△Add friends, please note community group buying registration. The storm center of this wave of capital encircling the track—community group buying—is Changsha, Hunan! Like new categories such as Heytea, retail innovation is no longer emerging in first-tier cities but in second- and even third-tier cities. People have become numb to top-down novelties, and now a reverse flow has begun: fashion is always first the preserve of a minority, validating models and tactics in small cities before scaling and popularizing them in big cities. This may become a new paradigm for innovation in the retail sector. As a company deeply rooted in Hunan, we have long noticed this new force of community group buying. As early as last year, we agreed with the retail industry association to launch an in-depth research report on Changsha community group buying, but the report has been delayed. One important concern is that such a large transaction volume rarely pays taxes legally. Like the early days of Taobao, almost no shop owners on the platform paid business tax. The now-popular community group leaders are also in a gray area, like early Taobao shop owners. These community group buying business owners have expressed that writing about the industry is fine, but they should not mention specific company names. So it has been delayed for nearly a year. Born in 2016, community group buying grew like the wind in 2017, and finally gained capital's favor in 2018. Community group buying, still needing refinement, is being swept along at high speed by capital! After experiencing the battles among hundreds of groups in Changsha, the leaders have also been conquering other cities this year. After all, in the Changsha city battle, market share is hard to expand further, and the input-output ratio is no longer cost-effective.
1 Capital Pours In Capital is keen. In 2018, when the venture capital industry entered winter, community group buying became a beautiful landscape, attracting capital to pour in, indeed with a unique flavor. The entrants are all veterans who have fought in capital markets for years and have deep experience in the retail sector. Especially Xu Xin of Today Capital, she has already entered. Today Capital led the investment, with GSR Ventures and ZhenFund following, totaling tens of millions of US dollars in Series A funding, which has landed in Xingsheng Youxuan, headquartered in Changsha. Xu Xin, an investor known as the "Queen of Chinese Venture Capital," became famous mainly for her early bet on JD.com; her investment in JD.com made her a legend. Of course, her track record goes far beyond that: Three Squirrels was also an early investment, and earlier there was the tortuous Zhen Kung Fu, all from her. She has a deep understanding of the retail industry. Three years ago, at an important investment industry event, she said she wanted to establish a fund with a term of 10 years or even longer. In her view, without the pressure of short-term profits for LPs, the fund's returns could be greater and more sustainable. Retail enterprises need a longer time to mature, and there are not many good companies, so if you select one, you can hold it for a longer period. This time, Today Capital did not miss the community group buying track. According to incomplete statistics, the first venture capital institution disclosed by the media was GGV Capital, a well-known investment institution managing both US dollar and RMB funds. GGV Capital has made significant achievements in TMT and consumer sectors; in Xiaomi, a star company, GGV Capital was also an early investor. This time, it chose Niwonin, one of the earliest community group buying companies in Changsha. Starting from August, in the blink of an eye, China's top venture capital institutions all arrived. Sequoia Capital China, Today Capital, GSR Ventures, ZhenFund, GGV Capital, Qiming Venture Partners, Xianfeng Qiyun Fund, and Joy Capital have all placed bets on community group buying. (See Table 1 for specific financing details) Table 1 (Note: Compiled based on public information) Among these institutions, many participated in the "Thousand Group War." In that crazy capital competition, the only surviving excellent seed was Meituan. Today's Meituan is vastly different from the Meituan of that time in terms of business scope. For example, Sequoia Capital China invested in Meituan and Dianping; GSR Ventures invested in Lashou... Some investment institutions even chose multiple players on the same track. To be honest, these capitals are not sure which driver will reach the finish line first in this round of competition. Meituan, which laughed last, took 8 years of grinding before its IPO, and only then could Sequoia Capital China exit through the capital market and realize returns. This community group buying war may be more prolonged or end more quickly in the Spring and Autumn period. After all, those who can still invest heavily have their own mature investment philosophies. Those who wanted to follow the trend have already been cut in half. Plus, with capital guiding behind the scenes, using capital power to quickly achieve market monopoly for new business forms is a well-trodden path for them! Capital entry is, for community group buying entrepreneurs, half angel and half devil. It accelerates the cost of competition in the entire market and quickly completes iteration. The entrepreneur who passes five levels and defeats six generals may not be the final winner, but just a relay runner. After running the track, capital can choose a driver. So the market is guessing: Which one will be the "Meituan" of community group buying?
