The recent uproar against community group buying seems to have subsided. Since the People's Daily commentary, public supplier boycotts, and the 'Nine No's' regulation issued by the State Administration for Market Regulation and the Ministry of Commerce in mid-December 2020, the once-red-hot community group buying track, which giants were scrambling for, cooled down overnight. Baidu Index reflects this change intuitively. Baidu Index for Community Group Buying So, has community group buying fizzled out? The answer is: no. After the regulation was issued, the expansion-hungry giants did not rest on their laurels; instead, they accelerated their pace of land grabbing. Even Xingsheng Youxuan, which previously did not participate much in price wars, began handing out cash coupons. And the fierce competition among giants to open new cities and recruit group leaders is coming to an end, because 'cities are mostly opened, and it's time for refined operations.' The cold water of policy cannot extinguish the enthusiasm for price wars, nor can it eliminate the giants' determination to conquer territories. This most brutal battle after the thousand-group war, food delivery war, and ride-hailing war has transitioned from blitzkrieg to positional warfare, and a new round of group leader elimination has begun. **-01-**Spending Money Differently Wang Jiu, a community group buying entrepreneur, has recently noticed some subtle changes. Wang Jiu operates a community group buying platform in Urumqi, a local small-to-medium player. In early December 2020, Duoduo Maicai launched in Urumqi and quickly became the local leader with low prices and traffic advantages. On December 22, the 'Nine No's' regulation for community group buying was issued, targeting 'low-price dumping' and 'predatory pricing.' Wang Jiu has been closely watching the giants' moves. He told Shenran that when Duoduo Maicai first launched, many product prices were lower than market prices, and some were even below cost. For example, a local liquor with a normal wholesale price of 550 yuan per case was sold at 549 yuan, exactly one yuan below cost. The price war triggered by selling below cost was the focus of criticism against the giants. Whether Meituan, Didi, Pinduoduo, or JD.com, they all emerged from various money-burning wars, so this time they brought the price war to community group buying. But after the regulation, Duoduo Maicai's pricing strategy quietly adjusted, and Wang Jiu rarely saw products priced significantly below cost. Meituan Youxuan officially launched in Urumqi on January 8. After comparison, Wang Jiu found that Meituan Youxuan's product pricing is basically cost plus group leader commission, with no platform markup, but not below cost. The price war was called off, but price competition did not stop. Low prices remain the most convenient and effective way for community group buying platforms to acquire customers at this stage. After a month of dealing with Duoduo Maicai, Wang Jiu came up with a countermeasure: every morning, he checks Duoduo Maicai's product prices, and for any overlapping products, he immediately lowers his prices. Because many group leaders overlap between the two platforms, when he sends the lowered prices to group leaders, they stop sharing Duoduo Maicai's product links. Since he has local resources and can get lower wholesale prices than the market, he can afford to lower prices. 'For the same product, Duoduo Maicai buys at 100, adds 10 yuan commission, sells at 110. I can buy at 80, sell at 109, lower price, and still make 21 yuan gross profit.' A community group buying entrepreneur in Beijing's Yanjiao uses a simpler and more direct method. He doesn't compare prices with giants like Duoduo Maicai, but with e-commerce platforms like Taobao and JD.com, ensuring all product prices are lower than e-commerce platforms, to lure users to order. 'For example, a can of canned food sells for 19.9 yuan on JD, 15.8 yuan on Taobao, but I sell it for 9.9 yuan. Before sharing the link, I must screenshot the prices on Taobao and JD and send them to the group, so everyone sees how expensive other channels are, and they rush to order from me,' the entrepreneur told Shenran. His accounting is clear: purchase price 6 yuan, group leader earns 2 yuan, shipping 1 yuan (due to centralized delivery, average cost per item is low), so even selling at 9.9 yuan leaves 0.9 yuan gross profit. And this price is not below cost. As long as giants don't push prices below cost, he has room to survive. For leading community group buying players, a more common practice is directly giving cash or coupons. On the evening of January 2, Xingsheng Youxuan launched a red envelope activity. From January 3-9, each user could receive a 3-yuan red envelope once a day, with a 3-yuan discount on orders over 9.9 yuan. Store group leaders distributed 200 red envelopes daily, and after users claimed and used them, group leaders received an additional 1-yuan reward. Didi's Orange Heart Youxuan has a 'Daily Cash' activity, borrowing Pinduoduo's invite-friends-to-split-red-envelope trick, inviting friends to help get a 100-yuan red envelope. It's real money, but it also brings in users. For giants that don't lack money, since they can't directly lower prices in a price war, they subsidize in other ways. -02- From Recruiting to Firing: Group Leader Elimination Begins Group leaders have always been seen as a key node in community group buying and a focus of past giant competition. But recently, the competition for group leaders has clearly cooled. Wang Jiu told Shenran that at this stage, platforms have a high elimination rate for group leaders. According to his observation, around the end of 2020, there were often more than 20 group leaders in the same residential community, but now only three or four remain. 