Scan the QR code in the image to register “ For a long time, many people, including securities analysts, have formed a consensus: the community group buying model is more suitable for lower-tier markets, and by leveraging internet technology and thinking, it can quickly establish a dominant position in these markets, revolutionizing traditional fresh produce channels and mom-and-pop stores. But how is community group buying currently developing in lower-tier markets, and what problems exist? To this end, Sima Shendu conducted field research on grid warehouse operators in three county-level cities, surveyed and interviewed over 120 group leaders, and conducted face-to-face interviews with over 500 group buying consumers, attempting to encounter the real community group buying in lower-tier markets. ” Core Findings and Views: **** 1. Community group buying has not changed many of the commercial essences of the retail industry: from moving fresh agricultural products from the place of origin to the consumer's dining table, community group buying inevitably involves processes such as cold-chain transportation, cold-chain interruption, product quality control, and after-sales service. Its essence is an innovation in sales channels similar to on-demand supply, with core advantages in asset-light operations, low-priced bestsellers, and low inventory under the pre-sale system, leading to rapid scale expansion; 2. Current community group buying platforms exhibit overcapacity and resource waste in product inventory, transportation, and delivery, similar to the phenomenon of OFO and Mobike bicycles. For example, in the segment from grid warehouse to group leader, you might see delivery vehicles from four different platforms each unloading only one or two items to the same group leader; 3. In this product delivery process, there is a full-chain cold-chain interruption from the central warehouse to the grid warehouse, from the grid warehouse to the truck, from the truck to the group leader, and from the group leader to the consumer. Cold-chain interruption is one of the core issues in fresh produce e-commerce; 4. Group leaders and consumers show no platform loyalty, and the same platform exhibits vastly different market shares in different cities. Through research, product quality is the most important factor for consumers, ranking above price, which profoundly reveals that community group buying is a model innovation and has not changed the commercial essence of fresh produce retail; 5. Grid warehouses, as an important part of the community group buying model for product transfer and delivery, are generally in a loss-making state and find it difficult to profit, being extremely sensitive to order volume. Sima Shendu will use actual research data to provide a financial model. Core Judgments: **** 1. If community group buying platforms want to treat this business as a strategic segment, they must strengthen investment and construction in core areas such as cold-chain transportation, warehousing, product delivery to consumers, and after-sales service. Providing high-quality products to consumers is the unchanging commercial essence of fresh produce retail; 2. The stage of relying on ground promotion to quickly establish a presence in lower-tier markets and seize group leaders has passed. As regulation becomes stricter and the internet tactics of low-priced bestsellers are restricted, the ability to acquire customers and the imagination of profitability will be tested. Coupled with the current situation where one group leader operates multiple platforms, how to more finely manage consumers and build platform loyalty will become an unavoidable issue in the future; 3. Specifically, platforms will carry out deep resource integration, model transformation, and innovation in two dimensions: grid warehouse operations and group leader operations. Group Leaders “Lying Flat” to Exploit Benefits First, exploit benefits. “I mainly buy milk on Duoduo Maicai and then sell it myself. The supplier gives me a box for 37 yuan, but I buy it myself on Duoduo Maicai for 24 yuan, and there are also coupons.” Then lie flat. “I won't send community group buying product links to my WeChat group, because if the product quality is bad, they will say it's my store's goods that are bad, ruining my own business. I also don't want to put those items in my freezer, as I have to pay for the electricity myself.” (Photo of Xiao Li's supermarket, taken with authorization by Sima Shendu) The speaker is Xiao Li, a small supermarket owner in the suburbs of a northern county town, running a small shop of less than 100 square meters on the street. He is also one of the 120 group leaders surveyed by Sima Shendu, as Xiao Li's shop is a typical mom-and-pop store in lower-tier markets. Xiao Li simultaneously operates Duoduo Maicai and Meituan Youxuan. He told Sima Shendu that as the weather gets hotter, community group buying buyers mainly purchase beverages, with very few vegetables. He mainly uses the platform mini-programs as one of his procurement channels. “Now the order volume is getting smaller and smaller, and commissions are also declining,” Xiao Li told Sima Shendu. This is just a microcosm of the common phenomenon found in Sima Shendu's research. Many group leaders typically operate more than three platforms, including Duoduo Maicai, Meituan Youxuan, and Chengxin Youxuan. Declining order volume and reduced commissions are becoming common phrases among these group leaders. As store owners, ordering goods from community group buying platforms at low prices and reselling them at a markup is one of the few motivations for them to continue working as group leaders. Increasingly Stringent Regulatory Environment Although the weather is getting hotter, community group buying is facing a “cooling” due to stricter regulation. It was targeted at the end of last year. On December 22, 2020, the State Administration for Market Regulation, together with the Ministry of Commerce, held an administrative guidance meeting to regulate the order of community group buying. Six internet platform companies, including Alibaba, Tencent, JD.com, Meituan, Pinduoduo, and