---
title: "Community Group Buying Bids Farewell to Subsidies"
description: "In just half a year since the end of 2020, the frequent issuance of regulations, tightening market supervision, and the severity of enforcement in community group buying have exceeded all expectations. In March, after the State Administration for Market Regulation imposed administrative penalties on five platforms, the market thought the scale and frequency of such penalties were clear. Unexpectedly, in June, the administration imposed a maximum fine of 1.5 million yuan on Shihuituan and, for the first time, published a detailed Q&A on its official channel, explicitly prohibiting all forms of low-price dumping through huge subsidies. This means that community group buying platforms are no longer allowed to engage in any price reductions, promotional activities, disguised subsidies, or new user incentives."
author: "赵小米"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2021-06-16"
language: "en"
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---

# Community Group Buying Bids Farewell to Subsidies

> In just half a year since the end of 2020, the frequent issuance of regulations, tightening market supervision, and the severity of enforcement in community group buying have exceeded all expectations. In March, after the State Administration for Market Regulation imposed administrative penalties on five platforms, the market thought the scale and frequency of such penalties were clear. Unexpectedly, in June, the administration imposed a maximum fine of 1.5 million yuan on Shihuituan and, for the first time, published a detailed Q&A on its official channel, explicitly prohibiting all forms of low-price dumping through huge subsidies. This means that community group buying platforms are no longer allowed to engage in any price reductions, promotional activities, disguised subsidies, or new user incentives.

