Community group buying is not just about a couple of cabbages. After years of development, to some extent, the Chinese internet industry no longer has "stories"—major and minor giants have each claimed their own territories, platform-based opportunities have nearly disappeared, and the demographic dividend has reached its end. This once high-flying industry seems destined to be mired in the quagmire of zero-sum competition amid noise and involution. Everyone is yearning for a war full of imagination, even one that could change the world. And community group buying is staging such an epic battle. Alibaba, JD.com, Meituan, and Pinduoduo have all entered the fray. Community group buying is becoming the new gladiatorial arena for e-commerce giants. What the giants covet is not just the business of a few cabbages. The greater significance lies in this being a super strategy for going down-market. To capture the vast lower-tier market, community group buying is an indispensable traffic gateway. According to public data, Xingsheng Youxuan has entered 161 prefecture-level cities, 938 county-level cities, 4,777 townships, and 31,405 villages. Given the consumption frequency of community group buying, such geographic penetration is extremely impressive and far exceeds that of food delivery. From a business model perspective, the WeChat traffic and user self-pickup model give community group buying clear advantages in traffic and fulfillment. This also makes it one of the few retail business forms that can balance scalability and profitability. Community group buying sits precisely in the penetration zone between product e-commerce and life-service e-commerce. For giants, entering community group buying is both an offensive and defensive move. Over a longer cycle, the high-frequency consumption of fresh produce also brings more possibilities for business logic evolution. Looking back at the past 20 years of internet development, it has essentially been a story of traffic. The core of traffic lies in consumption frequency. High-frequency beating low-frequency is a competitive strategy that internet giants have repeatedly used successfully. A core rule of e-commerce is that improvements in logistics efficiency bring users closer to products, lower average order value, and increase purchase frequency. In the community group buying scenario, users can buy a scallion for a few cents—what could be higher frequency than that? Unlike past internet wars, as giants have entered the fray, capital is no longer the most critical factor. The extension of internal organizational capabilities is beginning to replace capital as the decisive factor in this war. The outcome of this war will also trigger a new round of market scrutiny of giants' organizational capabilities. Especially for listed e-commerce giants, losing a core position will likely lead to a comprehensive reflection akin to "Tencent Has No Dreams." In short, the internet has no moats; winning battles is the eternal truth of the industry.
-01- The only fresh produce model that balances scale and profitability Why are giants flocking to community group buying? A core reason is that the business model is simply too good. Even industry insiders say it is the only fresh produce model that can make money. The superiority of the model can be summarized in two points: scalability and profitability. Looking across existing retail formats, few players can achieve both. For retail companies, the difficulty in moving from scale to profitability lies in the fact that chain platforms are essentially about economies of scale—they need to reach a sufficient scale to cover expenses. However, retail revenue growth often falls far short of covering cost increases at certain stages. For example, when you implement a management system to support 20 large chain stores, cash flow consumption is significant. If store development falls short of expectations, it can lead to substantial losses. The difficulty in moving from single-store profitability to scale lies in two points: first, offline retailers' advantages in traffic and supply chain are clearly regional, making cross-regional replication uncertain; second, during scaled replication, the requirement for supply chain alignment is high. If the supply chain fails to keep up, the replication may collapse halfway. In short, for most retail players, those that can scale don't make money, and those that make money can't scale. Community group buying is one of the few business models that achieves profitability while scaling. Of course, this is closely related to its cost advantages in traffic, supply chain, and fulfillment. On the traffic side, community group buying relies on group leaders' social relationships for customer acquisition and operations, with WeChat as the primary service scenario. The support of low-cost social traffic completely transforms its business logic. Many may not understand the significance of this. In the past, most retail transformations occurred in infrastructure and supply chain. Take traditional supermarkets and JD.com as examples: superficially, they differ in business format, but behind that lies a difference in supply chain foundations. The core of offline stores is the store itself, while the foundation