Didi, participated. The meeting required internet platform companies to strictly abide by the “Nine No's.” Earlier, on December 11, an article in People's Daily mentioned “Don't just focus on the traffic of a few cabbages and a few pounds of fruit.” In March this year, in response to unfair pricing behaviors by platforms such as Shihuituan, Chengxin Youxuan, and Duoduo Maicai, the State Administration for Market Regulation imposed maximum fines on five community group buying companies. On May 27, Shihuituan was again fined the maximum of 1.5 million yuan, and its Jiangsu regional platform was also required to suspend operations for rectification. For the first time, the administration used its official channels to publish a long Q&A article, explaining in detail the scope and intensity of current regulations. The article directly pointed out that all “low-price dumping behaviors” that sell goods at prices below procurement costs through huge subsidies are prohibited. After multiple rounds of penalties and rectifications, community group buying discounts have significantly shrunk. Several insiders in the community group buying industry said that the issuance of this ban means that all price reduction and low-price behaviors by community group buying platforms, including all promotional activities, disguised subsidies, and new user incentives, are not allowed. In just half a year. This hot track of community group buying has reached its crossroads. What exactly is community group buying? It is basically a micro-innovation in retail channels. The traditional community group buying business model is as follows: (Securities research report) Community group buying typically recruits group leaders based on a community, who are responsible for the group buying of residents in that community. On the traffic side, group leaders need to set up WeChat groups and introduce and promote relevant products in the groups; on the product side, group leaders are responsible for sorting goods at the pickup point and providing after-sales services. In terms of sales, a pre-sale model is usually adopted. First, the group buying platform invites suppliers or merchants to join, and recruits group leaders for the community. Consumers place orders through the WeChat ecosystem (WeChat groups, mini-programs, etc.). The next day, suppliers deliver goods according to the order quantity to the community group leader, and consumers pick up goods at the pickup point. Group leaders receive commissions based on sales. Generally, community group buying products are fresh produce and other products with rigid demand and high frequency. Its warehousing, logistics, and product delivery model is as follows: (Securities research report) By decomposing the above community group buying business model, we can clearly see that community group buying has not changed many of the commercial essences of the retail industry, moving fresh agricultural products from the place of origin to the consumer's dining table. Facing processes such as cold-chain transportation, cold-chain interruption, product quality control, and after-sales service, community group buying inevitably involves all of them. Its essence is an innovation in sales channels similar to on-demand supply, with core advantages in asset-light operations, low-priced bestsellers, and low inventory under the pre-sale system, leading to rapid scale expansion. Further decomposing the product delivery process of community group buying, Sima Shendu focused on the core link of the grid warehouse. Detailed research and financial model construction for this link can reveal the true side of the current community group buying model. Grid Warehouses Full of Loopholes The grid warehouse is an important part of the community group buying model. It carries the core function of product circulation and delivery from the central warehouse to the pickup point (group leader end). To a large extent, the quality of products and whether they can be delivered to consumers in a timely manner depend on the operational capability of the grid warehouse. It can be said that since community group buying is a terminal delivery model where consumers pick up goods at the pickup point, the grid warehouse actually bears the burden of the last mile of product transportation, which largely determines the timeliness of goods received by the group leader, and this is one of the core considerations for group leaders in deciding which platform to operate more finely. Based on this, Sima Shendu surveyed grid warehouse operators in three northern county-level cities, covering platforms such as Duoduo Maicai, Meituan Youxuan, and Chengxin Youxuan. Through field research and actual data, and by constructing financial models, many problems in grid warehouse operations were revealed and discovered. Most platforms outsource the grid warehouse link. Usually, the grid warehouse business in a county is contracted to one or two contractors. The core of the contractor's profitability is product transportation and delivery, with the order volume delivered to the group leader as the core factor. Some platforms adopt a sales-distribution integrated model, where the grid warehouse contractor not only receives delivery fees but also participates in the GMV sharing of the platform in that region. Platforms mainly assess grid warehouse contractors on indicators such as delivery timeliness, error rate, and complaint rates from consumers and group leaders. First, let's look at what a real grid warehouse looks like: (Inside the grid warehouse, taken with authorization by Sima Shendu) Yes, the boxes with codes on the floor in the warehouse are the order boxes for the corresponding group leaders. The grid warehouse operator hires temporary workers to sort the goods sent from the central warehouse in the early morning, usually delivered by 7.6-meter trucks. Workers sort goods according to the pickup point to which the order belongs. This process mainly tests the error rate of temporary workers. Then, delivery drivers hired by the grid warehouse operator load the goods themselves according to the assigned routes. Note that