---
title: "The Aftermath of Community Group Buying"
description: "Grain, oil, and FMCG listed companies are deeply affected; community group buying is no longer just a business of 'a few bundles of vegetables, a few pounds of fruit.' After a wild sprint, the 'aftermath' left by community group buying on the entire market is far greater than imagined. The grain, oil, and seasoning industry has been hit particularly hard. During the traditional e-commerce boom, basic grain, oil, and seasonings like soy sauce, due to low added value, high weight, and fragility, still relied firmly on traditional distribution channels. By the time of community group buying's aggressive expansion..."
author: "马程"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2021-09-28"
language: "en"
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# The Aftermath of Community Group Buying

> Grain, oil, and FMCG listed companies are deeply affected; community group buying is no longer just a business of 'a few bundles of vegetables, a few pounds of fruit.' After a wild sprint, the 'aftermath' left by community group buying on the entire market is far greater than imagined. The grain, oil, and seasoning industry has been hit particularly hard. During the traditional e-commerce boom, basic grain, oil, and seasonings like soy sauce, due to low added value, high weight, and fragility, still relied firmly on traditional distribution channels. By the time of community group buying's aggressive expansion...

Source: 20社 (ID: quancaijing_20she)
Grain, oil, and FMCG listed companies are deeply affected; community group buying is no longer just a business of 'a few bundles of vegetables, a few pounds of fruit.'
After a wild sprint, the 'aftermath' left by community group buying on the entire market is far greater than imagined.
The grain, oil, and seasoning industry has been hit particularly hard. During the traditional e-commerce boom, basic grain, oil, and seasonings like soy sauce, due to low added value, high weight, and fragility, still relied firmly on traditional distribution channels.
By the time of community group buying's aggressive expansion, platforms often prioritized fresh produce to attract new users, and seasonings naturally became the category with the highest match to fresh produce consumption scenarios. Seasonings became the traffic driver, and the channel underwent drastic changes, thus encountering problems similar to those seen in the e-commerce wave.
Soy sauce. Image source: Visual China
Since the beginning of the year, Haitian Flavoring, which has been called 'Sauce Maotai' in the secondary market, has seen its market value fall, and peers like Qianhe, Zhongju High-tech, Jiajia, and Hengshun Vinegar have also seen their market values halved. After the half-year report performance changed, Haitian even hit the limit down, plunging 40% from the beginning of the year, evaporating 300 billion yuan in market value.
The financial reports of several soy sauce stocks mostly mentioned two 'pain points' - rising raw material costs, and channel squeeze and price pressure brought by community group buying.
Take a 530ml bottle of Haitian seasoning oyster sauce as an example. It sells for 9 yuan in supermarkets, but the average price on various community group buying platforms is only 4.5 yuan. Sales of 'cheap' products have risen sharply, squeezing supermarket sales and affecting the price system across all channels.
Community group buying is a double-edged sword for traditional seasoning brands. On one hand, it has expanded the consumer base, becoming a consumption channel that cannot be ignored, and even a new opportunity for regional and small and medium-sized brands.
On the other hand, community group buying challenges the traditional distribution system, affects brand positioning, seizes pricing power, squeezes profits, and forces brands to lower product line quality.
At the end of 2020, Huaxi Securities predicted in a research report that in 2021, community group buying channels would account for 12.6% of total seasoning sales.
Today, community group buying is no longer just a business of 'a few bundles of vegetables, a few pounds of fruit.'
According to research by Yuanqi Capital, the current balanced model commonly adopted by community group buying platforms is to reduce the proportion of fresh produce while maximizing its traffic-driving capability - the proportion of fresh produce on community group buying platforms has dropped to around 30% of GMV, and the proportion of SKUs has dropped to around 40%.
In other words, the overall operating logic of community group buying platforms is shifting towards making money from high-margin daily necessities and standard products, rather than fresh food. Behind this are the performance of many listed companies.
In the future, more FMCG brands must accept the fact and coexist with community group buying - on one hand, using the platform to build brand and clear inventory; on the other hand, enhancing bargaining power so as not to be dragged down by the low-price strategy of community group buying.
