similar to the traditional retail distributor-small store-end consumer), and community-level as the fulfillment unit, forming a household daily purchase business based on community-level scenarios. In this way, the platform can be like a wholesale distributor in traditional retail, focusing on three things: small store expansion, brand supply, and supply chain logistics. Third, simply put, the division of labor between the platform and the group leader deepens, and each side's limited resources and energy are better focused on one business node, developing deeper capabilities. With deep capabilities, efficiency naturally becomes higher. Driven by these comprehensive characteristics, the division of labor optimizes each other's efficiency, and the charm of this business forms: with the information flow efficiency and scale of the internet, but following the mature commercial flow model of traditional wholesale business. Fourth, community group buying focuses on stable daily household purchases because the biggest difference between household purchases and personal purchases is that household purchases determine supply circulation based on logistics address. Simply put, for personal purchases: clothing, mobile phones, cosmetics, dining—a person's experience anywhere in the country is the same. But household purchases: FMCG, food, grain and oil, fresh produce, cleaning and washing—must be used at home. The starting point of household purchase demand also originates around the family and address. The platform's supply naturally designs the entire supply route and efficiency formula around the family. This is also why traditional retail emphasizes the importance of store location. Community group buying upgrades three steps further. A. It does not self-operate; a large number of existing community stores are proven high-quality locations. B. A large number of community stores and owners have already established a stable and trustworthy transaction and trust relationship with the community. These owners are the best group leaders (both Xingsheng Youxuan and Meituan Select think so). C. Household purchases are very uniform; every family uses similar FMCG, grain and oil, and cleaning products. The certainty of household purchases is too high: the payer is the individual, the user is the family, and the location is the community. Retail emphasizes scale for efficiency; communities naturally gather many families to form scale, so community purchases are best done uniformly and centrally. A very advanced circulation form of retail business: household purchases in community scenarios, with unified group buying orders and fulfillment. Abbreviated as: community group buying. Fifth, this kind of business, when concentrated, becomes an ideal retail business: wholesale-style retail. US Costco is the epitome of wholesale retail. This business also has an advantage: all competitiveness lies in products and prices. Because in wholesale-style retail, prices are cheaper than general retail channels even without subsidies. If the product quality is also excellent, then it is the hardest strength of retail: good products at low prices. Retail that achieves this level has unprecedented competitiveness, a high-quality business model that even the internet cannot defeat. US Costco, in China, the world's largest consumer internet country, does better business than all offline stores and e-commerce, and it doesn't even have internet. -02-
The Community Group Buying Model Is Still Early
Community group buying also has problems, and they are not easy to solve at present, causing the current state and service capability of this business to not be very mature. There are still many service details, quality control, and efficiency optimization issues in the business chain.
First, the functional relationship between shipment scale and category richness cannot be solved for now. That is, scale is a unique characteristic of wholesale-style retail like community group buying, but once single items and categories take the rich route, it will definitely dilute the scale of single items. Without scale, there is no price advantage, which will in turn erode the advantages of the community group buying business model. Second, a complete set of solutions cannot be provided for now, with fresh produce being the most typical. Because cooking a dish in Chinese cuisine requires at least 5-15 types of main ingredients, auxiliary ingredients, seasonings, and spices. This makes the purchase experience for fresh produce traditional, which is small quantity and multiple varieties. This kind of purchase is the strength of the wet market, a low-threshold business with decentralized stalls and rich configurations. Supermarkets and e-commerce have not been able to beat wet markets until today. Community group buying does not have that capability and cannot take away the business of small vegetable vendors. Those who worry about taking away the business of small vendors fundamentally look down on migrant workers. Fresh e-commerce and community group buying still need significant evolution in industrial capability. Third, for the three giants, JD.com, and Alibaba, each company is also clear that fresh produce is just the starting means to quickly accumulate orders. Community group buying cannot be equated with fresh retail; this is a consensus that everyone understands but does not say. But if community group buying focuses on selling high-turnover branded FMCG for households, its value is not high, and profit margins are also low. One of the future directions here is still to strengthen self-built supply chains, insist on private label products, or brand-exclusive supply routes. Fourth, community group buying currently has a model capability that is not fully utilized: going deep to the village and town level for the most thorough lower-tier group buying. Urban residential areas are communities, and villages and towns are also communities. Currently, the lowest level of Chinese e-commerce is only to townships, not to villages below townships. Because e-commerce's fulfillment model of one order and one logistics package absolutely cannot afford to go deep into vast, dispersed villages with not very concentrated orders. But rural families, except for extremely poor households, all have complete household purchase needs. The value of community group buying is that it is the first time it uses the most efficient and economical solution to show confidence that it can be a channel for one-stop household purchases in rural areas, and it can even go deep into villages, the most grassroots and terminal unit. -03-
Offensive and Defensive of Cross-Border Influence
Fresh produce front warehouses, instant home delivery retail, in-store shopping, community self-pickup... These are all household purchases around community scenarios. Community group buying is not comparable to them in model, but the competitive relationship in business will become stronger in the future.
