The rise of community group buying may benefit FMCG companies the most.
With capital pouring in, will another Meituan emerge from the 'thousand groups war'?
Is community group buying really only for first- and second-tier markets?
What opportunities does community group buying bring to the FMCG industry? At the end of 2018, community group buying undoubtedly became the most favored business model in the capital market. Within 50 days, over 2 billion yuan in capital was aggressively deployed, showing enthusiasm for this track. But looking beyond the surface, does this business storm originating in Changsha reveal real consumer demand or is it a rehash under capital's influence? What opportunities and challenges does the rise of community group buying bring to FMCG companies? In this regard, New Distribution exclusively interviewed Lian Jie, founder of Dingdantu. The following is based on the interview transcript, hoping to provide some new thoughts and perspectives. 1 Despite the 'thousand groups war', another Meituan will not emerge Community group buying has attracted numerous entrepreneurs due to its low entry barrier, including internet giants like JD's Youjia Puzi, Meituan's Squirrel Pinpin, and Meicai's Meijia Youxiang. Since it is also based on LBS and group buying, people inevitably compare the development path of the group buying market to current community group buying. But can community group buying really create another 'Meituan-Dianping'? Lian Jie gave a negative answer, and the reasons are mainly the following two: 1. Standard services are easy to replicate nationwide, forming national enterprises; but in non-standard fields, national enterprises will not form Meituan's dominance is due to its standard and replicable services, such as information matching and point-to-point delivery. Through rapid expansion, it achieves economies of scale, lowering marginal costs. Community group buying is essentially an FMCG retail business with strong regional characteristics. Since each regional market has different product demands, it is a non-standardized service. The larger the expansion, the greater the demand for SKUs, and the stronger the organizational capability required for centralized procurement and supply chain. 2. The fragmentation of upstream producers determines that a large, unified channel cannot emerge A key reason for national channels is production concentration. For example, in the electronics retail market, due to high concentration of upstream home appliance brands, national retail channels like Gome and Suning emerged. In contrast, in fresh food and FMCG, the public ownership economy determines that production factors like land cannot be concentrated in a few hands. Therefore, the upstream supply chain, especially fresh agricultural products, has countless suppliers. Each channel sells a limited number of SKUs; convenience stores typically sell 700-1000 SKUs, and large supermarkets at most 10,000. This forces upstream producers to seek numerous channels to distribute goods, rather than concentrating on one or two channels. Community group buying is essentially a retail business. The high fragmentation of upstream supply determines that channels cannot be controlled by one or a few companies, and the future development of community group buying will not be monopolized by one or a few oligarchs. 2 Opportunities in third- and fourth-tier markets Since its rise in Changsha in 2016 and gaining capital attention in the second half of 2018, community group buying has entered a phase of rapid national expansion. Unlike most platforms that choose economically developed, highly informatized first- and second-tier markets, Dingdantu positioned its target market in third- and fourth-tier markets from the start. This decision was based on different consumer characteristics in different markets, leading to different purchasing behaviors. From the perspective of purchase paths, current consumer shopping can be divided into the following two types:
Offline shopping, offline consumption:
Mainly immediate consumption, i.e., what you think is what you get. Consumers are highly sensitive to time. Shopping scenarios include convenience stores, vending machines, and unmanned shelves.
Online shopping, offline consumption:
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Mainly immediate consumption, with online ordering and offline rapid fulfillment. Consumers are highly time-sensitive, but also pay higher shopping costs, such as O2O delivery, flash delivery, Daily Youxian, Hema Fresh, etc.
Mainly planned consumption, with order fulfillment typically taking 1-3 days, suitable for consumers seeking scarcity and price sensitivity. Scenarios include Tmall, Taobao, Vipshop, etc., with fulfillment relying on express delivery.
At the product level, goods sold through community group buying mainly have the following three characteristics:
Convenience, corresponding to immediate consumption, mainly serving high-tier market populations;
High cost-performance ratio, not very sensitive to efficiency needs, mainly suitable for third- and fourth-tier market consumers;
Scarcity, with development space in both high- and low-tier markets, but higher order density in high-tier markets, with more obvious scale and easier profitability. Currently, most community group buying is local procurement, relying on local wholesale markets for product selection. After downstream group buying is completed, procurement is done in wholesale markets, delivered to platform warehouses for sorting, and then orders are delivered to pickup points by the next day at a specified time. Essentially, community group buying is planned consumption under online shopping and offline consumption. Online shopping, but fulfillment often takes 1-3 days, mainly planned consumption, which improves cost-performance but sacrifices fulfillment efficiency. This explains why community group buying appeared in Beijing in 2015 but did not develop. In first- and second-tier markets, consumers pay more attention to shopping efficiency and experience, with richer retail scenarios like convenience stores, O2O, and e-commerce, so the development space for community group buying is relatively small; in third- and fourth-tier markets, consumers have a stronger demand for cost-performance, so community group buying is more likely to achieve scale and profitability in lower-tier markets. 3 What opportunities does the rise of community group buying bring to FMCG companies? The rise of new technology allows all industries to be redone with the power of technology. For brand owners, the rise and development of new channels naturally contains opportunities for overtaking on curves. It's like a street with 100 restaurants, all cooking with firewood. Later, natural gas is introduced. Initially, only a few restaurants connect, but a year later, all 100 use natural gas, and their business hasn't changed much. Although the universal benefit of technology cannot fundamentally change the competitive landscape, the restaurants that connected early have reduced operating costs to some extent by enjoying the technology dividend early. Returning to the FMCG field, what development opportunities does the explosion of community group buying bring to the FMCG industry? 1. From B2B2C to C2B2F, improving circulation efficiency The traditional FMCG circulation chain is "brand owner - distributor - wholesaler - retail store - consumer", a typical top-down circulation. Community group buying, however, is when consumers express real purchase intentions, and channel providers procure to meet consumer needs, changing the chain to "consumer - group leader - platform - brand owner". The purchasing entity truly changes from the original store owner to the consumer, reducing the retention time of goods in the channel. From this perspective, the efficiency of community group buying is definitely better than traditional channels. 2. Using community group buying to achieve channel sinking If community group buying has greater development potential in lower-tier markets, then FMCG will definitely become the core category for breaking through in these markets. Why FMCG rather than fresh vegetables? Before answering, let's look at why fresh food has become the main category in current community group buying e-commerce. A core reason is that fresh fruits and vegetables are high-frequency, effectively maintaining and building stickiness between the community and consumers, so they become the core category in most community group buying product structures. Then why does the appeal of fresh produce decline significantly in third- and fourth-tier markets? Essentially because these markets are closer to fresh produce origins, reducing the attractiveness of platform fresh products. Imagine a scenario: near the origin of agricultural products, would you still buy the same goods online? For most price-sensitive consumers, the answer is definitely no. As a compromise, FMCG naturally becomes the core for breaking through in lower-tier markets. Additionally, FMCG has higher price transparency, making it easier to prompt impulse purchases among third- and fourth-tier consumers. From this perspective, community group buying may truly become the next main battlefield for brand owners' channel competition. The key is: are brand owners truly ready for change? What do you think about this? Welcome to leave a message in the comment section You can also scan the QR code below Add our editor's WeChat to join the discussion Looking forward to sparking new ideas with you Click here to register in one step