Every dish sold through community group buying carries hidden costs that are invisible but cannot be ignored. At 4 p.m., the business hours of Tianjin Jinghai Hi-Green Wholesale Market are coming to an end, and the bustling main market has quieted down, with most stalls empty. But if you walk deeper into the market, behind a wooden board reading 'Help Wanted', in a row of temporary warehouses, the battle has just begun. Workers are coming and going, repacking and sorting large quantities of vegetables, labeling them with 'Duoduo Maicai' tags. Hi-Green Market is a primary wholesale market and the largest vegetable wholesale market in Tianjin. The morning is the peak trading time, and after 4 p.m., it is the working hours for secondary wholesalers, who need to deliver fresh produce to the market before dawn. But the arrival of community group buying has changed the traditional workflow of this market. The simple iron-sheet house at the warehouse entrance serves as the office, mainly responsible for recruiting. Workers work from 9 a.m. to 11 p.m., because after 11 p.m., the sorted and packed fresh produce needs to be delivered to the warehouses of community group buying platforms like Pinduoduo. The community group buying model emerged around 2018. Each residential community has a 'group leader' who posts products in the community's WeChat group, mainly fresh produce such as fruits, vegetables, and milk. After ordering, delivery is made to the community gate the next day, and residents pick up their orders themselves. Starting in 2020, internet giants increased their investment in community group buying. Currently, the main players are Didi's Orange Heart Preferred, Meituan Preferred, and Pinduoduo's Duoduo Maicai. Among startups, Shihui Tuan and Xingsheng Preferred both received large funding rounds this year. Alibaba has invested multiple times in Shihui Tuan, while Tencent has repeatedly increased its stake in Xingsheng Preferred. According to 36Kr, Meituan Preferred set its 2021 GMV target at 200 billion RMB, aiming for 50-60 million orders per day. Duoduo Maicai's target is 150 billion GMV, Orange Heart Preferred 100 billion, and Xingsheng Preferred around 80 billion. At Meituan's Q4 earnings call, it was stated that in December 2020, Meituan Preferred's daily orders exceeded 20 million. The rapid rise of community group buying is not only due to the aggressive ground promotion by internet giants but also the core reason of low prices. Additionally, the model of ordering first and picking up the next day reduces inventory costs, and the absence of physical stores lowers rental costs. An investor focused on community group buying told Caijing that low prices are based on cost reduction, not meaningless burning of cash. On April 3, Caijing reporters visited the upstream segments of community group buying, including suppliers, warehouses, and logistics. We found that the community group buying model significantly increases upstream costs. A potato, from the field to the dining table, goes through multiple stages that together form the fresh produce supply chain. China is a populous country, and fresh produce is one of the largest daily consumption categories. The vast market has made this supply chain increasingly professional and stable, with its own rules. New business models from internet companies must first pay tuition to join. -01- The Extra 'Middlemen' In the market, besides wholesalers selling vegetables, there are various derived jobs. For example, truck driver couples who transport goods from production areas, drivers responsible for short-distance transport, and workers processing fresh produce. Short-distance drivers and processing workers are employed by wholesalers, with an average salary of about 5,000 RMB per month, as one wholesaler told Caijing. It is not difficult to recruit temporary workers in the market. Besides casual workers, large truck drivers are also a major workforce. After delivering goods, they do not leave immediately; they wait for the next order, and during this time, they can do odd jobs. Behind the recruitment point for Duoduo Maicai suppliers is the sorting warehouse. Photo by Liu Yiqin Helping community group buying with fresh produce sorting is a new middleman role that has emerged in the market. Initially, community group buying platforms directly purchased from primary wholesalers, requiring them to pack the vegetables and deliver them to warehouses. A supplier who previously supplied to Orange Heart Preferred and Meituan told Caijing that this is very unprofitable for primary wholesalers. Primary wholesalers mostly focus on a single category, spending a lot of effort on direct sourcing from production areas. Planting follows the climate; in different months, the production areas change, and each plot must be inspected personally. After purchasing, they need to classify: the most beautiful and complete are first-grade, while those less attractive or with blemishes are classified as second-grade or substandard. Wholesalers sell vegetables by the box, with each box possibly weighing over 20 jin. At the stalls of primary wholesalers, vegetables are already packed in boxes. Photo by Liu Yiqin Community group buying platforms sell in units of 300 grams or 500 grams, and sorting and packing require labor. Internet companies can require employees to go to the front lines to open up markets, but they cannot require them to pack vegetables in warehouses. Primary wholesalers find it difficult to spare energy to complete this work. They need to purchase special equipment for labeling and deliver at 11 p.m., after which they must undergo inventory checks and quality inspections. For example, 'If they want 100 portions, I send 110, but 20 do not meet standards, and I have to immediately go back and bring 10 more,' the aforementioned wholesaler said. 