**Introduction: 1. With continuous financing and investment-driven mergers and acquisitions, why is community group buying caught in a dilemma of ice and fire? 2. Starting with fresh produce, but can fresh produce really support community group buying companies to achieve profitability? 3. Is retail really the ultimate endgame for community group buying?

"Watch him rise a tall building, watch him entertain guests, watch his building collapse." This phrase aptly describes the current state of community group buying. From the influx of capital to the betrayal of group leaders, accelerated platform mergers and acquisitions, and being labeled as "cooling off" or experiencing "life and death" by the media, community group buying has gone through all this in just one year. The dividends of lower-tier markets, the improvement of the WeChat ecosystem, the weak-tie social group buying transactions, the efficient fulfillment of last-mile delivery through prepaid orders, and more importantly, the underestimated potential and prospects of seizing offline community entrances. After online e-commerce hit bottlenecks, and vending machines and chain convenience stores were not as attractive as initially envisioned in new retail, the outbreak of community group buying during the capital winter is even more precious. But the reality is harsh.

Entering 2019, the funds invested in the community group buying industry are no longer comparable to those in 2018. More cruelly, the relatively simple business model has made people see the endgame of the industry too early. Even if Alibaba belatedly entered community group buying, it cannot fundamentally change the situation where Tencent-affiliated platforms dominate. Consequently, capital investment has become more cautious, mergers and acquisitions have intensified, and external voices of pessimism are endless. Is community group buying really a false proposition? Just as Liu Chunxiong commented, "B2B blooms, bearing the fruit of channel digitalization," when everyone believes that community group buying will become the standard for offline retail, can we think: Does community group buying bring a new awakening to physical retail? Those who get fresh produce get the world, but profiting from fresh produce is not as easy as imagined. When everyone makes fresh produce the highest proportion and core category of community group buying platforms, have platforms put shackles on themselves? Does community group buying hide more possibilities?

Community group buying is caught in a dilemma of ice and fire! Taking time as a line, let's first look at the financing situation in the community group buying industry after entering 2019:

  • In February, Songshu Pinpin announced at its annual meeting that it had completed a $31 million Series B1 financing before the Spring Festival, led by Hillhouse Capital and Heyu Capital, with IDG, Cloud9 Capital, and former Meituan COO Gan Jiawei and other old shareholders following, and Index Capital as the exclusive financial advisor.
  • In July, media reported that Alibaba invested in Shihuituan, which became another major attempt after it tested community group buying through Cainiao Post (Alibaba had quietly launched "Post Group Buying").
  • On August 30, Shihuituan merged with Niwonin to form the new Shihuituan. At this point, the new Shihuituan had over 60,000 group leaders, covering more than 50 cities, with 2 million users purchasing over 40 million items monthly, and a market size of 500 million yuan per month.
  • On September 6, Tongcheng Life announced the completion of a $100 million Series B financing, led by Junlian Capital, with Bertelsmann Asia Investments (BAI), Yilian Capital, Tongcheng Capital, GF Xinde, ZhenFund, and GSR Ventures over-subscribing, and Tongcheng Group founder and chairman Wu Zhixiang personally following; Shanjing Capital served as the exclusive financial advisor.
  • On September 11, media reported that Songshu Pinpin was handling hardware equipment including insulation boxes and transfer baskets in its direct-operated cities, as well as inventory goods accumulated in warehouses, and would withdraw from all direct-operated cities. At the supplier level, Songshu Pinpin adopted a policy of paying 80% of accounts, and suppliers who did not agree to this rule could only receive payment after suppliers who settled under the same conditions were paid.

At this point, Songshu Pinpin's business model changed from direct operation to franchising, which was widely interpreted as a sign of Songshu Pinpin withdrawing from the community group buying track.

