Click to read the original article for details This article attempts to answer the following questions: 1. How to understand the closures and contractions of certain platforms. 2. Which platforms will close or contract in the future. 3. Who should we focus on to grasp the market pulse. 4. How is the community group buying industry developing in the second half of 2021. 5. What is the basic attitude of brand owners towards community group buying.

The veteran player in community group buying, Shixianghui, has collapsed. Tongcheng Life, which was once rumored to surpass Xingsheng Youxuan, has also collapsed. Shihui Tuan, which claimed to have Alibaba's support, is undergoing comprehensive strategic contraction. As a result, some people have begun to question the model and industry development of community group buying, and have more or less started to waver psychologically.

Cautious people only doubt in their hearts, while bold and reckless people directly exclaim, "Community group buying is failing."

In addition to the doubts caused by the closures of certain platforms, community group buying has just experienced the "summer stagnation," "group leaders not selling goods," "group leaders and platforms engaging in fake orders," and "suppliers and grid warehouse franchisees going bankrupt," all of which have been publicized by the media as signs that community group buying is failing.

Is this really the case?

What impact do the exits of Shixianghui and Tongcheng Life, and the strategic contraction of Shihui Tuan have?

In August 2021, the total market size of the community group buying industry exceeded 80 million orders per day. Meituan Select and Duoduo Maicai each had a market size of over 25 million orders per day, each accounting for about 31%.

The combined market size of MMC, Xingsheng Youxuan, Jingxi Pinpin, and Chengxin Youxuan exceeded 25 million orders per day, with the four together accounting for about 31%.

The combined market size of Shihui Tuan, Tongcheng Life, and Shixianghui was about 5 million orders per day, with the three together accounting for about 6%. Shihui Tuan is only undergoing strategic contraction, not a complete closure, and it is estimated that it will lose at most half of its business scale. That is, the problems of these three companies only affect about 3% of the entire market share.

A new business model, which has only been developing for a few years and still contains startups like Shixianghui, Tongcheng Life, Shihui Tuan, and Xingsheng Youxuan, can we predict the collapse of the entire industry based on the failure of 3%?

Which new industry does not see companies going bankrupt in droves? Using the problems of Shixianghui, Tongcheng Life, and Shihui Tuan to talk about community group buying is typical of an outsider.

This is equivalent to saying that in the mobile phone industry, the bankruptcy of an obscure phone manufacturer in Huaqiangbei means that China's mobile phone industry is failing, and that Xiaomi, Huawei, Vivo, Oppo, and other companies are failing.

Not to mention that Shihui Tuan is not dead; even if it were, it would have no impact. To truly study whether community group buying is viable, we should look at whether Meituan Select and Duoduo Maicai are viable, what their internal logic is, what stage of development they are at, and whether they can overcome challenges.

Why is Shihui Tuan strategically contracting, and why did Tongcheng Life and Shixianghui die? Who else will die in the future?

In the first half of 2021, Tongcheng Life and Shixianghui collapsed, and Shihui Tuan is contracting. From the second half of 2021 to early next year, Chengxin Youxuan and Shihui Tuan may both close or exit. Xingsheng Youxuan faces strategic contraction. Alibaba needs continuous observation, but in the long term, it is unlikely to exit or undergo large-scale contraction unless there are special events. Why?

The primary reason is that the community group buying business is too capital-intensive, too heavy, and too difficult, and it is not a business that ordinary giants can play.

How capital-intensive is it? From the fourth quarter of last year to the second quarter of this year, Meituan Select burned 15 billion yuan in less than a year. In contrast, Meituan Waimai burned 13 billion yuan over seven years of fighting.

The rate of burning money in community group buying is seven times that of food delivery, and it may ultimately burn three times as much money as food delivery. Is this a game that companies like Chengxin Youxuan, Jingxi Pinpin, Xingsheng Youxuan, Shihui Tuan, Tongcheng Life, and Shixianghui can afford to play?

How heavy is it?

JD.com is said to have done the heaviest work in China's internet history—JD Logistics. What community group buying needs to do is to expand a similar task tenfold, sink it down to townships, and solve the cold chain problem for fresh food fulfillment.

This is ten times heavier than JD Logistics. Even if it is not done by oneself, it is very heavy for the ecosystem.

How difficult is it?

On the supply side, each company needs to establish local suppliers, rather than the national supply chain used in e-commerce.

On the product side, they need to conquer highly fragmented, non-standard, and underdeveloped fresh products. On the fulfillment side, sinking to townships requires solving the warehousing and distribution infrastructure for ambient, refrigerated, and frozen needs.

On the user side, they need to grab users in a traffic market that has been washed countless times and is highly competitive.

On the regulatory side, they need to break through under the strong pressure of anti-monopoly, preventing the disorderly expansion of capital, and the Data Security Law. On the competitive side, there are top giants like Alibaba, Meituan, and Pinduoduo. Community group buying is one of the most difficult projects in internet history. To overcome these difficulties, only the top internet companies can succeed; ordinary giants find it hard to succeed.

Secondly, because the community group buying business has completed the strategic layout stage, except for Meituan Select and Duoduo Maicai, which can maintain the stability of the national market, other players have not kept up for various reasons.

