Source: Photon Planet (ID: TMTweb) Author: He Furong
"It's getting harder for users to take advantage of platform subsidies, and they simply can't be retained," Zhang Xiao, who had been a group leader for both Orange Heart优选 and Duoduo Maicai, told Photon Planet. Two months ago, during the off-season for community group buying, he exited the industry.
In Zhang's view, when he first started last year, many products were genuinely cheap, and platform subsidies attracted a large number of users. However, since December last year, as national regulation tightened and platforms were fined the maximum penalty for low-price dumping, the price advantage of community group buying products is fading under the same quality.
"Most users are here to take advantage of subsidies," this statement seems to reveal the bottleneck of community group buying. When price, quality, and convenience gradually fail to convince consumers, user attrition is inevitable.
The black swan of the pandemic made community group buying popular overnight, with startups, internet giants, and capital rushing into this so-called "once-in-a-decade opportunity."
Community group buying's heyday lasted just over a year, and now the momentum has sharply declined, and it is fizzling out.
The previous high-profile but poorly performing trend was the bike-sharing industry, which was hyped by the sharing economy. Community group buying shares many similarities: burning cash on subsidies is standard practice, the industry ceiling is low, and there is little imagination.
In the end, only those backed by giants survived, such as Alibaba's Hello, Didi's Qingju, and Meituan Bike.
Will community group buying evolve into a situation where giants burn cash to attract traffic? This year, fresh food e-commerce startups have been retreating one by one. Currently, the highest market share is held by Duoduo Maicai and Meituan优选, both backed by giants.
However, Orange Heart优选, as the earliest community group buying project initiated by a giant, fell on the eve of the giants' decisive battle.
An employee said that the decision to adjust Orange Heart优选 was made and finalized within just one week. On September 1, an employee in Jiangsu said, "I went to work in the morning, and in the afternoon I was told it was over."
Orange Heart优选 reduced its operations from 9 major regions covering 31 provinces to 3 major regions covering 9 provinces. Regions including Beijing-Tianjin-Hebei, Northeast, Shandong, Jiangxi, and Shenzhen have already begun to be cut.
Regarding this contraction, Orange Heart优选 employees revealed that on September 1, it was announced that layoffs would begin gradually, and by November, nationwide layoffs would be completed. A grid warehouse franchisee in Chengdu told Photon Planet: "Sichuan and Chongqing will be retained."
There is no official news on the specific pace of retreat, but there is no doubt that Didi has pressed the pause button on "unlimited investment," and Cheng Wei failed to achieve his vision of capturing the top spot in the community group buying market.
An insider at a competitor of Orange Heart优选 told Photon Planet that they had also internally analyzed the reasons for Orange Heart's retreat: "First, Didi has been affected by regulation recently, and its ride-hailing business is under pressure, making it difficult to focus. Moreover, community group buying is inherently a money-burning business, with unlimited investment and no hope of profitability. There is no certainty about how much more needs to be invested, so stopping investment is also a timely stop-loss. Additionally, in terms of user habits, embedding community e-commerce in a ride-hailing app doesn't match the usage scenarios."
However, uncontrolled burning of cash is undoubtedly the main reason for Orange Heart优选's current shutdown. This is also reflected in other community group buying companies that have already retreated.
The suspension of Orange Heart优选 means that even internet giants with significant scale cannot easily digest this cake, prompting many to re-examine the industry.
A Money-Burning Game That Can't Be Played
The speed at which community group buying is fizzling out rivals the speed at which it became popular. The pandemic quickly ignited the concept of community group buying, but within a summer, players began their retreat.
Fresh food categories have much higher requirements in warehousing, logistics, and other aspects than ordinary products, especially in hot summer weather, which poses even greater challenges. The special summer weather undoubtedly exacerbated the industry's reshuffle in this round.
Since July this year, a batch of veteran community group buying startups have successively exited the battle. In early July, Tongcheng Life declared bankruptcy, toppling the first domino in the head community group buying sector.
