Research Report: Reviewing Community Group Buying Over the Past Year: How to Return to the Essence of Supply Chain Upgrades?

Source: Everbright Securities Community group buying is the intersection of community retail and fresh food e-commerce. From a product structure perspective, community group buying currently focuses mainly on the family kitchen; in the long term, shifting from 'traffic generation' to 'differentiation' is the cultivation process for users and a key strategy for platform product selection and profitability. Fresh Food E-commerce Iteration Gives Birth to Community Group Buying 1. The Intersection of Community Retail and Fresh Food E-commerce Community group buying is the intersection of community retail and fresh food e-commerce, a consumption state between online and offline consumption. It relies on both internet platforms and offline communities. From a consumer perspective, the main features of community group buying include: a. 'Pre-sale + self-pickup' model; b. 'Group leader' model with social relationships as the hub; c. Focus on families with fewer SKUs. Community retail refers to proximity consumption centered around communities, with products mainly being high-frequency, essential food and daily necessities. Traditional models include community convenience stores, mom-and-pop shops, and fruit stores. Fresh food e-commerce refers to e-commerce platforms centered on fresh products. With continuous model evolution, current types include O2O models, self-operated front-warehouse models, and community group buying models, driving the increasing online penetration of fresh food. 2. Fresh Food E-commerce Models Continuously Evolve, Community Group Buying Emerges Since its inception, the fresh food e-commerce industry has undergone continuous business model changes, which can be divided into four stages: Stage 1 (2005-2011): Startup stage, mainly replicating traditional e-commerce B2C models. During this stage, the large market space for high-frequency consumer products like fresh food and daily necessities was widely recognized, but most participants still followed traditional e-commerce models without considering the perishable nature and low margins of fresh food. Cold chain technology investment was insufficient, market competition was fragmented, and no industry leaders emerged. Representative participants included Futian Wang, Caiguanjia, and Tuotu Gongshe. Stage 2 (2012-2014): Industry leaders entered, raising entry barriers. In 2012, JD.com launched its fresh food channel, and Taobao launched its agriculture channel; in 2013, Walmart's Yihaodian introduced fresh food categories; in 2014, RT-Mart's B2C e-commerce platform Feiniu launched fresh food business. During this stage, e-commerce and supermarket giants entered, exploring standards for fresh food supply chains, warehousing (mainly self-operated), and platform operations, raising industry entry barriers. However, there was still a lack of innovation in models, with heavy assets and unresolved issues of freshness preservation and high costs. Stage 3 (2015-2017): From O2O models to warehouse-store integration. In 2015, many new O2O startups emerged, such as Youmi and Dmall, while traditional supermarkets like China Resources Vanguard and Walmart launched their own O2O platforms. In April 2015, JD Daojia was launched. Under the O2O model, platforms cooperated with offline supermarkets and convenience stores to provide consumers with 'online ordering + offline delivery/self-pickup' services, with platforms mostly adopting asset-light models. Due to startups lacking supply chain advantages and facing resource shortages when introducing offline stores, the O2O model began to see market consolidation in 2016, with some players eliminated. Dmall's core executives all left, and staff was cut by more than half; Weidao Wang shifted its strategic focus to the B-end. In 2017, Hema Fresh launched its online business, focusing on high-quality fresh food, as a composite entity of 'supermarket + restaurant + logistics + APP'. Compared to the mainstream asset-light O2O model of 2015, Hema Fresh's warehouse-store integration was asset-heavy with higher opening costs, ensuring fresh food quality but putting pressure on costs. Stage 4 (2018-present): Front-warehouse and community group buying models coexist, with front-warehouse targeting high-tier markets and community group buying targeting low-tier markets, both receiving widespread attention. Details are as follows: a. The front-warehouse model eliminates the 'store' in warehouse-store integration, with warehouses located close to customer clusters, focusing on instant (within 40 minutes) delivery, ensuring high quality of fresh food and services, but high fulfillment costs require high average order values. Typical participants include Dingdong Maicai and Miss Fresh, both entering fast growth in 2018. In 2019, Meituan entered the front-warehouse layout through Meituan Maicai. b. The community group buying model adopts a 'pre-order + next-day self-pickup' model, significantly reducing fulfillment costs. In 2018, many related startups emerged (such as Shihuituan and Tongcheng Life), and in 2019, the track underwent consolidation and reshuffling (Dailuobo's capital chain broke, Shihuituan merged with Niwomin, Tongcheng Life merged with Kaola Jingxuan). In 2020, benefiting from the pandemic, community group buying gained popularity, and internet giants began to enter the field one after another. Currently, the business model for community retail is not yet finalized, and peer competition and self-improvement under existing models will remain the medium-term theme. From a financing perspective, since 2018, community group buying has attracted widespread capital attention, with funds concentrating on leaders. According to Qichacha data, in 2018, there were 32 financing events related to community group buying, with a total financing amount of 2.35 billion yuan, a year-on-year increase of 217% from 2017; in 2019, internal reshuffling began, and the number of financing events slightly decreased. In 2020, under the pandemic catalyst, community group buying once again attracted capital attention, with 35 related financing events, and the financing amount increased from 9.1 billion yuan in 2019 to 20.07 billion yuan, a year-on-year increase of 121%. Financing amounts concentrated on the top players. As of May 2021, Xingsheng Youxuan ranked first in financing amount with 30.9 billion yuan, far ahead of other participants. Cost-Effectiveness is King, Product Structure Needs Optimization 1. High Cost-Effectiveness Retail Supplement, Penetration Rate Needs Improvement Community group buying is a supplement to traditional supermarket retail, offering high cost-effectiveness.

