Community group buying is red-hot. In the past September, community e-commerce platform "Xingsheng Youxuan" received a Series A investment of tens of millions of dollars, led by Xu Xin of Today Capital (known as "China's venture capital queen"), with GSR Ventures and ZhenFund following. In the last two months, community group buying companies such as Shihuituan, Niwomin, Shixianghui, Dailaobo, Linlinyi, Kaola Select, Squirrel Pinpin, and Chongma Neighborhood Group have all secured financing. Among them, Shihuituan and Shixianghui each raised up to 100 million RMB, while Dailaobo obtained a tens of millions of dollars angel round. In fact, the much-sought-after community group buying model is not new. As early as 2016, community group buying platforms emerged in Changsha and Wuhan markets. Today, there are hundreds of such platforms nationwide. The mainstream model is essentially: using offline residential communities as units, establishing WeChat groups online, recruiting community moms as group leaders, publishing pre-sale and group-buying product information in the groups, and after residents place orders, delivering goods to the community for pickup at designated points. The key factor igniting this old model is fresh produce. In most community group buying platforms, fresh produce is the core category. For example, Niwomin's fresh produce accounts for 40%, and Shixianghui's for 60%. Indeed, few niche tracks attract as much attention from investors and entrepreneurs as fresh produce. On one hand, the fresh produce business is tough; whether in fresh e-commerce or community fresh stores, few companies break even on the overall project. On the other hand, fresh produce is considered the last retail sector where new giants might emerge. In the community group buying model, several data points are undeniably attractive:
First, projects can achieve positive cash flow and profits within a few months. For instance, Shixianghui, which raised 100 million RMB, has daily transaction volume exceeding 20 million RMB, is profitable in every city, with net margins of 5% to 10%.
Second, due to centralized procurement, distribution, and pre-sale models, logistics costs are significantly reduced; many community group buying platforms have per-order delivery costs around 0.5 RMB.
Third, fresh produce spoilage rates in many community group buying platforms are typically around 1% to 2%. In contrast, well-performing fresh produce companies like Yonghui control spoilage at about 4% in their stores. Based on these factors, community group buying is seen as one of the best exits for the fresh produce category to achieve profitability, and is hailed by industry and capital as the model most likely to give birth to a new "Pinduoduo." (Compiled by Lingshou Media based on online sources) (I) To understand the community group buying model, one must first answer why it has become so popular recently after about two years of development. Although WeChat groups and platforms for community group buying appeared in China in 2016, due to the lack of technical tools, these platforms could not support daily group buying, shipment tracking, quality after-sales service, or community management. The explosion of mini-programs was the biggest turning point. "Mini-programs are infrastructure; Pinduoduo is a chess player, showing everyone that in third-, fourth-, and fifth-tier cities, you can do things this way, and the demand for 'saving' is huge," said a consumer retail head at an investment institution to Lingshou. In other words, with the popularity of mobile payments, the emergence of mini-programs, and the development of same-city delivery, the infrastructure for community group buying is basically complete. On the other hand, consumer demand objectively exists. An industry insider with years of experience in fresh produce told Lingshou that community fresh retail in second- and third-tier cities is weak in product selection, supply chain, and service capabilities, and cannot provide truly high-quality, novel products. In his view, when online community group buying offers novel or cost-effective products, consumers at the community's doorstep naturally cannot compete with community group buying. Fresh produce becomes the breakthrough for communities. Additionally, in second-, third-, fourth-, and fifth-tier cities, there is a large group of users educated by online e-commerce like JD.com and Taobao, but no one uses high-frequency products or services to connect with them. In other words, these educated traffic pools still have demand for high-frequency, essential products delivered via internet-based methods. More critically, compared with offline retail stores, community group buying enjoys enviable speed in customer acquisition and cost advantages in traffic, labor, rent, utilities, and logistics. First, in user acquisition, community group buying mainly relies on community moms to build WeChat groups and complete sales within the groups, using a commission model to save labor costs. Customer acquisition costs are almost zero. For example, Shihuituan gives moms 15% to 25% commission per order. Shixianghui takes 10% of sales per order as commission for moms. Second, the community self-pickup model greatly