First, front warehouses and community group buying have very different models, but they highly overlap in three aspects: fresh produce categories, family customer units, and fulfillment route design in community scenarios, leading to direct competition in fresh produce purchases for urban community families. In 2020, community group buying mainly operated in second- and third-tier cities, and now it is expanding to first-tier cities like Beijing, Shanghai, Guangzhou, and Shenzhen (Shanghai is still the least). These first-tier cities are key locations for front warehouses, and the order competition between the two will have a certain direct relationship in the short term. Meituan is simultaneously betting on Meituan Maicai with front warehouses and Meituan Select with community group buying. Moreover, Meituan's community group buying adopts a more thorough platformization model, with good inventory management and city expansion speed. The outside world is indeed optimistic about Meituan's future development. On the other hand, Alibaba's community group buying, namely Hema Market, integrates retail through small store resources, and instead insists on a quasi-self-operated strong control model in supply chain and logistics. Coupled with Hema's own self-operated model for community in-store and instant home delivery retail, as well as mobile Taobao traffic support and Alibaba ecosystem's potential available resources, it is expected that Meituan and Alibaba, plus JD.com (if Jingxi also has a highlight model), will have a very exciting competition in community-level retail and the community group buying track. Second, the competitiveness comparison between front warehouses and community group buying currently shows differences, but the comparison is unfair. Because all capabilities of front warehouses are centered around the category—fresh produce. All capabilities of community group buying are centered around the chain—the group leader. At the current stage, community group buying is very popular due to large investments, making the pie seem big. It's like saying that because you have a good meal at your wedding today, you can live a life of luxury every day. Therefore, the two are not in the same investment peak period, and it cannot be said that community group buying can replace front warehouses or is superior to front warehouses in fresh produce circulation models, or which is stronger in comprehensive capabilities (in terms of efficiency, front warehouses currently have higher fulfillment costs but better overall experience). Third, behind instant home delivery retail, there is a similar platformization model—same-city retail. These players use the scale effect of e-commerce platforms to also do fresh produce business with front warehouses, and they only earn commissions without risk. Compared to self-operated front warehouses focused on fresh produce, they bear less risk in product operation. Of course, this kind of platform naturally needs to be huge. Currently, there are only a few in the market: JD Daojia, Meituan (again Meituan), Ele.me, Tmall Supermarket Taoxianda, and Taobao Maicai. Fourth, instant retail is naturally a big business, meaning that whoever does front warehouses, even a startup, starts building the business on the scale of a formal large company. Same-city retail is even larger; as mentioned, only a few players are in the market. But community group buying can be very small. As long as the group leader manages a community and secures supply, they can start a community group buying business. As always, the group leader is the key to the community group buying business, and the group leader is a role with an extremely low threshold and individualistic nature. This is also why during the Wuhan lockdown, many small vegetable vendors with supply could manage the property companies or neighborhood committees of one or two communities and start community group buying in various residential areas. After all, if community group buying needs internet tools, WeChat group chat + WeChat Pay are easy for even the elderly and children to use. However, the group leader is neither an employee of the platform nor strongly bound to the platform, leading to risks in capability building and long-term growth, and the turnover (loss rate) of group leaders is also very frequent. The value definition of the group leader role has not yet provided a mature version for the industry by Xingsheng Youxuan, which is a very complex problem facing all community group buying players. Source: 36Kr-Future Consumption (WeChat ID: lslb168) Author: Wan Deqian