What is the magic of community group buying that attracts countless distributors? Let's start with two data points:

  1. A community group buying leader sold 1,146 units of Telunsu milk in one day.
  2. The daily volume of a certain product on a platform can match the total sales of all retail stores in Wuhan. These figures may seem exaggerated, and many outsiders find them hard to believe, but they reflect the reality of some community group buying platforms, which is why they attract so many distributors. Some distributors have already taken the plunge, while others watch from the sidelines but are eager to join, just waiting for a "reason." Therefore, New Distribution specially invited Mr. Li Bingyuan, founder of "Youle Tuan," a community group buying brand under Anyang Sanjun Trading Co., Ltd., to share his insights on how a second-generation distributor entered community group buying from four aspects. The following content is based on Mr. Li Bingyuan's live broadcast on New Distribution's channel on the topic "From 0 to 1: How Distributors Start Community Group Buying?" and has been organized for publication.

-01- Challenges Faced by Distributors Anyang Sanjun Trading is a distributor mainly representing Junlebao and Sanquan frozen food products, including low-temperature cold chain foods. During operations, they identified the following issues:

1. Product Return Issue Low-temperature frozen yogurt has relatively high gross margins but a short shelf life of only 21 days. Typically, products need to be returned on the 12th day and then re-distributed for discounted sales. Although the products are still within their shelf life and consumers get a good deal, it causes losses for us.

2. Limited Store Space and SKU Constraints As frozen food distributors, we often have thousands of SKUs, but salespeople only carry the best-selling dozen or so SKUs during vehicle sales. Other SKUs are not taken out, and many store customers may not even know we have such a wide range. Additionally, due to limited freezer space and capacity at each outlet, they can only stock bulk items like meatballs, dumplings, tangyuan, and wontons, but consumer demand for frozen foods goes far beyond that.

3. High Manufacturer Quotas and Single Channel Limitations Manufacturers impose heavy sales targets on distributors, which change annually. Relying solely on traditional channels makes it difficult to achieve significant growth and meet these targets. Therefore, it is necessary to develop new channels like group buying based on consumer demand. This also helps diversify distribution channels and share operational pressure and risks.

-02- Opportunities for Distributors in Community Group Buying After venturing into community group buying, Sanjun Trading not only met manufacturer quotas and shared operational risks but also achieved four breakthroughs.

1. Regional Breakthrough My father has been in the trading business for nearly 30 years, but the business was confined to the local area. Through the continuous development of "Youle Tuan," we expanded our business to two prefecture-level cities and two counties.

2. Channel Breakthrough Our original sales channels were all offline. The creation of our own community group buying brand "Youle Tuan" marked a breakthrough into online channels, increasing our sales volume by nearly one-third.

3. Category Breakthrough We originally distributed frozen foods and low-temperature yogurt. After launching Youle Tuan, our warehouse now holds over a thousand SKUs, and we can sell any legal product. Many manufacturers even proactively approach us to supply products like kiwifruit, Shandong scallions, and soda water, and we can even sell full truckloads—something many distributors wouldn't dare to consider. Moreover, this not only expanded Sanjun Trading's product categories but also increased the variety on the limited shelves of small store group leaders, solving the problem of limited shelf space.

4. Profit Margin Breakthrough Our frozen products have slightly higher margins, but many distributors have margins of only around 10-15%. After starting community group buying, margins are generally higher; we typically don't accept products with margins below 26 points. This complements our trading business margins and overall boosts Sanjun Trading's gross margin.

-03- Advantages of Distributors in Community Group Buying Because we have years of trading experience, we have several competitive advantages compared to those starting community group buying from scratch.

1. Cost Advantages 1) Shared Back-Office Staff In the early stages, we shared financial and warehouse personnel without adding new staff for community group buying. We used the existing distributor team and only considered separating once the scale grew.

2) Shared Office and Equipment We shared the office, computers, printers, and other office equipment, and only considered purchasing new ones after reaching a certain scale.

3) Shared Delivery Vehicles The lifeline of community group buying is warehousing and distribution costs, and distributors have experience and resources in this area. Sanjun Trading originally had over 20 delivery vehicles, mainly covering nearby townships, with two vehicles typically responsible for one township. After starting community group buying, regular areas are served by the existing delivery system, while high-density order areas are served by dedicated delivery vehicles. This results in high efficiency and low costs, allowing Youle Tuan to achieve profitability quickly.