MMC entered half a year late and is still expanding its territory, so its performance in the second half of the year needs to be examined.

Chengxin Youxuan has stagnated due to various problems. Even while writing this article, I was told by an internal friend that Chengxin Youxuan is planning a major retreat before the end of the year, or even a complete exit.

To analyze more deeply why the other players have not kept up with Meituan Select and Duoduo Maicai, it is still because of the reasons mentioned above: these companies lack the courage and capability to play this game. If they had the courage and capability, why would they contract? Can't they afford to gamble? Why can some people burn 15 billion in less than a year and stabilize the national market, while others cannot? Why have they been slow since last year and remain slow now, not only failing to narrow the gap but continuing to widen it?

Since this is the current state, will the gap become even larger in the future, eventually leading to exit?

Finally, it is because community group buying has passed the window period for regional development.

Now, except for Alibaba, which is still moving forward, and Didi, which is struggling due to the IPO incident, the remaining players like Xingsheng Youxuan and Shihui Tuan can no longer affect the national battle. With competitors gone, how can there be regional market fragmentation? Any player that stays in a corner will eventually exit the market, whether it is Alibaba, JD.com, Didi, Xingsheng Youxuan, or Shihui Tuan.

Why did they miss the window period? The reason is still the first point: these companies can be called giants, but they are hardly top-tier internet giants.

At the beginning of 2021, I predicted that they could not compete with Meituan and Duoduo in the national market, and I hoped they could focus on regional efforts. After half a year of practice, they have been unable to reverse their disadvantage even in their regions, falling behind comprehensively in strategy, organization, personnel, assets, market scale, and other aspects.

Development of the community group buying industry in the second half of 2021

Not only is Shihui Tuan contracting, and Tongcheng Life and Shixianghui are dying, but Chengxin Youxuan may also contract or exit in the second half of the year. According to some people's logic, can we say again that the community group buying industry is failing? The community group buying industry is not only not failing, but it is also about to undergo significant development, with growth expected to multiply. Why?

Because of changes in supply and demand.

Compared to autumn and winter, in summer, due to changes in fresh food supply routes, consumption channels shift; community group buying's preservation measures are inadequate, unable to supply suitable fresh products, and the quality of products that can be supplied is also affected.

Consumer demand weakens in summer, causing platforms to develop slowly or even stagnate, but as these factors are eliminated, the second half of the year will see significant development. According to the historical patterns of the community group buying industry, doubling the scale in the second half of the year is within reach.

Because competitors decrease, competition weakens. As some players exit or contract, disorderly competition decreases, resource consumption decreases, and scale becomes more concentrated, which is good for the industry's development and for leading companies.

Is community group buying viable or not? What should we do?

Earlier, we discussed whether the community group buying industry is viable, which players are viable and which are not, and the development in the second half of the year. Here, we need to further provide arguments to help brand owners make decisions. Brand owners have a transcendent status similar to platforms; they do not directly participate, and they have national influence and resources. Therefore, suppliers, grid warehouse franchisees, and city agents can be used as cannon fodder by platforms and played with, but brand owners will not be in that situation.

From another perspective, regardless of the current situation and future of suppliers, grid warehouse franchisees, and city agents, it should not affect brand owners' decisions to enter community group buying. Brand owners only need to pay attention to the industry and the development of platforms. In short, now they only need to focus on Meituan Select, Duoduo Maicai, and MMC.

Brand owners have been developing their own channels and new products, and have set up countless internal projects. For example, in 2017, I experienced Wahaha's plan to deploy 1 million smart unmanned vending machines. Most of these projects eventually fizzled out, and even those still being implemented have had lackluster results.

Now, community group buying has been researched by major platforms spending about 50 billion yuan, and primary and secondary investment institutions spending tens of millions on research. Meituan alone has a business analysis team of over 300 people studying it.

If brand owners do not follow such a project, but instead organize a team of a dozen people to rack their brains to develop their own projects, the right and wrong, the importance and triviality, are clear at a glance. With such a high probability of success, even if it ultimately fails, what is there to say? At least it is more reliable than their own internal projects.

Here, I am not talking about business or benefits; I am talking about trends and strategic vision, because the audience here is management and leaders, who need to view problems from this perspective.

Just as the government said twenty years ago to develop the internet industry, and ten years ago to discuss high-energy-consuming and outdated production capacity, decision-makers should not ask about business details. Looking at trends, influence, and who is doing it is enough to help make decisions. As for specific strategies, analyze them specifically.

So what should brand owners do? One word: follow, and follow immediately. This is the basic attitude of a brand owner.

The development of community group buying is changing rapidly. Even for research and analysis, I feel the updates are too fast. As a brand owner, if you do not act half a year in advance, how can you guarantee to keep up with the industry's development?

As for how to follow specifically, what the pace is, and how to understand the industry and platforms' behaviors and demands, we will discuss and exchange ideas at the 4th China FMCG Conference organized by New Distribution on September 23-25!

At the 2021 4th China FMCG Conference to be held by New Distribution from September 23 to 25, New Distribution has specially invited Mr. Chen Weilong, an expert in the community group buying industry, to attend and share insights on the development trends of the community group buying industry. We look forward to Mr. Chen bringing us a feast of ideas!

Are you "watching" me?