October 23-24, the 2018 China FMCG City Distribution Logistics Conference hosted by New Distribution will be held in Changsha. Industry experts have sent their blessings; click the video to watch. More conference details at the end of the article.

Pinduoduo's IPO has popularized the "group buying" concept. When combined with communities that have social attributes and traffic sources, it becomes a new track that touches capital nerves.

Since the second half of this year, community group buying projects such as Niwoni, Shihuihui, Dailuobo, Linlinyi, Shihuituan, and Kaola Select have successively obtained financing. Among them, Shihuihui's Series A financing and Shihuituan's angel round exceeded 100 million yuan, while Dailuobo's financing reached tens of millions of dollars. The capital trend has shifted, with attention moving from unmanned retail and convenience stores to community group buying.

Community group buying, simply put, is a business model that uses communities as units, leveraging WeChat groups and mini-programs as fission channels to accumulate users and distribute products. The organizer in each community is called a "group leader," who is crucial for covering C-end users and is typically a small B merchant or social influencer with "opinion leader" attributes.

This community group buying based on social fission seems to have a low entry barrier, attracting entrepreneurial brands, convenience store chains, and traditional retailers. However, after multiple interviews, "Third Eye Retail" found that many established community group buying projects actually rely on B2B platforms, with distribution networks at the small B end and supply chain resources and warehousing systems upstream.

"The core competitiveness of community group buying is not low prices but scale. I prefer community group buying projects with B2B backgrounds," said Cai Jingzhong, partner at Galaxy Investment.

On one hand, community group buying will inevitably undergo a shakeout. Only after the head effect becomes apparent will surviving brands enter refined operations. In this process, the ability to validate profit models, increase user density, and maintain supply chain stability in the short term are key competition points. These factors have already been validated in many B2B platforms. For example, Furong Xingsheng, the B2B brand that incubated Xingsheng Youxuan, has previously achieved positive cash flow.

On the other hand, in the long run, it is not easy for community group buying to break regional limits. Most community group buying brands target a single province. However, community group buying with B2B backgrounds connects manufacturers, small B merchants, and C-end users, making them more stable than capital-driven brands and giving them a natural advantage when expanding to other provinces. For instance, Changsha, known as the birthplace of community group buying, once built a FMCG distribution network covering Hunan, Jiangxi, and Guizhou provinces through the Gaoqiao Market.

Some believe that projects like PUPU Supermarket, which use front-warehouse models to cover C-end users, are also dividing the market. Compared to recruiting "group leaders," the front-warehouse model is equivalent to self-building "group leaders" and offers higher delivery efficiency. In other words, the future community market may see a tug-of-war between front-warehouse models and B2B-type community group buying.

Using "Small B Merchants" as Group Leaders Balancing Traffic Sources and C-end Delivery

"Almost no one can replicate Pinduoduo. But the advantage of community group buying is that it can be regional, with a low entry barrier, so anyone can try," said Zhang Li, chairman of Jianfu Convenience. Jianfu is also experimenting with a group buying model based on mini-programs, but he values complementarity, combining low-frequency, high-priced categories like cosmetics and insurance with high-frequency, low-priced FMCG, and integrating "acquaintance fission" with offline traffic.

Similar ideas are held by community group buying brands like Kaola Select and Xingsheng Youxuan. Their commonality is having a B2B or convenience store operation foundation, and they follow the "group buying" trend, using a cost-effective model to penetrate C-end users.

"Community group buying is essentially an S2B2C model, a business model with scale effects and high-speed expansion attributes. The key lies in the small B," said a securities researcher focused on the retail industry.

The "small B" refers to the "group leaders" in community group buying projects. They use tools like WeChat groups and mini-programs to organize community residents' demand for core categories like fresh produce. After users make purchases, the platform procures based on actual orders and delivers to the group leader the next day for distribution or to a designated pickup point.

This way, community group buying platforms can reduce the difficulty of attracting traffic in the early stages. Especially for B2B platforms, their small B merchants, cultivated over years, are familiar with local consumption habits and have retail experience, making them quick to adapt to community group buying.

Take Kaola Select as an example. Its incubator, Xingaoqiao B2B ordering platform, has over 50,000 registered users. "Kaola Select selects 'group leaders' from these small B merchants based on loyal customer count, cooperation, and social attributes. It can find a thousand group leaders overnight. Each leader has at least one WeChat group with 500 people, which forms the user base for community group buying," Cai Jingzhong told "Third Eye Retail."

At the same time, group leaders save community group buying platforms some C-end delivery costs. By comparison, retailers' last-mile delivery generally has three models: self-operated teams, third-party platforms, and social crowdsourcing. The former includes fresh e-commerce like Yiguo with nationwide delivery systems, with a per-order cost of about 7.5 yuan, but most vertical fresh e-commerce has per-order costs as high as 20 yuan. Third-party platforms and social crowdsourcing mainly bear labor and material costs, about 8 yuan per order.