'Often, I have to work until 2 a.m., and those 20 portions count as my loss.' The next morning, he still needs to start work before 9 a.m. 'It's tiring and not profitable.' There is also the issue of payment terms. Wholesalers must pay farmers on the spot when purchasing; farmers do not accept credit. But internet companies delay payment by 2-3 months. The financial pressure falls on wholesalers. Claims for losses and returns are also a challenge. Community group buying platforms stipulate that if users cancel orders or there is loss during transportation, the supplier bears the cost. 'When we supply supermarkets, as long as the goods meet their standards, we do not bear subsequent losses.' He calculated that unless he could expand categories, invest in site, labor, and equipment, and maintain stable supply to community group buying, he could make money. He gave up. The exit of primary wholesalers created space for middlemen to develop. Middlemen supplying community group buying purchase goods from primary wholesalers based on order data from the platforms, then sort and pack nearby in the market, and deliver to community group buying warehouses by 11 p.m. After sorting and packing, vegetables are ready to be sent to Duoduo Maicai's warehouse. Photo by Liu Yiqin The emergence of new middlemen seems to increase costs, but it does provide convenience for community group buying platforms. This layer of middlemen also offers new opportunities for some workers. Packing a portion of vegetables costs 0.2 RMB in labor. The price per portion is low, but the total labor cost is not negligible, and this is becoming a new option for many workers seeking work near Hi-Green. The recruitment manager told Caijing, 'At most, a couple earned 17,700 RMB in one month.' -02- The Extra 'Costs' Adding a link means increasing costs. The labor cost for packing a portion is 0.2 RMB, and purchasing from wholesalers adds 0.2 RMB. Adding site and logistics costs, 'a portion needs to be marked up by 0.7 RMB to break even, and usually it is marked up by 1 RMB,' a worker told Caijing. For example, a portion of potatoes with a cost price of 2 RMB becomes 3 RMB by the time it reaches the community group buying warehouse after processing and transfer by middlemen. Middlemen are similar to secondary wholesalers. Traditionally, secondary wholesalers purchase from primary wholesalers and deliver directly to markets, where vendors sort and sell. But after goods arrive at community group buying warehouses, the process is not over. Staff conduct quality checks and inventory, then transfer to smaller warehouses, and then distribute to various community points. The spread of internet technology has reduced costs in many traditional businesses, but logistics costs remain fixed. This is especially true for fresh produce logistics, which is prone to loss and requires preservation. The new species in the fresh produce field is represented by Miss Fresh, an e-commerce platform. One of Miss Fresh's main costs is last-mile delivery. Compared to internet companies doing community group buying, Miss Fresh, which focuses on fresh produce, directly purchases from primary wholesalers, sorts and packs itself, and then distributes to front warehouses. The main processes are in its own hands, making cost control relatively easier. For community group buying and Miss Fresh, their transaction model turns non-standard fresh produce into standard products. In this process, besides labor costs, there are additional product costs. For categories where weight is easier to control, such as green beans and baby greens, each portion can be almost identical in weight. But for items like potatoes, it is difficult to precisely control the weight. To ensure user experience, 'it can only be more, not less, which adds about 10% to the cost,' the CEO of a fresh produce company told Caijing. User experience is the primary concern for platforms, but for suppliers, once the goods are shipped and payment is received, the work is done. They care more about the profit of each transaction. The aforementioned wholesaler has dealt with multiple community group buying platforms and found that in each large warehouse, there are very few staff from internet companies, 'only 1-2 people, the rest are outsourced.' The quality inspection standards are whether the weight meets requirements, whether the goods are rotten or bruised, and whether the packing meets specifications. 