On December 30, Didi released its latest financial report. The data showed that in the third quarter of 2021, all of Didi's metrics declined significantly, with a net loss of 30.6 billion yuan. According to the report, Orange Heart Preferred Selection's losses reached 20.8 billion yuan, declaring the complete failure of Didi's investment. On December 10 last year, Hurun released the "2021 Global Unicorn List," where Orange Heart Preferred Selection ranked 35th with a valuation of 32 billion yuan. However, just one day later, Orange Heart Preferred Selection was officially removed from the Didi Chuxing app. In the "All Services" section under "Life," the original "Orange Heart Preferred Selection" entry was taken down. From everyone entering the game, to burning cash crazily, and finally exiting quietly, this game "financed" by money has come to an end in the market.
Why did Orange Heart Preferred Selection suffer huge losses? Didi has always regarded "burning money" as its winning strategy. In the competition with Kuaidi and Uber, Didi defeated its opponents and successfully captured the market. Clearly, after entering the community group buying industry, Didi continued its cash-burning nature. Seeing the development prospects behind the booming community group buying, Orange Heart Preferred Selection entered the market smoothly in May 2020 and was highly anticipated by Didi. Didi CEO Cheng Wei once boldly stated at an internal mobilization meeting that Didi's investment in Orange Heart Preferred Selection would have no upper limit, with the ultimate goal of helping Orange Heart Preferred Selection win the top spot in the community group buying track through a cash-burning war. Indeed, in its early days, Orange Heart Preferred Selection enjoyed many highlight moments thanks to "burning money" and various subsidies, even surpassing 7 million orders nationwide during the 2020 Double Eleven with astonishing discounts. However, the crazy capital market moves could not escape the policy's "Five Finger Mountain." At the end of 2020, the State Administration for Market Regulation pointed out the need to comply with the "Nine Prohibitions": no low-price dumping, no unfair competition, etc. In March last year, the administration imposed fines of 1.5 million yuan each on four community group buying companies, including Orange Heart Preferred Selection, Duoduo Maicai, Meituan Youxuan, and Shihuituan.
Employees of Orange Heart Preferred Selection reported that after the regulatory policy was implemented in March, the number of warehouses began to decline gradually. After Didi went public, it was subjected to a cybersecurity review by regulatory authorities, which further accelerated the contraction of Orange Heart Preferred Selection's business. After July 2021, Didi focused on dealing with the review and neglected Orange Heart Preferred Selection. At the same time, as Didi cut most of Orange Heart's subsidies after listing, consumers could no longer get bargains and left one by one. The previously set goal of over 100 billion yuan in GMV for 2021 now seems like a joke. Currently, Orange Heart Preferred Selection has retreated from most regions, leaving only a few areas still operating. The market built by burning cash and subsidies is now in a mess.
The Past and Present of Orange Heart Preferred Selection Didi launched the Orange Heart Preferred Selection business on June 15, 2020, with the main market set in Chengdu. At that time, Didi was already planning to go public, and expanding the community group buying business could boost Didi's overall traffic. To expand rapidly and capture more market share, Orange Heart Preferred Selection began recruiting employees frantically. An internal employee said, "There were so many people that the office space was insufficient, and people had to work in the corridors with chairs." Since Didi had no foundation in fresh food, in the early days of its establishment, it poached people from large fresh e-commerce companies with doubled salaries, with a large number of employees coming from the early fresh e-commerce company Meicai.com. However, these employees, who were used to dealing with B-end restaurant businesses, found it difficult to switch from a To B mindset to a To C model. Orange Heart also tried to do B-end business to open the market, but due to efficiency issues and lack of service, it lost to leading fresh e-commerce companies in competition. This reckless recruitment laid long-term hidden dangers for Orange Heart Preferred Selection's operations and development. As subsidies in the community group buying industry were halted after the second quarter of last year, coupled with seasonal factors, the leading players in the industry began to face growth bottlenecks.
From the financial reports of Meituan and Pinduoduo, Meituan Youxuan and Duoduo Maicai have seen weak growth for several consecutive months. In addition, entering summer, the transportation and shelf life of fresh products faced more severe challenges. Startup companies like Tongcheng Life and Shixianghui were overwhelmed and shut down one after another. Giant players were also falling behind, and the industry's elimination round became increasingly brutal. According to relevant reports, at the end of July 2021, Orange Heart Preferred Selection moved its headquarters from Chengdu to Beijing and Hangzhou, with the original Chengdu headquarters closed. The headquarters only handles product R&D support, data analysis, and other functions, with decision-making power delegated to 9 major regions, each responsible for its own profits and losses. At the same time, the additional 20% incentive salary for employees was cancelled from August, and the company began to significantly cut operations, BD, and logistics positions. It is not hard to see that Orange Heart Preferred Selection is trying hard to adjust its business structure and control costs to reduce unnecessary losses, but it seems not to have worked yet. In just over a year, Orange Heart Preferred Selection fell from its peak to the bottom, struggling along with the decline of the entire community group buying track.
Can Orange Heart Preferred Selection Continue in Community Group Buying? Currently, the main players in community group buying, except for Xing Sheng Youxuan, are e-commerce giants: Meituan, Alibaba, Pinduoduo, and JD.com. Meituan and Alibaba are somewhat similar in that they both serve higher-end consumers. Secondly, both platforms have strong platform genes. Although they have invested in cold chain and processing, they have not gone as deep as JD.com's self-operated procurement and sales. Pinduoduo's business model is simpler and more straightforward: low price and good quality. Duoduo Maicai shares many infrastructure and merchant resources, with less investment in cold chain, processing, team leader, and quality control. The advantage is low investment and relatively high returns, but whether the business will be competitive in the industry in the future remains to be seen. JD.com has the best community group buying supply chain among the leading companies, maintaining a high level of quality control with its entire self-operated procurement and logistics system. JD.com is the most resolute company in adopting an omni-channel model for fresh food and FMCG, abandoning the "old way" of community group buying and advocating a return to the essence of retail. Xing Sheng Youxuan, as one of the startups in community group buying, is the most representative. According to statistics, in the past year, Xing Sheng Youxuan raised a total of $3.4 billion in financing, with a valuation of $12 billion, and still maintains an average daily order volume of 12 million items. Currently, Xing Sheng Youxuan has stopped expanding, closed many inefficient group stores, and focused on regional development.
For sustainable development, community group buying also needs to continue focusing on lower-tier markets, expanding product categories, and embracing digitalization. Lower-tier markets have become the main focus for the future of the community group buying industry. According to Nielsen data, the population in third- and fourth-tier cities and below in China is as high as 950 million, far exceeding the 420 million in first- and second-tier cities. People there also have much less mortgage pressure than those in first- and second-tier cities, indicating huge consumption potential. In addition, experts have pointed out that community group buying platforms should use fresh produce as a springboard to expand into full-category operations and retain more users. Furthermore, community group buying can take the community as a unit, embrace offline convenience stores and digitalization, and improve business efficiency and service quality.
In Conclusion: After last year's rectification and industry changes, the second half of community group buying seems to have been half-walked. Blindly burning money and using subsidies to attract customers no longer works, and those who expanded blindly have suffered heavy losses. Many platforms wanted to grow big before stabilizing, entering regional tracks against competition without considering their own capabilities and future direction, and ended up retreating. For community group buying to develop long-term, it must not rely on fighting alone. It should learn from and cooperate with others, reduce internal strife, provide quality products and services, embrace cutting-edge technology, and truly serve consumers. Only then can it win people's hearts and last in the market.
The failure of Orange Heart Preferred Selection is a comprehensive failure of Didi in strategy, organization, and business.
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