Since its establishment in 2018, Tongcheng Life completed 8 rounds of financing, totaling 1.9 billion RMB. Last year, Tongcheng Life announced that its GMV had reached 10 billion RMB, and CEO He Pengyu set a goal of achieving 30-50 billion RMB this year.
Now, Tongcheng Life has burned through 1.9 billion RMB in financing, and suppliers are coming to collect debts.
Compared to Orange Heart优选's unlimited investment and Meituan's burning of 9.2 billion RMB in Q2 2021 for new businesses mainly focused on community e-commerce, the speed of burning money in community group buying is no longer just a few hundred million or a few billion.
Tongcheng Life, Shihui Tuan, and Xingsheng优选 are the "old three strong" in community group buying. After Tongcheng Life's bankruptcy, last month, news of Shihui Tuan's layoffs and business closures emerged. Shihui Tuan made drastic reforms in areas with low business efficiency in the short term.
Since August 20, business in 21 cities including Shenyang, Harbin, Qingdao, Fuzhou, Nanning, Hangzhou, and Kunming has been fully shut down.
Sudden business contraction inevitably leads to layoffs. Except for some employees who are eligible for interviews with Alibaba's MMC business group, many places have already begun forced layoffs.
(A dismissal text message received by a Shihui Tuan employee)
Multiple sources say that Shihui Tuan's sudden business contraction was "because the money in the account was only enough to burn for two months."
Xingsheng优选 is the only one of the "old three strong" that continues normal operations, but it struggles to break through regional limitations.
An insider at Xingsheng优选 told Photon Planet: "Xingsheng优选 has expanded to 17 provinces domestically, but only four provinces—Hunan, Hubei, Guangdong, and Jiangxi—can basically achieve break-even."
In other provinces, facing the carpet-style expansion of Duoduo Maicai and Meituan优选, Xingsheng优选 finds it difficult to compete with giants, and scaling is hard to achieve.
Beyond the "old three strong," Shihui Tuan, established in 2017, faced its darkest moment in late July. After several senior executives left, Shihui Tuan announced its exit from community group buying and transformed into a community snack brand called "Ai Lingshi."
At the beginning of last year, Shihui Tuan had announced that all cities it operated in had achieved profitability. However, with the successive entry of giants like Pinduoduo, Meituan, and Didi, a new round of investment raised costs again, leading to losses.
When Shihui Tuan closed, its founder Dai Shanhui responded: "The giants blocked our path forward, so we shut it down."
These community group buying startups entered the market before the giants but failed to see the dawn of profitability. Their exit is due to their inability to withstand the industry's endless money-burning war, and the giants' entry undoubtedly accelerated their retreat.
Burning money for market share seems to be a game only giants can play.
The Abandoned People of Community Group Buying
For various platforms, this grand retreat from community group buying can be understood as "business contraction" or "business suspension in some cities." To prevent further losses, community group buying platforms have stopped investment abruptly.
With the suspension of business on some platforms, the operations of group leaders, grid warehouse franchisees, suppliers, and other participants in the community group buying chain seem to have come to a halt.
Jiang Lin is a grid warehouse franchisee in Dazhou, Sichuan. Recently, he has become more eager to transfer his Orange Heart优选 grid warehouse.
The primary reason is the recent news of Orange Heart优选's shutdown. Even if there are rumors that Sichuan and Chongqing will be retained, he doesn't want to continue.
Jiang Lin told Photon Planet that since subsidies were halted in June, order volumes have been declining over the past three months. Previously, he could achieve monthly revenue of around 70,000 RMB, but now revenue has halved, and order volumes are still shrinking. After deducting costs, he is basically losing money.
Now he just wants to liquidate these fixed assets as soon as possible to minimize losses. However, he has been trying to transfer his grid warehouse for two months, contacting people everywhere, but no one has taken over. Some think the order volume is too low, while others simply don't see a future for community group buying.