'But they do not care about the grade of vegetables and fruits; perhaps inexperienced people cannot tell the difference.' Experienced wholesalers can see subtle differences in fresh produce because they determine the final selling price, and the price difference can be as much as double. Some suppliers supply second-grade products with no visible problems to community group buying platforms, while better first-grade products are sold to channels with higher profits. Even a bunch of scallions, of the same variety, can be divided into different grades. Photo by Liu Yiqin Internet companies need the new traffic and business forms brought by fresh produce, users enjoy convenience and discounts, and suppliers will not let themselves lose money. It seems everyone 'wins,' but for the entire fresh produce industry, more is needed. **-03- New Technology Has Limited Effect for Now On December 11 last year, People's Daily published a commentary criticizing internet giants doing community group buying: 'Don't just focus on the traffic of a few cabbages and fruits; the vast ocean of technological innovation and infinite possibilities are more exciting.' From agriculture to supply chain to terminal retail, this is a huge and long-chain market. There is also room for technological innovation here. The biggest characteristic of the fresh produce market is price instability. Prices change daily, sometimes multiple times a day. Even though agriculture has begun to mechanize, the problem of relying on the weather remains. Farmers find it hard to predict market patterns; prices are determined by supply and demand. If production is high, prices drop; if prices are high, production may not keep up. Most fresh produce has a short shelf life and cannot be stocked in advance. Crops must be picked, packed, and transported immediately when ripe. Sometimes extreme situations occur, such as when market prices are too low, farmers and suppliers are unwilling to bear processing and transportation costs, letting vegetables rot in the fields. In recent years, new technologies have begun to affect agriculture and the corresponding supply chain. Some emerging tech companies try to empower agriculture with digital technology, for example, by modeling climate and precipitation data to optimize planting structures and make market predictions. But it is difficult to produce results, 'because no one can know exactly how much of a certain variety will be produced this year, so prediction is impossible,' an industry practitioner told Caijing. What internet companies can do is, first, use big data to predict order quantities. But community group buying does not rely heavily on this because users order in advance, and procurement is based on order volume. They sync the order system to suppliers, with real-time updates. However, problems remain. A supplier mentioned that although order volume can be seen in advance, they also need to purchase and pack in advance. 'Sometimes the system shows 200 orders in the morning, and I might predict 300-400 for the whole day, but in the end, 1,000 are sold, leading to a shortage. Other times, I prepare too much, and if not sold, it becomes loss.' In Duoduo Maicai's large warehouse, standard products like rice, flour, oil, and processed fresh produce are stacked. Photo by Liu Yiqin Automation has also appeared in the packing process. In the warehouse of Duoduo Maicai's supplier in Hi-Green, some categories, such as broccoli, can be packed by machines, but manual assistance is still needed. More categories, due to appearance differences, can only be done manually. Optimizing logistics, warehousing, and distribution processes may be where digital technology can play a role. By collecting and analyzing process data, refined operations can be achieved, reducing fulfillment costs. Currently, competition in community group buying remains fierce, with platforms actively expanding markets and adding categories. Subsidies on prices will gradually decrease, but without price advantages, attracting new users and retaining old ones becomes difficult. Tech companies entering the vegetable market is a foregone conclusion. In today's difficult traffic expansion, the development of this market has its logic and market prospects. Optimistically, the prosperity of this business model might contribute to the evolution of the agricultural value chain. But the practical challenges are also specific: retail prices are lower than market prices, upstream costs have increased, and community group buying business is unlikely to see profitability in the short term. The main battlefield for community group buying is currently in second- and third-tier cities, and it continues to sink further. From the order growth rates of various platforms, it can be seen that it can effectively and quickly acquire users in lower-tier markets. But burning money has an end. Users acquired by burning money have low loyalty and will follow subsidies. Users need affordability and convenience, but these are often not both achievable. Doing one well is enough to be competitive. Internet giants have capital, technology, data, and interaction between online and offline business forms, but the basic business law is the simplest cost and price. Since ancient times, selling vegetables has been a job with basically no threshold, but today, selling vegetables well has become a highly technical task. Source: Caijing Eleven (ID: caijingEleven) Tips will be paid 400-2000 RMB once the tip is adopted.