saves costs such as rent, labor, and utilities compared with traditional offline stores. In logistics, individual communities consolidate orders and deliver centrally, reducing per-order delivery costs. For example, Shixianghui's per-order delivery cost is about 0.5 RMB. As order density increases, this cost becomes even lower. These data points are enough to excite capital and entrants. On October 17, Hunan's physical retail giant Tongcheng Group launched its quality community new retail platform "Fenglele" at significant cost. Ou Haijun, chairman of Tongcheng Fenglele, told Lingshou that communities are the most convenient consumption scenario and user entry point that can continuously reach end users. In his view, developing social e-commerce is both an effective supplement to the company's existing business, quickly forming new market increments, and helps advance the company's "dual-line" integration. At the same time, connecting the last mile in communities helps extend the Tongcheng brand to the forefront of communities. "Communities will become an important consumption scenario and traffic entry point in the new retail era, and social e-commerce will stand at the next decade's trend," Ou Haijun said. (II) According to public reports, product selections vary among community group buying brands, but fresh produce is always a must-have. Compared with community stores, the pre-sale model of community group buying results in lower spoilage. Compared with hypermarkets, the community self-pickup model offers convenience; compared with fresh e-commerce, the biggest difference is not on the C-end consumer side but on the B-end, namely the logistics costs mentioned earlier. However, we note that in many research reports and actual interviews, the view that "community group buying is a channel innovation" is widely accepted. Behind channel innovation is the fact that a category's gross margin level does not change due to the channel. So, despite the advantages mentioned earlier, as a new channel, community group buying cannot change the low gross margin of most fresh produce products. On the other hand, in community group buying, we hardly see brands like Qian Dama, which focus solely on fresh produce (daily meals). Beyond fresh produce, almost all community group buying platforms unanimously include categories such as food, daily chemicals, and household items. (Compiled by Lingshou Media based on online sources) This raises a question: Is fresh produce the core category for community group buying? Opinions vary on this. An industry insider told Lingshou that unlike past e-commerce group buying, community group buying locks the scenario and users, and fresh produce is a true essential product, and it is the easiest to resonate with target customers. That is, although community group buying also offers other product combinations, in today's diversified retail channels and platforms, other categories are easier to find substitutes, and the nascent community group buying may not have advantages in product selection and supply chain. "As for the so-called convenience, buying a 20-pound bag of rice or a quilt—is it more convenient to order on an e-commerce platform and have it delivered upstairs, or to pick it up from a mom and carry it upstairs yourself? It's obvious," the insider said. However, in Lingshou's interviews, many industry insiders expressed a similar but different view: Fresh produce is just a traffic-driving product; non-fresh, planned categories should be the core for community group buying's future development. Lin Mu, an entrepreneur in community fresh produce, told Lingshou that the main reason community group buying can quickly acquire customers at extremely low cost in the short term is actually using novel products, or so-called "explosive products," to drive sales and achieve growth in user numbers and revenue. But in the long run, because novel products need to be continuously discovered, the supply chain for these products cannot be consolidated. Therefore, for most community group buying companies, first, the supply chain for novel products cannot be consolidated long-term. Second, vegetables and meat, which are high-frequency, high-turnover, and meet daily meal needs, cannot be satisfied by community group buying in the short term. Thus, in Lin Mu's view, in the fresh produce retail track, immediate needs, especially for vegetables and meat, and some daily consumption categories like fruits that trigger impulse purchases, should be fulfilled and delivered through physical stores. Community group buying should solve the problem of using group buying to place planned categories into users' homes. An industry insider told Lingshou that using fresh produce as a key, combined with multi-category consumption, to penetrate consumers' wallet share has already appeared in community group buying. In his view, fresh produce is a traffic entry point and is inherently seasonal, so companies don't need to spend long-term effort on it. He prefers community group buying with a relatively lower fresh produce share, because such platforms truly have the ability to use fresh produce to drive other categories and penetrate consumers' wallet share. "If you sell kiwifruit today