2 The Past and Present of Community Group Buying Group buying is not unfamiliar; it is the most common business form. However, community group buying places the group buying business model in another scenario and continuously iterates within these scenarios. A founder of a community group buying company, Mr. Li, who started at the same time as Niwonin, said that at that time, they mainly did group buying based on fruit group purchases in the group, which was equivalent to reverse ordering, with a flavor of order agriculture. According to him, they mainly attracted people with low prices, and through word-of-mouth among people, they could quickly reach a certain scale in a small area. Initially, not all people in the group lived in the same residential area; they were scattered across Changsha city. After all, people's social circles are not limited to neighbors; more often they are colleagues, classmates, and relatives. Even the initial model was not like now, with a group leader position; instead, the group owner, i.e., the founder, delivered goods themselves or sent them by courier to customers' homes. The initial business logic was simple: they did not need storefronts, did not pay e-commerce platform commissions, and only used free QQ and WeChat to find customers and complete payments. Therefore, they had enough room to pass these savings directly to consumers. Generally, product prices were 80% of market price or even lower, giving customers real benefits. They initially chose fresh fruits, which other retail formats had not done well. Take fruit, for example: the price at the neighborhood fruit store is more than double that at Changsha Hongxing Wholesale Market. So as long as you were willing to work, being a simple porter could earn a good profit. Lower the price to about 70% of the neighborhood fruit store, and customers pre-order, then you go get the goods. This business logic is very simple: the operator is sure to profit, collecting money first, purchasing on demand, with no inventory and very low damage. It started with one QQ group, then multiple groups, then WeChat groups. The business logic and operation model did not improve much. Because at that time, the most valuable thing was the daily need for fruit and price advantage, which could make the repurchase rate in the group very high. However, its disadvantages were also obvious: early on, there were no barriers to entry and no competitiveness. So, Chinese people, who are good at copying, would soon see someone in the group start a new stove, imitating the model and engaging in homogeneous competition. To survive, different entrepreneurs chose different strategies. For example, Mr. Li focused his main energy on direct fruit sourcing. You know, once you enter direct sourcing, it is as deep as the sea. He kept learning, traveled across the country to find quality fruit growing bases, negotiated procurement cooperation, but did not have more time to manage the business. The result was picking up sesame seeds and losing the watermelon: he secured upstream fruit suppliers, but the market got smaller and smaller because new entrants kept coming, and some peers had gone far ahead. Mr. Li reflected on his strategy: "You know, for a period, our group buying was doing better than Niwonin." What a pity! He did not build a strong operations team; he managed the backend but lost the frontend. In the early chess game of Changsha community group buying, price was always the magic weapon to open customers' pockets. The price war also forced these community group buying organizations to transform and innovate. Moving to communities and migrating to WeChat became the common choice for surviving entrepreneurs. The LBS-based strategy online directly turned into specific residential areas, shortening physical distance, and possibly handing items face-to-face. The author personally experienced this in 2015: WeChat friends pulled me into nearby residential groups, pretending to be a resident to boost numbers. Even more, in my own residential area, the largest in Changsha—Xiangjiang Century City—because it is so large, the same group buying brand had different group leaders, and sometimes I could not even figure out which group I placed my order in. At that time, it was still a period of barbaric growth; many teams made a quick buck and left. The products were