  • On September 24, Chujia Xinxuan completed a 100 million yuan Series A financing, exclusively invested by GF Xinde.
  • On September 27, according to media reports, Xingsheng Youxuan completed its latest round of financing, with an amount exceeding $200 million. Prior to this, Xingsheng Youxuan's valuation had already exceeded $1 billion, officially entering the unicorn ranks.
  • In September, Tencent, after investing in Xingsheng Youxuan, increased its investment in the community group buying track and officially invested in Shixianghui.
  • On October 1, media reported that Shixianghui officially acquired Songshu Pinpin, and the two parties were in the process of going through procedures. This made the pattern of the entire community group buying industry increasingly clear.

Apart from the few financing events mentioned above, the entire community group buying industry is more filled with closures, city withdrawals, and transformations. In mid-August, Songshu Pinpin was reported to have laid off employees and closed down nationwide. Although Songshu Pinpin later issued a statement denying this rumor, the later news of selling equipment at a discount and fully converting from direct operation to franchising could not hide the bottleneck of its original business. "Group buying is a business with high costs and losses. Without new capital willing to take over, Songshu Pinpin fell into a tight predicament. That's why it is now transforming from direct operation to a 'direct + franchise agency' model." An industry expert commented on Songshu Pinpin's transformation. Similarly, Xiaoqule was also reported in July to have fully withdrawn from the Zhengzhou market, just over 7 months after entering Zhengzhou. As a major province in population and consumption, the importance of Zhengzhou is self-evident, and Xiaoqule's withdrawal from the Central Plains market undoubtedly exposed the difficulties it faced in operation. Similar events happen every day.

"The current community group buying is full of crises! Group leaders want to make money, platforms want profits, consumers want cheap prices, so where is the profit point? Community group buying has entered its final stage; either transform or die..." Some people predict the future of community group buying like this. On the other hand, we see that with the successive entry of Tencent and Alibaba, the Matthew effect in the community group buying industry has become apparent. When all resources flow to the top players, it is reasonable for platforms lacking funds, technology, talent, and other resources to be eliminated by the market and consumers. But it is undeniable that the industry reshuffle is accelerating, and the window period for platforms that want to accelerate expansion through capital is getting shorter and shorter.

Returning to the root of the problem, let's think again whether community group buying is really a false proposition. If not, why have so many platforms closed or transformed one after another?

Why is it so difficult for community group buying to be profitable? Before answering the above questions, let's first look at the value of community group buying. Relying on communities, with acquaintance relationships as a bond, with group leaders (small shop owners) as sales nodes, and through the model of online pre-sale + offline self-pickup, centralized procurement and distribution are completed. In this process, the shopping process and links are compressed to a certain extent, and back-end fulfillment costs are also reduced to a certain extent. At the same time, based on social links, community group buying provides a more thorough and efficient channel for information flow and transmission, offering a choice between traditional e-commerce and offline stores for the link between enterprises and consumers. Coupled with efficient logistics distribution and the responsiveness and satisfaction of the product supply chain, customer needs are undoubtedly met to the greatest extent. For brand owners, community group buying is undoubtedly a sales channel closer to consumers and with high penetration (provided it does not affect the original product sales of the brand); for consumers, community group buying provides a more efficient and cost-effective shopping channel, and its value is self-evident. If both upstream and downstream can profit, but the middle link cannot, then this is definitely not a good business model.

From this perspective, let's analyze why so many platforms have closed or transformed?

1. Capital demands blind expansion Capital is a double-edged sword. In the process of enterprise development, obtaining financing can certainly accelerate development, enabling the acquisition of technology, talent, and products, but scale and data also become chips for cashing out and leaving. In order to accelerate the efficiency of capital turnover, it is inevitable that platforms are "pulled up by the roots." This leads platforms to blindly pursue scale and data during development, ignoring the costs brought by large-scale expansion, and marginal operational efficiency gradually declines. However, community group buying is essentially a retail business, "bending down to pick up coins," which inherently has a long profit cycle. Blind expansion will only drag enterprises into the quagmire of losses.