and blueberries tomorrow, that's a dead end," the insider admitted. In this analytical framework, fresh produce acts as a vanguard, then cuts into other categories to make money. In fact, the essence of whether fresh produce is the core category is related to another question: Is community group buying an independent business model or a plug-in for offline stores? A consumer retail head at an investment institution told Lingshou that he once thought community group buying was just a plug-in, where offline community stores with in-store pickup would constitute community group buying. But three data points changed his view. First, in leading community group buying companies, many already have 500 or even 1,000 groups. In other words, these platforms enter 500 or even 1,000 communities in a very short time, a number that exceeds the store count of most offline community fresh stores or convenience store brands in China today. Compared with offline fresh stores, community group buying clearly performs better in terms of explosive growth in numbers. Second, in terms of repeat customer frequency, some community group buying companies achieve eight times or more. Offline fresh stores typically see purchase frequencies of four to eight times. That is, the demand community group buying provides today is not one-time. Third, currently, leading community group buying companies have fresh produce sales accounting for less than 60%. If extended further, a single community group buying group can control the sales of non-FMCG or FMCG products in a community. Take tissue paper as an example: if a community group buying company initiates a group buy for large packs of tissue in a community WeChat group, once residents buy, they won't need tissue for a while. Since the company has purchase data, when residents' tissue is about to run out, the company can initiate a pre-sale activity for tissue in the group again. "In fact, some large household items can control the rhythm of community consumption, which is where community group buying has the most imagination," the investor said. (III) In Lingshou's view, for community group buying, currently carried on WeChat, to become mainstream and an independent business model, one prerequisite is to establish strong brand recognition and channel trust, and secure stable traffic. One reason community group buying attracts capital and entrepreneurs is its ability to acquire customers quickly and achieve rapid fission. Behind this is precise traffic matching through WeChat groups and acquaintance communities. However, with fierce competition, whether this traffic is genuine for a specific community group buying brand is worth exploring. Genuine traffic means whether the traffic in community group buying groups can truly settle in a specific channel. Lin Mu told Lingshou that since launching community group buying, he found that low-cost traffic initially looks like a great dividend, but the problem is that this traffic belongs to no one. He gave two examples. For instance, through mom-and-pop stores building groups, the platform supplies goods to these stores, but you'll find that in the store's group, they sell both the platform's products and their own local honey and eggs. The second example is that in cities with fierce competition, a price war similar to the "100 Group Buying Wars" has emerged. For example, a community may have ten groups and ten community group buying brands. Most residents join all ten groups and then buy from whoever offers the best value and most reasonable prices. For eggs, if one group sells ten eggs for 9.9 RMB and another sells ten for 6.9 RMB, residents generally buy the 6.9 RMB eggs. "But after intense competition, you'll find that most products that emerge, just by looking at their pricing, you know they're barely profitable," Lin Mu explained. That is, community group buying uses price as a bond, but price cannot be a core competitive advantage. Lin Mu summarized that the entire fresh retail has two lines: product line and service line. Community group buying focuses on the product line, offering better value products, but it cannot carry services; services can only be delivered through stores. In his view, offline stores are hubs for traffic aggregation and can continuously output services. An investor interviewed told Lingshou that to turn traffic into genuine traffic, the ultimate competition is product strength. "This proposition can be looked at from a step back," he said. For residents, they now have 5 to 10 similar suppliers, but if you step back 5 or 10 years, this situation existed offline with supermarkets, vegetable stores, and mom-and-pop shops—it was always a multi-supply process. That is, every community has more than one group; community group buying needs to meet different needs, some purely for savings, some for value. "The competition is still product strength. After two purchases, you know the logistics, quality control, and product quality. Consumers won't give these startup community group buying companies many chances," the investor analyzed to Lingshou. (IV) To achieve strong product strength and service experience, supply chain and IT system construction are unavoidable. Building a long-term stable