1. It fills the gap of offline supermarkets in some low-tier cities. Taking large supermarkets in Jiangsu (Yonghui and RT-Mart) as an example, the number of chain supermarkets in first- and second-tier cities is significantly higher than in third-tier cities; with similar resident populations, second-tier cities have more large national chain supermarket stores than third-tier cities. In third-tier and below cities, community group buying can to some extent fill the gap of offline supermarkets.
2. As an 'e-commerce version of the chain community convenience store model,' it meets daily household needs, with stronger timeliness and higher cost-effectiveness compared to traditional e-commerce. When consumers buy products on traditional e-commerce, logistics often takes 2-3 days, and expedited shipping requires higher prices; however, under the community group buying model, consumers can pick up products the next day at lower prices. The fresh food retail market is huge, but online penetration remains low. According to iResearch, the fresh food retail market reached 5 trillion yuan in 2020. Given the perishable nature and high-frequency, low-price consumption attributes of fresh food, offline models remain the main mode of fresh food retail. Based on 2020 fresh food sales volume, traditional farmers' markets have a penetration rate of 65%, while e-commerce fresh food penetration is only 7%. With the catalyst of new formats like community group buying, online penetration of fresh food retail may further increase. 2. From Bestsellers to Basic Products, Product Structure Adjustment is Key to Profitability Shifting from 'traffic generation' to 'differentiation' is the cultivation process for users and a rule that platform product selection strategies need to follow. The product operation logic of community group buying is similar to that of e-commerce stores: attract new users with traffic-generating products, stimulate orders with bestsellers; then establish platform image with main push products, and optimize gross margins with basic products, paving the way for future profitability. At this stage, community group buying products are still in the initial stage of using 'traffic-generating products' and 'bestsellers' to attract traffic. If community group buying platforms want to enter the profit zone, they need to establish platform image through 'differentiated' main push products, retain group leaders and customers, and then increase profit space through basic products around users' lives. The main reason fresh products are difficult to become basic products is their perishability and difficulty in standardization. As cold chain logistics continues to improve, the transformation of fresh products into standardized products may become a breakthrough direction for community group buying platforms. From a product structure perspective, community group buying currently focuses mainly on the family kitchen, including: a. Food categories (mainly fresh ingredients); b. Daily necessities. In 2020, food, tobacco, and alcohol expenditure remained the largest expenditure for Chinese residents, accounting for 30.2% of per capita total consumption expenditure; daily necessities accounted for 5.9% of per capita total consumption expenditure in 2020. Food ingredients remain the main products in community group buying. We counted the SKU distribution of Duoduo Maicai and Meituan Youxuan in Shanghai, Changsha, and Chengdu. As of August 10, 2021, Duoduo Maicai had about 850 SKUs, and Meituan Youxuan had about 1,000 SKUs. Among them: Fresh food SKUs (including vegetables, fruits, meat, poultry, eggs, and seafood) account for about 30% of total community group buying SKUs; food SKUs (including fresh food, grain and oil, snacks, alcoholic beverages, and frozen food) account for about 75% of total community group buying SKUs; standard product SKUs account for about 70% of total community group buying SKUs. For similar products, community group buying platform prices are significantly lower than those under the front-warehouse model. 3. Product Quality Improvement is a Prerequisite for Sustainable Development Product quality is key to increasing repurchase rates and user retention. For community group buying platforms, improving product quality helps cultivate user stickiness, increase repurchase rates, and raise average order values; it also helps enhance platform image and expand target users. According to iiMedia Research 2020 statistics, up to 57% of consumers refuse to use community group buying due to concerns about product quality. The quality of community group buying products depends on the supply chain construction of the platform. Fresh food, as the core product, has many categories with different storage conditions and origins, placing extremely high demands on supply chain construction and management. Therefore, for platforms, on one hand, they need to strengthen cold chain construction and layout; on the other hand, they need to cooperate closely with upstream suppliers. Building a cold chain system is the necessary path for community group buying to ensure fresh food quality. The application ratio of cold chain logistics for fresh food categories in China is relatively low. According to iResearch, in 2018, the cold chain logistics application ratio for fruits and vegetables was 25%, meat 34%, and aquatic products 40%, far lower than the over 90% application ratio in developed countries. Related companies have also made further layouts. Meituan and Pinduoduo continue to invest in community group buying business, further strengthening cold chain and logistics construction to prevent agricultural product spoilage. Controlling the upstream supply chain ensures the quality of products at the source. Community group buying supply mainly includes: a. Direct sourcing from production areas: Many platforms have close cooperation with upstream production area governments and farmers. For example, Pinduoduo uses C2M and 'e-commerce supporting agriculture' strategies to empower Duoduo Maicai; Meituan Youxuan adopts the 'Fresh Direct Sourcing' plan. b. Local supplier supply: The community group buying model has both advantages and disadvantages for quality suppliers. The main advantage is that community group buying platforms pay quickly, with mainstream platforms settling in T+1 or T+2, much faster than traditional supermarkets, front-warehouse fresh food e-commerce, and traditional self-operated e-commerce settlement cycles. The disadvantages mainly include: a. Refined 'production based on sales' leads to inventory moving upstream b. After-sales is the supplier's responsibility c. Prices are relatively low compared to other retail terminals How community group buying attracts quality suppliers and achieves mutual synergy is one of the keys to winning in competition. Focus on Lower-Tier Markets, Married Women are the Main Customer Base 1. High Adaptability in Lower-Tier Markets, Families are the Main Consumption Unit Lower-tier markets have large populations and steadily growing disposable income. According to the 2018 China Urban Construction Statistical Yearbook, lower-tier markets generally refer to third-tier and below urban and rural areas, with lower-tier city population accounting for 68.4%. Lower-tier markets have nearly 300 prefecture-level cities, over 2,000 counties, and over 40,000 townships. Taking rural residents as an example, in 2020, the annual per capita disposable income of rural residents was 17,131 yuan, with a growth rate of 6.9%, higher than the 3.48% growth rate of urban residents' per capita disposable income. Rural online retail is developing rapidly. According to the Ministry of Commerce 2019 statistics, rural online retail sales reached 1.7 trillion yuan in 2019, while rural total retail sales of consumer goods were 6.0 trillion yuan, with a rural online retail penetration rate (rural online retail sales / rural total retail sales of consumer goods) of 28%, a net increase of 20 percentage points from 2015. The high adaptability of community group buying in lower-tier markets is mainly reflected in the following four points: a. Acquaintance social shopping adapts to the group leader model b. Focus on trendy/low-price products adapts to the product structure of fewer SKUs and more bestsellers c. Families mostly centered on children adapts to the feature of kitchen ingredients as the main products d. More leisure time adapts to the 'pre-sale + self-pickup' model Community group buying users are mainly married women in lower-tier cities, purchasing as a family unit. According to New Distribution's 2020 statistics, women account for 86% of community group buying platform e-commerce members; married people account for 92% of community group buying users; the 30-49 age group accounts for 64% of community group buying users; lower-tier city users account for 77% of community group buying users, making them the core users. 2. High-Tier Cities Have Diverse Fresh Food Channels, Consumption Demand is Differentiated High-tier cities have fast-paced lives, and there are diverse channels for purchasing daily fresh food. Residents in first- and second-tier cities have many ways to buy fresh food and daily necessities, mainly including: a. Offline stores (including supermarkets, convenience stores, traditional farmers' markets, and modern fresh food stores) b. Instant e-commerce (divided into platform and self-operated models) c. Community group buying model. In the community group buying model, SKUs are only 400-2,000, fewer than other e-commerce platforms. Users of instant fresh food e-commerce are younger, and community group buying fills the gap in online fresh food retail demand for users over 40. According to iiMedia Research statistics, in 2018, for JD Daojia, Duodian, Miss Fresh, and Hema Fresh, users of instant e-commerce (including platform and self-operated types) were younger. Users over 41 accounted for only 6%-13%. Miss Fresh, with the front-warehouse model, had the youngest users, with users under 24 accounting for up to 41%. In contrast, for community group buying, users over 40 accounted for 38.6% in 2020, supplementing the age distribution gap of fresh food e-commerce. Additionally, Hema Fresh, with the warehouse-store integration model, had older users with higher income levels. Compressing Fulfillment Costs is Key to UE Model Profitability From the consumer perspective, community group buying adopts the '211' model. Community group buying customers place orders on the platform (hereinafter referred to as the platform) before 23:00 on the same day, and can pick up goods at the nearest store/group leader as early as around 11:00 the next day, with the latest pickup no later than 16:00. From the fulfillment process perspective, community group buying mainly uses a three-level warehousing and distribution system, namely 'shared warehouse - central warehouse - grid warehouse'. The complete fulfillment chain also includes suppliers and group leaders: Suppliers store goods in advance in shared warehouses close to the central warehouse (or even in the same park or same warehouse); from the evening of the same day to before 2:00 AM the next day, goods are delivered to the central warehouse in batches; before 4:00 AM the next day, the central warehouse processes orders centrally, sorting and transporting goods from suppliers to grid warehouses; from 3:00 AM to 8:00 AM the next day, grid warehouses receive goods, sort them according to the group points they cover, and deliver them to group leaders. From 8:00 AM to 11:00 AM the next day, group leaders receive goods, sort and organize them by customer, and notify customers in the group to pick up; after 11:00 AM the next day, customers can pick up goods as early as around 11:00 AM, and if there are many orders or delivery delays, the latest pickup is no later than 4:00 PM. In terms of coverage, one central warehouse can cover 40-70 grid warehouses and 12,000-35,000 groups. To ensure fast delivery to the central warehouse, shared warehouses where suppliers store goods are mostly close to the central warehouse, and sometimes they share the same park or even the same warehouse. The central warehouse has a coverage radius of about 100KM, mainly covering one province or multiple cities. The grid warehouse has a coverage radius of 15-20KM, mainly covering districts, counties, townships, and villages. One central warehouse corresponds to 40-70 surrounding grid warehouses, and one grid warehouse can cover 300-500 groups, meaning one central warehouse indirectly covers 12,000-35,000 groups. Generally, each city is equipped with grid warehouses, and cities with high penetration have relatively more grid warehouses. 