of e-commerce like JD.com is "warehousing + delivery." Supply chain differences lead to different operational efficiencies. From data, JD.com's expense ratio from 2017 to 2019 was 7.4%, 7.9%, and 7.1%, while Yonghui's was 17.5%, 20.6%, and 18.6%. In 2019, JD.com's inventory turnover days were 37.5 days, while Yonghui's were 55.3 days. Considering the scale differences, the actual operational efficiency gap should be much larger. Unlike supply chain efficiency differences, traffic cost differences pull retail competition into another dimension. For example, low traffic costs allow platforms to achieve profitability at an average order value of 30 yuan, while most retail enterprises require far higher average order values. In this regard, community group buying is somewhat similar to Pinduoduo. While traffic cost advantages bring differentiated competition, community group buying's cost advantages in supply chain and fulfillment are even more pronounced. First, regarding supply chain, community group buying adopts a pre-sale model: after users place orders, the platform purchases from suppliers. This build-to-order approach achieves near-zero inventory with high turnover, leading to lower spoilage rates and warehousing costs. According to calculations by Kaiyuan Securities, community group buying's spoilage plus warehousing costs are 6 percentage points lower than those of front-warehouse e-commerce. Second, regarding fulfillment, whether it's Hema's store-warehouse integration or Miss Fresh's front-warehouse model, their high efficiency is mainly reflected in timeliness, typically achieving delivery within hours. According to Kaiyuan Securities, due to scattered last-mile orders, terminal delivery costs are high, usually accounting for half of total delivery costs, and delivery costs account for half of profit margins. High delivery costs mean profitability heavily depends on increasing average order value. For front-warehouse e-commerce, an industry insider once said, "The average order value must be at least 75 yuan to achieve per-order profitability." This means even if the model works, it's difficult to enter lower-tier markets. In contrast, community group buying uses a self-pickup model, shifting the delivery burden to users and reducing last-mile terminal delivery costs. Data shows this gives community group buying a 9 percentage point logistics cost advantage over front-warehouse models. Overall, the significant cost advantages make community group buying highly competitive. On one hand, prices across categories are generally lower than fresh e-commerce. According to Dongwu Securities data, compared with most offline retail enterprises, Xingsheng Youxuan has a clear price advantage in fresh produce. On the other hand, low operating costs also provide sufficient profit space for community group buying. Even with an average order value of 15-20 yuan, community group buying can achieve unit economic (UE) profitability, allowing it to capture the vast non-first-tier market. Of course, giants are not flocking to community group buying just because it can make money. Over a longer cycle, its strategic value to giants may be even more important.
-02- The "Offense and Defense" of Giants Community group buying is not just about a couple of cabbages. Beyond the huge incremental market of the trillion-yuan fresh produce sector, the penetration of lower-tier markets and the possibility of more business evolution brought by high-frequency transactions are what giants truly aspire to. In the past two years, Pinduoduo's rise brought the concept of lower-tier markets into mainstream awareness. Including JD.com and Alibaba, everyone is seeking ways to attack lower-tier markets. Community group buying is precisely the traffic gateway for giants to go down-market—it's their super strategy. According to data shared by Liu Huiyu, co-founder of Xingsheng Youxuan, Xingsheng Youxuan has entered 161 prefecture-level cities, 938 county-level cities, 4,777 townships, and 31,405 villages. Given the consumption frequency of community group buying, such geographic penetration is impressive enough. This penetration rate is far higher than that of food delivery. According to Meituan's food delivery order distribution data for the first three quarters of 2019, delivery services mainly operate in first- to third-tier cities, essentially stopping at fifth-tier cities. The reason is that county-level city business districts typically do not exceed 3 kilometers, residences are close, there are few migrant workers, and office hours are short, making delivery unsuitable. Given the high commercial monetization efficiency of e-commerce platforms, the significance of lower-tier markets is self-evident. This is especially true for JD.com. According to JD.com's third-quarter report, as of September 30, 2020, JD.com's active purchasing users over the past 12 months reached 441.6 million, a year-on-year increase of 32.1%. Although growth is decent, JD.com's user base still lags significantly behind Alibaba and Pinduoduo. The huge incremental market in lower-tier cities can not only sustain JD.com's high-growth story but also bring more possibilities for future business model upgrades. From another dimension, Alibaba and Meituan's