supply chain is a challenge for almost all community group buying companies. Take fresh produce as an example: fresh retail is inherently a regional business and a regional supply chain. In national expansion, the biggest problem is that some supply chains cannot be reused. For example, products that sell well in southern markets may not be accepted by consumers in northern markets. In fact, many theoretical effects may produce different outcomes in practice. For instance, scale growth theoretically should make suppliers closer to the platform and meet its needs, but in practice, suppliers often become more nervous as scale grows. Because increased scale and transaction amounts also mean higher risk of merchant default. Lin Mu used a vivid example to illustrate this. Suppose a customer orders 200 boxes of eggs daily from a supplier, but suddenly another customer wants 2,000 boxes a day. The supplier usually rejects the 2,000-box customer because if they satisfy that customer, they can't meet the old customer's 200 boxes. For the supplier, the stable 200 boxes daily is more attractive than the sudden 2,000 boxes; they need stable daily volume. "We need to be steady, first build our supply chain, then let the traffic be educated, and then harvest. Because the groups are already there; if not yours, they're someone else's. Ultimately, those capable will harvest these groups," Lin Mu told Lingshou. However, an industry insider told Lingshou that the issue of suppliers becoming more nervous with scale growth also exists in offline physical retail. Fruit chains face the same: when apple volume is too large, the prices they get are not the cheapest. That is, if this is a real problem, all channel players in the relevant category face it. In other words, even brands with strong supply chains may not necessarily do well in the community group buying model. "Because the entire business logic has changed, and the target customers have changed. So, past supply chain strength doesn't necessarily give a first-mover advantage here; it only means fewer mistakes and fewer falls, but not necessarily faster speed," the insider said. However, he also said that supply chain and IT system construction are must-dos, and if not done well, they become big pitfalls. A community group buying entrepreneur told Lingshou that even relatively large platforms encounter many pitfalls in supply chain and IT system construction. The person cited an example: some platforms, after raising funds, expand nationwide, "but without density anywhere. For instance, a company that just raised funds has expanded to over 10,000 communities but only has 100,000 orders daily. That means only 10 orders per community per day. You'll find order density doesn't increase, and many points are losing money." Additionally, some larger platforms start group buying before their IT systems are ready. For example, customers can order via WeChat mini-programs, but in the backend, employees manually process orders. The risk is that as order volume increases, mistakes like wrong or missing deliveries occur. Therefore, for some funded community group buying companies, while accelerating expansion, investing in supply chain and IT system construction is essential. These companies typically adopt practices like source procurement, where buyers go directly to factories and origins to inspect goods; building software systems and self-owned warehousing and logistics, including regional central warehouses, cold-chain city warehouses, and cold-chain transportation systems. Of course, how to deploy is crucial. For example, Shihuituan has built a modern regional central warehouse covering North and East China, cold-chain city warehouses in over ten cities, and a modern cold-chain transportation system. According to Pencil Dao, Shihuituan's strategy is to focus on second-tier cities, establish satellite cities around them, use a "city circle" model to scale the region, obtain lower prices from upstream origins, further reduce supply chain costs, and create better synergies between cities. Ou Haijun, chairman of Tongcheng Fenglele, told Lingshou that before the official launch of "Fenglele," besides building IT systems, they also planned community points in advance. For example, they selected points near the group's logistics center, ran the entire process smoothly, and then expanded to other areas. "You can't say open 100 groups scattered across different corners of Changsha; logistics costs would be high. But if 100 groups are concentrated in one or two areas, logistics costs decrease," Ou Haijun said. In his view, community group buying must not blindly pursue scale, laying out 1,000 or 2,000 points at once. You must advance step by step according to your scale and rhythm, one route, one area at a time, to achieve the lowest cost and highest efficiency. In other words, even if a community group buying brand has regional supply chain capabilities, it must rebuild density and plan logistics well. (V) There are many pitfalls; how can community group buying brands truly stand out? "It still comes down to product strength and execution." An investor told Lingshou. He used mountain climbing as an analogy: all community group buying companies are climbing, but