◎ Text by Liu Chunxiong 01 The 2018 Autumn Sugar & Wine Fair was held in Changsha, known as the epicenter of this year's "community group-buying e-commerce" storm, giving us an opportunity to examine this new retail format. I pay attention to community group-buying e-commerce because its logic holds, meaning that new retail can activate the most primitive and fragmented traditional retail format—street-corner stores. This segment is the largest in all retail and the hardest to integrate. Changsha is the most mature market for B2B e-commerce, and I have visited it multiple times in the past two years. I am an old friend of Tang Guangliang, founder of the excellent B2B platform "Xingaoqiao" in Changsha, known as "Old Tang." This time, I examined his community group-buying e-commerce venture, "Kaola Select." Before the concept of B2B existed, Old Tang founded the B2B platform "Kuailehui," and later established the upgraded version "Xingaoqiao," which is one of the few profitable B2B platforms in China. In June this year, Old Tang launched the community group-buying e-commerce "Kaola Select," leveraging the 3,000 franchised stores and B2B supply chain accumulated in Changsha during his time with Xingaoqiao. Community group-buying e-commerce is an O2O e-commerce model centered around street-corner stores, where the store owner acts as the group-buying "leader." The group-buying users are within the store's trade area radius. Since it is primarily self-pickup, the trade area radius is small. The model of "Kaola Select" is: order online, pick up offline, delivered within 6 hours. Within 100 days of launch, Kaola Select had 1,800 franchised "leaders," of which 1,000 were active, and 80,000 registered users. The platform's peak daily GMV was 310,000 yuan, with 30,000 orders. Upstream, 800 suppliers registered, and the cumulative number of SKUs exceeded 12,000. "Kaola Select" starts with high-frequency household fresh produce, including vegetables, fruits, meat, and fish, with items available at room temperature, refrigerated, and frozen. It also includes some low-frequency, high-margin beauty and daily necessities. "Kaola Select" serves users in the second to fourth ring areas. Beyond the fifth ring are Pinduoduo users, and within the second ring it cannot serve. Users in the second to fourth rings are sensitive to both price and quality, making them the core users of Kaola Select. Group buying ends at 11 PM each night, after which suppliers begin delivery, sorting, and distribution. All items are delivered to community stores by 10:30 AM the next day for user self-pickup, ensuring that ingredients are available for lunch preparation. 02 After B2C matured, O2O and B2B were popular. Now it seems that 2C can gather momentum faster. Community group-buying e-commerce is 2C. Of course, its supporting system is O2O and B2B. B2C is centralized, while community group-buying e-commerce is a distributed vertical e-commerce, which can be seen as 2C developing regionally. Currently, there are four types of players in community group-buying e-commerce. The first type enters with technology, providing tools and technical platforms; the second type is fresh produce B2B, which has category advantages in the early stage; the third type is FMCG B2B plus convenience stores; and the fourth type is trend-chasers. Undoubtedly, Kaola Select belongs to the third type. The advantage of the third type is the supply chain and franchised stores. Community group-buying has existed for a long time, originally relying on "stay-at-home moms" and using social groups to recruit members. Kaola Select, due to its franchised store advantage, relies on store owners as "leaders," which brings trust advantages and convenient self-pickup. Moreover, FMCG and fresh produce mutually attract traffic and reinforce each other. The repurchase rate is 75%, with fresh produce accounting for 60% and daily necessities 40%. I don't care much about GMV data. The data Old Tang provided, I believe, is a highlight; 2C must have stickiness. Once it becomes a capital hotspot, the nature changes, and some platforms that receive funding will burn money. Is burning money good? For awakening the industry, capital has value. But burning money can also mask chaos. As long as it's a startup that burns money, eventually there won't be enough money. Some say community group-buying e-commerce gives grassroots dreams another chance to rise. I think it's not that easy. Because community group-buying e-commerce involves heavy offline work, heavy supply chain work, and is distributed, requiring a two-level trust system (trust between platform and leader, and trust between leader and residents). Instead, enterprises with O2O and B2B advantages have a better chance. From the fact that B2B companies are all rushing to seize the opportunity, it can be seen that if they don't seize the 2C opportunity, B2B may have no way out. 03 During the inspection, I had many thoughts, because fresh-produce-focused group buying is just the beginning of changes for street-corner stores. If we only look at the daily transaction volume of "leaders" from the fresh produce perspective, the impact on store performance is not significant. However, if this activates street-corner stores with a scale exceeding ten trillion yuan, and online activities create stickiness, there is enormous imagination space. So, where is the imagination space? Once community group-buying e-commerce becomes widespread, with category expansion and the popularization of online