"Third Eye Retail" learned that managing "group leaders" is crucial for community group buying platforms. For example, Kaola Select implements both support policies and elimination mechanisms. Group leaders selected based on store location, operation status, and operational ability must receive regular training. After one month, they enter the elimination mechanism. If monthly transaction volume falls below 9,000 yuan, they are eliminated, currently about 5%. Shihuituan, on the other hand, offers a tiered commission system for partners, with upgrades based on metrics like order volume, new user acquisition, and monthly turnover.

"When we invest in community group buying, we focus on two things: first, unit output, such as whether each group leader can achieve 2,000 yuan in daily sales and the monthly growth. With a 10% gross margin, profitability is possible. Second, whether density is sufficient, for example, in provincial capitals, can community group buying achieve monthly profits of 1 to 2 million yuan," Cai Jingzhong said.

However, it should be noted that compared to average order value, community group buying focuses more on order volume in the early stages, usually maintaining an average order value of around 20 yuan. "The more dispersed and persistent, the better, not necessarily the higher the single order value," analyzed a community group buying executive.

The Core Lies in Supply Chain Winning the Community Business Tug-of-War

Currently, most community group buying projects are still in the "land grabbing" stage, but some long-term-oriented brands have shifted attention to the supply chain. "When the novelty fades, consumers still value product quality, variety, and stability," Zhang Li analyzed.

An investor who participated in community group buying financing told "Third Eye Retail" that they will continue to look for new projects. On one hand, community group buying is highly regional, and thoroughly penetrating a province is not a short-term task. For example, Changsha has a FMCG distribution network covering Hunan, Guangxi, and Guizhou, but other provinces need cultivation. Shihuituan, which entered the market with fresh produce, faced regional differences. They put Tianjin's top 50 products into the Tangshan market but found poor results.

On the other hand, community group buying relies more on the head effect, and brand mergers and acquisitions are inevitable, forcing group leaders and suppliers to make choices. As capital, the current attitude can be described as "casting a wide net." Capital efficiency (i.e., ability to quickly profit), operational efficiency, and user reach efficiency are key points for capital.

But some community group buying executives also say it's getting harder. Many brands find it difficult to increase daily orders beyond around 10,000. One executive analyzed three main reasons: first, insufficient supply chain capabilities, with low prices, supply volume, and break-even profitability often becoming trade-offs; second, weak warehousing and logistics distribution capabilities, though C-end delivery is not needed, coordinating supplier-to-central-warehouse delivery processes requires exploration; third, in second- and third-tier cities like Changsha where community group buying thrives, there is often a shortage of technical personnel, causing group buying systems to crash as order volumes increase.

In the broader market, some traditional retailers focusing on community business have supply chain advantages. For example, Yonghui Superstores and PUPU Supermarket have launched front-warehouse projects, and Suning Xiaodian has launched group buying projects. Although models differ, their target customers are similar.

For instance, Yonghui Life satellite warehouses are typically located near emerging residential areas and mature communities with strong consumption demand and online shopping habits, covering a 3-kilometer radius. Notably, Yonghui also uses a self-built community partner model for delivery, ensuring order response efficiency and product quality.

At the system level, Tencent provides important support to Yonghui. "Third Eye Retail" learned that Tencent's Smart Retail Strategy Department sent a dedicated team to Fuzhou to form a joint working group with Yonghui, empowering Yonghui in online user traffic, mini-program development, WeChat community operations, official account content, and advertising.

To this end, many community group buying brands are also strengthening their supply chains and building their own warehousing and distribution systems. It is understood that Niwoni has begun to source from the origin while building its own warehousing and logistics system, improving product quality by optimizing picking cycles, reducing circulation costs, and minimizing product damage. Kaola Select proposes cooperating with 1.5-level distributors, on one hand improving team integration capabilities to increase product variety while reducing operating costs; on the other hand, aggregating scale effects to gain more bargaining power upstream, thereby benefiting consumers and driving sales growth.

"Third Eye Retail" believes that keywords like community, fresh produce, and group buying represent traffic advantages, cost optimization, and growth space. Various forces have already laid out their strategies around them. Whether community group buying, front warehouses, or home delivery service platforms, they may all fall into a tug-of-war in undifferentiated competition driven by efficiency optimization and shortened shopping paths.

