Community group buying players have already begun their retreat. Since the second half of last year, Dailuobo stopped operations, Tongcheng Life filed for bankruptcy, and Shixianghui has been deserted. Shihui Tuan was exposed to have shut down all its business in cities nationwide, entering a cleanup phase to handle supplier payment liquidation and employee salary settlement. Among the 'old three groups,' only Xingsheng Youxuan remains. Giants entering with capital are also struggling; Orange Heart Youxuan is pivoting with difficulty, and Jingxi Pinpin is laying off staff to 'shrink.' Meituan Youxuan, Duoduo Maicai, Taocaicai, and other players are also contracting their fronts and optimizing personnel. The contraction, transformation, and shutdown of these platforms indicate that the elimination round in community group buying is intensifying, making it a tough business. ****The 'Old Three Groups' Have Changed Among the old three groups, Tongcheng Life was the first to fall, Shihui Tuan is the latest to collapse, and Xingsheng Youxuan remains at the table. In April 2018, serial entrepreneur Chen Ying founded Shihui Tuan, entering the lower-tier market with a community group buying model. It started with fresh produce and fruits, gradually expanding to daily necessities and household items. Four months after its founding, Shihui Tuan received 100 million yuan in angel funding. At that time, the community group buying track also had startups like Xingsheng Youxuan and Niwomin. During development, Shihui Tuan successively acquired regional platforms such as 'Niwomin,' 'Haojile,' and 'Linlishuo,' further expanding its market and becoming a first-tier player. In its three years, Shihui Tuan attracted significant capital, especially multiple rounds of investment from Alibaba. It is reported that Shihui Tuan received seven rounds of funding from institutions including Alibaba, CICC Capital, GGV Capital, and Time Capital, with cumulative funding exceeding $1.2 billion. Among them, Alibaba participated in four rounds. In the A round in early 2019, Alibaba appeared for the first time. In 2020, Shihui Tuan received two investments from Alibaba. Its most recent financing was in March 2021, securing a $750 million D round led by Alibaba and other major institutions. With capital backing, Shihui Tuan was confident. In 2020, founder Chen Ying stated in an internal letter: 'Shihui Tuan's business should reach at least 1 trillion; let's dream a bit bigger.' It is reported that as of January 2021, Shihui Tuan had over 600,000 group leaders, with a 2021 goal of deploying 5 million group leaders nationwide to connect online and offline. Perhaps in January last year, Shihui Tuan had not realized its crisis, but signs were emerging. In the second half of 2020, giants like Meituan Youxuan, Orange Heart Youxuan, and Duoduo Maicai entered community group buying, grabbing market share and users with capital and aggressive price subsidies. In Shihui Tuan's base in Changsha, giants used high commissions to poach group leaders and low prices to attract users, forcing Shihui Tuan to join the subsidy war. Chen Ying once said, 'When internet giants come in with capital, we have to lower our gross margin by 20 points.' With pressure from the front, the rear was strained. From the second half of last year, after Shihui Tuan faced city closures and retreats, it was also exposed to 'violent layoffs' and arrears to suppliers and group leaders. In October, the main company changed its legal representative, but the person was 'not found' in the company's DingTalk group, suggesting management may have fled. Shihui Tuan once reflected: 'The community group buying industry has shown unhealthy development due to subsidy wars. We must innovate, abandon impatience and short-sightedness, and return to business essence.' However, time waits for no one. According to Jiemian, after losing to MMC business group in Alibaba's internal 'horse race,' Shihui Tuan lost capital support. As various indicators failed to meet expectations, it gradually became Alibaba's 'abandoned child.' In industry insiders' view, Shihui Tuan's biggest problem was blind expansion without calculating economic accounts and its own 'ammunition,' leading to a capital chain rupture under the coercion of various subsidy policies. Additionally, its acquisitions did not achieve effective internal synergy, nor did it develop a profitable model. Tongcheng Life had a similar experience. Tongcheng Life was incubated by Tongcheng Group in January 2018 and officially launched in August that year. In just four months, it covered over 1,000 communities and hundreds of thousands of households in East and South China. At launch, Tongcheng Life received nearly 10 million yuan in seed funding. In December 2018, it completed tens of millions in angel funding. By August 2020, Tongcheng Life had received eight rounds of funding from investors including Tencent, ZhenFund, and Pagoda, totaling over $100 million. After the C+ round, its valuation reached $1 billion. During operations, Tongcheng Life also acquired small and medium platforms, including Guangzhou Qianxianhui, Kaola Selection, and Linlinyi. According to founder He Pengyu, by 2020, among over 70 core cities in Jiangsu, Guangdong, and Zhejiang, more than half had achieved break-even. 