not as rich as now, mainly fruits, gradually adding vegetables. Moreover, many community group buying operations started selling before registering a company; some did not even register a company and still sold goods—this was not uncommon. Looking back today, these business tactics are child's play, with no technical content, and are not valued by many retail practitioners. How much volume can such a fuss generate? How many outlets can there be? So, in Changsha, many community group buying entrepreneurs were not professionals. Many switched careers to become peddlers. Everything has two sides; seeing the big from the small, these entrepreneurs who started from the bottom have an innate innovative gene. They do not have the rules and regulations of the retail industry; buy low, sell high, sell more to earn more—this simple principle drives these entrepreneurs forward. The evolution of community group buying can be said to be forced. Such a hot phenomenon could not avoid attracting the attention of big players. Furong Xingxing, a big player in Hunan convenience stores, finally entered the market in 2017, entering this new business form that they had previously overlooked: community group buying. Their initial investment was just testing the waters; it is said that they started with a team of only 4 people. With experience in running convenience stores, on the one hand supply chain management experience, and on the other hand the residential areas covered by convenience stores, Xingsheng Youxuan was like a runaway dark horse, galloping ahead, with user numbers and transaction volumes rising steadily. According to their consultant, within less than 6 months, Xingsheng Youxuan had already become the community group buying brand with the largest daily transaction volume in Changsha at that time. High growth brings high growth pains: how to quickly and accurately match the ever-expanding team, the ever-expanding online stores, and the ever-increasing number of products (SKUs), and how to deliver quickly. At one point, picking goods became a bottleneck for increasing SKUs and quantities, and limited-time flash sales also became a beautiful sight. At that time, Xingsheng Youxuan opened groups in the early morning, and some hot products sold out in minutes. Of course, these may be small tricks in business operations, but they indeed brought real users and transaction volumes. Community group buying evolved from competing on price, SKU richness, and product selection ability to competing on IT information system capability and management capability. You know, in the earliest days, some community group buying operations still took orders by following posts in the group, with funds first transferred to the group leader's personal WeChat, then the group leader transferred to the operator. With the entry of companies like Xingsheng Youxuan, many companies also invested in ordering systems, allowing customers to order directly, with the system intelligently/autonomously matching the residential area outlet. From the business process perspective, it can be said that the operation process has completed the transition from manual work to machine work. Whether each company has an ordering system and the design logic determine its future direction. How to handle the relationship between the company, group leaders, and customers, and how to make these "part-time" group leaders have the drive of full-time employees? How to manage every detail of the entire process. These have become the heartaches of the founders of these well-developing community group buying companies. Finding talent, training teams, and learning and growing have become their top priorities. The business development speed of community group buying, in some brands, exceeded the founder's expectations, and even he himself felt he could hardly control it. As community group buying evolved at an accelerated pace, naturally some small individual teams began to fall behind. Changsha community group buying entered a period of differentiation, especially in the first half of 2018. Some people left, and new people entered. The entry barrier was higher; without certain supply chain advantages and capital advantages, it was hard to start a new stove. With Niwonin receiving venture capital, community group buying competition rose to a new level: capital competition.