1. Multiple Chains Merged into a Single Chain, Inventory Turnover Significantly Improved The traditional distribution chain for fresh food and FMCG has many links. According to 2019 Ministry of Agriculture and Rural Affairs data, China has 230 million farming households, of which 91% operate less than 10 mu of arable land. China's agricultural fresh food production is relatively dispersed, and problems such as low information circulation efficiency and asymmetric supply-demand information still exist, requiring origin procurement to play an integrating role. Sales-area distribution has multiple levels. Generally, the first-level wholesale market in the sales area can radiate to 3-4 surrounding provinces and cities, while the second-level wholesale market only covers the province. There may also be more levels of wholesale markets and wholesalers from province to city, county, and township. Retail terminal distributors include local farmers' markets, vegetable markets, community convenience stores, fruit stores, etc. Multi-level sales-area wholesalers and terminal distributors play a capillary role in the downward circulation of goods. In the traditional chain, the overall markup rate for fresh products is about 100%, and for FMCG, the overall markup rate at the distributor level can reach 30%-50%. Community group buying's replacement of the traditional fresh food chain starts from the first- and second-level wholesale markets in the sales area. In terms of coverage, community group buying shared warehouses are similar to first-level wholesalers and wholesale markets in the sales area, while central warehouses are similar to second-level wholesale markets. That is, central warehouses and shared warehouses replace the higher-level wholesale markets in the traditional supply chain. Unlike traditional distribution channels, the efficiency improvement of community group buying fulfillment mainly relies on the following points: First, multiple chains are merged into a single chain, essentially B2B warehousing and distribution. In the traditional distribution chain for fresh food and FMCG, there are often many-to-many relationships between different levels of wholesalers and between wholesalers and retail terminal distributors. In the community group buying model, from shared warehouses to grid warehouses, orders are consolidated for trunk transportation, and from grid warehouses to group leaders, urban distribution is centralized for community business orders. Essentially, community group buying warehousing and distribution transforms the traditional many-to-many B2B distribution and e-commerce B2C delivery into a single-chain B2B distribution through order consolidation, integrating the originally complex wholesale-distribution network that caused efficiency losses. Second, timeliness is improved, and inventory turnover is compressed to hours. In the traditional distribution channel for fresh products, each link has some inventory time: both the first-level and second-level wholesale markets in the sales area have a 1-day inventory cycle, and retail terminal distributors have an inventory cycle of up to 3 days, with a total inventory cycle of at least 3 days. In terms of delivery time, fresh products are transported from the first-level warehouse in the sales area to the second-level warehouse, then to retail channels, and finally to consumers, with each segment taking several hours (depending on distance). Under the community group buying model, goods are transported from shared warehouses to central warehouses, grid warehouses, and group leaders, and by the time consumers pick them up, only 12-17 hours have passed, compressing inventory turnover to hours. The main function of central and grid warehouses is sorting rather than inventory, and warehouse efficiency increases with order volume. According to Fawang data, in January 2021, the average efficiency of grid warehouses in the industry was about 20 pieces/square meter/day, more than 20 times that of traditional distribution chain warehouses. 2. Three-Level Warehousing System is the Infrastructure for Fulfillment Shared Warehouses Force Suppliers to Improve Inventory Control Capabilities Shared warehouses are warehouses where suppliers stock goods in advance, providing services such as storage, transit, transfer, and return assistance for multiple suppliers. Transportation from shared warehouses to central warehouses is borne by the shared warehouse party, mainly using 9.6-meter trucks or forklifts. Shared warehouses are generally located within 30KM of the central warehouse or in the same park as the central warehouse. There are also cases where shared warehouses and central warehouses actually share one warehouse, with only different areas divided. Since goods in the central warehouse are transferred within the same day, inventory pressure is shifted to suppliers and shared warehouses, forcing suppliers to improve inventory control capabilities. Currently, there are two main modes of shared warehouse operation: a. Third-party warehouse operators provide venues and services for suppliers. Suppliers for platforms such as Duoduo Maicai and Meituan Youxuan adopt this mode; b. The platform provides shared warehouse space and charges suppliers warehousing and operation fees. This mode is currently only adopted by Xingsheng Youxuan. According to Yuanqi Capital research data, Xingsheng Youxuan charges suppliers a packaging fee of about 0.35-0.4 yuan per piece. Central Warehouse is the Core Module of Community Group Buying Platforms The central warehouse is the core module of community group buying, integrating supplier, product, group leader, and order information, and undertaking the first sorting and transportation work. It is mainly operated by the platform through leasing warehouses, hiring personnel, and self-operation. Transportation from central warehouses to grid warehouses mainly uses 4.2-meter trucks. According to Fawang, due to unstable orders, frequent product changes, and non-unified specifications, central warehouse work is mainly done by laborers for sorting, with low automation. It is expected that in the future, platforms will improve automation and cold chain construction in central warehouses to reduce labor costs, improve sorting accuracy, and enhance product quality. Different participants have different central warehouse operation strategies. Xingsheng Youxuan adopts a strategy of fewer warehouses with deep cultivation, while Duoduo and Meituan expand with more warehouses. Xingsheng Youxuan sets up one central warehouse per province to ensure order concentration and cost sharing. Meituan Youxuan and Pinduoduo use multiple warehouses per province to prepare for future SKU expansion. Meituan Youxuan delegates some central warehouses to internal (food delivery) agents for operation, increasing expansion speed while reducing risk. As daily order volume grows, platforms expand warehouse area. Grid Warehouse Franchise Model Boosts Market Downward Penetration, Franchisee Profitability Affects Chain Stability Grid warehouses re-sort goods