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The internet brings about new changes in the flow of goods. Whether or not community group buying has taken business from small vegetable vendors or large supermarkets, in 2020, as major companies entered the fray, an important link in the retail distribution chain—distributors—also joined, hoping to gain a share of this new channel. Due to the rapid expansion of these giants, their initial recruitment of suppliers had low barriers and unclear goals, leading many suppliers to discover after months of supplying that this channel differs greatly from traditional retail, and many chose to exit. A direct example: recently, the internet exposed the issue of "community group buying return sites looking like garbage dumps." The essence behind this phenomenon is that the after-sales process in community group buying is basically the same as e-commerce. For short-shelf-life products like fresh produce, returns mean disposal, as they cannot be resold. For suppliers, all costs are borne by them, not the platform. This has led some suppliers to lose tens of thousands of yuan after months of supplying community group buying. To date, the community group buying business model is still very early-stage. This is reflected in the incomplete and unstable interest relationships among the group leader front-end, platform side, and supply side. In the near future, the community group buying track may develop new brands and opportunities similar to Taobao brands. But currently, suppliers are going through a difficult adaptation period.
-01- Bearing Return Losses Lao Liu is a fruit and vegetable supplier who previously only supplied supermarkets. At the beginning of this year, he officially started supplying community group buying. He uses the phrase "facing a formidable enemy" to describe each pre-sale. Previously, when supplying supermarkets, Lao Liu only had to consider how to sell goods to the supermarket. But in community group buying, things are different: risks, losses, and operational work originally borne by the platform or supermarket are transferred to suppliers. Each community group buying platform is slightly different, but the stocking process is basically: Day 1, suppliers report products (product/price/quantity) in the group; platform operators select items to list and provide demand quantities; that evening, suppliers confirm demand and prepare goods; Day 2, suppliers transport goods to the platform's grid warehouse; around 23:00 that night, the platform lists group-buying links; around noon Day 3, goods are delivered from the warehouse to pickup points. The first risk suppliers face is whether goods will sell out. If 10,000 units are listed, it means those 10,000 units have already been shipped to the platform's grid warehouse; unsold units mean write-offs. The order quantity per product in a single region or warehouse is not large, and the cost of retrieving goods from the grid warehouse is higher than writing them off, not to mention products with even shorter shelf lives like tofu. The consequences of unsold goods are entirely borne by the supplier. Second, there is the return issue mentioned earlier. If returns occur, suppliers not only bear the cost of the written-off goods but also pay platform fines. One supplier said they received a after-sales standard from a community group buying platform: for one ordinary after-sales incident (0.3% ≤ after-sales rate ≤ 1%), a penalty of 5% of transaction amount is deducted; from the second ordinary after-sales incident onward, for each occurrence, all products from that supplier are suspended for three months; if the after-sales rate exceeds 1%, the supplier pays a penalty of 25% of transaction amount for the first time, and for the second time, the contract is directly terminated. This means that if two returns occur out of 100 items, and this happens twice, the supplier will be directly kicked out. Other platforms have different rules, but all impose fines on suppliers for returns. While fines for returns sound reasonable, in the community group buying chain, many factors can cause after-sales issues like returns and exchanges, such as problems during delivery, improper storage by group leaders, or even arguments between consumers and group leaders. Suppliers do not directly interact with consumers, yet they bear all losses from consumer after-sales demands, which is not very reasonable. Additionally, non-standard products like fruits and vegetables, in the online standardized transaction process, often mix different sizes to meet the fixed 500g±50g requirement. Community group buying is not a selection-based purchase, so it is inevitable that the product received may not match expectations. Suppliers complain bitterly about this.
-02- Departure of Large Suppliers During rapid city expansion, besides suppliers registering themselves, platform procurement teams also actively seek sources. An employee responsible for connecting suppliers for Meituan Select told 36Kr-Future Consumption that the first step is to connect with local large suppliers with stable sources. But for large suppliers with annual transaction volumes of 500-800 million yuan, they are accustomed to fast-in, fast-out bulk trading and are not suited to the refined operations required by community group buying. In a single region, they might not even sell a truckload per day, and dealing with various fines is not worth it. At the same time, the transaction volume of community group buying is not very attractive to them. So over the past year, a batch of large suppliers chose to exit community group buying. Community group buying is still in the stage of using extreme cost-performance as a customer acquisition method, meaning products need to be cheap enough. Typically, the first two pages of products in community group buying apps are flash-sale items, often with negative gross margins and large volumes; items on pages 3 and 4 usually have zero gross margin; items on later pages have a normal markup of 10%-20%. Therefore, large suppliers with lower procurement costs find it troublesome and unprofitable, while the remaining small and medium suppliers struggle to guarantee both quality and price. Platforms have a huge demand for suppliers but lack time to carefully select, leading to a mix of supplier quality. Lao Liu is a supplier for five community group buying platforms. He says that except for Xing Sheng You Xuan, which in Hunan and other regions has suppliers with annual turnover exceeding 50 million yuan to filter stability and quality, other platforms have very low entry barriers. A community group buying practitioner revealed that most fruit and vegetable wholesalers supplying community group buying buy leftover and unsold products from local wholesale markets at prices lower than origin purchase prices, then add a small markup and sell on the platform. Among suppliers, it is basically accepted that the quality grade of fruits and vegetables sold on community group buying platforms is 2-3 levels lower than that in physical stores like Pagoda. "The target audience is there; current community group buying users are extremely price-sensitive," said a fruit and vegetable supplier. This is the slightly contradictory state of community group buying: large suppliers are not used to this C2M refined operation method, while small suppliers cannot guarantee quality and price.
-03- Adapting to New Channels New channels give rise to new models, just as Taobao brought e-commerce and WeChat brought self-media. Community group buying may give rise to a batch of composite distributors who have the ability to handle large volumes of goods and also have dedicated personnel for operations. Lao Lou, a supplier who has been in community group buying for over a year with an annual transaction volume of 80 million yuan, believes that a major attraction of community group buying for distributors is its extremely short and light payment cycle. Traditional supermarkets have payment cycles of 45 to 90 days, while community group buying rules are T+1 or T+3, with funds returning within about a week. At the same time, supplying traditional supermarkets requires sufficient capital reserves for payment cycle goods, inventory guidance, receivables, operating expenses, etc. For example, if you do 1 million yuan in business in traditional channels with 30 points, you need 3 million yuan in capital reserves with a 10% return rate. If you do community group buying online business, considering the 7 times faster payment cycle, you can use 150,000 yuan in costs to get the same profit, achieving a 100% return on investment. For fruits, vegetables, and short-shelf-life products like tofu (Lao Lou's main category), accurately predicting user demand (actual sales volume) and handling surplus goods are key to supplier profitability. Lao Lou says that after confirming the slot and giving the factory a production plan, the team closely monitors real-time online sales the next day. The factory usually packs around 2 PM, so the team needs to use sales data from 9-11 AM to estimate total sales for the afternoon and the peak period after 9 PM, and provide that to the factory. This minimizes the impact on sales to other channels like farmers' markets, which suppliers call the "drain." In fact, this sense of discomfort among suppliers and distributors stems from the pressure of the new "pre-sale + self-pickup" model. The internet is not just about displaying products on computer and phone screens; it brings waves of changes in the circulation of goods. As future consumption develops with technology, and the C2M model of producing based on sales becomes more widespread, when consumer demand directly connects with factory production, how will distributors find their value and position?
Source: 36Kr-Future Consumption (WeChat ID: lslb168)