who can reach the top? What qualities are needed? "Execution is your speed. If everyone is fast and you are slow, you lose capital support and exposure, making it hard. If everyone is fast, you can't make mistakes, so it's about product strength." The investor noted that when evaluating community group buying, he also pays attention to product positioning. In fact, it's common for several community group buying platforms to coexist in one community. These platforms aim to solve different problems; some focus on value, others on low prices. In his view, the fundamental issue is whether the platform understands which user group it is penetrating and ultimately earns that group's trust in its channel. "Find your users, repeatedly meet their needs, and make them trust the channel deeply. Then the traffic naturally becomes yours," the investor explained. Ou Haijun, chairman of Tongcheng Fenglele, told Lingshou that Fenglele's target users are happy moms aged 20-40 who pursue quality life (new-generation internet family housewives). Therefore, in product differentiation, Fenglele focuses on strictly selected healthy, safe, high-quality products, mainly quality fruits, imported foods, and seafood. On the other hand, whether community group buying can truly penetrate users' wallet share by combining scenarios remains a big question. In the investor's view, penetrating wallet share involves two points: first, frequency; second, order density. For example, if a platform achieves repeat customer frequency of about 8 times per community, sells many products daily in groups with extreme price and quality, and has sufficient order density, then the platform can survive. "We look at frequency, average order value, and the ramp-up period of each point. If the ramp-up is slow, it means the product selection isn't accurate. Of course, unit economics must be calculated, and you need to leave a safety margin. In competition, can you go out to fight every day? If you don't compete, you earn one point; if you compete, you might lose money," the investor explained to Lingshou. To become a competitive brand in community retail, Ou Haijun, chairman of Tongcheng Fenglele, told Lingshou: "Besides strengthening supply chain management, improving operational capabilities and consumer experience, Tongcheng 'Fenglele' will also use an innovative business model combining 'community group buying + community small stores + social micro-stores + community elderly care centers' to reconstruct the community new retail model." He also mentioned that while reconstructing the community new retail model, Tongcheng Fenglele will also incubate 1,000 community e-commerce supply chain brands, launch 1,000 explosive products, and cultivate 1,000 single-city community partner group leaders, through the "3 Thousand Plans" to create a community new retail ecosystem. In Lingshou's view, if a community group buying company is willing to invest in supply chain, IT system construction, and product strength, it is still possible to gain stable traffic. (VI) If we make predictions, Lingshou believes the future development of community group buying will mainly focus on the following points: First, from a category structure perspective: In fresh produce, community group buying's fresh produce category is a traffic-driving product but requires more refined operations. At the same time, community group buying does provide a new breakthrough for the fresh produce industry. But it needs to broaden categories, focus on creating differentiated products, and increase residents' consumption share of non-fresh, planned, packaged goods. Second, from a layout perspective: Community group buying remains a channel-sinking business and will continue to develop in second-, third-, fourth-, and fifth-tier cities. Secondly, community group buying is a regional business; leading companies will emerge in certain regions and then acquire other community group buying brands. Third, from a development form perspective: On one hand, community group buying can be a supplementary model for offline community fresh retail stores. As mentioned earlier, through group buying, planned categories are placed in users' homes. Immediate needs are met through offline physical stores. On the other hand, community group buying can also develop as an independent business. It will become a beneficial supplement to community procurement and a highly competitive solution. Fourth, from a competitiveness perspective: Currently, community group buying competes more on execution and speed, but like fresh e-commerce and offline stores, it will eventually return to competition in fundamentals such as product strength, supply chain, IT, and personnel management. Among these, product strength is the core factor. Additionally, in the view of Chen Yuefeng, founder of Lingshou Media, non-fresh, planned products are the next bottleneck that group buying must break through after completing the first stage of group building and using fresh explosive products to establish awareness and core image in consumers' minds. If this bottleneck is not broken, the future sustainability and incremental space for community group buying will be very limited. Source: Lingshou (ID: lingshouke) -END-