Behind the impressive order numbers lie losses, and once financing fails to keep up, the surviving players in community group buying will face an even more difficult game. A year ago, the wave of community group buying startups surged, and capital gave rise to many entrepreneurial stars, one of which was Songshu Pinpin. Among these startups, Songshu Pinpin launched the latest, officially going online in August 2018. However, thanks to the halo of its founder Yang Jun, a former Meituan veteran, Songshu Pinpin secured $61 million in financing within just one year. Tu Fanfei, a former employee of Songshu Pinpin, still remembers the scene when he joined the company last September, describing it with four words: chaotic and messy. At that time, Songshu Pinpin's Beijing headquarters had only fifty or sixty people; it had only opened two or three cities, with just a few people stationed in each city; facing a brand-new business model, no one knew how to build the underlying system, the front-end system barely functioned, and almost all work was piled up with manpower. But Songshu Pinpin's development speed was astonishing to peers. At its peak, it entered more than 50 self-operated cities nationwide, ranking among the first tier of community group buying. According to Aladdin Mini Program data from June 2019, Songshu Pinpin ranked 68th among all mini programs and 2nd among community group buying projects. Now, as confirmed by multiple sources to Zinc Finance, after being exposed to closure, Songshu Pinpin laid off more than 2,000 people, a ratio of 80%, and underwent a comprehensive strategic adjustment. Earlier, some media reported that another leading community group buying brand, "Shixianghui," would acquire Songshu Pinpin. According to Zinc Finance, the acquisition between "Shixianghui" and "Songshu Pinpin" is nearing completion, with Songshu Pinpin employees already transferring to Shixianghui, and the two teams will merge. Songshu Pinpin's experience has been full of twists and turns, in stark contrast to the announcement on August 30 that "Shihuituan" had completed its merger with "Niwo Nin", marking the first merger of leading community group buying brands. "Congratulations to Niwo Nin for getting ashore, at least they didn't die." This was the first reaction of a community group buying practitioner upon hearing that a peer had been acquired. Among this batch of community group buying companies, some are riding high with favorable financing, while others are precarious. Recently, Tongcheng Life completed a new round of $100 million investment; Xingsheng Youxuan revealed to Zinc Finance that it has completed its Series B financing, with an amount exceeding $200 million, led by strong players such as Tencent and KKR Group; while Linlinyi withdrew from Jiangsu and Zhejiang on a large scale in May; and Xiaoqu Leyue withdrew from Zhengzhou in July. Earlier, many practitioners predicted that this summer would be tough—fresh food requires cold chain delivery, raising costs and barriers, and a large number of companies would not be able to hold on. As practitioners expected, from total financing exceeding 4 billion a year ago to the current mergers, layoffs, and retreats among leading companies, this once-glorious track has entered the second half. And the difficulties they face have not diminished: follow-up financing, the technical and scale barriers brought by fresh food group buying, and the supply chain and logistics anxieties after expanding scale. Financing amounts of some companies during the financing wave. Image source: IT Juzi. "It can be said that the community group buying industry has not yet precipitated the value it should have. Users are in WeChat groups, group leaders have no loyalty, and the supply chain system is weak... These problems need to be solved urgently," said Zhuang Shuai, founder of Bailian Consulting, to Zinc Finance. Changes There were signs around the Spring Festival of 2019. After returning to work, Tu Fanfei, an employee of Songshu Pinpin, found that data began to decline sharply. He had accompanied Songshu Pinpin through a round of high-speed expansion. Before the holiday, Songshu Pinpin had expanded to more than 50 cities in four months, with an average of 200 to 300 groups per city, which enabled it to complete a transaction volume of 110 million in January 2019, ranking second in the industry. Songshu Pinpin's financing situation. Image source: Tianyancha. After the holiday, it was a different scene. The data couldn't rise. "February was basically wasted, March began to slowly recover, and it didn't warm up until May," said Tu Fanfei. The data never rose to the previous 110 million again. At that time, negative news also kept coming out in the industry. "Niwo Nin," also a leading community group buying company, was rumored to have a broken capital chain, and "Linlinyi" was exposed to have withdrawn from multiple cities in Jiangsu and Zhejiang, shrinking its scale. And Songshu Pinpin, which was at the forefront, also found it hard to sustain. In August, the large-scale layoffs at Songshu Pinpin broke out, even becoming the most obvious signal of this round of reshuffling in community group buying. Tu Fanfei, who was in the vortex, was initially unaware. On the day of the layoffs, he reported work to his leader as usual, but the leader suddenly asked him to put things aside. "How can a project suddenly stop? At that moment, I