delivered from central warehouses and deliver them to group leaders. Grid warehouses can cover 300-500 group leaders within a 15-20KM radius. From an administrative division perspective, grid warehouses cover districts, counties, townships, and villages. Transportation from grid warehouses to group leaders mainly uses micro vans. The franchise model enables rapid city expansion, with platforms paying commissions based on 'pieces + groups'. Since grid warehouses are an important link for market downward penetration and require a large number, platforms currently mainly adopt the franchise form for grid warehouses to achieve rapid expansion. Grid warehouse franchisees usually lease warehouses themselves and form teams for sorting and delivery. Platforms pay franchisees based on daily pieces and delivery group points. According to New Distribution, the commission calculation for franchisees is about 0.35 yuan per piece, plus 3 yuan per group delivered (the original model was about 0.5-0.7 yuan per piece without group point income). In addition, platforms set a minimum guaranteed piece count, and if the piece count is insufficient, commissions are given based on the guaranteed piece count. Whether grid warehouse franchisees can profit affects chain stability, with transportation costs accounting for the highest proportion. Since grid warehouses adopt the franchise model, whether franchisees can profit affects the stability of the community group buying chain. We construct a franchisee cost-income model by simulating the income and expenditure items of a single grid warehouse, assuming the warehouse area is 1,000 square meters, corresponding to 400 groups, with an average group efficiency of 35 pieces, daily pieces of 14,000, employing 8 sorting staff, and mainly using micro vans to transport goods to group leaders. Income side: The grid warehouse franchisee's commission income is piece commission + group point commission, with 0.35 yuan per piece and 3 yuan per group, totaling 6,100 yuan. Cost side: Rent is converted at 25 yuan per square meter per month, with a daily rent of 833 yuan for 1,000 square meters; sorting staff costs are converted at 5,000 yuan per month, with 8 sorting staff totaling 1,333 yuan per day; for transportation, the delivery cost per trip for a micro van is recorded as 290 yuan. According to Fawang, to ensure delivery timeliness, each vehicle delivers no more than 30 group points. Calculated at 30 groups per vehicle, 8 vehicles deliver 400 groups, with an average of 1.67 trips per vehicle (or understood as needing 1.67×8=13.4 vehicles for delivery), resulting in a transportation cost of 3,867 yuan. Profit side: Excluding miscellaneous items such as deposits, pallets, water, and electricity, the operating profit of a single grid warehouse of 1,000 square meters, at a daily piece count of 14,000, group efficiency of 35 pieces/group, and 400 group points, is 66.7 yuan per day, basically breaking even. Cost composition: Transportation costs, sorting wages, and warehouse rent account for 64%, 22%, and 14% respectively, with transportation costs being the largest. With a constant total daily pieces, piece profit is more sensitive to group efficiency than to rent. Still taking daily pieces of 14,000 as an example, we examine the sensitivity of piece profit to group efficiency and rent. When rent is constant at 25 yuan/square meter/month, and group efficiency increases from 10 to 40, piece profit changes by 0.5 yuan; when group efficiency is fixed at 35, group count fixed at 400, and rent increases from 10 yuan/square meter/month to 4 yuan/square meter/month, piece profit changes by 0.07 yuan. Piece profit is much more sensitive to group efficiency than to rent. Transportation costs have large compression space, and the probability of grid warehouse franchisees exiting is small. Piece profit is more sensitive to group efficiency, which is confirmed by the proportion of transportation costs. Transportation costs account for more than 60% of total grid warehouse costs, meaning the greater the group efficiency, the more pieces per trip, the lower the unit cost. The 64% transportation cost has much more compression space than the 14% rent cost. For grid warehouse franchisees, when the platform integration is complete and group efficiency increases, grid warehouses will steadily profit. Therefore, in the long run, the possibility of grid warehouse franchisees exiting and causing the community group buying chain to break is relatively small. 3. Calculation of Fulfillment Cost Rate Reduction Space in the Warehousing and Distribution Model Fulfillment costs mainly come from grid warehouse commissions and central warehouse transportation costs, and the fulfillment cost rate has advantages. We simulate the operation of a central warehouse and its covered grid warehouses to break down the cost composition of each warehousing and distribution link, with parameter settings mainly referencing the current operation of large community group buying platforms. Assume the central warehouse area is 20,000 square meters, covering 40 grid warehouses, each covering 300 groups, with a daily order volume of 400,000 pieces for the central warehouse, 10,000 pieces for grid warehouses, and a daily group efficiency of 33 pieces. Other conditions are detailed in the table calculation notes. At a total scale of 400,000 daily pieces for the central warehouse, the fulfillment cost rate is 10.1%, which is significantly advantageous compared to other fresh food e-commerce models (Miss Fresh 2021Q1 fulfillment cost rate 29%, Dingdong Maicai 39%). Central warehouse and grid warehouse costs account for 42% and 58% of total fulfillment costs, respectively. Among central warehouse costs, transportation costs account for the largest proportion, reaching 52%; grid warehouse costs mainly come from piece commissions, accounting for 80%. It should be noted that group leaders also bear fulfillment responsibilities, but since group leader commission rates can be fixed, to study the compression space of the fulfillment cost rate, the fulfillment costs here only include central warehouse and grid warehouse links. With a constant average piece price, as daily pieces increase, the fulfillment cost rate still has compression space. Except that the central warehouse area is twice the original (to prevent warehouse overflow due to increased daily orders) and the loading capacity per vehicle is set at 4,000 pieces (loading rate increases with order volume), other conditions and calculation methods remain consistent with the Table 14 model. Maintaining a piece price of 7.5 yuan, with group count constant