The capital market often has the keenest sense and fastest reaction to emerging industries, and community group buying, which emerged in 2016, is no exception. -01- The Rise and Fall of Community Group Buying Community group buying has developed for nearly four years. Over these four years, it has seen ups and downs, with capital initially rushing in and then cooling down. In 2020, catalyzed by the pandemic, the wave of capital financing revived again. 1. The 2018 Financing Wave (Rise) Since 2018, community group buying companies have attracted frenzied attention from the capital market, with the entire industry receiving over 4 billion yuan in capital market financing. The following is a partial list of financing for community group buying platforms: Data source: Internet, compiled by New Distribution Overall, in 2018, community group buying platforms were favored by capital. Driven by capital, many community group buying companies developed rapidly in 2018, with some even expanding aggressively nationwide, and news of platforms expanding into certain regions was constant. 2. The 2019 Wave of Closures and Shutdowns (Fall) However, the capital frenzy only lasted until the first half of 2019. Starting in the second half of 2019, events of national platforms shutting down and regional platforms being acquired continued to occur. In June 2019, it was reported that the leading community group buying company Linlinyi withdrew from multiple cities in Jiangsu and Zhejiang, including Nanjing, Taizhou, Huai'an, Ningbo, and Nantong, based on adjustments to its corporate development strategy. In mid-August 2019, reports that community group buying platform "Songshu Pinpin" had declared bankruptcy and shut down, with business departments laying off over 80% of staff, sparked heated discussions in the industry. Subsequently, Songshu Pinpin founder Yang Jun responded, saying that they were indeed adjusting, but it had nothing to do with bankruptcy. Songshu Pinpin also responded in a WeChat official account post, stating that they would increase the practice of the platform model in various regions and strengthen the integration of various resources. All goals are to better serve consumers in the future. All original related businesses are operating normally. In November 2019, employees of Dailaobo exposed on social media such as Weibo that "Dailaobo cannot pay salaries, and all product development and operations staff in Hangzhou have gone on strike." Dailaobo founder Li Yang also formally admitted to all employees via internal email the fact of "poor management and capital shortage." Compared to the few investment and financing events, in 2019, the hotter and more numerous news was about community group buying platforms experiencing capital chain ruptures, poor management, leading to closures, shutdowns, and city withdrawals. In an instant, the two contrasting situations of ice and fire are lamentable. 3. 2020 Pandemic Catalyzes, Igniting the Trend Again, Ushering in a New Wave of Financing (Rise) In 2020, the sudden outbreak of COVID-19 forced many consumers to stay indoors, and community group buying with contactless delivery became an important channel for ensuring people's livelihoods. ** Many community group buying platforms took advantage of the situation and policies to expand aggressively, and many distributors and brand owners, to overcome difficulties, also began to build their own channels or supply goods to community group buying platforms. For a time, community group buying became a "hot potato" again. As the domestic epidemic gradually stabilized, the development of community group buying leveled off, but financing events among leading platforms became frequent. On January 9, 2020, Shihuituan officially announced that it had completed a new round of financing, which had been settled. The financing amount was $88.3 million, with investors including Joy Capital, INCE Capital, Qiming Venture Partners, Alibaba, ZhenFund, and Huachuang Capital. On May 29, 2020, Shihuituan completed a new round of C1 financing, with a financing amount of $81.4 million, led by GGV Capital, with follow-on investments from Joy Capital, Qiming Venture Partners, INCE Capital, and Gaohu Capital. On June 10, 2020, Tongcheng Life officially announced the completion of a $200 million Series C financing round. It is understood that this round was led by JOYY Inc., with follow-on investments from Yilian Capital, Junlian Capital, Bertelsmann Asia Investments (BAI), Tongcheng Capital, Weiguang Venture Capital, Jinshajiang Venture Capital, and Yuanhe Holdings, with Shanjing Capital continuing to serve as the exclusive financial advisor. Recently, in the list of 2020 companies to be listed in Changsha published by the Changsha Financial Office, Xingsheng Youxuan was included, and it may become the first listed company among community group buying companies. In addition, according to industry media reports, Xingsheng Youxuan is about to complete a new round of $300 million in financing. Rising in 2018, falling in 2019, and rising again in 2020, the development of community group buying is experiencing one change after another! -02- Expert Dialogue What impact will the heavy investment from the capital market and the uncertain boost from the pandemic bring to community group buying? Does it indicate that the development of community group buying will usher in a new turning point? To