The following is the speech by Mr. Lian Jie of Dingdantu at the 5th FMCG + Internet Conference hosted by New Distribution, organized and released for readers. Today's conference theme defines community group buying as the 'third pole of retail.' In early 2018, Dingdantu was also among the first to propose that community group buying would become the third basic shopping scenario after offline stores and online e-commerce platforms. From the supply side, it is the third pole of retail. Over the past year, the development of community group buying has basically validated our judgment. Today, the model of community group buying has basically been established. What we need to discuss now is: what exactly is this model? Why, among the many new retail models, has only community group buying been accepted by the market? And how can we find our place in this model and get a share of the pie? Regarding the definition of community group buying. Dingdantu uses three main points to define community group buying: a distribution channel that uses community WeChat groups as the primary retail window, centralized delivery + community self-pickup as the main delivery method, and household planned consumer goods as the main circulating products. Each of these three points is important, because we have found that community group buying companies that adhere to these three points have grown large, while any deviation from any of them has led to problems. Why can the community group buying model be accepted by the market? In recent years, various new retail species have emerged, but these species either quickly died out or survived only with blood transfusions. Only community group buying has developed healthily with profits. Why is that? In my view, community group buying is the only new retail model that has achieved a reduction in distribution costs. It can even be said that community group buying is the lowest-cost model among all distribution channels we can currently see. As a distribution channel, there are two major cost blocks: one is the cost of product display. Placing a product in a store incurs expiration issues, manual placement, and cleaning issues, which are costs brought by physical display; the second is logistics and warehousing costs. The biggest cost for offline stores is product display, but their advantage is low logistics costs because customers come to the store to pick up goods themselves. E-commerce uses electronic images to display products, reducing display costs to almost zero, but its disadvantage is that logistics costs are too high. Every product must be packed into a parcel and delivered one by one by couriers. First, community group buying uses the same virtual display as e-commerce platforms, with no expiration issues or shelf space issues, so display costs are almost zero; second, community group buying adopts the same delivery method as offline stores, with centralized delivery to the community and self-pickup, resulting in very low logistics costs. The combination of these two advantages creates the lowest-cost distribution model. This is the fundamental reason why the community group buying model can be established. We often say that a low-cost distribution channel attracts customers and products just as a low-water riverbed attracts rainwater. There will definitely be more and more products choosing to circulate in this channel, and more and more customers choosing to shop here. This is the fundamental reason for the rapid development of community group buying. Let me give you a very simple judgment: In the future, the volume of goods circulated through community group buying will definitely exceed that of e-commerce, because the efficiency of goods circulation in community group buying is the same as e-commerce (both are customer prepayment orders, and merchants then organize products for delivery), but the circulation cost of community group buying is significantly lower than e-commerce. With the same efficiency and lower cost, it is an inevitable economic law that community group buying will surpass e-commerce. Now more and more people want to do community group buying. Today, I suddenly heard voices saying, 'Is it too late to do community group buying now? Do we have no chance?' I can tell you all with certainty: it is not too late at all. A line from a play fits the current situation perfectly: 'This is not the end, nor the beginning of the end, but the end of the beginning.' There are three types of people who want to do community group buying. The first type can be compared to 'farmhands.' The characteristic of farmhands is that they have no land; they were not originally in retail, so they have the fewest concerns. Seeing the opportunity in community group buying, they rush in. Therefore, the first wave of entrants into the community group buying track were basically not retail insiders. They are the most revolutionary proletarians, opening up a new retail channel, which I believe is a significant contribution to Chinese retail business. Many of them are rapidly evolving into professional retail players. The second type we compare to 'landlords.' What are the characteristics of landlords? They have deep pockets and fear risk. They have deep retail genes and resources, even being local retail leaders. But it's hard for big ships to turn around, and they are risk-averse. Now they basically understand the situation and come in. The main market trend this year is that chain supermarkets are starting community group buying, and Dingdantu's new customers this year are mainly such merchants. The third type we compare to 'farmers.' Farmers have their own small plot of land, but their capabilities are limited and their awareness is passive. Typical representatives of these are mom-and-pop stores. Mom-and-pop stores wanting to do community group buying must have supplier support. So they need to wait a bit longer. As mentioned earlier, the biggest advantage of community group buying is its low cost. To do community group buying well, you must ensure this advantage is leveraged. The first common mistake here is changing the delivery method. Where does the main cost advantage of community group buying come from? It is next-day delivery, and specifically next-day delivery to the community. Once you change centralized delivery to parcel delivery, it becomes e-commerce and cannot handle low-margin FMCG products; if you change community delivery to home delivery, it becomes even more troublesome. Not only do you not save on delivery costs, but you also need to add dedicated personnel to deliver order by order. Instant delivery and next-day delivery are two different businesses. Instant delivery requires a warehouse or store with inventory within 500 meters of the user, while next-day delivery only requires a warehouse in the same city. Community group buying should insist on planned consumer goods and avoid instant consumer goods. Because instant consumer goods require instant delivery, which is costly. As we said at the beginning, community group buying is now at the 'end of the beginning' stage (the opportunity for small players in high-tier cities to enter has closed, but there are still opportunities in lower-tier cities and rural areas). More professional players entering will bring community group buying to a new stage, characterized by more specialized division of labor. Dingdantu predicts that the 'mom' group may not touch goods in the future, not handling sorting and logistics. They will only do group operations, managing more groups. This division of labor places higher demands on distributors and supply chains. Retailers will sooner or later require suppliers to deliver or even sort to the community. Meeting this requirement will allow you to seize this opportunity. We have roughly clarified the community group buying model. To do community group buying well, the key is to do three things well: first, build and operate groups; second, deliver at the community; third, organize the planned consumer goods SKUs needed by the community. We can see: Supermarkets' advantage in community group buying is their SKU pool, but their disadvantage is the lack of community pickup points; chain convenience stores' advantage is that their community stores can directly serve as community pickup points, but their disadvantage is the lack of planned consumer goods SKUs. Dingdantu's important task this year is to help physical stores with strategic support for community group buying. When we see supermarkets, we say one thing: quickly develop community pickup points; when we see convenience stores, we also say one thing: quickly expand planned consumer goods SKUs. For distributors, doing community group buying is essentially crossing from wholesale to retail, which requires overcoming many difficulties. Our suggestion is that distributors should stick to their wholesale position and focus on how to serve retailers that are doing community group buying. For distributors, the biggest opportunity in 2019 is that chain convenience stores will inevitably expand their product categories when they do community group buying, and we can supply them. If distributors still want to directly do community group buying retail, I suggest you look at where you are. If you are in fourth- or fifth-tier cities, go ahead boldly. Community group buying is an FMCG retail business. If you think the local FMCG retail competition is not sufficient, go ahead boldly. We serve many customers where there are no established chain community convenience stores. I say, if you start retail from community group buying now, you have the opportunity to open stores. After five years, you are likely to become the mainstream chain convenience store locally. Because the chain convenience store retail model will inevitably appear when a city develops to a certain level. Dingdantu is currently the most mainstream and most functional community group buying system in China. Many retail giants mentioned in today's conference that are doing community group buying have adopted Dingdantu's technical solutions. To promote the development of the entire industry, Dingdantu will long-term insist on opening all functions to all users for free. That is, even if you have only one group, you can have the same IT capabilities as retail giants. -END-