2. Corporate gene issues Currently, the founders or executives of leading community group buying platforms mostly have internet backgrounds. This internet background helps companies quickly obtain financing in the capital market to a certain extent, but it does not necessarily help companies find a balance in dynamic product portfolios. This also leads many internet people to dive into community group buying due to industry trends, only to end up defeated.

3. Unreasonable category structure: using fresh produce to attract traffic but unable to profit from it Success comes from fresh produce, and failure also comes from fresh produce. Against the backdrop of consumption upgrading, consumer demand for fresh produce is increasing day by day. According to the Qianzhan Research Institute, China's fresh produce market size will reach 2.31 trillion yuan in 2020, with a compound annual growth rate of 14.16%.

The multiple circulation links, long supply chains, high losses, and information asymmetry in multi-layer intermediate chains causing price stacking at various levels have also become the main reasons why a group of internet people are sharpening their knives and rushing into fresh produce e-commerce. The market is large enough, and the industry pain points are obvious enough, but the profitability issue has always been the Damocles sword hanging over fresh produce e-commerce. Even powerful players like Tmall, JD.com, and Meicai cannot escape this curse, let alone community group buying! This makes it unrealistic to rely solely on fresh produce to achieve profitability. On the other hand, let's look at the product listing data of Xingsheng Youxuan:

From the above data, we can see that in Xingsheng Youxuan's product structure, fresh fruits/vegetables/meat, poultry, and aquatic products/fresh flowers and plants/cooked food breakfast account for only 44% in total, meaning that more than half of Xingsheng's products are non-fresh, standard products such as daily chemical care, rice, flour, oil, grains, tobacco, alcohol, and beverages. New Distribution believes that a reasonable category mix brings greater profit imagination space for Xingsheng Youxuan, and it is also an important reason why Tencent can continue to increase investment. If community group buying is only understood as selling vegetables online or an online vegetable market, the ending is destined to be a dead end.

What is the future endgame of community group buying? If it is not an online vegetable market, then what is community group buying? New Distribution believes that community group buying will develop into a regional community service platform in the future, providing community consumers not just simple products, but life consultation services based on community acquaintances and social relationships. The role of group leaders will also change from group buying initiators to community life consultation service providers.

Endgame speculation one: Store + Group Currently, the common understanding in the industry is that community group buying has become the standard configuration of the retail industry, that is, through the form of "store" + "group," helping offline retail stores attract traffic, thereby bringing new sales growth. Because for offline stores, the people served by community group buying and retail stores overlap greatly. In short, consumers in the community will shop in community groups and also in community convenience stores. For certain categories and products, there is a zero-sum game relationship between groups and stores. The more products purchased in groups, the more the consumption frequency and amount in stores will inevitably be affected. This leads offline retail enterprises to inevitably do community group buying, so we see that whether it is chain convenience store companies like Pagoda, Suning Xiaodian, and Furong Xingsheng, or supermarket KA like Yonghui and Wumart, they are all testing community group buying.

Endgame speculation two: Community life service platform A core feature of community group buying is that the people served are fixed, which determines that platforms can easily reach bottlenecks in a single category or service. Either there are more and more homogenized service products, or the requirements for platform and group leader product selection capabilities are getting higher and higher, which leads to the conclusion that community group buying platforms with a single category or service are destined not to grow big. However, in reality, the needs of community consumers are diverse. The same mother not only needs cost-effective fresh vegetables, high-quality masks and skincare products, but also various local life services such as early childhood training, pediatric massage, and women's beauty SPA. This requires community group buying platforms to have full-scenario, multi-product service capabilities and supply chain capabilities. Only in this way can they truly increase the touchpoints between the platform and consumers, thereby establishing mutual stickiness. Group buying is just a means and tool for attracting traffic; the community is the foundation. Based on the community, deeply mining consumer value, I believe this is the endgame of community group buying!

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