felt something was wrong," said Tu Fanfei. The news spread from first-level department leaders down to ordinary employees. Tu Fanfei learned that Songshu Pinpin had decided to cut almost all self-operated businesses, leaving only one city's team. At the same time, nearly 2,000 employees were laid off by nearly 80%, with employees queuing to sign agreements and receive compensation. "In the nearby food street, Guijie, all our employees were having farewell dinners," he said. The headquarters began to become empty. After the large-scale layoffs, Songshu Pinpin held an internal meeting where founder Yang Jun reassured employees. A few months earlier, Yang Jun was the focus of attention across the industry. Yang Jun, with a significant background, had worked alongside Wang Xing for 10 years, participated in founding Renren and Meituan, and personally handled the replication and expansion of Meituan in almost all cities, being extremely familiar with the ground promotion model. It was also because of his senior background that Songshu Pinpin was able to overtake in half a year, entering the first tier in both financing amount and GMV. Regarding the reasons for Songshu Pinpin's layoffs, there are mostly two speculations. Some media reported that Songshu Pinpin was about to acquire Niwo Nin, and the acquisition process was progressing steadily, and the reason Songshu Pinpin fell into a capital chain predicament was to help Niwo Nin repay its debts. Tu Fanfei also mentioned an internal rumor: "'Niwo Nin' owed tens of millions on its books and mortgaged its equity to Songshu Pinpin." On the other hand, Tu Fanfei believes the most direct reason is the break in the capital chain—under Songshu Pinpin's direct operation model, every link requires financial support. Once financing cannot keep up, the entire platform business chain will break. He mentioned that Yang Jun had been busy with financing. In June, Songshu Pinpin held a mid-year meeting, adjusted its development strategy, and began to emphasize "getting ashore," focusing on gross profit, profit, and reducing back-end costs. Now, Songshu Pinpin has been eliminated and completely withdrawn from the competition among community group buying leaders. After an acquisition Rashomon, "Niwo Nin," which Songshu Pinpin once wanted to bring under its wing, finally joined hands with another community group buying platform, "Shihuituan." On August 30, in an internal letter released by Chen Ying, co-founder of Shihuituan, it was mentioned that this acquisition was a "victorious meeting," and the new Shihuituan born after the merger has become the most combat-effective team in the community group buying industry, forming multiple city circles with monthly sales exceeding 50 million. A relevant person in charge of Shihuituan told Zinc Finance that Shihuituan and Niwo Nin only started contact at the end of August, and it took three days to finalize. Currently, the first phase of integration has been completed. However, "Niwo Nin" is a hot potato that is not easy to handle. Although Shihuituan told Zinc Finance that the acquisition process has not been affected, and by the National Day holiday, Shihuituan had completed the smooth transition of 13 warehouses in 9 cities. Niwo Nin's financing history. Image source: Tianyancha. But from a letter obtained by Huxiu from Chen Ying, co-founder of Shihuituan, to Qimingxing employees, clues can be seen, which mentioned: "At present, Qimingxing's support for the asset acquisition of Zhixingheyi cannot be advanced. This directly led to the failure of Shihui Technology's asset acquisition of Zhixingheyi (the parent company of Niwo Nin) to be completed smoothly." According to Huxiu, the acquisition agreement between Shihuituan and Niwo Nin is 30.2 million in cash plus 130 million shares of Shihuituan overseas stock, with the transaction target being Qimingxing's 20% stake in Niwo Nin, paid in three installments. However, Liu Xing (the major shareholder of Qimingxing), the ex-wife of Niwo Nin founder Liu Kai, demanded a one-time payment of the remaining amount and threatened to stop services. Because Liu Xing holds the company seal and refuses to give it, the transaction is currently in a state of stagnation. Farewell, the Era of Group Leaders After a round of mergers and eliminations, the trend in community group buying is changing, with profitability being put on the agenda. For entrepreneurs accustomed to rough models, transformation is imminent. As the most valued "asset" in the community group buying industry, the community group leaders who connect customers and platforms are now having a hard time. "Still doing it? No, I can't do it anymore." This autumn, similar conversations frequently occurred among group leaders. Gong Jiawei, who once worked for a leading community group buying platform, entered the community group buying industry in May 2017, transforming from a personal entrepreneur to a city partner in a third-tier city. He witnessed the crazy expansion of community group buying over the past two years. As platform GMV continued to rise, high-quality group leaders became the target of fierce competition. At its peak, the profiles of high-quality group leaders were even priced, requiring tens of thousands of yuan to purchase. In Gong Jiawei's jurisdiction, a top-ten group leader was constantly harassed. The other party first expressed appreciation by phone, inviting the group leader