3 Where Is the Future Road? Can community group buying, this track, produce a "Meituan" from the "Hundred Group War" or "Thousand Group War"? No one can say clearly. What is certain is that these early entrants in community group buying did make real profits and money in the early stage. Now, although the scale has increased, profits are getting thinner, and if you calculate carefully, they may even be losing money. They can continue now because there is continuous cash flow. Supplier payments have a certain credit period, ranging from 7 days, 15 days, or even 30 days. Some community group buying operations rely on this cash flow to support themselves. Of course, there are also quality deposits from suppliers. Obviously, these tactics are similar to shared bikes, which rely on deposits to support operations; soon someone will break this game. Cash flow: can this path continue to provide blood and use the money well to build hematopoietic ability? This is a big question. As we all know, the core competitiveness or barrier of the retail industry lies in the supply chain. How to choose and manage supply chains has become the top priority for all retail enterprises. This determines whether products sell well and whether prices have advantages. For community group buying, which wins by low price and quality, the supply chain is even more important. It can be foreseen that with the entry of big capital and other players in retail, the supply chain competition in community group buying will further accelerate. By then, credit periods will shorten, and even some small community group buying operations will not be able to get hard-to-get products. This is fatal for community group buying companies. Often, they rely on these hard-to-get products to attract people and maintain group leaders and customers. Community group buying companies are just buying and selling at the same price, sometimes with slight losses. From a business model perspective, it is easy to explain this product portfolio model of community group buying companies: typical traffic-generating products plus high-profit products, a mature "razor and blades" model. Once these traffic products are out of stock, for customers who only care about price and group leaders who are tied by interests, the cost of switching community group buying platforms is almost zero. So, do not be surprised that these high-traffic community group buying companies can collapse overnight. More importantly, the profit margins of community group buying companies are getting smaller, or they need to seek other profit points. According to the current design of most community group buying operations, the price of products sold through their platforms will not exceed 80% of the market price, and some even as low as 10% off. In their business flow model, the group leader, an important hub for logistics, information flow, and customer flow, needs to obtain 10%-15% returns. The cost of the group leader has very little room to compress. As competition intensifies, community group buying platforms will only give more benefits to customers, which means retail prices will continue to fall. On some SKUs, we have already seen your group at 29.8 yuan, and my group can open at 19.9 yuan. Why? Even if you do not make money, you have to move volume. This kind of "lose a thousand soldiers, damage eight hundred" thing happens from time to time. Of course, overall, the volume of community group buying is still too small in the vast ocean of retail. So, community group buying companies use various means, sourcing from different levels. As development progresses, cooperation with manufacturers and provincial distributors will become standard, and the bargaining space will be related to the business capability of the community group buying company itself, no longer relying on personal connections or special channels to obtain bulk products. Some community group buying companies with a certain volume leave a gross margin of only 10%-15% for most products. There is a bit of the Laoganma approach: within this price range, I achieve the highest efficiency. This brings management pressure to the company; in an industry with many human resources, management also becomes a profit killer. It is certain that many community group buying companies are already in an extremely dangerous environment. People will constantly enter and exit this business form, thus forming new leading companies. The good show is just beginning...
4 Planning for the Present from the Future For this good show, are we just spectators? Or actors? Or directors? Or screenwriters? "Butt decides head," and also decides one's role. Role awareness must be clear. For the protagonist, the community group buying companies already in the play, I will discuss later. Capital, equivalent to the producer of this play, as investors, whether the play is critically acclaimed is not important; whether it is a box office hit is their focus. A play that is both critically acclaimed and a box office hit is, of course, welcome. Community group buying, as a new species in the retail format, is certainly worth attention. As mentioned earlier, these innovations are not pre-designed but are achieved through hard work. It is just that group buying, a business model that capital is familiar with and has suffered losses from, has found new application in a new scenario. In the past, group buying mostly brought consumers to stores to enjoy services or products. Now it is reversed: the center is no longer around the merchant but around the consumer, delivering goods or services to the door, making benefits more accessible. In the past, group buying promotion let information roam the internet; now it increases their visibility, making them ubiquitous. From heaven to earth, using residential areas as grids to achieve city-wide grid coverage, from uncontrollable investment to visible revenue. These changes are what capital hoped to see in the group buying wave eight years ago. Today, with the emergence of community group buying, capital naturally will not give up. The reason is simple: every channel change produces a new generation of dominant enterprises. Daily necessities separated from department stores gave rise to supermarkets like Yonghui; professional channels for home appliances made Suning and Gome; from physical to e-commerce, there are Alibaba and JD.com and a series of companies; in the WeChat business system, Pinduoduo, listed this year, makes people pay more attention to the charm of social e-commerce. The pattern is certain: in the community group buying format, a new dominant enterprise will definitely emerge, but no one knows which one, so Today Capital placed bets on multiple players. Capital's logic is the most market-oriented logic. If you understand why capital bets, you will know what role we should play. For manufacturers or their agents, there is no doubt that they should participate in this big play with a good attitude. Deeply cultivate channels, embrace them from the beginning of their growth. This reminds me of my middle school motto: "Today I am proud of No. 2 Middle School, tomorrow No. 2 Middle School will be proud of me." Manufacturers should support and assist community group buying when it is not yet strong. Today these community group buying companies are proud of your brand, and tomorrow they will repay you with richer performance. There are cases: the growth of Taobao brands like Handu Yishe and Three Squirrels is the best evidence. If you are a big brand, please pay attention to this format as soon as possible and design cooperative relationships with them. In the early e-commerce development period, many brands developed e-commerce-specific products to avoid conflict with traditional channels. It can be imagined that community group buying-specific products are not far off. From the consumer perspective, community group buying should be a combination of consumption upgrade and consumption downgrade, more practically meeting needs. On the one hand, they need products with better quality assurance; on the other hand, they hope prices can appear in a more favorable posture. You know, the initial concept of community group buying was mainly origin fruits, retail at wholesale prices. If this format deviates from this original intention one day, these consumers will also leave it.
