Source: Liu Kuang (ID: liukuang110)

Affected by the pandemic, community group buying has once again become a hot trend, with many internet giants entering the field to grab a piece of the pie.

According to the "2020 Community Group Buying Investment and Financing Data Report" released by Qichacha Big Data Research Institute, there were 19 publicly disclosed financing events in the community group buying industry in 2020, with a total financing amount of 17.17 billion yuan, a year-on-year increase of 356.3%.

However, the tide comes and goes quickly. Now, many players in the community group buying field have stopped business expansion, and Tongcheng Life, which had gone through 8 rounds of financing, has exited gloomily by declaring bankruptcy. As community group buying enters the second half, major giants have chosen different development directions.

(Image source: Canva)

Meituan Continues to Run

When it comes to Meituan, most people immediately think of "boundless," so it is not surprising that Meituan is making efforts in community group buying.

According to its financial reports, in the past 9 months, Meituan's new businesses represented by community group buying have accumulated losses of over 23.2 billion yuan. However, Meituan officially stated, "Our community e-commerce business, Meituan Select, remains our most important investment area this quarter."

Meituan's emphasis on community group buying has its internal logic.

On one hand, community group buying has become a new traffic entry point for Meituan. The importance of traffic to internet platforms is self-evident. Although Meituan's user numbers are still growing, the growth rate is slowing down.

Taking annual transaction users as an example, from 2017 to 2020, Meituan's annual transaction users were 310 million, 400 million, 451 million, and 510 million respectively. Increasing investment in community group buying can bring new traffic to Meituan. According to financial reports, as of June 30, 2021, Meituan's annual transaction users reached 628 million.

On the other hand, focusing on community group buying helps Meituan improve its ecosystem layout and consolidate its leading advantage in the local life services sector.

Affected by the pandemic, many users have developed the habit of buying groceries online, and the low-price and convenient features of the community group buying model have further driven repurchase rates. According to iiMedia Consulting data, 42.1% of surveyed users purchase from fresh food platforms 2-3 times a week, and 15.8% purchase 4-5 times a week.

Currently, community group buying, which mainly focuses on high-frequency fresh FMCG products, aligns with Meituan's Food+Platform strategy, which uses high-frequency to drive low-frequency. It is reasonable that Meituan would focus on community group buying.

Additionally, community group buying is closely related to local life services, which can create strategic synergy with Meituan's existing businesses. Furthermore, new users brought in by community group buying may also convert to users of Meituan's other services, forming on-site traffic conversion.

Alibaba Upgrades Comprehensively

Alibaba has also been making continuous moves in the community group buying field. On one hand, Alibaba has repeatedly invested in Shihuituan, a leading company in community group buying. On the other hand, Alibaba has also entered the field by launching brands such as Hema and Taobao Grocery.

On September 14, Alibaba announced the integration of "Hema Market" and "Taobao Grocery" into a new brand, "Taocaicai." Alibaba's multiple moves are backed by its advantages.

First, Alibaba has supply chain advantages. According to Gartner's "2020 Top 25 Global Supply Chains" list, Alibaba has been listed for two consecutive years and has risen to 7th place. With Alibaba's strong supply chain as support, its community e-commerce brand Taocaicai naturally benefits.

According to Chen Tongtong, Alibaba's MMC product operations director, Taocaicai has integrated multiple supply chains, including Hema, digital agriculture fresh food, RT-Mart supermarket and department store, and Taote daily goods factory goods, on the basis of the original Retail Link supply chain, giving it a significant advantage in supply chain.

Second, it has a rich product category. When users choose a community group buying platform, they first look at price and then category. If the product categories available are limited, it naturally cannot stimulate users' purchase desire.

It is understood that the current product pool of Taocaicai has exceeded one million categories, including fruits from digital agriculture, seafood from Hema, department store goods from RT-Mart, and novel foreign goods from Tmall Global. The rich categories are also a major advantage for its community group buying efforts.

Third, Alibaba has a strong cold chain logistics network. According to relevant data, by 2019, Hema had initially established a nationwide fresh food cold chain logistics network.

As of the end of August 2019, Hema had built 48 multi-temperature, multi-functional warehouses nationwide, including 33 normal and low-temperature warehouses, 11 processing centers, and 4 seafood and aquatic product temporary care centers.

It is understood that Taocaicai's three-temperature layer warehouse cold chain coverage has reached 100%, and the noon delivery rate exceeds 99%.

Orange Heart Select Brakes Suddenly

While Meituan and Alibaba continue to move forward, Orange Heart Select, which entered the community group buying field earliest, has chosen to retreat. Reports say that Orange Heart Select will shrink its operations in batches nationwide, with the first batch closing 60% of existing city operations. Additionally, Orange Heart Select has reduced its previous "9 major regions and 31 provinces" to "3 major regions and 9 provinces."

First, Orange Heart Select cannot rely on apps like Didi Chuxing for traffic. Didi, with 493 million users, is an important traffic entry point for Orange Heart Select. After launching the Orange Heart Select app, Didi also set up entry points in apps like Didi Chuxing to drive traffic.

Driven by this, Orange Heart Select's user numbers grew rapidly. However, as multiple apps under Didi were taken down, Orange Heart Select could no longer rely on other platforms for traffic, and its traffic growth has slowed compared to the past.

Second, losses in the community group buying business are becoming increasingly severe. Earlier, Orange Heart Select successfully carved out a place in the community group buying field with high subsidies and frequent low-price flash sales. It is no exaggeration to say that its user growth was largely bought with money. As the money-burning strategy continued, its losses became more severe.

Third, Orange Heart Select's business development has been poor. Taking daily order volume as an example, data shows that on November 11, 2020, Orange Heart Select's national daily order volume exceeded 10 million, making it the first internet giant to break 10 million daily orders; the peak daily order volume in December far exceeded 10 million.

With the halt of subsidy strategies, Orange Heart Select's daily order volume also declined. Before its strategic adjustment announcement, its daily order volume had dropped to around 6 million, nearly halved compared to its peak.

Community Group Buying: It's Still Early to Talk About the End

According to the "2020 Community Group Buying White Paper," the market size of community group buying in China rose from 28 billion yuan in 2018 to 89 billion yuan in 2020, and is expected to reach 121 billion yuan in 2021. The potential of community group buying is huge, but it is undeniable that the money-burning strategy of the past is hard to replicate.

On one hand, the money-burning strategy is difficult to sustain in the long term. In the early stages of entering a new market, the money-burning strategy is undoubtedly the fastest way to open the market and build brand awareness.

The drawbacks of the money-burning strategy are equally obvious: users acquired through subsidies have low stickiness. Once subsidies stop, users will switch to other platforms. Therefore, after opening the market with subsidies, platforms need to build differentiated advantages to increase user stickiness and achieve user retention.

On the other hand, the industry has not yet formed a true profit model. Currently, community group buying mainly has operating models such as platform procurement and operation, store warehouse integration, and self-built warehousing (front warehouse). However, regardless of the model, most community group buying platforms are still in a loss-making state.

Thus, how to achieve profitability remains a major test for community group buying players.

As community group buying enters the second half, the competition among participants has shifted from subsidies to a comprehensive competition in supply chain and refined operations. As for who will become the final winner in the community group buying field, we still need to wait and see.

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