'On one hand, some group leaders just tried it and quit when they found it wasn't profitable. On the other hand, some high-quality group leaders ask for regional protection, but platforms prefer horse racing, so some group leaders exit.' The second half of 2020 was the most intensive period for major community group buying giants to open new cities. Every time a platform enters a city, before products launch, BD personnel as the vanguard first station in the city to do ground promotion, registering group leaders on the platform, commonly known as 'running groups.' So a phenomenon emerged: when a large number of ground promoters appear on the streets of a city's residential areas, developing group leaders everywhere, it signals that a giant is coming. To improve development efficiency, BD personnel usually adopt a cross-development strategy—two to three waves of people take turns developing the same community until all shop owners in the alleys become group leaders. Under this strategy, group leaders are fiercely contested among major platforms. But since January this year, the pace of giants opening cities and grabbing group leaders has slowed. A frontline BD at Meituan Youxuan told Shenran: 'Recently, it's not as busy, because cities are mostly opened, and we're starting operations.' A Meituan Youxuan BD in Suzhou explained the logic to Shenran: 'In the early stage, we pursued quantity over quality, developing as many as possible, as long as they were willing. We wanted a quick victory with a broad bombardment. When developers can't find new markets and can't find any gaps in the streets, it's about time to start refined operations, focusing on selecting good group leaders to increase their sales and eliminating those who don't generate orders.' In other words, group leader development in community group buying has evolved from extensive expansion to refined management. 'This also uses big data. Only with enough data can we filter, analyze structural ratios, and know how many group leaders we need and what kind,' the BD said. According to him, for group leaders who perform well, Meituan Youxuan's BD personnel focus on maintenance and support. For those who don't perform well, they can apply to suspend for a period and study on Meituan Youxuan's designated APP. After improvement, if the platform evaluates that the group leader can do well, they can apply to be reactivated. Xingsheng Youxuan also has a strict assessment system for group leaders. An employee of Xingsheng Youxuan revealed to Shenran that in ordinary communities in Changsha, Xingsheng previously required group leaders to make at least 15 orders per day. After giants entered Changsha, it was adjusted to at least 10 orders per day. If group leaders complete monthly tasks, the platform continues cooperation; otherwise, the platform removes the group leader, but they can reapply later. 'We can't serve every user; we serve group leaders, and then group leaders serve users, so the management and operation of group leaders is very important,' the Xingsheng employee said. Currently, both Meituan Youxuan and Didi's Orange Heart Youxuan have a large number of frontline BDs to maintain frontline group leaders. A community group buying practitioner said that the giants' development cycle is very short; generally, a third-tier prefecture-level city only needs 2 weeks, and a provincial capital city 3-4 weeks to end the development period. Platforms place dozens or hundreds of frontline teams in each city, mainly for maintenance, not development. 'Some platforms don't understand. They think, I hire so many salespeople, I finish the market in 2-3 weeks, why do I need these people? They're just idle. In fact, 90% of these people are reserved for future offline operations, not really for expansion.' the practitioner said. So, initially, platforms competed on who had more group leaders; now they compete on who has more group leaders generating orders and with higher stickiness. From recruiting people to screening and eliminating people, community group buying has evolved from early extensive expansion to refined operations, and the group leader elimination is just the beginning. -03- From Online to Underground Positional Warfare Begins After grabbing group leaders as intermediate nodes and user traffic, giants are turning their attention to the heavier supply chain. Tuanke Hui, a community group buying ecosystem service provider, now mainly supplies goods to giant platforms and operates self-run community e-commerce. Founder Wang Gang, while researching and developing the market in Hebei's Yanjiao, found that some giant platforms are building central warehouses in suitable high-quality locations. Currently, two giants have built central warehouses in Tianjin. Goods arrive at the central warehouse first, and daily orders from Tianjin and Hebei are distributed from the central warehouse to each sub-warehouse, saving urban warehouse labor and sorting costs. Unlike purely online e-commerce models, fresh produce accounts for a large proportion of community group buying, and delivery is next-day, so platforms need to build a supply chain warehousing and distribution system. The current industry-standard architecture is: central warehouse - sorting warehouse - grid warehouse - pickup point. Central warehouses are generally built in provincial capital-level cities, and grid warehouses connect with group leaders. These are offline heavy-asset models that require time investment, similar to JD.com's logistics warehousing system. But building offline warehouses and distribution teams is not a one-day job. Group leaders can be quickly obtained through BD ground promotion, traffic can be directed through apps, but warehouses take time to build, and suppliers need to be negotiated by category. Especially for fresh vegetables, some platforms directly connect with origin areas, often requiring local procurement. This means that for every city captured, corresponding warehouses and grid stations need to be set up. Wang Gang told Shenran that all major platforms are now paying increasing