5 The Great Retail Transformation There is nothing new under the sun; community group buying is also a form of commodity circulation. We have a few understandings about retail. The essence of retail is nothing more than determining between "circulation" and "buying and selling." If you view retail as circulation, then the enterprise focuses on turnover (GMV), with a core indicator of fast turnover, making a fuss around turnover. If you view retail as buying and selling, then the enterprise focuses on gross margin, with a core indicator of high sales per square foot, making a fuss around sales per square foot. All roads lead to the same destination: these indicators all consider the enterprise's supply chain management and operational efficiency. The ultimate goal of retail enterprises is to do well in a supply chain management model driven by customer demand. Strive for multiple batches, small quantities, and zero inventory. Community group buying has exactly achieved "multiple batches, small quantities, zero inventory." From this point, its vitality is strong. This also explains why, in the retail battlefield with so many giants, community group buying can carve out a path. And it is in the early stage of a blowout; going forward, in the big puzzle of retail, the proportion of community group buying will become larger and larger. Another important factor is that community group buying has taken a path of integration. It combines the sky net, ground net, and human net. If we call physical stores the ground net, then e-commerce is the sky net, and social e-commerce based on personal networks belongs to the human net. Each of the three nets has its advantages and disadvantages, and community group buying, which integrates all three, has tenacious organizational innovation and strong vitality. On the one hand, it makes group leaders become residents in the community, or directly community store owners, allowing customers to pick up goods at the door, achieving the physical network layout that previously required large investment through (part-time) sharing; on the other hand, through small programs and other e-commerce platforms, it realizes the e-commerce of transactions; the most ingenious point is to select people with certain resources as group leaders, gathering their personal networks. These community group buying groups are all neighbors and folks, and through word-of-mouth, rapid fission can be achieved. Whether it is new retail or smart retail, the core is to quickly match "people, goods, and places." Community group buying, to a certain extent, improves the efficiency of this matching. Enterprise innovation is to further improve efficiency. Obviously, its customer acquisition cost is very low, and circulation costs are only for same-city delivery, not last-mile distribution. Plus zero inventory and high turnover, so capital, space, etc., are extremely simple. In this great retail transformation, no one could have predicted that it would break out in Changsha, central China. This wave of retail innovation will continue to evolve. With the entry of first-tier city players and large capital injections, the evolution of community group buying will accelerate at 100 times the speed. The chess game of retail is big enough; no single enterprise can monopolize it. Nor can one enterprise dominate in one format. The market is always changing; there will be many supplements and innovations. So, please give the operators of community group buying some time to grow.