to switch platforms. After being rejected, the other party directly found the group leader's home address and came to the door with gifts. In this battle, Gong Jiawei maintained relationships with group leaders through daily contact. He mentioned: "What platforms can offer is often similar, and in the end, it's the relationship that decides." This relationship was described by Tu Fanfei as "like dating, both willing": "Relying on personal connections, if the group leader can't make money, they will leave, and the platform won't keep them either, since they don't contribute much value." Gong Jiawei experienced a difficult financing period at the leading community group buying platform. But recently, he chose to resign. The reason for his retreat is the price decline caused by vicious competition and reduced profit margins. Especially since 2019, platforms have been fighting over every cent of price. "For the same product, if I sell it for 39.9, he sells it for 39.8, lowering the price by one cent at a time," Tu Fanfei told Zinc Finance. A Thai Ray mask that was sold for 68 yuan per box on Taobao at the time was priced at 99 yuan for two boxes in Gong Jiawei's group buying in 2017, but dropped to 88 yuan for four boxes in less than two years. With intensified competition, declining average order value, and order diversion, "group leaders do more things than before, but they can earn less money," said Gong Jiawei. A group leader under him who previously earned more than 10,000 yuan a month can now only earn 6,000 to 7,000 yuan, and more group leaders earn around 3,000 yuan a month. In the fierce competition, the originally delicate relationship between group leaders and platforms began to change. Previously, agreements between platforms and group leaders were often loose. Experienced group leaders would keep traffic in their own hands, and many group buying platforms could not truly control consumers in residential communities. Even if platform employees were allowed to join groups or supervise, the groups might be "dead groups" created or purchased by the group leaders. Now, to reduce platform dependence on group leaders and ensure the quality and efficiency of groups, some platforms have begun to formulate group leader screening standards and incentive systems. If standards are not met, group leaders can be replaced. Shihuituan plans to have some group leaders open offline stores, and top group leaders in each city will participate in "group leader study tours." Xingsheng Youxuan's hard requirement for selecting group leaders is whether the group leader has an offline store, using store managers to build offline business. It can be said that with the formation of platform advantages, the era of group leaders choosing platforms is also coming to an end. They either choose to leave or choose to adapt to new rules. Burning Money for Fresh Food "Many players won't survive this summer," mentioned Liu Xing, a person in charge at Xingsheng Youxuan. In the summer of 2019, a major exam related to the life and death of community group buying platforms arrived. The keyword of this exam is fresh food, a category that all group buying platforms value. On the one hand, fresh food is the user and traffic entry point for almost all group buying. Since fresh food is a high-frequency item in family life with a high repurchase rate, a hit fresh food product can effectively drive traffic to other products. Fresh food currently occupies absolute weight in the SKUs of community group buying. A relevant person in charge of Shihuituan told Zinc Finance that fresh food accounting for 75% is the team's basic requirement. In addition, statistics from the Xingsheng Youxuan mini program show that fresh food accounts for more than 50% of its SKUs. Xiao Zhilong, founder of Linlinyi, which was recently exposed to have withdrawn from parts of Jiangsu, Zhejiang, and Shanghai, also mentioned in a media interview that fresh food products account for 60% of total SKUs, "and will be the most important commodity in community group buying for two years." On the other hand, securing a fresh food hit also tests a team's comprehensive capabilities. Especially after entering summer, when the weather is hot and cold chain transportation is required, costs increase, which is equivalent to a gamble for startups. Ke Lin, a player in the fresh food supply chain, told Zinc Finance that taking fruit as an example, peers basically rely on the first wave of price cuts when fruit hits the market, even selling at a loss below cost to grab traffic, and then profit from sales volume when fruit costs drop in the mid-term. The traffic and price war at the end customer level also means a fight over every single fruit, reflected in the origin of the fruit, which is another round of "price war"—inflating prices. Ke Lin witnessed such a case this summer: a team cut prices when operating winter dates, thinking that the origin would lower prices in the mid-term, but another team with the same purpose intervened, and the winter dates that should have dropped in price at the origin rose instead. "Without sufficient funds, you can't do well in fresh food, but even if you have funds, some investors are unwilling to watch money go down the drain," he mentioned. He himself also experienced losses. In August, he received 20,000 pre-orders for passion fruit. However, due to the rush for passion fruit in Yunnan, the cost price