at 11,000 (40×275), when group efficiency increases from 30 to 60, the fulfillment cost rate can decrease by 1.8%; when group efficiency and group count both increase, the fulfillment cost rate can be compressed by more than 2 percentage points at most. In addition, an increase in average piece price and the use of automated sorting technology can also promote a decrease in the fulfillment cost rate. Group Leaders Also Bear Fulfillment Operations, the Last Link of Community Group Buying Group leaders are the last link in fulfillment, operating communities to reduce platform customer acquisition costs. After grid warehouses deliver goods to group leaders, group leaders sort and organize goods by customer, notify customers to pick up, and handle after-sales. While the previous round of order fulfillment is completed, a new round of order consolidation begins. Group leaders can promote products in the group to encourage orders. Relying on social connections with community residents, group leaders can convert acquaintances in the community into new customers on one hand, and increase the trust of potential consumers in the group in products on the other hand, encouraging orders, thereby reducing the cost of customer acquisition and customer base maintenance for community group buying platforms. The profile of community group buying group leaders highly overlaps with the main customer base, with retail store group leaders accounting for a high proportion. Group leaders are mainly young and middle-aged women in lower-tier markets. According to New Distribution's March 2021 survey data: Gender distribution: Among community group buying platform group leaders, women account for 83.9%, an increase of 6 percentage points compared to 2019; Age distribution: The 30-39 age group accounts for the largest proportion, at 43.6%; Age distribution trend: Group leaders are trending older, with the proportion of group leaders aged 40 and above increasing by 22 percentage points compared to the same period in 2020 (April 2020); City distribution: Lower-tier markets account for a large proportion, with group leaders in third-tier and below cities accounting for 65.3% in total. Occupation distribution: According to New Distribution's April 2020 survey data, among community group buying group leaders, retail store group leaders account for 73%, and mothers group leaders account for 27%. Retail store group leaders have offline stores as natural traffic entrances, storage space, and retail experience, making them highly compatible with the community group buying model. 1. Heavy Group Leader and Light Group Leader Models Coexist, with Diverse Incentive Methods The nominal commission + fission reward model incentivizes group leaders to sell and open new groups. Group leader income mainly consists of nominal commission and rewards for fissioning subordinate new groups: a. The nominal commission is the group leader's own sales amount multiplied by a certain commission rate, with different nominal commission rates for different product categories and sales scales; b. Fission rewards are given when group leaders develop subordinate new groups, with different levels of rewards based on the number of subordinate new groups and sales performance. Taking Meituan Youxuan as an example, when a group leader has 3 or fewer direct subordinate group leaders, they can receive training fees (if the new group's 7-day sales exceed 1,000 yuan, a training reward of 100 yuan is given; if sales exceed 5,000 yuan, an additional 60 yuan is awarded); c. When a group leader has more than 3 direct subordinate group leaders, they can receive training fees (same rules as above) and sales commissions from subordinate group leaders (12% of direct subordinate group leaders' sales pieces and 3.6% of second-level subordinate group leaders' sales pieces). Chengxin Youxuan's 'partner system' is similar, with the total order volume of directly recommended group leaders and partners in the current month as the reward basis. During the business model adjustment phase, group leader commissions change rapidly, with nominal commission rates dropping to 5%-8%. Since community group buying platforms are in a fiercely competitive stage and business models are constantly adjusting, group leader commission levels vary greatly. The nominal commission rates of various community group buying platforms have dropped from 10%-15% (end of 2020) to 5%-8% (end of May 2021). According to expert meeting minutes, in May 2021, Meituan Youxuan's nominal commission rate was about 6%, with rewards of 4%, and a comprehensive commission rate of about 10%. 2. Heavy Group Leader and Light Group Leader Models Coexist Based on: a. the importance of group leaders in guiding orders; b. participation in community operations, platforms can be divided into light group leader and heavy group leader models. Under the 'heavy group leader' model, group leaders bear more responsibility for traffic acquisition and community maintenance, and platforms give group leaders more incentives and training. Under the 'light group leader' model, group leaders only serve as a fulfillment link, sorting products and providing pickup points, spending less energy on community maintenance or even having no community, and not being responsible for platform order volume. The 'heavy group leader' model mainly appears in the early stage of community group buying platforms entering new markets, or during regional deep cultivation, using group leaders' acquaintance/neighbor social connections to quickly acquire customers at low cost. A typical platform is Xingsheng Youxuan. When the platform's reputation is established, traffic acquisition no longer needs to rely entirely on group leaders. At this time, the 'light group leader' model can help platforms lower commissions and save costs. A typical platform is Duoduo Maicai. 3. Future Trend of Group Leader Differentiation Platform commission mechanisms promote group leader differentiation, following the Pareto principle. Whether to value community operations and group leaders is two sides of the same coin. Valuing group leader operations will incentivize group leaders to invest more energy in maintaining customer groups and developing subordinate new groups. Currently, overall, the nominal commission rates of major platforms are continuously declining, using subordinate group leaders' sales as additional commission incentives, promoting the polarization of group leader income: group leaders with few orders and few subordinate group leaders have low income, while group leaders with high order volume, strong ability to train subordinates, and vibrant subordinate group leaders will continuously gain new income. Cost-benefit balance is the foundation for the stable existence of group leaders. 