orders, changes will not be limited to street-corner stores; they will affect almost all retail business formats. First, online orders could very likely become mainstream in the near future. Kaola Select uses fresh produce as a breakthrough, with buyers mostly housewives aged 30-40. Their ability to order online indicates that "online ordering" already has the conditions for popularization. Hema Fresh's online orders account for 60%, serving middle-class consumers, so online ordering is understandable. Kaola Select serves ordinary citizens, mainly housewives, with all orders placed online. This is a very important sign. Second, community group-buying e-commerce may erode the territory of KA and B2C. Traditional offline small stores, limited by trade area radius, focus on convenience items, with small area and few SKUs. Kaola Select uses a pre-order form, which is not limited by store SKUs. Products originally purchased in hypermarkets or e-commerce platforms can also be included in online SKUs, potentially stealing business from KA and B2C platforms, albeit with slightly longer pre-sale times. In fact, the products currently promoted by community group-buying e-commerce are new categories that stores didn't have before. This means that, relying on pre-orders and supported by the B2B supply chain, the format of street-corner stores will change. Third, it may change the traditional retail pricing system. New business formats such as convenience stores, Hema Fresh, and community group-buying e-commerce have different category structures from traditional retail. Traditional retail has two types of products: one with low gross margin and high traffic, and another with high gross margin and low traffic. New retail formats classify most traditional retail categories as low-margin, while new categories (especially non-standard products) have both traffic and sufficient margin space. The change in the pricing system of new formats will inevitably create spillover effects. Hema Fresh currently has few stores, so its impact is limited, but once community group-buying e-commerce becomes widespread, it will have high coverage and greater impact. Fourth, once community group-buying e-commerce reaches scale, it will form a new supply chain. Traditional retail "buyers" mostly "wait for suppliers to come and then bargain down prices." Once community group-buying e-commerce reaches scale, it will inevitably seek to establish a new supply chain and, through supply chain integration, seek higher supply chain margin space. Currently, the fresh produce supply chain already has huge room for optimization. At the same time, with the traffic brought by fresh produce and the habit formed by online orders, other categories will also be included in community group buying. Once there is scale, it will seek to establish a retail-platform-led supply chain, just like Ma Yun's "New Manufacturing." Of course, community group-buying e-commerce is just starting, and the impacts mentioned above are only reasonable speculation. If the imagination holds, it will not only have a big impact on traditional retail but also on brand owners and distributors. 04 Community group-buying e-commerce has become the storm center this year, with much controversy. Some say it's the community version of Pinduoduo's logic, others say it's too low-end and growing wildly. From Taobao to Pinduoduo, the last thing to underestimate is wild growth. Since Ma Yun proposed New Retail, various new retail formats have emerged. My attention to community group-buying e-commerce has surpassed other new retail formats. The reasons are: First, street-corner stores are the largest stock in retail; Second, no matter how remote shopping formats change, they cannot replace the convenience of street-corner stores. According to my compilation with brand expert Miao Qingxian, the new retail formats currently emerging can be roughly divided into four categories: new retail species, internet platforms merging with KA, activating retail small stores, and other new formats. First, new retail species, such as Hema Fresh and Yonghui. They have two major characteristics: one is connecting to the C-end, such as Hema's online orders accounting for 60%; the other is focusing on fresh produce categories, catering to the middle class. Although the retail format is new and momentum is strong, their share cannot be large in the short term. Second, new retail mergers and acquisitions of KA, such as RT-Mart. They can guide traffic online, import online SKUs, and may use new technology to connect with the C-end. However, as long as it's M&A, scale is limited because new retail platforms cannot merge all traditional formats. Third, new retail formats such as unmanned retail, office retail, and social e-commerce, like Pinduoduo and Xiaomi. Although novel and favored by media, such as unmanned retail, they are overall marginal with small share. Fourth, using internet technology to activate traditional retail small stores, such as community group-buying e-commerce. China has 6.8 million small stores. Although individual stores are small and have long been marginal in the format, they account for the largest share of China's retail industry. When the 6.8 million small stores are activated, new retail will achieve full coverage. Currently, platforms activating small stores include Suning Xiaodian, JD Convenience Store, and Tmall Xiaodian, with the core being B2B-based "franchising" of small stores. There are rumors that Retail Link and JD New Channel will each "franchise" 1 million small stores. However, they have not connected to the C-end. Empowerment without connecting to the C-end is at best stock optimization. Community group-buying e-commerce belongs to the category of activating street-corner stores. Compared to JD Convenience Store and Tmall Xiaodian, they have three major characteristics: first, they connect to the C-end; second, they break through with high-frequency fresh produce; third, they have supply chain advantages. The 6.8 million community small stores, previously called C-class and D-class stores, are the unnoticed majority. The goal of B2B is to target community small stores, but unfortunately, overall it hasn't been successful. Whoever can revitalize (activate) community small stores will occupy the largest piece of the new retail landscape. Community group-buying e-commerce is currently doing exactly that. I once predicted that China's highly fragmented community small stores would definitely be activated by new technology, manifested by connecting to the C-end; they would definitely achieve integration, with each store "choosing sides" and becoming a member of some new retail platform, manifested by the formation of a new supply chain. 05 Why has community group-buying e-commerce become hot? Its business logic is actually the logic of regionalized Pinduoduo. The first prerequisite for its popularity is the popularization of "online ordering" consumption habits. The second prerequisite is the new supply chain built by B2B platforms in previous years. Kaola Select started so quickly and without burning money, first because the "franchised" stores accumulated by B2B became "leaders" for community group-buying e-commerce. Second, B2B established a supply chain system for scattered stores like C-class and D-class stores, and community group-buying e-commerce has very high supply chain requirements. The third prerequisite is the evolution of social e-commerce. Social e-commerce has evolved from early multi-level distribution, to community connections with "stay-at-home moms" as nodes, and now to community group-buying e-commerce with physical stores as nodes for community connections. Unlike the criticism of Pinduoduo, Pinduoduo is not a circle of acquaintances, but community e-commerce must be fully connected across "offline, community, and network" spaces, based on strong offline social relationships. 06 According to Old Tang, although it's only been a little over four months, they have already stepped on countless pitfalls, each of which could be fatal. But thanks to the accumulation from earlier B2B, progress has been relatively smooth. For now, we can only say that the logic of community group-buying e-commerce holds, and model validation is much faster than other internet models. Community group-buying e-commerce uses fresh produce as a breakthrough. Although it's high-frequency, the average order value is low, and it requires particularly high density of "leaders," user density, and two-level trust. Regional B2B has a first-mover advantage. The two-level trust mentioned above refers to, first, the trust between the platform and the "leader," and second, the trust between the "leader" and surrounding users. The business logic of community group-buying e-commerce has been proven, but there are still many hurdles. Future development will face multiple tests. First, stickiness must be observed over a longer period. Community group buying has a small trade area radius, so stickiness is particularly important. Second, the scale of group buying per store must be observed over a longer period. Only when scale makes "leaders" take it seriously can it be sustained. Third, the direction of category expansion must be observed. Group buying is concentrated in the fresh produce track, so price competition will inevitably be fierce. Only category expansion can support group buying and change store formats. Fourth, expansion into regions where B2B is not mature must be observed. Changsha's community group buying has long-accumulated franchised stores and B2B supply chain. Franchised stores have accumulated trust with the platform, and B2B has supply chain advantages. What about newly expanded regions without these advantages? 07 I work in marketing and have always looked at issues from the perspective of brand owners and distributors, but recently I've been paying more attention to new retail because it has become a variable affecting brand owners. In traditional marketing, brand owners treat terminals (KA) and channels as two separate categories for research. When KA is not profitable, channels are profitable. Where do channels lead? Of course, to street-corner stores. The so-called deep distribution ultimately ends at street-corner stores. Brand owners don't make money in KA or B2C, and the reasons are easy to understand because KA and B2C have scale and organization. They can make money in channels because street-corner stores lack scale and organization. Community group-buying e-commerce, through three methods—connecting to the C-end, store franchising, and B2B supply chain—makes street-corner stores choose sides, become organized, and gain scale. This means that under the new retail format, all retail formats faced by brand owners are organized and scaled, and all have the ability to force the supply chain. Only with a stronger ability to guide user traffic in the internet environment can brand owners survive in the new retail environment. Source: Teacher Liu's Forum (ID: liuchunxiong1964) -END-