Jiang Lin lamented, "If I don't transfer quickly, given Orange Heart优选's current situation, if there is no more funding for subsidies, it's not impossible that Sichuan and Chongqing will be suddenly closed due to declining sales, and then I'll really lose everything."
As for whether he has considered switching to other platforms, Jiang Lin seems to just want to escape the industry.
"The only ones doing well now are Meituan优选 and Duoduo Maicai. Meituan优选 is also burning money for growth, similar to Orange Heart. Also, Duoduo Maicai is direct-operated, making it difficult for third parties like us to enter," Jiang Lin said.
From Orange Heart优选's initial unlimited investment to its current fizzling out, he seems to have seen through the vicious cycle of burning money without profitability in community group buying. Even with major internet companies backing it, he has lost the enthusiasm he had when entering the industry, because Orange Heart's failure is a living example.
Wei Qin is a group leader for Orange Heart优选 in Chaoyang, Beijing. Because her family runs a convenience store, she became a community group buying group leader last year. Compared to franchisees with fixed assets like grid warehouses, group leaders are less affected by this wave of retreats.
Regarding when to stop business, Wei Qin said there has been no specific notice, but based on internal rumors and the significant decline in order volumes in the past two months, it's only a matter of time before she quits.
However, if this "part-time job" suddenly disappears, it won't have much impact because she mainly runs the convenience store. "Community group buying products are indeed much cheaper, but they are not easy to store, especially fresh products. In the past two months, order volumes haven't been high. Moreover, delivery platforms can now deliver to home for free, and many neighbors prefer home delivery. Self-pickup the next day is inconvenient for many." She is not very optimistic about the long-term prospects of being a group leader.
Zhang Ping worked in operations for Shihui Tuan in Zhejiang. Last month, after the company announced business contraction, layoffs began in batches based on tenure.
As a newcomer who had just passed the probation period, he was in the first batch of layoffs but received no compensation. He said, "I felt like my job was just settling down, and then suddenly it was gone. Honestly, I'm stunned."
After being laid off, Zhang Ping started looking for colleagues in similar situations on social platforms. "I met quite a few people, and we even formed a group, but what's the use? Even if I go to labor arbitration, I don't have the time or money to waste." Zhang Ping graduated last year and is tired of this change. He originally thought that joining a company with Alibaba's backing would be a great opportunity.
...
Cases like this are everywhere. Community group buying is experiencing a wave of retreats. This industry, hyped by capital, is now being abandoned by capital, and along with it, participants at all levels of the industrial chain are being abandoned.
A Meituan优选 marketing person told Photon Planet: "In the first half of last year, it was difficult to find group leaders to join; people didn't understand. But by the beginning of this year, many group leaders and suppliers were proactively joining because community group buying was widely known."
For roles like group leaders and suppliers, who are at the forefront of this trend, some haven't even figured out the profit model. But under the hype of giants and capital, "community group buying is hot" is reason enough for many to join.
Now, after the carnival, they retreat in desolation, leaving a mess behind.
The Imagination of Giants Selling Vegetables
In August 2021, the daily sales volume of the entire community group buying industry was about 80 million items. Among them, Meituan优选 and Duoduo Maicai had similar market scales, exceeding 25 million items per day, each accounting for about 31%, placing them in the first tier.
In the second tier are Alibaba's MMC, Xingsheng优选, Jingxi Pinpin, and Orange Heart优选.
On September 14, Alibaba announced that it would unify the two brands under the MMC business group, "Hema Market" and "Taobao Maicai," into "Taocaicai." However, after this adjustment, "Taocaicai" was positioned as community e-commerce, not community group buying.
According to Caijing, Chen Tongtong, the head of MMC's product operations, said that Taocaicai will not use massive subsidies to seize the market.
It can be seen that after the retreat of community group buying, MMC's adjustment this round intentionally downplays its community group buying attributes. Instead of burning money for volume like community group buying, "Taocaicai" is embedded in Taobao and Taote apps to attract traffic.