attention to the supply chain, building warehouses in various places through franchising or self-construction, especially choosing suburban areas for large warehouses. Compared to the street-level group leader competition, the supply chain is an underground battle. The importance of the supply chain lies in its stability directly affecting the end-user experience. Multiple group leaders contacted by Shenran reported that some newly launched community group buying platforms often have problems such as out-of-stock items, delivery delays, and no after-sales support. These are all caused by supply chain instability. The giants' early supply chain disadvantages have become soft spots for opponents to counterattack. Wang Jiu told Shenran a case: After Duoduo Maicai entered Urumqi, it faced joint resistance from local supermarkets. Some supermarkets hired people to place orders on Duoduo Maicai, then returned the goods after receiving them. Duoduo Maicai has one-way logistics locally; drivers only deliver, not accept returns, and many products are fulfilled by suppliers. This creates a problem: order delivery is managed, but return delivery is not. Hundreds of returned orders pile up in warehouses, easily exceeding shelf life. The supplier-fulfillment model can cause problems when dealing with returns. Wang Gang revealed that regardless of the reason for returns, suppliers take back the products, and most returned goods are discarded because they can't be resold due to multiple layers of transportation and other reasons. The losses are borne by suppliers' profits. But giants are also accelerating to fill the gaps. On December 17, 2020, six days after announcing strategic investment in Xingsheng Youxuan, JD.com announced an investment agreement with China Dili Group. After the transaction, JD.com holds 5.37% of China Dili, becoming the second-largest shareholder. The focus of cooperation is building a fresh produce supply chain system. Meituan Youxuan and Duoduo Maicai are also accelerating the layout of warehousing and distribution systems in various places, which will be the next focus of competition after group leader development. In contrast, the supply chain has always been one of Xingsheng Youxuan's key advantages. Xingsheng Youxuan is a project incubated by the convenience store chain Furong Xingsheng, initially acting as a supplier to group leaders, similar to a wholesaler, so the supply chain is a strength. An employee of Xingsheng Youxuan told Shenran that Xingsheng Youxuan also has equity cooperation with suppliers to deepen binding relationships and strengthen supply chain barriers. -04- Win-Win Cooperation or Squeezing Vendors? From the current development situation, giants are still advancing rapidly on the community group buying track, and the introduction of regulatory policies has not cooled the industry. Lian Jie, CEO of Dingdan Tu, which provides community group buying software systems for chain convenience stores, believes that the 'Nine No's' policy is more like an official statement to industry insiders, and it will take time to become executable. But giants are already on the arrow and must shoot. After investing in Xingsheng Youxuan and China Dili, JD.com fully launched its community group buying platform 'Jingxi Pinpin' on January 1, 2021, opening in eight cities including Jinan, Dongguan, Shenzhen, Guangzhou, Foshan, Chengdu, Nanjing, and Zhengzhou. Meituan Youxuan and Duoduo Maicai are accelerating in various places and are currently the two most active giant platforms. As giants' coverage expands, the living space of small and medium community group buying players may be squeezed. Tuanke Hui originally ran its own independent community group buying platform project. After giants entered, Tuanke Hui mainly focused on supply chain, transforming to supply goods to giants. Wang Gang knows he can't beat the giants, so he avoids their edge, using his experience with hit products to supply popular items to giants and earn a middleman margin, because giants need better supply chains and good hit products, especially high-quality and low-priced goods. 'Once they impact us, we have no business to do. Supplying goods is currently a viable path,' Wang Gang said. But Wang Gang doesn't think this cooperation will last long. On the contrary, he considers it a stopgap measure. 'In the future, giants will definitely cut unnecessary middlemen and directly connect with brand owners or large suppliers. Supplying through us is temporary. In the early stage, we help them select products and supply, earning a little money, but it's just transitional money. Once giants' systems, warehousing, and user numbers are established, there should be no role for us,' Wang Gang said. From the giants' perspective, they want to build an ecosystem. In this ecosystem, there are origins, suppliers, group leaders, warehousing and distribution, and players in each chain are win-win. For example, Shihuituan, which received several rounds of Alibaba investment last year, in early December 2020, co-founder Chen Ying issued an internal letter stating 'insist on winning together with partners,' thinking about 'how to increase income for our group leaders and community stores; how to make local distributors and suppliers get faster payments, larger sales, and simpler cooperation.' But from the perspective of ordinary people, it's inevitable to question the intentions of these community group buying players, especially those giants accustomed to monopolizing markets through price wars. The voice of 'grabbing business from small vendors' is very representative. In any case, the community group buying track, driven by giants, is accelerating evolution and advancement. The supply chain is becoming more important, group leader elimination has begun, and the industry remains hot, far from the day of final outcome. Source: Shenran (ID: shenrancaijing), Author: Li Ming Tips will be paid 400-2000 yuan upon adoption.