this end, New Distribution interviewed industry expert Mr. Ren Xiaodong and industry analyst Mr. Liu Shaode to hear their views on the direction of community group buying. Q: The financing wave in the second half of 2018, the wave of closures and shutdowns in 2019, and the financing wave again in early 2020—does this indicate a new turning point for the development of community group buying? Ren Xiaodong: Whether it is financing or a pause, it is itself a normal operating condition in the community industry track. ** When the track rises, there will be many players. Capital will bet on leading players or those that look promising in the future. After betting for a period, they wait for the players to fight it out, to see who will survive and who will go bankrupt in market competition. In this process, some compete on models and mergers and acquisitions, some on teams and industry supply chain integration, and some on timing, location, and harmony. Those that survive the competition begin to enter a development period. At this point, it becomes clear which players, models, and teams will win on the track. Especially after the pandemic, the growth of the entire community group buying track has been 50%-100%, so capital sees the track as promising. Looking at the overall space of the track, it can reach a market of over one trillion yuan. Currently, the total of leading players plus regional players does not exceed 200 billion yuan, leaving nearly 800 billion yuan in growth space, so capital will definitely follow up with investments. Q: Will the new wave of financing change the competitive landscape of domestic community group buying companies? Ren Xiaodong: This round of financing will essentially change the competitive landscape. **Because the first wave of financing totaled less than 10 billion yuan, while the new round is expected to bring in 20-30 billion yuan. The previous wave eliminated some competitors in the embryonic stage. This wave will eliminate or merge some regional companies, consolidating them into the first, second, and third tiers. Other community group buying platforms will transform. Q: Why are Shihuituan and Tongcheng Life leading the new wave of financing? Ren Xiaodong: Strictly speaking, it is led by Xingsheng Youxuan. **Shihuituan is just the first to announce financing; whether the funds have actually arrived remains to be seen. Liu Shaode: During the pandemic, most consumers gradually accepted community group buying as a shopping method, especially in severely affected areas, where ordering through online community groups and mini-programs has become a new normal. Especially with the entry of traditional supermarket giants such as Bubugao, RT-Mart, Wumart, and Yonghui, and even Hema Fresh launched community group buying businesses during the pandemic. It is undeniable that the pandemic has had a long-term impact on consumers. Besides changes in consumption behavior, there has also been a deep change in consumer mentality, which is an important reason why community group buying has rekindled capital attention after the pandemic. Q: Why did Xingsheng Youxuan choose to go public first? Ren Xiaodong: Xingsheng Youxuan currently meets the listing conditions. **It has met the standards for net profit and growth rate for three consecutive years. Last year, Xingsheng Youxuan's GMV was about 10 billion yuan. This is a matter of financial access to the market mechanism. Secondly, the Hunan Provincial Party Committee and Provincial Government strongly support Xingsheng Youxuan. The new Hunan Provincial Party Committee has positioned Xingsheng as a unicorn listed company in Hunan Province, aligning with the strategic positioning of Hunan as the third pole of the internet industry. So the operating environment is favorable, the policy environment is favorable, and the company is also competitive. Xingsheng Youxuan is the most stable player on the track, with very reasonable financing and capital structure. Q: In the face of the new wave of financing, what deep-level considerations are there? Ren Xiaodong: The leading players may go through several battles. The first is the battle of fake orders, to show investors, with each company using standard products to inflate sales. The second is a battle in product selection and teams. Currently, the top companies have completed team updates and iterations. Some grassroots founders may step back or give way to professional managers or teams with experience in large related enterprises. At present, the first place will sprint toward 30 billion, the second toward 15 billion, and the third toward 5-8 billion. After that, there will be a magnitude competition. The companies that died in the previous competition were in quantity-level competition. The new round will be high-exponential competition. A rocket is just a quantity (number), destroying only a bunker, but dropping an atomic bomb destroys a city—that is the competition of magnitude (weight). Q: For newly entering community group buying companies, what kind of market is community group buying now? Are there still possibilities and new opportunities in the future? Ren Xiaodong: 1) Development of brand owners Now some brand owners are also doing community group buying. They may have acquired some small community group buying companies and utilize their online MQC integrated model (cloud stores). 