entry is also inevitable. Community group buying sits precisely in the penetration zone between product e-commerce and life-service e-commerce. For them, entering community group buying is both offensive and defensive. Food delivery is Meituan's core business and the logical foundation of its local life traffic gateway. Compared with delivery, fresh produce is higher frequency, more essential, and reaches a broader audience, making it a better traffic gateway. Meituan needs to win community group buying to further consolidate its dominance in local life services. After all, the tactic of surrounding cities from rural areas is common in China. For Alibaba, there is no chance to defeat Meituan on the frontal battlefield. Community group buying will become its last chance to reverse the local life war. Compared with traditional internet giants, community group buying may have a more direct significance for Pinduoduo. In the first half of the rural-encircling-cities strategy, Pinduoduo grew to a $200 billion company. Currently, Pinduoduo undoubtedly needs a new story to support a larger and clearer future. Branding was the direction Pinduoduo previously attempted. But now it seems that path is not easy. The reason is simple: Alibaba and JD.com, which have completed brand upgrades, are two insurmountable mountains. The emergence of community group buying brings another business possibility for Pinduoduo: building a new commercial infrastructure and transaction model based on community group buying, then using high-frequency to beat low-frequency, gradually expanding to all vertical categories. As the internet enters zero-sum competition, giants are all eager for a war full of imagination, even one that could change the world—and community group buying possesses all the conditions to realize such dreams.
-03- A Ranking Match of Giants' Organizational Capabilities Internet wars occur almost every year, which is not unusual. Compared with other wars, community group buying is special because, from the 2014 group-buying war to last year's online education war, no war has drawn mainstream internet giants to personally engage in "hand-to-hand combat." The result of giants personally entering community group buying competition will undoubtedly trigger a new round of market scrutiny of their organizational capabilities. Everyone believes that business performance ultimately reflects organizational capabilities. The market's perception of their organizational capabilities will become an important basis for determining their valuations. This is not hard to understand. Over the past decade, after experiencing high growth, internet giants have inevitably hit growth ceilings. Although the pandemic temporarily boosted e-commerce and other internet businesses, it also accelerated the process of giants' core businesses hitting their ceilings. After 2015, internet giants used capital to clean up the battlefield, and corporate strategic investment entered a golden age, becoming a new force driving business development. Hence the saying in the internet world: "Entrepreneurs come and go, but AT (Alibaba and Tencent) remain." Now, as most quality companies have been acquired by giants, the growth effects of this force have begun to diminish. Coupled with the fact that giants' talent, traffic resources, and cash capital are no longer what they used to be, the extension of internal organizational capabilities is replacing capital as the driving force for new development. The problem here is that as companies reach middle age, mature organizations begin to have a deep reverse influence on business decisions and strategic implementation paths. Mature organizational inertia is often stronger than business demands and strategic rationality. The stronger the organization, the more powerless it may be in the face of difficulties, much like muscular men often lack flexibility. Alibaba's current predicament is also an internal issue. As employees achieve financial freedom, many have done so multiple times. The result is that fewer people are willing and able to fight big battles or tough battles. Essentially, scale is the natural gravity for all enterprises; only the best entrepreneurs and organizations can continuously resist gravity and move forward. Compared with other industries, the internet places unprecedented demands on organizational capabilities. Ultimately, it's because the internet changes so fast. Wherever the battlefield is, giants grow there. Those who hide in their moats will disappear after three years. For listed e-commerce giants, the cost of losing a core position is triggering a new round of market scrutiny of their organizational capabilities. From "Tencent Has No Dreams" a few years ago to "Alibaba Has No Courage" today, it's all the same. Back in the day, Momo CEO Tang Yan was widely regarded as the most suitable person in China for stranger social networking. Now, the demand for stranger social networking still exists, but Momo is no longer the same Momo. Ultimately, circumstances are stronger than individuals. In short, the internet has no moats; winning battles is the eternal truth of the industry. Source: Understanding Finance (ID: dudongcj) Author: Yang Yang Tips will be paid 400-2000 yuan upon adoption.