Source: Internet Jianghu (ID: VIPIT1)

From the bankruptcy of Tongcheng Life, to the retreat of Shihui Tuan, to the layoffs at Orange Heart Preferred, community group buying, once so glorious, seems to have entered a winter overnight.

In fact, looking at the development history of food delivery and bike-sharing, which are also local life services, the transition from the early "melee" of community group buying to the current "market reshuffle" involving Tongcheng Life and Orange Heart Preferred is more like a natural evolution of survival of the fittest. The foundation of community group buying's market imagination has not been greatly affected.

Currently, the first-tier platforms in community group buying include Meituan Select and Duoduo Maicai. However, the second-tier "Taocaicai," newly integrated by Alibaba's MMC, backed by Alibaba and Hema's resources and supply chain, should not be underestimated.

In fact, with the completion of the industry reshuffle, and as the weather turns cooler in Q3 and Q4, the high loss rate of fresh produce has been alleviated. The peak season for community group buying is just beginning. The seemingly calm and quiet community group buying may be brewing a final battle that will determine the future.

Burning Money on Subsidies: Is the Profit Problem Really Unsolvable?

Since internet giants flooded into the community group buying track in 2020, it has adopted an internet-thinking development model. Major platforms have been burning money on subsidies to expand their territory, hoping to monopolize and harvest the market later. However, after a year of development, community group buying platforms have fallen into a profit dilemma of selling at a loss for applause. The tactic of burning money to grab users doesn't seem to work well in this track.

Looking back at this subsidy war, as competitors in the community group buying industry increased, homogenized operations and similar products made low-price subsidies the only means for platforms to acquire customers. As a result, malicious low-price competition attracted regulatory crackdowns. The "one-cent vegetable" burning war was forced to stop, but users' consumption habits for community group buying have not been cultivated. Instead, it has cultivated a group of users who chase discounts and exploit the system.

When price, quality, and convenience cannot convince consumers, to maintain market share and user scale, "thin-blooded" community group buying platforms can only continue to raise funds, burn money, and subsidize users.

But when platforms lack the creativity and profitability for independent sustainable value, capital will not pay for them. According to Tianyancha Professional data, the bankrupt community group buying platform "Tongcheng Life" had its last financing on July 31 of last year.

In the view of Internet Jianghu, in the early stages of community group buying, when the platform's own supply chain and logistics infrastructure were not perfect, using low-price subsidies to seize market and users, thereby obtaining huge scale to spread platform costs, this internet business logic, tested by the market, is effective.

But it is worth noting that burning money on subsidies is only a means, not an end. The ultimate goal is to educate the market and cultivate users' high-frequency community group buying habits. In fact, what is the strongest barrier in internet business competition? It is user habits. High frequency beats low frequency, and rigid demand drives non-rigid demand. The core point is to cultivate user habits.

Therefore, the essence of the difficulty in making community group buying profitable lies in cultivating user consumption habits.

From a traffic perspective, the high-frequency, repurchase, and rigid demand characteristics of community group buying make it not just a vegetable-selling business, but a traffic business. In fact, internet giants like Meituan, Pinduoduo, Alibaba, and JD.com entered the community group buying track not to become "vegetable vendors only concerned with a few cabbages," but for the massive offline traffic and life scenarios behind community group buying.

When the unit value of traffic is low, there are two main ways to release traffic value: one is to go for scale with small profits and quick turnover; the other is to increase the unit value of traffic and take a refined route.

Currently, the average order value and gross margin of community group buying products cannot be improved in the short term, and scale growth has reached a market bottleneck. To profit and acquire customers, platforms must deeply explore and extend the value of users' existing traffic services.

Community group buying's "online vegetable shopping" mainly serves the offline kitchen scenario. By refining the granularity of scenarios, community group buying platforms can derive many new ways to acquire and retain customers from users' offline kitchen scenarios, beyond low-price subsidies.

1. Through simple processing, provide users with semi-finished ingredients or pre-made dishes. On one hand, this can reduce fresh produce loss caused by transportation and storage; on the other hand, it can extend and increase the industrial chain and added value of fresh produce, increasing the platform's profit points.

This kind of semi-finished ingredients actually meets the consumption needs of a large number of users, solving pain points like wanting to cook but finding it troublesome to chop vegetables, and to some extent bringing real convenience to users.

2. Community platforms can also introduce food live streaming and short video functions, providing users with recipes and cooking methods through video sharing, and finally pairing with promotions of related fresh ingredients. That is to say, community group buying should not just sell vegetables, but also a life scenario and a food service.

In fact, many people have been puzzled by "what to eat tomorrow," because users rarely have a clear choice about buying vegetables and cooking. The "community group buying + live streaming/short video" model can help users, while buying vegetables on the platform, generate consumption impulses faster by watching short videos, and finally prompt them to order a full set of fresh ingredients for a certain dish on the community group buying platform. This is not much different from the logic of e-commerce带货 on short video platforms like Douyin and Kuaishou.