From the end of 2020 to now, only half a year has passed, but the frequent release of regulations related to community group buying, the continuous tightening of market supervision, and the severity of enforcement have exceeded everyone's imagination.
In March, after the State Administration for Market Regulation imposed administrative penalties on five community group buying platforms, the market and industry believed for a time that the scale and frequency of similar penalties had become roughly clear. Unexpectedly, this was only the first step in policy regulation of community group buying.
In June, the State Administration for Market Regulation again imposed a maximum fine of 1.5 million yuan on Shihuituan. For the first time, it used its official channel to publish a long Q&A article, explaining in detail the scope and intensity of current regulations. The article directly pointed out that all "low-price dumping" behaviors that sell goods at prices below cost through huge subsidies are prohibited.
Multiple industry insiders in community group buying said that the issuance of this ban means that all price reduction and low-price behaviors by community group buying platforms, including all promotional activities, disguised subsidies, and new user incentives, are not allowed.
**Community group buying, theoretically, has bid farewell to the keyword "subsidy" from now on.**
Soon, a few days ago, the market reported that several community group buying companies, including Meituan Select and Duoduo Maicai, were required to remove price activities like one-cent flash sales.
Community group buying, as a new community retail model that is still evolving, currently relies mainly on price incentives to maintain order volume stability and growth for major platforms. Naturally, this blanket ban on low-price promotions has a huge impact on the order volume of all community group buying platforms.
Multiple community group buying platforms and group leaders in mature regions revealed that in the 10 days or so from early June to now, except for Meituan Select and Duoduo Maicai, which saw slight declines in some mature cities, other platforms have seen significant declines in regional and total order volumes.
**Why is price still the only means for community group buying to attract C-end customers? Why has community group buying, which provides household consumer goods, encountered rare social backlash?**
**Excluding some accidental factors over the past six months, looking back at the industry itself, the fundamental reason is that the household consumer goods purchase relationship established between community group buying and customers is far from reaching the value level established by standard e-commerce and traditional retail.**
Even internet giants that have entered the market have to continue using price incentives as the only means to maintain daily orders.
Before 2020, community group buying did not attract much social attention, and no one cared whose business these companies were taking.
Community group buying platforms affected by order volume declines have had to adopt more creative methods to comply with policies and maintain orders. Some platforms, in order to sustain order volume in mature regions and the pace of expansion into new cities, have openly increased group leader commissions but secretly asked group leaders to transfer the extra commission back to users via WeChat, achieving disguised subsidies to maintain overall platform order volume.
Of course, group leaders, who do not have a dominant position in the industry chain, also have methods to exploit the platforms, such as fake orders.
In short, facing the current overall situation, the major community group buying platforms are all troubled. The industry needs to find new ways to stabilize and grow order volume under the premise that the current regulatory environment remains unchanged for a long time.
**At least, the household consumer goods business, which naturally emphasizes customer repurchase rate and average order value, also needs to establish a stable value relationship beyond price means.**
**-01-**
**Household Consumer Goods is a Good Business**
Internet-backed community group buying platforms are aggressively expanding their business while facing strict regulatory enforcement and strong public backlash. However, actively developing business remains the primary goal for all platforms.
The internet and digital economy have effectively optimized and improved the circulation of general consumer goods, which is indisputable in both policy and actual business results. Regulation targets fair competition, not the prohibition of internet platforms from participating in the circulation of household consumer goods in community scenarios. The main challenge is to continue business while adjusting methods.
After several years of small-scale experimentation in community group buying, internet platforms suddenly entered in force in June 2020, mainly because the community group buying model provided a solution to the long-standing problem of internet platforms participating in household consumer goods.
This market has significant scale value for consumer-oriented internet companies. The nearly 5 trillion yuan community group buying market indeed had fundamental model flaws before the internet entered. Simply put, the small-scale efforts of previous years reflected the true level of earlier players.
First, look at the business value of this track. Community group buying can penetrate the household consumer goods market that traditional e-commerce has not well covered.
Costco, as a leading global retailer of household consumer goods, covers a large number of middle-class consumers through its high-premium supply chain capabilities and achieves high penetration of household purchases. Therefore, the market size and customer value (high penetration) of household consumption are significant.
Looking at market size, according to Amazon data, household-based consumption decisions account for about 30% of all consumption scenarios. Based on this, in the current 15 trillion yuan e-commerce market, household consumption accounts for 4-5 trillion yuan.
To describe this scale vividly, whoever can capture the community group buying market would have a scale equivalent to JD.com plus Pinduoduo in 2020.
Now consider the value of individual products. Although e-commerce platforms have large overall scale and strong cross-category effects, at the individual product level, e-commerce platforms still lack the stability of traditional retail, especially for household consumer goods.
Therefore, we see these platforms needing multiple annual promotional events and marketing tactics to stimulate and awaken platform users. **The underlying reason is that in the household purchasing scenario, the most important factor is the satisfaction of one-stop shopping.**
Traditional retail excels in scenario-based displays and one-stop shopping, effectively building a complete shopping scenario for household needs. In contrast, e-commerce's current information display and interaction methods are relatively weaker in constructing such shopping scenarios.
**Simply put, when consumers make household purchases on e-commerce platforms, the costs of searching, browsing, and decision-making are higher than in physical retail.**
Of course, while traditional retail is strong in experience, it has disadvantages in product variety, updates, and prices. Additionally, the business system built around stores is not flexible enough, the convenience of in-store pickup is poor, and unhealthy supplier relationships, such as "squeezing" suppliers, are all reasons for the decline of physical retail.
Community group buying, entered by internet giants, takes a different approach to penetrate household consumption scenarios. Starting with the highest-frequency fresh produce category, it uses low prices to occupy consumer minds, then expands to cover all household consumption needs.
The low prices mentioned here include not only high subsidies below cost but also the advantages of community group buying in optimizing the circulation chain, combined with the pre-sale system and batch fulfillment model, which can indeed offer consumers relatively lower prices.
According to the original plans of internet giants, the pre-sale system ensures orders, and batch fulfillment of fresh produce minimizes losses during circulation and reduces unsold inventory losses, thereby improving the efficiency of agricultural product circulation.
**-02-**
**Community Group Buying Has No Competitive Barriers**
**Another characteristic of household consumer goods is that the barriers to building distribution channels are extremely low.**
In household purchases, customers do not develop strong loyalty to specific brands or channels as they do in personal consumption. Therefore, if traditional retail, with decades of building extensive upstream and downstream industry relationships and hypermarkets with extremely complete product categories, cannot defend the barriers of household consumer goods, how can e-commerce platforms?
In other words, just as community group buying can impact traditional retail today, any new solution in the future can also impact community group buying platforms.
Currently, the main role of group leaders on several leading community group buying platforms is increasingly becoming just a pickup point for storing goods. Although platforms repeatedly emphasize the functionality of group leaders, in reality, the role of most group leaders in customer acquisition and service is declining overall.
**This means that the only advantage of the community group buying model is batch fulfillment and the gross margin squeezed out through supply chain optimization (such as procurement premiums from shorter payment terms with suppliers).** Therefore, as long as backend inventory management, goods supply, and circulation links are sufficiently optimized, whether the front end is community group buying or another format does not matter much.
Ultimately, the business of household consumer goods with communities as fixed fulfillment targets will never have high model barriers or innovation thresholds. Therefore, major players, including giants, prefer to burn money to quickly occupy community terminal positions.
However, this position may not be defensible, regardless of regulation or public backlash.
**-03-**
**After Regulatory Tightening**
Now, with continuous policy tightening, the business changes for all companies in the community group buying track are fundamental.
**First, all players, especially internet giants, will be forced to explore competitive points beyond price.** In 2019, when Shixianghui was at its peak, it did not compete on price but by building its core competitiveness in serving small stores.
**Second, on the supply chain side, community group buying platforms must return to the retail essence of household consumer goods and develop supply chain capabilities, including quality control, supply volume, and pricing.**
Currently, the new top three community group buying platforms do not control inventory to ensure cash flow and expansion speed. However, without controlling inventory for household consumer goods, it is difficult to ensure quality, especially for fresh produce, which is highly perishable. Therefore, community group buying has generally had a poor reputation for fruit and vegetable quality over the past six months. After breaking free from the vicious cycle of low prices, platforms need to build their own supply chains and control inventory to ensure quality.
**Also, logistics needs continuous optimization to find the most economical and efficient methods. At minimum, platforms need to optimize their backend logistics capabilities to the level of a community group buying version of JD Logistics.**
Third, regarding group leaders and their small stores, platforms should give them new independent growth value. As mentioned earlier, Shixianghui succeeded in the "Hundred Regiments War" before the new top three entered, mainly because it upgraded the business capabilities of 6.6 million mom-and-pop stores nationwide. Of course, Shixianghui has not done enough, and more internet resources can be shared with this vast group at the end of China's commercial network.
Under regulation, community group buying platforms should consider how to integrate the design of the supply chain's end links with small stores as independent business units, forming a complementary relationship where 1+1>2.
**Ultimately, community group buying is a retail business, not just an internet business.**
It is foreseeable that when the industry returns to retail essence, the business form of community group buying will become: no single dominant player and highly fragmented.
This is the outcome the industry hopes to see, a model recognized by public opinion, and possibly the most reasonable result, but it may not be the answer the current leading platforms want.
Source: Future Consumption APP (ID: Islb168)
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