Internet giants are burning cash on subsidies in community group buying, and the chain reaction has clearly affected the interests of brand owners. Following notices from Zilin Vinegar, Huahai Shunda, and Weilong requiring distributors to supply community group buying platforms, brands such as Coca-Cola, Arawana, and Xiangpiaopiao have also issued corresponding notices to distributors. Notably, the word "price" appears in all the above brand notices, which means that the market order that brand owners have cultivated for years is being impacted by the low prices of community group buying. Distributors in the circulation chain are caught in a dilemma: on one hand, they hope to supply community group buying to quickly clear inventory through new sales channels; on the other hand, with clear brand owner attitudes, they find themselves in a situation where they want to supply but dare not. Meanwhile, the People's Daily commentary article "Behind the Community Group Buying Controversy: More Expectations for Internet Giants' Technological Innovation" has poured cold water on the development of community group buying. At the same time, regulators have taken action. On December 9, the Nanjing Market Supervision Administration issued the "Notification on Compliance Operations for E-commerce 'Vegetable Community Group Buying'", urging e-commerce platforms that food safety is paramount and compliance should come first. Hu Chuncai, general manager of Shanghai Shangyi Consulting, told China Business News that this series of events is conducive to promoting community group buying to return to rationality and develop steadily. -01- Resisting Brand Owners Qian Qinghua, chairman of Huahai Shunda; Ji Minyun, securities affairs representative of Xiangpiaopiao; and sales staff of Weilong all confirmed to reporters that the purpose of issuing relevant notices was to prevent distributors from supplying goods to community group buying platforms at low prices, disrupting the product price system. "The most direct interpretation of the relevant notices is that some distributors privately supply goods to community group buying platforms, and the platforms' low-price sales seize the market of other distributors." Zhang Qiang (pseudonym), who has years of experience in FMCG brands such as COFCO Coca-Cola and Jiangxiaobai, told reporters that internet giants' reckless entry into community group buying, with centralized purchasing and direct sourcing models, bypasses certain intermediate links, greatly compressing costs. Platform prices are lower than the second-tier wholesale prices of traditional channels, and with subsidies, product prices can even fall below factory prices. This undoubtedly breaks the traditional distribution order that brand owners have built. There is direct evidence in the market. Reporters found that the second-tier wholesale price of a box of 2L Coca-Cola is 29 yuan, while the purchase price on a certain community group buying platform is 27 yuan. With subsidies, products in traditional channels have no competitiveness at all. Brand owners are relatively strong. Coca-Cola required Duoduo Maicai to remove related products, and Arawana fined non-compliant distributors. According to multiple distributors, Wahaha also prohibits distributors from supplying community group buying platforms. Reporters tried to verify with Wahaha, but the relevant person in charge's phone was unanswered. On the surface, community group buying seems to provide manufacturers with a new sales channel, yet it is resisted by brand owners, which is somewhat puzzling. Song Jiuliang, founder of the industry vertical media "Retail Circle", has many years of practical experience in the retail industry. He believes that community group buying actually does not bring incremental sales but rather short-term growth of existing business, meaning that "low-price promotional behavior" creates the illusion of short-term sales growth. Song Jiuliang calculated: "For example, a supermarket sells a certain brand of vinegar at a normal price of 10 yuan per bottle, with an average monthly inventory of 200 bottles and monthly sales of 90 bottles. Now through community group buying, the promotional price is 5.9 yuan, and sales double to 180 bottles. However, consumption of such products is cyclical. Originally, consumers bought once a month; now they stock up and buy once every two months. In the short term, sales increase, but in the long term, they remain basically unchanged. What changes is that total sales revenue decreases, and the manufacturer's performance declines." Additionally, there is another interpretation of brand owners' resistance to community group buying. In the traditional distribution system carefully built by brand owners, distributors occupy an extremely important position by controlling terminal resources, performing terminal delivery and promotion functions, and also breaking down the brand owner's sales budget. The cross-regional selling caused by low-price promotions on community group buying platforms has clearly affected distributors' interests. "Brand owners will not sit idly by," said a food and beverage distributor. Traditional channels remain the main sales source for most brand owners, and they will not give up "the entire forest" for "this patch of grass" that is community group buying. Furthermore, Song Jiuliang believes that the increase in sales on community group buying platforms corresponds to a decline in sales at community stores and supermarkets, and the resulting losses, returns, and exchanges will still be borne by distributors and manufacturers. Some companies have expressed deeper concerns. Qian Qinghua stated that many community group buying platforms use big data to analyze essential products, making sales prices far below normal market prices. This strikes at or even destroys the normal business order, and the next step is to monopolize community channels. -02- Wavering Distributors "The ban may not be effective because at this stage, many distributors are still very willing to cooperate with community group buying platforms," Zhang Qiang believes. "Although manufacturers do not agree to distributors supplying community group buying, with such a large number of distributors, someone will definitely take the risk," Zhang Ling (pseudonym), a beverage distributor in Hebei, told reporters. "I dare not supply for fear of manufacturer penalties, but the overall