This seemingly easy-to-copy game: what are the odds for internet giants? Core viewpoints:
- The business model of community group buying appears easy to replicate, but players face significant challenges for sustainable development;
- Internet giants must still follow the basic rules of community group buying: managing platform-leader relationships and enhancing core supply chain capabilities;
- Platforms urgently need to prove their ability to scale profitably, with reasonable cost control being a key prerequisite.
"Have you heard of Vi Ya and Li Jiaqi? We can become people like them!" Three months ago, employee Tang Yan (pseudonym) started working part-time as a community group buying leader for a regional platform. "Community group buying is so hot now; all my friends are doing it."
Since becoming a leader, Tang Yan has learned one lesson: the profit per order is small, so volume is key. "Each order typically earns 5 to dozens of yuan." Then, with a hint of anxiety, she added, "Competition is fierce now; what I've earned in these months isn't even enough for my own expenses."
In contrast, Zhao Yu (pseudonym), a leader for a national community group buying platform, is less anxious: "This is a sought-after job. If you do well, you can 'fleece' various platforms." As a mother, she has found "a great sense of achievement" in this role.
Behind the tug-of-war among leaders lies the mutual competition among community group buying platforms.
Table by: EqualOcean / Zeng Le
Community group buying, a track that was once neglected by capital last year, has seen a 'resurrection match' this year due to the pandemic and the influx of internet giants.
On one hand, Meituan, Pinduoduo, JD.com, and Didi have all rushed into this track to explore long-tail traffic; on the other, players like Shihuituan, Tongcheng Life, and Xingsheng Youxuan, which have been rooted in this track for years, have announced new rounds of financing, backed by giants like Alibaba and Tencent.
The business model of community group buying seems easy to copy, but players still face significant challenges for sustainable development. "The essence of community group buying is still retail, testing the comprehensive strength of products and supply chain," said Dong Xu, brand director of Shihuituan. "Community group buying is highly regional, which is a big test for new players."
With multiple parties competing, in this seemingly easy-to-copy game, what are the odds for internet giants?
-01- The Flames of War Rekindle
As early as 2014, community group buying was just a story that started in Changsha. Over the next four years, it blossomed across the country. What was once a small project selling fruit in QQ groups quickly evolved into a nationwide "community grocery revolution."
With a flood of hot money, the community group buying market, after explosive growth, began a shakeout last year. Many players lacking supply chain capabilities or with broken capital chains became casualties in this thousand-group war. Even some head players began to strengthen themselves by joining forces to survive the winter.
This year, the seemingly settled market reignited under the impact of the pandemic. "The pandemic has changed consumer habits; 2020 will be the best year for many community group buying companies to grow wildly," said Shao Hongjie, head of JD 7FRESH community group buying, in August.
A clear signal is that even Pinduoduo, which started with group buying, has entered the community group buying track, attempting to create another 'Pinduoduo' on this battlefield. On August 31, Pinduoduo's community group buying project "Duoduo Maicai" mini-program went live. In terms of strategy, Pinduoduo continues its "high subsidy" approach in the community group buying market.
Earlier, there were rumors in the industry that even though "Duoduo Maicai" is only available in Wuhan and Nanchang, Pinduoduo has invested 1 billion yuan in subsidies to compete for quality leader resources. According to media reports, for each order sold on the "Duoduo Maicai" platform, merchants can receive a 10%-15% commission, which is much higher than other platforms.
Didi's "Orange Heart优选" is also aggressive, with daily orders exceeding 100,000.
In addition, internet giant Meituan launched its "Thousand Cities Plan" to intensify community group buying; Alibaba's Retail Link division is reportedly forming a new community group buying department; JD.com established a large supermarket omni-channel business group, integrating its JD Supermarket, consumer goods division, 7Fresh, and No.1 Store, to achieve a "half-hour delivery living circle" with its previous "物竞天择" project...
For a time, internet giants clashed on the community group buying battlefield.
"For traditional e-commerce, 'down-market, social, fresh produce, and online-offline integration' have always been four shortcomings they struggle to solve, and these are precisely the four core elements of community group buying development," said Dong Xu, brand director of Shihuituan. In his view, internet giants and capital are optimistic about the huge market demand and complete model of community group buying.
Clearly, community group buying is an ideal traffic entrance for internet giants, but players ultimately need to overcome difficulties such as supply chain, operations, warehousing and distribution, and product quality. Even with giant backing, they must still follow the basic rules: managing platform-leader relationships and enhancing core supply chain capabilities.
For internet giants with different entry times and strengths, the seemingly easy-to-copy game of community group buying actually poses significant challenges.
-02- A Tough Bone to Chew
"Win fresh produce, win the world," said Xu Xin, founder of Capital Today, as early as 2015. Looking at the business models of the fresh e-commerce industry, community group buying seems to be the most promising and shortest profit cycle model in the fresh produce track.
Table by: EqualOcean / Zeng Le
"As the mobile internet dividend fades, internet giants must find ways to increase user stickiness and attract more traffic," said Yang Liang, an analyst at EqualOcean's new consumption division.
In his view, the community group buying model complements the front-warehouse model. Compared with the high fulfillment and inventory costs of the front-warehouse model, the lighter community group buying model can achieve greater profit margins.
