---
title: "Is Pinduoduo Drawing a Line with Community Group Buying?"
description: "As competition in community group buying intensifies, Pinduoduo's founder and CEO have publicly distanced the company from the model, with CEO Chen Lei stating that Duoduo Maicai is not a community group buying service. This article analyzes the shifting dynamics of the battle, particularly the pivot from fresh produce to FMCG, and explores why Pinduoduo is seeking to differentiate itself."
author: "房煜"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-11-24"
language: "en"
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# Is Pinduoduo Drawing a Line with Community Group Buying?

> As competition in community group buying intensifies, Pinduoduo's founder and CEO have publicly distanced the company from the model, with CEO Chen Lei stating that Duoduo Maicai is not a community group buying service. This article analyzes the shifting dynamics of the battle, particularly the pivot from fresh produce to FMCG, and explores why Pinduoduo is seeking to differentiate itself.

****Click "Read Original" for details****
The battle in community group buying is unprecedentedly fierce, yet major players in the field are now voicing "discordant" opinions.
Currently, the situation in this attention-grabbing (and money-burning) track is described by outsiders as "Three Heroes vs. Lü Bu"—the three heroes being Didi, Meituan, and Pinduoduo, with Lü Bu being Xing Sheng You Xuan. The first three share internet backgrounds, are bold in burning cash, and lack offline retail genes.
However, recently, during Pinduoduo's Q3 earnings release, founder Huang Zheng and CEO Chen Lei both expressed their views on community group buying. Huang spoke in an internal speech marking Pinduoduo's fifth anniversary, while Chen Lei, in response to analysts' questions during the earnings call, stated: "Duoduo Maicai is not a community group buying service."
What's going on? Is community group buying failing? Has the battle reached a turning point? Or is Pinduoduo feinting, or perhaps, due to heavy cash burn, making a statement to appease the capital markets?
To understand this, we need to analyze two things: **First, what changes have occurred in the community group buying battle?** **Second, why is Pinduoduo's Duoduo Maicai drawing a line with community group buying?**
**-01-**
**From Fresh Produce to FMCG**
Since the beginning of the new retail era in 2017, changes in China's retail (including e-commerce) industry have often started with fresh produce, for reasons that need no elaboration. Community group buying is no exception. Early players mostly started with fruits—a category with high average order value, easy to create bestsellers, and less demanding cold chain requirements than vegetables.
In a keynote speech at today's China Retail Conference, Pei Liang, President of the China Chain Store & Franchise Association, mentioned community group buying: **"(Community group buying) is primarily driven by internet platform companies, using fresh produce operations and categories as an entry point, leveraging social store resources and offline traffic, to carry out a large-scale, multi-dimensional layout in community business districts and lower-tier markets, aiming to achieve new market expansion and traffic growth for these brand companies."**
However, by Q4 2020, with the aggressive land-grabbing by the three internet giants, market feedback suggests that the core elements of the battle may be undergoing significant changes. That is, the category being fiercely contested is shifting from fresh produce to FMCG.
According to the three giants' battle reports, one day a certain place exceeds a million orders, the next day a certain province becomes number one. If you only follow community group buying news daily, you'd think they've already captured all of China's third- and fourth-tier markets.
One might expect that physical retail, as China's largest existing retail asset, would see stores closing en masse and massive layoffs. However, this hasn't happened yet. But the impact is undeniably severe. A senior retail industry insider pointed out that **the decline in retail foot traffic caused by community group buying is an indisputable fact, with the decline possibly ranging from 10% to 30%.**
Hou Yi, President of Hema Xiansheng, even believes this is another historic impact comparable to e-commerce's assault on physical retail, and the ultimate fate of physical retail is irreversible. **"Community group buying will completely replace FMCG and fresh produce in traditional retail. E-commerce has already been able to replace traditional retail; the end of an era has begun."**
However, retail industry media "Third Eye Retail" noted after extensive interviews that the impact of community group buying is not that severe, though long-term effects cannot be ignored. **"Community group buying currently has not had a fundamental impact on retail enterprises, but in the long run, its interception of foot traffic for physical stores cannot be ignored."**
Why do physical retailers have differing perceptions of the impact? Huxiu believes the core difference lies in **the proportion of fresh produce and FMCG in different physical retailers' category structures. Stores with stronger fresh produce offerings may be better equipped to resist the impact, because community group buying is still primarily pre-sale.** We won't elaborate further.
The real impact of community group buying appears to be on FMCG (including packaged food), especially on traditional distributor channels. Industry leaders have noticed this. Zhang Wenzhong, founder of Wumart and Chairman of Dmall, told media: "Community group buying has had a relatively significant impact on traditional wholesale models."
Self-media focusing on FMCG distribution also pointed out that **due to the rise of community group buying, internet platforms have become a new form of "channel diversion," with high subsidies causing price inversions in the market.**
Simply put, secondary distributors can buy from community group buying platforms and resell at prices lower than from their upstream distributors—a situation that is both absurd and unavoidable.
Why does community group buying talk about fresh produce as a traffic driver but ultimately cater to the FMCG grabbing war? The various "battle reports" from internet companies have exposed the real issue.
According to public data, Duoduo Maicai had entered 31 cities by the end of September; Didi's Orange优选 has entered 11 provinces and cities; Meituan proposed a "Thousand Cities Plan" aiming for nationwide coverage by year-end. Anxin Securities research reports indicate that all three giants have crossed the 2 million daily orders threshold.
Specifically, Didi's "Orange优选" has about 2.8 million orders, Meituan优选 around 4 million, and Duoduo Maicai exceeds 2 million. From a traffic perspective, more cities and more orders mean more users covered. The fundamental thinking of internet companies has never changed: **First grab people, then conquer the world.**