rose from over one yuan per jin to 2.5 yuan per order, directly doubling the price. In the end, Ke Lin could only ship at a loss: "The raw material cost doubled. At that time, we shipped over a thousand orders a day, losing about 10,000 yuan." This is equivalent to a "big gamble," betting that after fruit prices drop, they can rely on the previously captured market to increase order volume and recover losses. If they cannot wait for financing or have a link failure during the important summer fruit season, they are likely to be eliminated from the industry. Scraping Profits from Every Link The large-scale layoffs at Songshu Pinpin and the merger of Shihuituan and Niwo Nin mean that the era of burning money in community group buying has ended. The entire industry has become cautious, focusing more on scraping profits from details. Many platforms have put more energy into betting on fresh food hits. The richness of products is limited by the overly high proportion of fresh food, and the bottleneck is becoming increasingly obvious. The profit model that really needs attention is still in its infancy, and few players can build a complete profit model as originally envisioned, such as building warehouses and reducing logistics costs. But this is a step that community group buying companies must take. "Although capital investment and operation have changed the industry landscape of community group buying, they have not brought the truly needed infrastructure capabilities such as supply chain, warehousing and distribution, and SaaS to the industry," Zhuang Shuai mentioned. He believes that the model of community group buying has been thoroughly studied, and giants such as JD.com and Meituan have already begun to lay out community group buying, posing a great threat to current players. The acceleration of the reshuffle came unexpectedly. While other players have not yet begun to build competitive advantages in the second half, the leading platforms that have won this round of battle and obtained financing to survive have already begun to act. The integration of online and offline is intensifying. Xingsheng Youxuan uses offline convenience stores as pickup points, treating the online group buying fresh food business as a supplementary business to offline stores. Before the "pre-sale + self-pickup" model was determined, Xingsheng Youxuan also briefly tried the home delivery model—"The cost of the home delivery model is too high and cannot be reduced," Liu Xing said. Other companies that were originally online are now seeking offline. Xiao Zhilong, founder of Linlinyi, told the media that he is planning to transform to an offline store model. This coincides with Shihuituan's offline strategy—launching the "Shihuituan Small Store Support Plan" to support some group leaders in opening stores and expanding store-type group leaders' share of sales. On the other hand, in other links of the chain, platforms are also "being thrifty," looking for the most cost-saving ways, especially in the logistics end, which Liu Xing identified as "most likely to be profitable." At the beginning of the year, Shihuituan began to delegate power to local cities, establishing "core city warehouses" to radiate to satellite cities within a radius of 200 to 400 kilometers, building warehouses according to demand. A relevant person in charge of Shihuituan told Zinc Finance that according to the "core city warehouse" model, Shihuituan calculates the optimal logistics route during transportation to ensure the most cost-saving. "Shihuituan's business model compresses fulfillment costs to between 0.4 yuan and 1.5 yuan," he said. Now, community group buying companies are constantly being exposed to tight capital chains. Behind these news, the wave of mergers and acquisitions is sweeping through leading companies, which may mean that the finals are approaching. Some players are no longer obsessed with the "community group buying" traffic signboard and have begun to look for more detailed entry points. On May 20, Meijia Youxiang was upgraded to "Meijia Maicai," aiming to focus more on family meals, no longer emphasizing the "group buying" concept, but rather moving closer to internet grocery shopping. And after leaving his platform, Gong Jiawei plans to use the logic of community group buying to do social e-commerce, with group leaders sharing products for online drop shipping, improving bargaining power through group buying, making products in large specifications to reduce circulation costs, and delivering by express. Transforming players have found new ways, but the remaining players still need to think about how to use fresh food to attract traffic while building a more stable and rich product structure, and strive for greater profits in every link to form a good business model. The reshuffle of the industry is far from over. Behind the impressive order numbers lie losses, and once financing fails to keep up, the surviving players in community group buying will face an even more difficult game. (At the request of the interviewees, Tu Fanfei and Liu Xing are pseudonyms in the article.) This article is sourced from Zinc Finance (ID: xincaijing). Tips will be paid 400-2000 yuan once adopted. China FMCG + Internet Professional New Media Committed to FMCG manufacturer transformation and upgrading and channel digital solutions Copyright issues | Business cooperation | Project consultation | Reader submissions