through field research, the fixed assets of the grid warehouse are purchased by the contractor themselves. Usually, the platform requires the contractor to purchase the platform's own transfer baskets at a specified price. Cold-Chain Interruption Begins Here A core issue in fresh produce e-commerce is cold-chain transportation and preventing interruption. This issue determines product quality and even consumer brand awareness and loyalty building. But through research, Sima Shendu fully revealed the cold-chain interruption problem in community group buying. There is a full-chain cold-chain interruption from the central warehouse to the grid warehouse, from the grid warehouse to the truck, from the truck to the group leader, and from the group leader to the consumer. (External environment of grid warehouse 1, taken with authorization by Sima Shendu) (External environment of grid warehouse 2, taken with authorization by Sima Shendu) (Inside the grid warehouse, taken with authorization by Sima Shendu) Through field research, the grid warehouse did not have fresh-keeping cabinets or freezers, only a refrigerator for making ice. The grid warehouse contractor purchased the platform's own foam boxes to transport frozen goods. The usual practice is to place ice in foam boxes, but during the process of temporary workers sorting goods sent from the central warehouse, and during the transfer process of delivery drivers delivering goods to group leaders, the cold chain is interrupted. (Pending orders piled on the ground, taken with authorization by Sima Shendu) (Pending orders piled on the ground, taken with authorization by Sima Shendu) As shown in this picture, the ham and preserved eggs that need cold storage are piled on the ground without refrigeration. Consumers usually do not go to the pickup point immediately to collect their goods. During this process, the cold chain remains interrupted, and product quality is hardly guaranteed. More seriously, as temperatures rise, many items that need refrigeration or freezing are not well preserved by group leaders. For example, in one case during the research, a bag of basa fish was completely thawed and appeared “porridge-like” when a consumer came to pick it up, and the consumer angrily returned it on the spot. (A delivery person from a platform delivering to a consumer on the street, taken with authorization by Sima Shendu) Grid Warehouses That Are Loss-Making and Hard to Profit Cold-chain interruption is so severe, why don't grid warehouse contractors increase cold-chain investment? The answer is obvious: they have lost the motivation to continue investing because they are losing money. Sima Shendu conducted field research on the actual operations and data of grid warehouses in three northern county-level cities and built a financial model for grid warehouses. Taking a county in Tangshan City, Hebei Province as an example, the county has 558 natural villages. Based on this, assuming a platform develops 2 group leaders per village (2 small shops per village), plus shops in the county town and developed mom group leaders, the upper limit of the total number of group leaders in the county would be around 1,500. (Data from January to April are actual data from a grid warehouse) Now, taking the daily number of items per group leader as a sensitivity factor, the sensitivity analysis is as follows: Currently, for community group buying platforms including Meituan Youxuan, Duoduo Maicai, and Chengxin Youxuan, the freight per item for grid warehouse operators ranges from 0.4 yuan to 0.6 yuan. Taking the above sensitivity analysis as an example, when freight is fixed, the daily order volume at active group leaders becomes an extremely sensitive factor. Currently, platforms require a minimum grid warehouse area of 700 square meters, while Meituan requires around 1,000 square meters. However, after trial calculations, grid warehouses are not sensitive to expenses such as rent. The conclusions drawn from this financial model combined with field research are as follows: 1. When there is a ceiling on the number of group leaders in a region, the number of active group leaders will remain stable for a certain period, and consumer purchases at active group leaders become the most core indicator. This profoundly reveals the next evolution direction of community group buying: how to better operate the C-end population. However, whether models like Chengxin Youxuan's Chengxin Xiaodian are effective remains questionable; 2. As regulation becomes stricter and the previous internet tactics of using low-priced bestsellers to attract traffic and low-price subsidies cannot continue, whether platforms can continue to drive repeat purchases will become an important differentiator of core competitiveness among platforms. It will also stratify community group buying platforms, eventually leading to acquisitions and disappearances among platforms; 3. Currently, platforms are deploying grid warehouse operators in the same region, leading to overcapacity and resource waste. In the future, it is not ruled out that platforms will achieve resource integration and improve efficiency in the grid warehouse link; 4. Due to increasingly strict regulation that restricts platforms from launching extreme flash-sale items like 0.1 yuan, platforms will in the future make deep layouts in areas such as specialty product supply to continue driving traffic and repeat purchases. The construction of supply chains for standardized products such as washing and care, daily necessities, etc., will test platforms' profitability, and these products will directly face competition from platforms such as Alibaba's Lingshoutong and JD.com's Zhangguibao; 5. All platforms without exception need to strengthen cold-chain construction and investment in grid warehouses, because even if platforms achieve supply chain construction from procurement to the central warehouse, if there are problems in the last-mile transportation and delivery of the grid warehouse, it will directly affect the two most core indicators of the retail industry: product quality and consumer satisfaction. Source: Chief Commercial Review -END-