But from another angle, you'll find that apart from city entries and order volumes, there is almost no other data substantively related to these volumes, such as detailed product-level data.
It's simple: for every new city the three giants enter, besides spending money and people on traffic tactics, they need goods to sell. Where do the goods come from? How are product assortments composed? Each new city is a mouth to feed—where does the food come from? The ammunition for war, besides money and people, is more importantly goods.
If anyone truly tried to rely solely on fresh produce to fight community group buying, they would have collapsed by now. **Even from a traffic perspective, community group buying is inherently a play from regional traffic to community traffic, meaning it is not a rapidly replicable model from a regional market standpoint.** And in fresh produce, especially table vegetables, aggressive expansion is usually a path to self-destruction.
It's hard to believe that internet giants could conquer the third- and fourth-tier fresh produce markets in three months when excellent physical retailers like Yonghui and RT-Mart haven't fully succeeded in 20 years. After all, Yonghui and RT-Mart both started in third-tier cities, followed a rural-encircling-city path, and eventually counterattacked in first-tier cities.
But the three giants show no signs of stopping or slowing down. So, the answer might be that the regional managers fighting on the front lines of community group buying are actually completing their KPIs primarily through FMCG (including packaged food).
Because standard products, transparent pricing, and stable supply chains, along with provincial distribution channels formed over the years, fit perfectly with the province-based battle strategy of community group buying. But traditional distribution channels react too slowly; to meet KPIs, subsidizing to disrupt traditional distributors is inevitable.
If this continues, the fresh produce-to-doorstep function, as it stands now, might be a facade. Currently, community group buying platforms have relatively broad categories, with the core idea being the so-called high-frequency products driving low-frequency ones. But whether high-frequency driving low-frequency actually works, and under what conditions, has been debated in the industry.
What attracts consumers to community group buying at this stage is ultra-low prices, not high-frequency driving low-frequency. So, just like when new retail arrived and everyone ate discounted king crabs, why not take advantage? It's reasonable to exploit community group buying's subsidies—why not?
Sun Peng, General Manager of Pagoda's Fresh Produce Business Unit, shared an observation at this week's China Retail Conference: **The decisive factor for fresh produce lies upstream, in the first mile. The decisive factor for standard products lies in the last mile.** Of course, fresh produce is a broad concept; some sub-categories can be standardized through operations. But vegetables, a daily necessity, remain very challenging.
Pagoda discusses fresh produce industry characteristics
Rong Jian, head of Dmall's community group buying business, believes that group buying is "impulse consumption," where consumers are sometimes passive. "From the current situation, user loyalty is weak; users go wherever subsidies are higher." He also stated, "Undeniably, community group buying has caused significant disruption to traditional supermarkets and traditional business models, and has changed consumer habits. It may be overdrawing future consumption, encouraging consumers to stock up, while also 'creating demand,' surfacing needs that shouldn't exist."
**-02-**
**Duoduo Maicai's "Choice"**
After the above analysis, let's look at Duoduo Maicai's situation. You'll see it has two options: either change its name or draw a line with competitors. Now, it seems Duoduo Maicai has chosen the second route.
Chen Lei explained:
> I want to clarify a concept here. First, Duoduo Maicai is not a community group buying format. It is indeed based on geographic location, and our consumers can pick up goods at locations close to them, but this is quite different from the community group buying formats we've seen over the past seven years.
>
> As for this business form of Duoduo Maicai, first, it is a natural extension of our current business. We have accumulated a lot of technical experience and inventory, and we can offer a wide variety of agricultural products. We started this business because we saw huge demand from consumers in fresh produce shopping.
He also emphasized that Duoduo Maicai is not a separate business segment. Users can choose next-day pickup or home delivery, and Pinduoduo has invested heavily in infrastructure for this.
Pinduoduo's Huang Zheng is the only one among the three giants who has not made a statement like "win the market at all costs." Whether Pinduoduo faces other pressures, such as capital market pressure from continuous cash burn, we don't know. But from public disclosures, the name Duoduo Maicai and Pinduoduo's long-touted positioning of "heavy investment in agricultural product supply chain" might be the fundamental reason for drawing a line with "community group buying."
The name "Duoduo Maicai" can be compared to "Dingdong Maicai." Among the top three in the front-warehouse track, Dingdong Maicai focuses on one-day-three-meals scenarios, aiming to widen SKUs within a defined track.
Meanwhile, Miss Fresh and Pupu Supermarket have broader category structures and are continuously expanding their boundaries. In other words, a name actually influences C-end user perception. This perception can only be reinforced, not easily changed.
Regarding the term "agricultural product supply chain," think about how it differs from "fresh produce supply chain." Generally, when you mention agricultural products, people think of "direct sourcing from bases." But a fresh produce supply chain doesn't necessarily require hands-on involvement; it can also be done through a platform model.
**Everyone admits that community group buying is essentially retail, and retail requires discussing supply chains.** But at this stage, the three giants are busy grabbing territory. Do they really have the intention to build vertically integrated supply chains? From the current stage, **the biggest advantage of community group buying is still the platform effect and traffic tactics.**
In supply chains, internet players in community group buying can only do multiple-choice questions, so FMCG standard products with complete distributor systems and fresh produce categories that can be standardized are the first choices. Truly building an integrated supply chain requires fill-in-the-blank questions (or pit-filling). Currently, we haven't reached that stage; everyone is busy digging pits for competitors, but these pits may ultimately be their own.
Pinduoduo might genuinely want to escape this endless money-burning game, but will it be unable to help itself? Or is it saying one thing while meaning another?
Source: 十亿消费者 (ID: gjgc168), Author: 房煜


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