Based on the rigid demand and high frequency of fresh produce categories, community group buying platforms use heavy fulfillment models and short videos to create strong user stickiness, accelerating the cultivation of users' community group buying habits.

Once user habits are formed, the vegetable-selling business of community group buying can be expanded into "last mile" community e-commerce, urban e-commerce, and other e-commerce models. The profit imagination space for community group buying platforms will also become more vast.

In fact, the proportion of non-standard fresh produce products on major community group buying platforms is declining, while standardized SKUs such as daily necessities and even digital appliances are increasing. At the same time, Meituan Select has begun to venture into live streaming and short video models, while Shihui Tuan has added life services like range hood disassembly and cleaning. Community group buying is gradually evolving from a single fresh produce category to a local life community e-commerce that is closer to users and richer in categories.

Efficiency: The First Priority of Community Group Buying

Although the end point of community group buying evolution is e-commerce, due to incomplete infrastructure, community group buying is essentially still new retail. That is to say, community group buying currently needs to return to retail thinking.

New retail is the integration of online, offline, and logistics. From the core essence of the industry, efficiency is the first priority of community group buying.

Traditional e-commerce online shopping generally takes two to three days, while community group buying uses pre-sale, self-pickup, next-day delivery, and other models of selling first and then shipping, completing transactions within 12 to 24 hours. This actually tests the platform's ability to quickly respond and organize iterations in supply chain, warehousing, logistics, and other infrastructure.

Generally, community group buying goes through a series of long business chains: procurement - central warehouse - grid warehouse - group leader - user. The perishable nature of fresh produce requires that the intermediate links such as transportation and storage be short, which means platforms need to make supply chain and warehousing heavy, thereby forming their own differentiated barriers.

In this regard, Meituan and Pinduoduo have already taken the lead in the track.

Statistics show that in August 2021, the daily sales volume of the entire community group buying was about 80 million items. Among them, Meituan Select and Duoduo Maicai had similar scales, exceeding 25 million items per day, each accounting for about 31%, in the first tier.

In the community group buying track, the reason Meituan and Pinduoduo can gain an advantage is related to their own business architecture.

Austrian economist Rosenstein-Rodan proposed the Big Push theory. The core of the push theory is external economies, that is, by simultaneously investing in complementary sectors, on one hand, it can create mutually demanding markets and solve the problem of economic development hindered by insufficient market demand; on the other hand, it can reduce production costs, increase profits, further expand investment, and eliminate bottlenecks of insufficient supply.

From the perspective of Meituan's organizational structure, community group buying is an important part of local life services. Previously, Meituan had launched services such as "delivery of vegetables to home" and e-commerce. That is to say, in terms of sinking cities and logistics for community group buying, Meituan has the model of food delivery as a template, giving it a great advantage.

At the Q2 earnings call, Wang Xing said that Meituan Select's next step is to focus on increasing warehouse density and building a cold chain logistics network, thereby enhancing Meituan's overall supply chain advantage and preparing for cost reduction and efficiency improvement.

For Pinduoduo, agricultural product e-commerce is the key to its entry into the e-commerce industry, and it is also its advantage in differentiated competition with Taobao and JD.com. Therefore, on the basis of agricultural product e-commerce, Duoduo Maicai emphasizes direct sourcing from the source and direct delivery from the place of origin, providing consumers with a richer variety of fresh produce.

In fact, for community group buying platforms, on one hand, they need to reduce circulation links through direct sourcing and self-built logistics networks to achieve supply chain stability; on the other hand, they need to widely build and apply cold storage, refrigerated vehicles, temperature control equipment, etc., to reduce the risk of high loss of fresh produce during transportation.

Only when platforms achieve efficiency control over each link can they achieve cost reduction and efficiency improvement, and only then can they have the ability to migrate across industries.

However, the goal and market of supply chain logistics reform are the vast fourth- and fifth-tier cities, which is equivalent to extending finer, faster, and more capillaries on the basis of traditional e-commerce logistics. This is destined to be a heavy-asset, long-cycle investment. That is to say, community group buying must endure long-term losses. Platforms that neither have the ability to generate blood nor can continue to receive financing will inevitably be cleared out by the market.

Facts have proven that community group buying is a "Squid Game" that only giants can afford to play.

Of course, once the infrastructure of community group buying is fully established, the benefits may not only be for offline supermarkets; traditional e-commerce will also be greatly affected. Because the essence of the internet is connection, changing the relationship between people, goods, and places. On the basis of maximizing supply chain and logistics efficiency, community group buying will become a truly high-frequency, rigid-demand, repurchase traffic entrance. Then the business model of community e-commerce selling goods may not be impossible.

Final Thoughts:

On October 8, Meituan was administratively fined 3.442 billion yuan for monopolistic behavior of "choosing one of two," which added a factor of uncertainty to the future battle between the two leading community group buying platforms, Meituan Select and Duoduo Maicai. However, it is certain that whoever can complete the construction of community group buying platform infrastructure first will become the ultimate winner of this "Squid Game."

The cold wind is rising. Where will the future of community group buying go?

Are you "watching" me?