2) From separation of production and sales to integration of production and sales Secondly, community group buying is strictly not a business model; it is more like a promotional model or a more efficient sales promotion model. It's just that in the early stage, community group buying has already matured this track. For example, many large retailers (such as Shandong Aikedo, Bubugao, etc.) are also doing it. So in the future, all models will merge into O2O, with both store visits and home delivery, but essentially moving from separation of production and sales to integration, aiming for the most efficient retail possible. 3) Products that fit community and family consumption scenarios will do well In the development process, some products may not gain volume in community group buying, but that doesn't mean all products in that category won't. Sometimes you need to look at issues from multiple dimensions. Just because you are a consumer goods company and fail in this field doesn't mean the entire industry fails in this field. FMCG alone has at least 14 categories, and up to 20. If a few manufacturers or institutions empower each category, the volume they can leverage is huge. So this is a trillion-yuan track. Of course, currently 60% is still driven by fresh produce, but I firmly believe that other products that fit community and family scenarios will perform better in this channel. Q: Will community group buying teams, like the past "thousand-group war," end up with only one company dominating? Ren Xiaodong: No. Just look at convenience stores: would a community allow only one convenience store to survive? In the south, Shanghai, and Changsha, convenience stores are everywhere, scattered like stars. A community can have more than ten types of convenience stores. We have counted at least three or four brands franchising, so leaving three brands to do this is not a big problem. One region, one city, one policy. The reason community group buying is different from Didi's development and the thousand-group war is the "one region, one city, one policy." Consumers in each city have different mainstream products in local communities compared to other cities. In Beijing or other cities, there are many Niulanshan and Hongxing Erguotou, but in Changsha, you won't see them. Differences determine that consumers and communities have different preferences for products. This determines that regional residents' purchasing will be very different. In Wuhan, it's hot dry noodles; in Zhengzhou, it's spicy soup. Every city has its established things. This means that the more personalized a company is in a region, the stronger its competitiveness. It's not like a standard product where the price is the same nationwide, or everyone likes to drink Red Bull. The logic is different from standard products. So many regional companies, though not large, are doing well. So whoever better understands local consumer needs will do better in the local market. Liu Shaode: No. Looking through the surface to the essence, community group buying is essentially a retail business, and retail businesses emphasize service and supply chain. For community group buying, for a platform to develop long-term, product selection ability and understanding of regional consumers are crucial. Wu Jinghe, deputy general manager of Caihua Trading (the supply chain company behind Meiyijia), once said in a public sharing that the core capability behind Meiyijia's steady and rapid development is product selection. The limited nature of retail stores determines that the 1500-2000 SKUs sold must go through layers of screening and optimization. The same applies to community group buying's hit product strategy. Differences in consumers across regions determine differences in product selection across regions. This also explains why there is still no nationally unified chain of small retail enterprises. Every day in the northwest, Jianfu in Fujian, Meiyijia in Guangdong, Yue Lai Yue Xi in Henan, Furong Xingsheng in Hunan, etc., can mostly only expand and radiate in specific regions, and cannot achieve nationwide scale radiation and coverage. Because once cross-regional radiation and coverage occur, the backend supply chain will be dragged into an infinitely long tail and continuous expansion, making it a business of diseconomies of scale. So from this dimension, community group buying may see a few dominant players nationwide in the future, but regional community group buying will inevitably blossom everywhere. Q: At present, what is the real threshold for community group buying? Ren Xiaodong: If purely from a technical perspective, the threshold is very low. You can spend a few tens of thousands of yuan to buy a SaaS, or if your personal IP is strong, you can quickly recruit 200-300 group leaders. So it's easy to enter from technology, operations, supply chain, etc., but to reach a certain scale, for example, 30 million is a hurdle. It's easy to do a few million to 10 million, but exceeding 30 million and moving toward 50 million or 80 million in monthly GMV is very difficult and requires a lot of layout. The threshold for community group buying is indeed easy to enter, but at present, it seems difficult to succeed. Final Thoughts: After experiencing a new wave of rise, the development of community group buying has undoubtedly entered a magnitude competition. But at present, there is still huge uncertainty about the future development of community group buying.