'From September 2020, the community group buying industry changed dramatically, from an era of innovation and execution to one of capital and subsidies,' He Pengyu said. Before giants entered, Tongcheng Life's gross margin was over 20 points, but with giants, the entire market's gross margin dropped to just five points, with zero or negative margins appearing, putting price pressure on Tongcheng Life. Under the pincer of giants, the early advantages in front-end group leaders and end logistics were erased. Facing huge subsidies, Tongcheng Life, lacking ammunition, had to retreat. Low-price subsidies easily lead to chaos. Due to aggressive price subsidy strategies to suppress competitors and seize markets, Shihui Tuan was penalized multiple times by regulators. Additionally, low-price dumping and market competition bred order fraud. Many platforms inflated GMV, group leaders faked orders to scam subsidies, and suppliers bought from group leaders to exploit price differences. Under tightened national policies and crackdowns, platforms are already unstable. Currently, the only survivor among the old three groups is Xingsheng Youxuan, but its situation is not good. Xingsheng Youxuan was the earliest player in community group buying, founded in 2013. The 'pre-sale' + 'self-pickup' model helped it expand from Hunan to Hubei, Guangdong, and over ten provinces and municipalities. In 2020, its transaction volume was 40 billion yuan, with about 10 million orders. During development, Xingsheng Youxuan also attracted capital. On December 11, 2020, it received $700 million in strategic financing from JD.com. In February 2021, reports said it would complete a $3 billion D round with a post-investment valuation of at least $8 billion. In March last year, there were rumors of an IPO plan by year-end, but these were denied. However, under the pincer of giants, Xingsheng Youxuan is also losing money. An insider said it achieved balanced micro-profits in the first half of 2020, but began losing money after giants entered in the second half, forcing it to follow subsidies. At the end of 2020, Xingsheng Youxuan announced it would expand to at least 10 more provinces in 2021. But from September 2021, it chose not to open new cities, and recently it was reported to be contracting and laying off staff. Overall, the fall of many platforms is mainly due to three problems: first, insufficient capital reserves; second, management issues with blind expansion; third, encirclement by giants, leading to exhaustion and inability to sustain. ****New Platforms Come and Go The period of intense competition for the old three groups coincided with the entry of giants. Looking back at the second half of 2020, community group buying was chaotic. In June 2020, Didi launched 'Orange Heart Youxuan'; in July, Meituan established the 'Youxuan Business Unit'; in August, Pinduoduo's 'Duoduo Maicai' went live; in September, Alibaba established the 'Hema Youxuan Business Unit'; in October, Toutiao launched 'Jinri Youxuan'; in November, JD.com established JD Youxuan, with Liu Qiangdong personally leading the battle. After entering, giants moved quickly. Meituan Youxuan entered 20 provinces within three months and set a goal of a thousand cities within the year; Duoduo Maicai expanded to 300 cities in half a year; Orange Heart Youxuan doubled its speed in three months. Didi founder Cheng Wei publicly declared: 'Orange Heart Youxuan has no cap on investment; we will fight to be number one!' At that time, the market formed a 5V5 pattern: five giants (Alibaba, JD.com, Pinduoduo, Meituan, Didi) and five startups (Xingsheng Youxuan, Shihui Tuan, Shixianghui, Tongcheng Life, Meijia Youxuan). Now, only Xingsheng Youxuan remains among startups; Meijia Youxuan was acquired by JD.com; Shihui Tuan, Shixianghui, and Tongcheng Life have all collapsed. It is understood that in 2021, Meituan Youxuan's GMV target was 150 billion yuan, Duoduo Maicai's 150 billion, and Orange Heart Youxuan's 100 billion. However, according to LatePost, Meituan Youxuan completed about 120 billion yuan in GMV in 2021, and Duoduo Maicai around 80 billion, both below expectations. Taocaicai originally planned to complete about 120 billion yuan in GMV in 2021, but only achieved around 20 billion by year-end. The failure to meet expectations across platforms also reflects that the community group buying business model has not yet been proven, and profitability remains difficult. It is worth noting that giants entered community group buying rather than fresh e-commerce because, compared to the heavier front-warehouse model, community group buying is easier to control costs. ****Relevant data shows that the fulfillment cost per order in community group buying is only about one-twentieth of that in front-warehouse models. Additionally, under good control, the gross margin difference between community group buying and fresh e-commerce is about 5 percentage points. However, long-term low or even negative gross margins and price subsidies have also weighed heavily on giants. In the third quarter of last year, Didi's net investment loss from Orange Heart Youxuan reached 20.8 billion yuan. After failing to spin off and list, and closing city operations, Orange Heart Youxuan has retreated from the C-end and is pivoting to the B-end for self-rescue. However, the B-end tests not traffic thinking but operational capabilities, and with many competitors, Orange Heart Youxuan faces significant challenges. Jingxi Pinpin has withdrawn from cities and laid off staff, and Meituan Youxuan's losses are also severe. In 2021, Meituan's net loss was 15.6 billion yuan, compared to an adjusted net profit of 3.1 billion yuan in the same period last year. The losses mainly came from new business investments like Meituan Youxuan and Meituan Maicai. Data shows Meituan's new business losses expanded from 10.9 billion yuan in 2020 to 38.4 billion yuan in 2021, with the operating loss rate expanding by 36.6 percentage points to 76.4%. From Q3 2020 to Q4 2021, new business losses were: 2 billion, 6 billion, 8 billion, 9.2 billion, 10.9 billion, and 