Source: Third Eye Retail (ID: retailobservation)

October 23-24, during the Autumn Sugar and Wine Fair, the "2018 FMCG City Distribution Logistics Conference" hosted by New Distribution will be held. We will invite industry experts, FMCG warehousing and distribution specialists, and distributors transforming to unified warehousing and distribution platforms to discuss and answer questions about future development trends in FMCG city distribution logistics and practical cases of distributor transformation, under the theme "New Distribution, New City Distribution." We hope to bring you different inspiration and thinking! The specific agenda is as follows:

List of Participating Companies (In no particular order)

Hunan Zonglan Dian Dan Network Technology Co., Ltd. Jingbang (Wuhan) International Freight Forwarding Co., Ltd. Mengniu Dairy Qinghai Hanxiang E-commerce Co., Ltd. Unilever Service (Hefei) Co., Ltd. Shanghai Branch Huicong Hunan Xuanang Food Co., Ltd. Guangzhou Tongdaoren Information Technology Co., Ltd. Qingdao 888 Trading Co., Ltd. Uni-President Enterprises (China) Investment Co., Ltd. Hunan Province Zhongxiang Gongpei Logistics Co., Ltd. Shenglong Ingredients COSCO Shipping Logistics Warehousing and Distribution Co., Ltd. Guangxi Yongpai Liquor Co., Ltd. Shangqiu Kangrong Trading Co., Ltd. Jinan Dingzhong Trading Co., Ltd. Liaoning Bimai Agricultural Technology Co., Ltd. Kunming Xiongjia Trading Co., Ltd. Shaanxi Houheng Trading Co., Ltd. Guangzhou Dingwo Enterprise Information Consulting Co., Ltd. Shaodong Jiajiale Commercial Firm Boda Trading Industrial Bank Changsha Branch Wuhan Muchen Convenience Store Chain Co., Ltd. Fujian Fuxing Yuncang Logistics Co., Ltd. Guizhou Yilimi E-commerce Co., Ltd. Jiangxi Xiao Laoer E-commerce Co., Ltd. Jinshan Koufu Shanxi Taihang Yuanjing Supply Chain Management Co., Ltd. Shanxi Dezhu Supply Chain Management Co., Ltd. Shaoyang Tongdeli Trading (Xiangbang Logistics) Huanfu Tongda Express City Distribution Beijing Xinjingxiang Food Co., Ltd. Wuhan Huizhong Tianhong Liquor Co., Ltd. Changsha Paide Biotechnology Co., Ltd. Chaoan Tuqiang Guizhou Yihe Bopin Supply Chain Management Co., Ltd. Jiangxi Kang'en Industrial Development Co., Ltd. Xiangtan County Yisuhe Town Yuhua Paper Store Luoyang Yuanlang Trading Co., Ltd. Tongchuan Yaozhou District Huayuan Supermarket Co., Ltd. Hunan Yongfu Jiujiu Trading Co., Ltd. Zhejiang Chengchengtong Logistics Co., Ltd. Chongqing Kaiguo Materials Trading Co., Ltd. Beijing Xianmaixianmai Data Technology Co., Ltd. Hanchuan Qixing Trading Co., Ltd. Tongxin Jiuzhi Trading Co., Ltd. Guizhou Meiguo Guoguo Network Technology Co., Ltd. Hubei Anjie Logistics Co., Ltd. Hubei Kuaixiao Hulian Technology Development Co., Ltd. ......

Distributor Transformation Representatives (Proposed) (In no particular order)

Rong Jun, Chairman of Jiangsu Huashang City Distribution Network Co., Ltd. Wang Bo, Chairman of Hubei Yijiaren Logistics Co., Ltd. Jiang Shuming, General Manager of Sichuan Chengdu Xingrenxing Trading Co., Ltd. Liu Jichen, Chairman of Shandong Yunbang Warehousing and Logistics Co., Ltd. Tu Mingyu, Chairman of Chongqing Lingyu Consumer Goods Supply Chain Management Co., Ltd. Yang Su, Chairman of Guangzhou Zhongshan Wanrong Marketing Co., Ltd. Yuan Xia, Chairman of Sichuan Bajie Supply Chain Management Co., Ltd. Li Qiangyun, Co-founder of Hubei Pengdun Meiyitian Supply Chain Management Co., Ltd. Zhang Jianyong, Chairman of Henan Xuchang Jiulegou E-commerce Co., Ltd. Ma Haichao, Founder of Hebei Changyi Logistics Co., Ltd. Meng Yucun, General Manager of Hebei (Chengde) Wulian Yuncang Co., Ltd. Zhang Xun, Chairman of Xinjiang Urumqi Su'an Jinchi Logistics Co., Ltd. Zhang Hailing, Chairman of Jilin San Province Lian'gou Qiang Huitao, Founder of Hebei Dunjie Supply Chain Management Co., Ltd. Liao Lei, General Manager of Hunan Damei Supply Chain Management Co., Ltd. ......

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