'Heavy group leaders' need incentives and training, while 'light group leaders' need to reduce sorting burden. Regardless of the group leader model, as long as both parties (platform and group leader) maintain a balance between costs (actual costs and energy invested) and benefits, stable operation can be achieved, ensuring the smooth flow of the last link of fulfillment. 'Heavy group leader' model: The number of group leaders in this model is relatively small. Platforms may invest more in precise training and incentive costs in the future, and a supporting ecosystem for recruiting and training group leaders may also emerge; 'Light group leader' model: The number of group leaders in this model is relatively large. Since these group leaders invest little energy in operations and have low income, as order volume increases, sorting pressure increases, and platforms need to reduce the sorting burden on group leaders. Possible burden reduction measures in the future include: deploying standardized shelves to reduce sorting difficulty for group leaders (or customers self-sorting), completing sorting by customer within grid warehouses, and using self-pickup cabinets to replace group leaders. Discussion on the Future Scale of Community Group Buying 1. Predicted Market Size of 830 Billion Yuan by 2023 We estimate from both user and product structure perspectives. Given that the community group buying operation model sacrifices some timeliness and product richness, the target customer base fits a certain user profile, so our key assumptions mainly revolve around penetration rates. We derive a market space of about 830 billion yuan. Estimation Based on Target Customer Profile Our prerequisite assumptions include: a. Under the community group buying model, purchases are made by family units, with each household calculated as 3 people. b. The piece price is 7.5 yuan, calculated as the weighted average of piece prices for Meituan Youxuan, Duoduo Maicai, Chengxin Youxuan, and Hema Marketplace in May 2021. We define: Community group buying household penetration rate = households using community group buying / total households; Community group buying industry scale = community group buying household penetration rate × number of households × weekly repurchase frequency × pieces per order × piece price × 52 weeks; According to Bain & Company, the community group buying household penetration rate in Q1 2021 was 27%. Since the community group buying model is relatively early, there is still some downside risk to industry penetration. Referring to iResearch's forecast of fresh food e-commerce penetration changes by 2023 and current user feedback ratings for community group buying apps, we derived a reference median of about 37% through a binary tree model. From a national perspective, the community group buying industry scale can reach 822.401 billion yuan in 2023. We assume: the community group buying industry penetration rate is about 37%, each household purchases 12 items per week on community group buying platforms, calculated with a population of 1.416 billion (2021E). By city tier breakdown, the total market size that can be achieved from 2021 to 2023 is estimated at 825.359 billion yuan (see table below). Given the diverse consumption channels in first-tier cities, residents in fourth-tier and other cities rely more on traditional farmers' markets. We assume that the distribution of community group buying penetration rates across city tiers follows: community group buying industry penetration rate (lower limit) <= first-tier cities < second-tier cities < fourth-tier and other cities < third-tier cities <= community group buying industry penetration rate (upper limit). Estimation Based on Product Structure The core products of community group buying are food and daily necessities, essentially grocery e-commerce. Our prerequisite assumptions include: a. The GMV distribution of community group buying will converge with the SKU product structure distribution (i.e., daily necessities GMV share ≈ daily necessities SKU share); b. The food category community group buying retail penetration rate references the food category online retail penetration rate. We define: Food category community group buying retail penetration rate = total food category community group buying retail sales / total food category social retail sales = food category online retail penetration rate × community group buying share of online retail sales (food category). According to the National Bureau of Statistics and the Ministry of Commerce data, the total retail sales of food category goods in 2020 was 5,888.6 billion yuan, and the online penetration rate of food category (including food, grain and oil, tobacco and alcohol, and beverages) in 2020 was about 18%. Referring to McKinsey's forecast of a 4%-6% CAGR for grocery retail from 2019 to 2022, we expect the total retail sales of food category to grow at a CAGR of 4%, reaching 6,623.9 billion yuan by 2023. Since the pandemic, both demand and supply sides have accelerated the online penetration of food category to some extent: on the demand side, consumers have developed online shopping habits due to the pandemic; on the supply side, various models of retail e-commerce have emerged, and internet giants have also entered. Referring to McKinsey's report (grocery online penetration will increase by 8-18 percentage points from 10% in 2019 to 18%-28% in 2022), we expect the overall food category online penetration to increase by 8 percentage points from 18% in 2020 to 26% by 2023. Referring to McKinsey's 2021 China Consumer Report (among surveyed online fresh food customers, about 34% accept the 'next-day delivery' model), we estimate community group buying food retail sales as 34% of food online retail sales. According to the SKU statistics of some community group buying platforms in August 2021 mentioned above, daily necessities SKUs account for about 22%. Given that major platforms are currently increasing the proportion of daily necessities, both daily necessities SKU and sales share have some upside space. Referring to Bain & Company's 2020 O2O channel statistics (including front-warehouse, community group buying, warehouse-store integration, and platform models, with daily necessities sales accounting for about 30%), we predict that by 2023, the daily necessities sales share of the community group buying model may reach 30%. We obtain: the community group buying retail scale in 2023 is approximately 