This business of a few bags of flour, a few bottles of vinegar, and a few packs of snacks has yet to see its true outcome.
**From Refusal to Default**
Zhongyu Food, headquartered in Binzhou, Shandong, refused to join community group buying platforms for a long time.
Zhongyu Food mainly produces flour, noodles, pork, and other products, and has multiple offline stores in Jinan, Binzhou, and other places. In stores, a 750g pack of Zhongyu noodles sells for about 7 yuan, with discounts for multiple packs.
In recent years, to expand sales, Zhongyu has launched on many e-commerce platforms and participated in promotional activities, such as buying 5 items at once on Taobao, bringing the unit price down to 6 yuan.
On e-commerce platforms, the category importance of grain, oil, and seasonings is relatively low, so brands like Zhongyu can lay out their online presence at their own pace; unlike community group buying, where big capital has strongly accelerated the layout of fresh-produce-adjacent categories.
Zhongyu brand. Image source: Visual China
In November last year, Meituan Maicai, Duoduo Maicai, and other platforms that entered Jinan approached Zhongyu headquarters, offering 4-5 yuan per pack for that 750g product. A senior executive at Zhongyu told 20社 that the headquarters refused to cooperate at the time due to the low price.
But soon, in provinces outside Shandong, Zhongyu's distributors couldn't resist the temptation. 'We held meetings with distributors hoping they would temporarily not list on community group buying platforms, but it was useless; the goods had already been sold.'
Zhongyu wanted to escape the influence of community group buying platforms, and the solution was to build its own group buying platform in its main business areas. They used Youzan to build a group buying mini-program, promoted it to customers through restaurants and shops, and set up offline pickup points with unified delivery.
At the same time, Zhongyu headquarters also tried to expand sales from the B2B side, connecting to Meituan Kuailv to provide products to restaurants and enterprises.
But these attempts were not enough to bring larger-scale sales to the platform. After piloting its own community group buying platform in a few cities, the conversion rate was low.
As early as December last year, seasoning company Huahai Shunda fired the 'first shot' of counterattack, publicly posting to resist community group buying platforms. Subsequently, many brands also announced boycotts.
Huahai Shunda was the first to resist community group buying. Image source: Official website
Although since 2021, various regions have introduced relevant policies prohibiting platforms from suppressing prices and causing vicious competition, companies still face a dilemma.
'If we don't do community group buying business, others will, and they will fight price wars with us based on volume,' said the above-mentioned Zhongyu executive, which would force supply chain companies into vicious competition.
Platforms source from the most price-competitive suppliers; if manufacturers want to make a profit, they have to lower quality and brand positioning, forming a vicious cycle.
The core competitiveness of traditional consumer brands is their strong distribution network and distribution system, where distributors at each level help the brand enter a broader market, and each level has a certain profit margin.
Zhongtai Securities pointed out that in traditional distribution channels, after layers of markup from manufacturer to first-tier distributor to second-tier distributor to terminal retailer, the markup rate relative to the factory price is 45%-50%.
The channel chain for community group buying is manufacturer - distributor (or none) - platform - consumer. By shortening the supply chain and improving efficiency, it reduces channel markup by 25%-30%.
**The distribution model for major brands is generally cash before delivery. The settlement cycle for group buying platforms is in days. In an environment where offline sales are frequently hit by the pandemic, distributors have some incentive to cooperate with platforms to speed up payment collection.**
Multiple media outlets have reported that during the rapid expansion of community group buying, local procurement managers were given significant bargaining power, allowing them to negotiate prices and subsidies with distributors first, thereby achieving both price reductions and access to supply.
As a result, at the price level, manufacturers' price control policies for platforms are not fully implemented by distributors, who retain some of the price difference for themselves and use it in other channels to meet targets.