Based on social interactions, community group buying relies on communities and "leader" resources to circulate goods. Its essential logic, as many industry insiders say, is: "Community group buying starts with leaders and ends with the supply chain." This means that to play this hand well, players must break through the existing bottlenecks of 'leaders' and 'supply chain.'
First, players need to hold the "leader" gun firmly.
"Community group buying is a 'grouping customers' logic; it can concentrate orders within a certain area," said Liu Yizhou, founding partner of Jiuxuan Capital. "Platforms need to continuously retain leader resources; it's essentially an S2B2C logic."
Since all players use fresh produce as a traffic-driving product to penetrate lower-tier markets, competition has become highly homogeneous. In the highly compressed cost space, most platforms control leader commissions at around 10%, but this does not strengthen the platform's control over leaders. Once a leader's sales growth becomes unbalanced, they are prone to "defect."
"If this platform earns less, I'll just become a leader on another platform; there's no loss anyway," Zhao Yu, who has been a leader on several large platforms, told EqualOcean. It's common for leaders to switch jobs or be poached by other platforms.
On the other hand, to achieve nationwide expansion, community group buying needs the core resource of 'supply chain,' which includes sourcing, warehousing, transportation, sorting, and distribution.
Table by: EqualOcean / Zeng Le
Due to the long-standing separation of production and sales in China's agricultural products, even the product category alone is a headache. "Most companies cannot achieve direct sourcing from production areas," an industry insider who requested anonymity told EqualOcean. "Direct sourcing for a single category is possible, but for all categories, it's almost impossible."
Even internet giants find the supply chain aspect challenging. "Don't underestimate the power of 'local snakes.' Local wholesalers can deliver goods the next day and have formed solid local networks, which 'outsiders' can hardly match," the insider said.
The challenges don't end there. "In today's increasingly fierce competition, differentiated product advantages, service experience, and control over supply chain costs will become core competitive points," said Dong Xu, brand director of Shihuituan. "Community group buying is like a complex, high-speed machine; if any part is not well connected, the whole model is hard to operate."
For latecomer internet giants, chewing this bone is still a long way off.
-03- Behind the Carnival
Behind the competitive layout of various players, capital has also begun to pour into this long-dormant track. On this arena that requires capital and competition, a fierce battle continues.
According to incomplete statistics from Tianyancha, since the beginning of this year, China's community group buying and fresh e-commerce sectors have seen more than ten financing rounds, totaling over 10 billion yuan. Among them, Shihuituan received investment three times this year, totaling $249.7 million; Xingsheng Youxuan completed a $600 million Series B round.
"Fresh produce is a trillion-yuan industry that every household needs daily," said a representative from Joy Capital. "The new model of community group buying will improve the industry's efficiency and effectiveness, bringing more benefits to users."
Now, as a model innovation of traditional social group buying e-commerce in the "offline community" dimension, community group buying seems to be the most likely growth switch to open up the mainstream fresh produce consumer group in lower-tier cities.
In terms of competitive landscape, the entire track has evolved from original head players like Xingsheng Youxuan, Shihuituan, Tongcheng Life, Shixianghui, and Meijia into a fierce competition among internet giants: Tencent has chosen to bet on Xingsheng Youxuan; Alibaba not only has "Yizhan Tuangou" but also invested in "Shihuituan"; Didi launched "Orange Heart优选"; Meituan established "Meituan Youxuan"; Pinduoduo launched "Duoduo Maicai"; Tongcheng Travel incubated "Tongcheng Life," etc.
Table by: EqualOcean / Zeng Le
For the rekindled track, community group buying platforms urgently need to prove their ability to scale profitably, and whether players can reasonably control costs is a key prerequisite.
In this regard, Liu Yizhou, founding partner of Jiuxuan Capital, believes: "Whether it's social e-commerce or community group buying, any enterprise's costs essentially include three parts: traffic acquisition costs, fulfillment and delivery costs, and backend operation costs. Players ultimately need to build a channel with the lowest total cost."
Compared with other fresh e-commerce models, community group buying has the characteristics of extreme cost-effectiveness and low fulfillment costs, which is undoubtedly a sharp tool for penetrating lower-tier markets.
"The community group buying market should be dominated by 1-3 head players in the future," predicted Dong Xu, brand director of Shihuituan. "As more potential users and GMV (Gross Merchandise Volume) tilt toward head platforms, the barriers for head players will become more complete."
It is certain that community group buying has "reignited" again, and the fire is burning stronger, far from the endgame.
-04- Epilogue
Looking back over the past three years, the entire community group buying market has experienced a land grab focused on traffic growth and an industry shakeout where head players emerged.
Many industry insiders believe: "This year is the 3.0 era of community group buying." Among them, Dong Xu, brand director of Shihuituan, said: "The market is still growing rapidly, and industry development is relatively rational. Everyone is integrating capital, resources, and manpower to create a new community group buying industry chain."
Compared with smaller players, the ability to integrate upstream supply chain and logistics resources is an advantage for giants. But small players are not without merits; they are more "down-to-earth" in frontline operations and have strong control over communities and leaders.
"There are only a few national community group buying platforms now. In the future, regional platforms will either grow bigger, be merged, or be eliminated," an anonymous industry insider paused and said, "Even internet giants doing community group buying start from a new starting line."
Currently, there is not much time left for internet giants to win this game.
Source: EqualOcean (ID: i-yiou), Author: Zeng Le