836.51 billion yuan. 2. UE Model Has Been Validated, Profitability is Possible Xingsheng Youxuan's regional UE was once profitable, and new entrants are reshaping the UE model. According to 36Kr data estimates, before internet giants entered the community group buying industry in July 2020, Xingsheng Youxuan's fulfillment cost rate in Hunan had dropped to 3%, with the model initially profitable. This was mainly due to: a. Xingsheng Youxuan has a large number of affiliated convenience stores in Hunan (Furong Xingsheng) b. Mature localized supply chain and long-term deep cultivation c. High order volume and high piece prices in Hunan With the entry of internet giants such as Meituan, Pinduoduo, and Didi in July 2020, who invested in subsidies and rapid ground promotion, Xingsheng Youxuan's UE was affected, with the fulfillment cost rate rising to 5%-6%. In May 2021, large platforms such as Meituan Youxuan and Duoduo Maicai had fulfillment cost rates of about 10%, plus group leader commissions (8%-10%), subsidies (12%-13%), and operating expenses (5%-6%), generally incurring losses of more than 10%. With future platform consolidation and increased market penetration, current costs have compression space, and the UE model has the possibility of profitability. 3. Fierce Competition, the Winner is Still Unknown Currently, there are many participants in the community group buying track, with fierce competition, mainly internet companies. From a motivational perspective, the reasons and purposes for internet companies entering community group buying may include: a. Forming traffic that reaches communities to improve their traffic ecosystems b. Using the community group buying model to enter lower-tier markets and break traffic bottlenecks c. Using production based on sales to accelerate fresh food online penetration and build a fresh food retail landscape d. Using community group buying to improve same-city supply chain systems and reduce fulfillment costs Meituan Youxuan and Duoduo Maicai are currently the leaders in community group buying. a. From a GMV perspective, Meituan Youxuan's monthly GMV remains at a high level, while Duoduo Maicai's monthly GMV surpassed Meituan Youxuan in May 2021. b. The platform with the highest piece price is the regional community group buying platform Xingsheng Youxuan, at 12 yuan; Meituan Youxuan and Duoduo Maicai have lower piece prices, around 7 yuan. c. From a daily sales pieces perspective, Meituan Youxuan continues to lead in daily sales pieces, reaching about 2,600 pieces/day in May 2021, a 4% increase from April of the same year. The community group buying model not only needs to undergo internal competition and elimination but also face competition from diverse community retail models, mainly O2O models and self-operated front-warehouse models. According to Bida Consulting's April 2021 monitoring data, the O2O platform models of Duodian and JD Daojia rank in the top two in active users, followed by the self-operated model represented by Miss Fresh and the community group buying model represented by Meituan Youxuan. Whether community group buying can continuously optimize its product structure and supply chain management, and retain target customers, is the key to development. The O2O platform model is an asset-light operation model that connects offline supermarket products with consumers through internet platforms (such as JD Daojia), with instant delivery of about 1 hour. Since the platform model can connect multiple offline supermarkets and stores, including fresh fruit stores, flower and green plant stores, pharmacies, etc., the product variety is often more complete, meeting consumers' multi-category consumption needs. The front-warehouse model focuses on fast delivery, mainly with fresh food categories. The main participants in the front-warehouse model include Miss Fresh, Dingdong Maicai, and Meituan Maicai. Front warehouses are generally located near residential communities or office buildings, serving as small and medium-sized storage and distribution centers equipped with multiple temperature zones, enabling cold storage, freezing, and reheating of fresh food. Users can place orders through mobile apps or mini-programs, and the platform distributes online orders to the nearest front warehouse, where delivery personnel deliver, with delivery times of 30-40 minutes, ensuring freshness while being timely. Under the front-warehouse model, both average order value and fulfillment cost rate are high, and the model is not yet profitable. The front-warehouse model offers high fresh food quality and good timeliness, mainly targeting middle- and high-income customers in high-tier cities, with high average order values. In 2020, Dingdong Maicai's average order value was about 60 yuan, and Miss Fresh's was 95 yuan. Under the front-warehouse model, product fulfillment is done by riders for door-to-door delivery. To ensure timeliness, riders have limited orders per trip, so the fulfillment cost rate can reach over 25%, with unit fulfillment costs above 20 yuan. High fulfillment costs make it difficult for the UE to be profitable in the short to medium term. The community group buying model disperses risks and responsibilities to various links and corresponding entities, with platforms bearing less pressure, and management capability becoming the key to winning. Under the community group buying model: a. Suppliers find suitable shared warehouses for product storage and deliver to central warehouses within the platform's required time, so inventory and loss pressure is transferred to suppliers (self-operated front-warehouse and warehouse-store integration models have inventory and loss pressure); b. The responsibility for product sorting and fulfillment is shared by the platform, grid warehouse franchisees, group leaders, and consumers, reducing the platform's fulfillment pressure (self-operated front-warehouse models bear the main transportation pressure); c. The responsibility for customer acquisition, operation, and after-sales is transferred to group leaders, reducing the platform's operational pressure. Overall, the pressure on community group buying platforms is transferred to other entities in the chain. However, it should be noted that due to the many outsourcing and franchise links in the entire chain, although the platform's inventory, transportation, and operational pressures are reduced, the pressure on personnel management and franchisee relationship maintenance is greater. How to manage personnel and partners throughout the entire chain will be a challenge for the community group buying industry. Are you 'watching' me?