The development of community group buying in 2020 was truly dizzying. In the first half of the year, due to the pandemic, residents stayed indoors, and community group buying boomed; in the second half, internet giants like Meituan, Didi, Pinduoduo, JD.com, and Alibaba, along with capital, entered the fray, sparking a frenzy of subsidy wars. In October, the topic "Community group buying subsidy war affects vegetable vendors' livelihoods" trended on social media, drawing criticism from state media that "internet giants should not covet the traffic of a few cabbages." In November, relevant national ministries issued the "Nine No's" regulations for community group buying, and major platforms fell silent, but the subsidy war continued, with most leading platforms fined one to several times. After a fiery 2020, what is the current state of community group buying this year?
-01- This summer, many suppliers are having a tough time. Zhang Kai (pseudonym) was among the first to try it, supplying community group buying since 2017, mainly non-food items. In feedback to New Distribution, he said it's been very difficult since the Spring Festival. Order volume, average order value, and profits have all dropped by over 60%, with gross margins falling to just a few cents per order. Zhang believes that although more users were educated last year, consumption has returned to normal after the pandemic, and with so many platforms sharing the market, order declines are inevitable. Moreover, from a user experience perspective, once the novelty wears off, community group buying is definitely not as good as the convenience store downstairs. (Below is a screenshot of Zhang Kai's conversation with New Distribution) Zhang's situation is not uncommon. Another distributor in Zhengzhou, Lin Hui, mainly supplies Meituan and Pinduoduo platforms, focusing on alcoholic beverages. Lin faces a situation where after the Spring Festival, sales of baijiu (Chinese liquor) on community group buying have dropped by over 80%, shrinking from a monthly scale of 2 million yuan to just over 400,000 yuan. (Below is a screenshot of Lin Hui's conversation)
-02- Are platforms, group leaders, and service providers doing well? Apart from a few suppliers, most have faced varying degrees of volume and price declines in the first half of the year. If suppliers are struggling, are the platform operators, group leaders, and service providers faring any better?
1. Violent subsidies are being curbed, but platforms' traffic thirst remains unquenched. Let's look at the platform side. After being severely rapped on the knuckles by national authorities several times, leading platforms are now keeping a low profile. Although promotions continue, local market regulators are keeping a close watch, frequently summoning platform representatives for talks and issuing warnings. According to market feedback, the intensity and form of subsidies have changed significantly compared to the second half of last year; at least they no longer dare to blatantly offer 10 eggs for 0.99 yuan. With more subtle promotional methods and reduced subsidy levels, the appeal to most consumers has waned, making traffic and order stagnation or decline inevitable. But has the number of players vying for community group buying traffic decreased? Not at all! In addition to the giants already in the fray since last year, Alibaba has re-entered the battlefield this year. Moreover, express delivery giants like SF Express and YTO have been gearing up to launch community group buying projects in 2021. SF Express, in particular, has long been obsessed with community commerce, having lost heavily on previous ventures like Hei Dian and SF Preferred without giving up. With such a massive track, how could they retreat? The huge traffic generated last year by the pandemic and capital price wars will inevitably see a significant decline this year. At the same time, price wars are being curbed, and new and old rivals are emerging. It can be said that for platforms, there is no good option other than continuing to burn cash while incurring losses. Unexpectedly, while consumer orders are declining, orders from terminal retailers are rising. Many terminals report that certain products on community group buying are priced much lower than on B2B platforms like Lingshoutong. After years of bloody battles and burning cash, B2B platforms like Lingshoutong have survived, but now they might be inadvertently killed by community group buying. This is the most ironic joke of 2021. No wonder Alibaba's Lingshoutong is rushing to enter community group buying after the Spring Festival. Of course, in idle moments, platforms are also focusing on internal improvements. It is understood that platforms have significantly reduced damage rates this year, and even Duoduo Maicai's supply chain, which was widely criticized, has improved.
2. Are group leaders on various platforms doing well? Is there affection between platforms and group leaders? Perhaps, but only in fairy tales. Group leaders want the platform's supply chain, and platforms want the group leaders' private domain traffic. What seemed like a mutually beneficial arrangement is starting to crack. According to feedback from New Distribution readers across regions, starting in March, major platforms began reducing group leader commissions nationwide. In 2020, platform commissions for group leaders were generally above 12%, sometimes reaching 18%. But after March this year, platforms have cut commissions to below 10%, typically around 7%, and some as low as 5%. This has left group leaders across the country frustrated. Although they knew changes were inevitable, it happened too fast. Is this what they call internet efficiency, where even turning hostile is so sudden? Platforms have their reasons for cutting commissions: the pioneering phase is over, and group leaders' traffic has been fully exploited. Why pay high commissions for a temporary storage service? It's not worth it! The platform's ruthlessness doesn't stop there. It is reported that a platform in one area sued a group leader for exploiting subsidy loopholes to "fleece the wool." The key point is that the wool was sheared during last year's community group buying war, but the group leader was arrested in April this year. In just a few months, the platform's face changed dramatically, leaving group leaders astonished. Angry and resentful, group leaders have taken action. Some have returned to regional community group buying platforms, while others have formed alliances nationwide to support each other.
3. Service providers like front-warehouse operators are also struggling. Collective ordering, centralized procurement, on-demand production, and intensive distribution are the core logic of the community group buying model. Before the internet giants entered, many regional platforms had successfully run this model. But a year after the giants' entry, the battlefield is in shambles. For many warehouse and distribution service providers who rushed in last year, this summer is a life-or-death test. In summer, the cost of cold-chain delivery for fresh produce is at least 3-5 times higher than in winter, and summer bestsellers like beer and beverages are heavy. With a service fee of about 0.7 yuan per order, delivering a case of beer or drinks might only cover fuel costs. With low value, large volume, and heavy weight, community group buying service providers this summer, if they don't receive platform subsidies, face only closure and losses. This is not a prediction; since the Spring Festival, service providers have been exiting one after another. Of course, as long as the market exists, some will leave and others will enter.
-03- If summer is tough, will winter be better? Recently, a media outlet conducted a field visit to community group buying warehouse and distribution sites, concluding that community group buying is still far from profitability. Of course, profitability is not the primary concern for the giants at this stage; they may not even consider it. But they are most focused on traffic acquisition costs. As long as the cost of acquiring a community group buying user remains far lower than traditional e-commerce, they will not retreat. Many say giants and capital are not fools, and that's true. But the fact is that those who commit the biggest follies in the world are not fools but the greediest people. Indeed, giants have committed many follies globally, but it's often others who pay the price. So, we shouldn't immediately kneel and cheer just because giants are doing something. Given the Chinese government's effective pandemic prevention, it's nearly impossible for the market to return to last year's pandemic conditions. So we need to consider the following core questions:
1. Does the user experience of community group buying surpass that of other e-commerce or offline retail? 2. Does the full-chain cost of community group buying comprehensively surpass the traditional tiered distribution model? 3. Is the special-offer shelf model of community group buying more efficient and effective in product display and sales? 4. Besides serving as a channel for selling gray-market or low-quality products through price wars, what other value can community group buying provide to brand owners, distributors, and consumers? Perhaps no one has definitive answers to these questions. But community group buying has reached its current state without a guiding theory. Although the complex market lacks a theoretical beacon, stillness can breed wisdom. Our thoughts today may be the answers of tomorrow. (At the request of interviewees, all names are pseudonyms unless otherwise specified.) Tips for reporting will be paid 400-2000 yuan upon adoption.