Fresh produce has long been seen by physical retailers as the main category for attracting customers and as a moat against online competition. Many retail companies once believed that as long as they held this ground, "the outcome was still uncertain." However, the sudden COVID-19 pandemic last year changed people's lifestyles, accelerated retail transformation, and made many giants eye the vegetable-selling business, leading to the rapid spread of community group buying. According to industry survey data, in the first quarter of this year, supermarket hypermarket foot traffic dropped significantly, with declines generally in the double digits, some even reaching 20%-30%, and sales also declined to varying degrees, with fresh produce hit hardest. At the just-concluded "2021 Lianshang.com Conference," Wang Tian, chairman of Better Life, urgently stated: "Due to the impact of community group buying, the supermarket industry has reached a life-or-death darkest moment." Chu Dequn, chairman of Meihaote, and Wang Wei, chairman of Fresh Legend, also expressed similar anxiety.
-01- Internet Giants Continue to Increase Investment Behind the current leading community group buying platforms, almost all have the presence of internet giants. From JD.com's investment in Xingsheng Youxuan and launch of Jingxi Pinpin, to Pinduoduo's Duoduo Maicai, Meituan's Meituan Youxuan, and Didi's Chenxin Youxuan, competition in the community group buying track is becoming increasingly fierce, and financing for community group buying is also in full swing. According to Qichacha data, 2018 was the peak period for community group buying financing, with 23 public financing events, but the disclosed financing amount was only 1.67 billion yuan; in 2020, there were 19 public financing events, the second highest in history, but the disclosed financing amount reached 17.17 billion yuan, a year-on-year increase of 356.3%, setting a new record. Before the Chinese New Year, community group buying platforms including Chenxin Youxuan and Xingsheng Youxuan frequently reported large-scale financing, with rumors of Shihui Tuan seeking financing and Dingdong Maicai preparing for a US listing this year. On March 31, community e-commerce company Shihui Tuan announced the completion of a $750 million Series D financing round, co-led by Alibaba and Russian digital sky international DST Global, with follow-on investors including Chenxi Investment, Times Capital, CDH Investments, and other investment institutions. Recently, it was reported that Meituan raised $10 billion through the sale of new shares and convertible bonds, aiming to compete with rivals in areas such as community group buying and online retail. It is worth noting that this year, major community group buying platforms have released their annual GMV targets: Meituan Youxuan has set its 2021 annual GMV at 200 billion yuan, aiming to hit 50-60 million orders per day; Duoduo Maicai's 2021 GMV target is 150 billion yuan; Chenxin Youxuan's is 100 billion yuan; and Xingsheng Youxuan's is around 80 billion yuan. Some analysts believe that in the future, giants such as Alibaba, JD.com, and Meituan will continue to increase investment in community group buying, and competition will intensify.
-02- Is the Impact of Community Group Buying Unstoppable? From a set of industry data, it can be seen that from June last year to February this year, the supermarket sector was indeed impacted by community group buying. In June last year, fresh produce accounted for 39.29% of store sales, vegetables 3.74%, and fruits 4.27%. By February this year, fresh produce had dropped to 31.9%, a decline of nearly 8 percentage points; vegetables accounted for 2.6%, down more than one percentage point; and fruits accounted for 3.77%, down 0.5 percentage points. In the first quarter of this year, especially since March, supermarket hypermarkets have fallen into a difficult situation. According to statistics from the Lianshang.com Retail Research Center, as of the close of trading on March 31, 2021, the total market value of 15 listed supermarket companies was 171.982 billion yuan, with an average market value of 11.465 billion yuan. Compared with 258.836 billion yuan in the same period last year, the market value of 14 comparable companies (Guoguang Chain listed on July 28, 2020, so year-on-year comparison is not possible) decreased by 92.077 billion yuan overall, a year-on-year decline of 35.57%, and the decline in market value stemmed from falling stock prices. Gu Guojian, a special columnist for Lianshang and director of the Shanghai Chain Operation Research Institute, said that in March, retail sales, especially in the supermarket industry for daily necessities, fell sharply. If April stabilizes and May has a short holiday, it is estimated that June will return to normal levels of 2019 and 2020. If the decline continues in April, the entire retail market will be weak this year. Therefore, Gu Guojian also specifically reminded retail companies to pay attention to two points: 1. The current problem with community group buying is not the impact on the retail industry caused by subsidies, but the impact and wake-up call for industry transformation due to efficiency improvements and optimization. Traditional supermarkets and hypermarkets will bear the brunt. 2. Consumption upgrading or downgrading will occur simultaneously at two different levels at the same time. It is necessary to determine which level to enter. Entering either level is a huge challenge. Supermarkets that have optimized category structures and upgraded to higher quality have basically remained stable during the sharp sales decline in March. These supermarkets exist not only in first-tier cities but also in large numbers in second- and third-tier cities.