environment in the circulation chain is too poor this year, and someone will definitely use community group buying platforms to clear inventory." Zhang Ling does not dare to cooperate with community group buying platforms, but Lao Fan in the same region thinks differently. Among the brands he represents, only "Jinzai" is a major brand; the others are less well-known. He told reporters that manufacturers also hope distributors can open up community group buying platforms to increase sales, but in his region, platforms like Duoduo Maicai and Meituan Youxuan do not have purchasing permissions, so he had to give up. "Although the prices are low when cooperating with them, I can still complete the manufacturer's tasks and get some rebates. It's better than having goods stuck in hand," Lao Fan said. In this regard, Song Jiuliang believes that overall, community group buying is a retail channel, and distributors naturally do not oppose supplying platforms. For distributors, they supply wherever the shipment volume is large. If there is no credit period and payment is immediate, that would be even better. There should be few distributors who oppose joining community group buying now, except for first-level distributors and brand owners who cover entire provinces or cities. Indeed, some distributors have expressed their concerns. Distributor Yuan Qiang (pseudonym) believes, "Distributors are definitely willing to cooperate, after all, the brand is not their own, and profit is the main goal. But in the long run, as platforms gain more say, they will further squeeze prices and compress the living space of distributors." In his view, the stories of Didi to drivers and Meituan to restaurant merchants are precedents. Fan Xiaojun, chairman of the China Agents Association, told reporters: "Community group buying is currently impacting the real economy, and it is uncertain whether it can become a new channel to increase sales. Many agents are conflicted about whether to follow or join community group buying. The traditional sales model is that brand owners deliver goods to supermarkets through agents, while community group buying uses price to compete with traditional supermarkets, having a huge impact on traditional communities and chain stores, and the pressure is transmitted to agents. If a new channel forms in the future, relying on the platform's capabilities and the centralized purchasing model, they can directly connect with brand owners, further squeezing the circulation chain. The benefit is lower costs, but on the other hand, it will lead to unemployment for some people in the supply chain." Some distributors have considered other ways out. "I have considered using my warehousing advantages to join community group buying platforms as their grid warehouses, but no one can predict future trends, and I dare not act rashly. Moreover, even if I become a platform's grid warehouse, income will inevitably be affected," Zhang Ling said. -03- Community Group Buying Urgently Needs to Return to Rationality On the morning of December 14, A-share community group buying concept stocks collectively fell. Among them, GuoLian Aquatic and Zhongshui Fishery led the decline with drops of over 6%, followed by Honghui Fruit and Vegetable and GuoLian Aquatic. Meituan gapped down and continued to fall, at one point dropping over 7% during the session, with market value losing HK$127 billion; Alibaba, Tencent Holdings, and JD.com also declined. Behind this, in addition to resistance from several brand owners, the People's Daily's naming also cooled down community group buying. The People's Daily article stated that during this period, internet giants have successively invested substantial resources into fresh food community group buying, making "community group buying" a hot topic in the internet industry and capital markets. Major internet giants are using massive data, advanced algorithms, and abundant capital to study how to capture community fresh food group buying. The commentary pointed out that focusing on the business of "splitting meat from the legs of a heron" might be another wonderful story of the internet changing lives through business model innovation. However, there are also many different voices in public opinion. Besides discussions about the profound changes to the interests of vegetable vendors, there are also thoughts pointing to expectations for innovation by large internet companies. Internet giants with massive data and advanced algorithms should take more responsibility, pursue more, and achieve more in technological innovation. Don't just focus on the traffic of a few cabbages and fruits; the vast sea of technological innovation and the infinite possibilities of the future are even more exciting. Subsequently, there were reports that internet giants such as Alibaba, Pinduoduo, and Meituan would exit the community group buying business. However, all these companies replied that the news was untrue. Regulators have also taken action. The Nanjing Market Supervision Administration required platform operators not to obtain transaction opportunities or competitive advantages through unfair competition methods, thereby harming the legitimate rights and interests of other operators or consumers, especially not to implement low-price dumping at prices below cost. But it can be seen that community group buying is still sinking into lower-tier markets and opening pickup points on a large scale. Reporters found that in Cangzhou, Hebei Province, where the community group buying battle is not the most intense, within 700 meters of the Transportation Bureau Family Compound in Xinhua District, there are 11 Meituan Youxuan pickup points, 39 Duoduo Maicai pickup points, and over 90 Chengxin Youxuan pickup points. And cash-burning subsidies are still ongoing, with oranges and apples selling for one cent everywhere. In this regard, Hu Chuncai believes that this series of events helps community group buying return to rationality. "Previously, giants relied on the power of capital to invade communities, disrupting the ecological balance of the industry. Seizing the market through losses and subsidies is irrational and cannot convince other market participants. If community group buying truly has efficiency and innovation, it needs to slow down, return to rationality, and let the market gradually take shape." Source: China Business News Tips will be paid 400-2000 yuan once adopted.