10.2 billion yuan. The author believes that although giants have capital advantages, community group buying is a new business for both startups and platforms. New businesses require exploration and full-chain control capabilities. The surface competition is about financial strength, but the essence is whether business, organization, management capabilities match the business model, and whether they can understand consumption scenarios at a deeper level. Notably, giants are already transforming their business models. Before Orange Heart Youxuan fell, its operational goal had shifted from loss-making growth to pursuing profitability. Many platforms are also improving operational efficiency by reducing low-unit-price products, increasing high-unit-price items, and expanding SKU categories. Meituan announced it will invest more cautiously in new businesses, including community group buying. It is reported that since March 2021, when news broke that Didi planned to spin off Orange Heart Youxuan for an independent listing, it has tried to shift from loss-making subsidies to pursuing profitability. In May, Orange Heart Youxuan stopped full reduction promotions. In June, it planned to cancel the 20% wartime subsidy. However, by September, its losses reached 20.8 billion yuan. Expanding too fast, burning cash inefficiently, and high loss rates led to its defeat. According to LatePost, from December 2021, Jingxi Pinpin began stricter cost control nationwide. In Jiangsu and Zhejiang, group leader commissions were reduced from 10% to the same level as Meituan Youxuan and Duoduo Maicai, i.e., 3%-5%; in Hubei, the self-pickup threshold was raised from 10 yuan to 20 yuan, and marketing budgets were cut by millions. Pinduoduo also significantly reduced spending on new user acquisition and new businesses at the end of 2021. After excluding delivery, commission, and employee costs, Jingxi Pinpin's net margin was -40%, while Meituan Youxuan and Duoduo Maicai were around -20%. ****Relying on Capital Operations Cannot See the Future The community group buying model first emerged in Changsha in 2016 and was one of the biggest trends in retail in 2018, attracting significant capital. However, after the hype, players ended in mergers, layoffs, or bankruptcy. The sudden pandemic became a catalyst for the resurgence of community group buying. During the pandemic, demand for instant retail and delivery was amplified, making community group buying the largest potential increment. Its focus on high-frequency daily consumer goods revitalized traffic and attracted internet giants to join the fray. Statistics show that in 2021, community group buying burned at least 100 billion yuan, but hot money failed to sustain companies. Undeniably, community group buying brings convenience and speed. To some extent, its 'pre-sale + collective purchase + self-pickup' model reduces circulation links, improves efficiency, matches consumer demand with suppliers, and reduces price markups in traditional agricultural sales. At the same time, it solves the 'last mile' delivery problem of traditional e-commerce, allowing consumers to get lower prices and save time. Its direct sourcing and sales model expands sales channels for agricultural products. Additionally, it forces physical supermarkets to improve service and shorten intermediate links. However, some argue that community group buying does not reduce many links but establishes a new system. Ultimately, consumers still have to solve the 'last mile' themselves. In more down-market areas, wet markets and fairs are already well-developed, and community group buying causes redundant investment and waste. We have analyzed that the three trends of capital retreat, giant involution, and stricter regulation will persist for some time. If low-price subsidies cannot continue, regulation intensifies, and financing fails, retaining consumers will be a challenge for platforms. In short, simply relying on capital operations cannot see the future. If a company's fundamentals are not solid, it will inevitably decline. Community group buying will inevitably enter a cooling period. Whether average order value and gross margin can improve is key to future development, with cost reduction and efficiency being priorities. From another perspective, regulatory guidance to curb disorderly capital expansion will accelerate the shift of community group buying from traffic acquisition to core infrastructure like logistics and supply chain, promoting healthier industry development. A positive sign is that players are shifting investment to infrastructure. In the past year, Meituan's new business investments focused on subsidies and infrastructure, such as cold chain logistics and product variety. In JD.com's 2021 earnings call, President Xu Lei said about new businesses like community group buying: 'In the second half of last year, Jingxi business took the lead in focusing on the track. This is a long-term track requiring five to ten years of investment. Scale from short-term marketing is not sustainable. We need to gradually build short-chain logistics infrastructure and user mindshare. Current industry trends are validating our judgment.' There are precedents for cyclical hype: the thousand-group war, food delivery war, shared bike war, and ride-hailing war all ended in ashes, becoming capital games. For community group buying platforms, blindly pursuing scale is meaningless. Shifting focus from traffic to core construction like warehousing and supply chain is key. The most important thing is to find the best path from supply side to consumers directly. Time will tell. Source: Lianshang.com (ID: lingshouzixun), Author: Lin Ping Are you 'watching' me?