-03- How Should Supermarket Companies Respond? In the face of community group buying, many supermarket companies find it hard to resist and are defeated. Is the impact really that great? How should supermarket companies respond? In Wang Tian's view, entering 2014, e-commerce had a huge impact on physical retail, but by 2018 it had entered another trough. E-commerce is difficult to deliver a subversive blow to physical retail. Whether supermarkets, convenience stores, or department stores and shopping malls, all are actively developing online. But last year, the industry faced both the so-called black swan challenge and the gray rhino challenge. To this end, at the "2021 Lianshang.com Conference," Wang Tian called for using legal rules to protect their rights in the face of unfair competition from internet giants, while adhering to long-termism in the retail industry. At the same time, Better Life is also making various attempts, such as doing public welfare in communities, linking with neighborhood committees, caring for empty-nest elderly, going deep into communities, and trying to get closer to consumers. Wang Wei, chairman of Fresh Legend, also said that price wars are effective, but consumers are not loyal to price. Can group buying really dominate the world? Even if it is possible to succeed, it is definitely not the only business that can dominate. Wang Wei encouraged retail companies: "We must see things five years from now, not prepare for the present. In the next 3-5 years, online vegetable buying will not exceed 30%. Market competition is always cruel, but don't lack imagination, and don't lack courage." In the view of Liu Erbai, a member of the Lianshang Senior Advisory Group, community group buying has strong advantages: it makes the last mile of fresh produce accessible, and under the money-burning model, price advantages, convenience, and easy pickup are extremely attractive. However, it should also be noted that community group buying is not perfect; it has disadvantages and hidden problems in this model: First, limited variety. Community group buying cannot be all-encompassing like opening a supermarket. It is a curated approach; only with selected varieties can sales be concentrated, thereby gaining price advantages. Therefore, consumers can only get limited satisfaction from community group buying. If they want to buy more diverse goods, going to a wet market or supermarket is a better choice. Second, insufficient fresh products. Community group buying involves multiple transfers from the supply chain source to the platform warehouse and then to the group leader. If it is fresh goods, it undoubtedly places more demands on transportation and storage. Not to mention other aspects, just at the group leader's location, most do not have equipment for storing fresh products, which limits the development of fresh goods in community group buying. Third, delayed delivery. Community group buying requires payment first, then pickup, with a waiting time of two to three days. But consumer desires are sometimes immediate; for example, the moment a purchase idea arises, the next second they want to see the product. Long waits will gradually erode the desire to buy, and by the time the product is received, the enthusiasm has long faded. Fourth, behind group buying is a large amount of manpower and material resources supporting its operation. These are undoubtedly costs. Just for product repacking and packaging, it is said that each item costs 0.2 yuan. Community group buying also needs to win on price, so the profit margin is already razor-thin, and many are even losing money just for publicity. If a business model has no profit for a long time, it will be difficult to sustain. Liu Erbai also pointed out that although community group buying is currently sweeping the industry like a tornado, making people uneasy, in the future, community group buying will not and should not become the mainstream retail model; it can only be a beneficial supplement to the existing retail model. Consumers will also experience purchase fatigue. Many have lurked in community group buying groups; newly opened groups or platforms see high purchase volumes, but after a period, buyers gradually dwindle, showing that this model has limited long-term appeal to consumers.
-04- Conclusion It is undeniable that the emergence of community group buying has made people's lives more convenient and allowed them to enjoy more benefits. In the post-pandemic era, community group buying is still hot, but it should not be seen merely as a way and means to acquire traffic. The market environment has its ups and downs, and competition has always existed. Facing the impact of community group buying, supermarket companies should stay true to their original aspirations, actively seek change, and find a development path that suits them. Source: Lianshang Supermarket Home (id: chaoshirenzhijia) Author: Xiling Xue Tips will be paid 400-2000 yuan once adopted.