Before the adjustment, "Hema Market" and "Taobao Maicai" were both Alibaba's community group buying projects, but internal competition was intense, and Alibaba's community group buying was lukewarm.
MMC's adjustment this round aims to concentrate efforts and return to rational competition. However, whether it can compete with Meituan优选 and Duoduo Maicai in the future remains to be seen.
With the withdrawal of Orange Heart优选, the landscape of the giants' community group buying competition has become clearer.
Giants like Taobao, JD.com, and Didi all rushed in last year, but in terms of transaction volume, they have clearly fallen behind. Community group buying is as complex as e-commerce, especially for fresh products, which pose significant challenges in supply chain, warehousing, and logistics.
Meituan优选 and Duoduo Maicai have already deployed fulfillment facilities and operations teams, including central warehouses, grid warehouses, and group leaders, in nearly 30 provincial regions, over 300 prefecture-level cities, and more than 2,600 counties. Except for a few provinces like Hong Kong, Macau, Taiwan, Xinjiang, Tibet, and Inner Mongolia, all counties and above have at least one grid warehouse.
Both have already established advantages in infrastructure, market expansion, and order volumes.
A person from a community group buying agency operation company told Photon Planet that if one wants to enter community group buying now, the best choices are Duoduo Maicai and Meituan优选.
First, in terms of market share, the head effect has clearly formed. Both consumers and suppliers will prioritize Meituan and Pinduoduo, creating a positive cycle between supply and demand with lower risk.
When both occupy industry advantages, more resources and users will flow in, strengthening the head effect.
An insider in community group buying told Photon Planet that the common advantage of Duoduo Maicai and Meituan优选 is their large traffic.
However, Meituan优选's success is largely due to its ground promotion, meaning Meituan has burned money to get where it is today. Meituan优选's ground promotion has penetrated to the county level. Duoduo Maicai's advantage lies in its backing by Pinduoduo, whose annual active buyers have surpassed Taobao, providing significant platform traffic.
He also said that even at the top, their weaknesses are equally obvious. First, once Meituan stops burning subsidies, Meituan优选's order volume is bound to decline.
For most users, community group buying is about taking advantage of subsidies. Companies need to make a profit, and once the price advantage is lost, consumers will leave on their own.
Additionally, regarding Pinduoduo, even though the platform has a relatively complete range of fresh products, the overall quality is not good. Relying on cost control by reducing quality cannot retain consumers.
Moreover, since group leader commissions are proportional to profit margins, Duoduo Maicai focuses on low-priced items like fresh products, resulting in low commissions for group leaders, making it less profitable.
The person pointed out that previously, Orange Heart优选's group leader commissions were 10-20%, but the platform was subsidizing group leaders by burning money.
Now, commissions on all platforms are basically below 5%, with Meituan优选 slightly higher than Duoduo Maicai, also due to platform subsidies. "The prospects for community group buying are not optimistic. Even large platforms are burning money without limit, with little imagination."
The above-mentioned community group buying agency operator told Photon Planet:
"There are three key points for suppliers to cooperate with community group buying platforms: first, low supply prices with price advantages; second, quality that passes; third, guaranteed inventory. However, to sell on the platform, inventory is a basic guarantee, so cooperation mainly depends on price."
"Undoubtedly, low price and low quality are equivalent. Currently, the main selling point of community group buying platforms is 'cheap,' and consumers are mainly here to take advantage of subsidies, not to pursue quality," illustrating the lack of imagination in community group buying.
For Meituan, aggressively seizing the community group buying market is about leveraging the high consumption frequency of community group buying to drive other businesses on the platform.
For Pinduoduo, entering the e-commerce industry through fresh food e-commerce is its differentiated competitive advantage, and sticking with community group buying is something it must do.
However, achieving scale profitability solely through community group buying still has a long way to go. Small platforms are being squeezed out, and the giants' vegetable-selling path remains full of uncertainties.
(All interviewees in this article are pseudonyms.)
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