2. Resource Advantages 1) Existing Small Store Customers Can Be Developed into Group Leaders Salespeople and drivers can refer their existing small store resources to become group leaders, enabling quick recruitment in a short period.

2) Existing FMCG Supplier Resources Based on Youle Tuan's existing supplier resources, we quickly built a supply chain system to organize product sales. Additionally, although FMCG products account for a small proportion of community group buying, they are an important advantage in the early stages.

-04- How Should Distributors Start Community Group Buying? For those of us in traditional offline distribution, we considered seven key areas when starting community group buying.

1. System Selection Currently, there are three main options for community group buying systems: self-development, purchasing source code, or using SaaS service providers. When choosing a system tool, distributors need to consider three questions based on their development stage: Can the system export sales orders, delivery orders, and pickup orders? Does it have regional partner functionality to support future franchising? Does it have live streaming capabilities (which can increase sales tenfold)? However, self-development and purchasing source code are not recommended because community group buying is constantly evolving, and self-developed systems may not adapt to future needs.

2. Staffing The Youle Tuan team currently has only six people (excluding warehouse staff), but each role is clearly defined and works collaboratively.

  1. The person in charge handles operations and sourcing of trending products.
  2. Market personnel are responsible for recruiting group leaders, but their main task is pre-job training because existing group leaders attract and generate new ones.
  3. Fresh food procurement: Based on the experience of peers with high GMV, it is necessary to hire experienced fresh food buyers who have worked in fruit, wholesale markets, or run chain fruit stores.
  4. Group leader operations: This role is also crucial because it involves supporting and developing benchmark group leaders, and different benchmarks are needed at different times. Additionally, they need to assist group leaders with ground promotion and event planning, communicate promptly with group leaders whose rankings fluctuate, analyze reasons for performance drops or rises, and find solutions.
  5. Content creation and pre-sales customer service: The era of platform e-commerce dividends is over; products without promotion will go unnoticed. Therefore, it is necessary to create real-shot materials that showcase product features, such as the juiciness, crispness, and sweetness of nectarines. They also serve as customer service to answer questions.
  6. After-sales customer service: Community group buying relies on mobile platforms, and consumers often have concerns. It is essential to ensure a worry-free after-sales experience, especially for platforms with fresh products, to prevent group leaders from losing customers due to after-sales issues. They also handle vehicle scheduling. Distributors typically sell a few products from the beginning to the end of the year. Community group buying is different; at least dozens of new products are listed daily. Therefore, in terms of staffing, when the scale is small initially, after-sales and pre-sales can be handled by the same person, and fresh food procurement and operations can be combined, but a minimum of four people is needed to start. Once monthly sales reach several hundred thousand, at least six people are required to maintain operational efficiency; otherwise, it becomes overwhelming.

3. Warehouse Set aside a dedicated area for community group buying within the existing distributor warehouse, and build cold storage and refrigeration facilities to ensure fresh product quality.

4. Delivery In the early stages, share delivery vehicles with the existing business, implement regional delivery responsibility, with fuel costs at 1% and salesperson commissions at 2%. Once the volume reaches a certain level, hire dedicated delivery drivers.

5. Market Company salespeople introduce existing convenience store customers to become group leaders; dedicated market staff oversee all group leader applications and training, and set up referral rules.

6. Procurement Focus on product differentiation by sourcing from higher-level markets; select products based on household consumption scenarios and consumption cycles, thinking from the consumer's perspective; learn to develop suppliers and encourage them to propose products; observe product sales on leading platforms daily; participate in or organize communities of community group buying operators to recommend popular products from different regions.

7. Operations Good operations are the foundation for achieving sales targets. Therefore, there are three key indicators: 1) Does each group have at least 300 members? 2) What is the daily active rate of group leaders? 3) Are there interactions, order sharing, red packets, or user rewards in the group leader groups? If necessary, conduct management inspections of group leaders.

Final Thoughts: The above are the insights of a second-generation distributor transitioning to community group buying. Since each distributor has different product categories and operates in different regions, this may not be universally applicable, but I hope it can provide some reference for distributors considering new business ventures.