6 The Correct Playbook for Community Group Buying Earlier, I mentioned that community group buying faces many growing pains. How to break through? The market is huge, and the ambitions of community group buying founders are not big; making a small profit is fine as long as they are willing to work hard. But for those with ideas, they must stand at a higher and farther time and space to examine the present, plan well, and build internal strength. The core capabilities of retail enterprises are two: supply chain management capability, which is an area requiring capital strength and wisdom; if you do well in supply chain management and operations, you will create a number of excellent enterprises. The other is operational capability: how to reduce costs and increase efficiency. This capability is endless and requires continuous cultivation. Before long-term cultivation of these two basic skills, they still need to handle the relationship with group leaders. How to let group leaders earn enough money so that the enterprise can sustain its operations. The current situation is that many group leaders are group leaders for several community group buying platforms. Anyway, it is part-time, and the products of each company are not exactly the same, but my personal network is still the same. These group leaders generally earn about 3,000 yuan in commission per month. By reverse calculation, a group leader's monthly turnover is about 30,000 yuan. 3,000 yuan is not enough to meet the group leader's financial needs. Why are the vast majority of these groups in Changsha run by mothers? Some community group buying founders have complained that these mothers open groups depending on their mood; if they have something to do or are in a bad mood, they do not open groups, lacking stability. After all, the market is still channel-driven; customers are in the hands of group leaders, and the enterprise does not pay them a salary, so it cannot ask for more. Moreover, if you do not do it, these group leaders are like community influencers, and there are many other platforms coming to them. The relationship is awkward. To solve these contradictions, many companies are thinking of ways. On the one hand, they strive to increase group leader income. Only eternal interests—this is true. If group leaders do not make money, everything else is just show, and you cannot ask them to be exclusive to your community group buying. Some companies directly hire group leaders, buying them five insurances, with salary still based on commission. The purpose is only one: to straighten out the relationship between community group buying companies and group leaders, and to integrate deeply. On this path, there is still much to explore, but it all comes down to cost. In a word, community group buying is still in its early stage. To become a dominant enterprise with sufficient competitiveness, it still needs heavy investment, practicing basic skills, doing well in supply chain management, and improving operations. At this time, the entry of large capital is timely. Source: MingTang (ID: MingTangHN) This Double Twelve, we will go to Changsha, the storm eye of the most intense community group buying competition. Changsha is the first city where community group buying landed, and also the city with the most complete platform competition and the highest consumer acceptance. We will conduct an in-depth inspection and visit of Changsha's leading group buying platform: Kaola Selection (Kaola Selection is the first community group buying platform for FMCG B2B born in this birthplace of group buying)—walk into its warehouse, walk into its stores, walk into its user groups. Let's see how Kaola Selection quickly built a city's community new retail network amid fierce competition, and what deep pits and traps it encountered in the process. At the same time, we have invited investors and industry experts to have zero-distance contact through salon forums, to exchange and discuss how to establish the most suitable business model for regional implementation. Decode community group buying for everyone. The 10th B-end E-commerce Inspection - Community Group Buying Changsha Special Session Event time: December 12-13 Event location: Changsha · New High Bridge Event process:
Morning of December 12: Community group buying exchange salon
Afternoon of December 12: Kaola Selection Hero Alliance Launch Conference
Night of December 12 to early morning of December 13: On-site inspection of Kaola Selection Logistics Center—This time period is the peak sorting period in the warehouse, allowing direct observation and learning of the backend operation process of community group buying e-commerce Distinguished guests Zhao Bo, founder of New Distribution Tang Guangliang, CEO of New High Bridge Liu Chunxiong, famous marketing expert Wang Jun, new retail industry expert Ren Xiaodong, CEO of Mofang Yunxiao Song Fang, partner of New High Bridge Cai Jingzhong, partner of Galaxy Venture Capital Chang Ke, co-founder of Kaola Selection Welcome distributor friends interested in community group buying to join us to understand and inspect on-site: Organization form 1. Expert exchange salon 2. Company visit
- On-site explanation
- One-on-one exchange** 5. Actual market case visit Participating distributor friends only need to pay a registration fee of 199 yuan Other expenses are self-paid Long press this QR code or click "Read Original" to register in one click! Add friends, please note the purpose. -END-