**Brands cannot prevent distributors from choosing to 'sell more at lower profit' on community group buying platforms. This directly breaks the original markup distribution system, even causing 'channel crossing,' bringing greater impact on brand sales management and pricing.**
**Distributors, in turn, bear another risk.**
In July, the community group buying platform 'Tongcheng Life' declared bankruptcy. Among the hundreds of agents who gathered at the Suzhou headquarters seeking compensation, nearly half were local grain, oil, and fast food suppliers.
'From initial price cuts and suppression, to continuous arrears, joining community group buying for less than a year, I experienced it all,' a soy sauce and vinegar distributor from Taizhou told 20社. He had been owed for up to 3 months, involving goods worth millions.
Suppliers demanding payment from Tongcheng Life. Image source: Interviewee
'Community group buying is no longer viable; Shixianghui and Shihuituan have all had problems,' said a Three Squirrels distributor bluntly. 'Only the bold can do it.'
**A New Sales Channel Not to Be Ignored**
**Even as second-tier platforms begin to show signs of decline, the certainty of the entire community group buying channel has not been weakened.**
After failing in its own group buying business exploration, Zhongyu still fully integrated into major mainstream community group buying platforms. Currently in Jinan, a 750g pack of hanging noodles still sells for around 4 yuan on Meituan Maicai, Duoduo Maicai, and other platforms.
Zhongyu's Meituan Maicai page. Image source: Official website
Similar to Zhongyu's shift, some traditional grain and oil enterprises have also begun to view community group buying as an important expansion channel.
The board secretary of Yihai Kerry stated in response to questions that community group buying has been very active this year, with multiple platforms in the market making efforts. Some community group buying platforms have relatively large subsidies, so in the short term, they will have some impact on traditional channels, but it is expected that these strong subsidies will not last long.
Seasoning companies also feel the channel changes deeply. In the first and second quarters, their wait-and-see attitude was forced to change: 'If you can't beat them, join them.'
Some strictly control products that flow to community group buying platforms, tracing and punishing corresponding distributors; some begin to grant more autonomy to regional cooperation; others respond more proactively.
For example, designating factory offices as distributors to cooperate with platforms, conducting marketing planning and expense allocation, and formulating suitable product listing plans.
Take Haitian as an example. It recently released its half-year report with the lowest growth rate since its listing in 2014. Revenue growth for soy sauce, oyster sauce, and seasoning paste was all 6-7%, significantly slowing down.
Haitian's quarterly revenue and net profit since 2019. The last two quarters have seen a clear decline. Data source: Haitian financial reports
In addition to macro consumption slowdown, upstream material price increases, and suppressed price increases, there is another hidden danger.
Haitian's number of distributors increased significantly last year, with 'year-end early stocking and payment,' which overdrew cash inflows in the first half of 2021, leading to a sharp decline in net operating cash flow in the first half. Guosheng Securities' July research report noted that while Haitian's channels were being densified, channel inventory was at a relatively high level.
This forces Haitian to consider comprehensively the issues of distributor sell-through and inventory, and to respond to the squeeze from community group buying. According to Haitian's board secretary Zhang Xin at the interim report conference call, offline channels (supermarkets, BC stores, mom-and-pop shops, etc.) account for about 25% of Haitian's share, and in Q2, community group buying severely damaged this share.
'The company has spent a lot of effort studying its context, model, and sustainability. We believe community group buying is a very good platform for seasonings. In the long run, we will benefit. We will attach great importance to doing this channel.'
In June, Haitian established a dedicated department to connect with community group buying channels, customize targeted products, and designate distributors for supply.
How listed seasoning companies respond to community group buying. Data source: Huaxi Securities research report
Listed soy sauce company Jiajia Soy Sauce responded to shareholder questions in June this year, stating that it had established a New Retail Business Department specifically responsible for connecting with community group buying and other platform businesses.
As a Hunan enterprise, Jiajia Soy Sauce has been cooperating with Xingyou Preferred. Starting in Q2, Jiajia Soy Sauce's group level began to pay attention to community group buying and continuously promoted promotional activities on platforms like Meituan Preferred.
A Jiajia Soy Sauce salesperson recently posts promotional posters and performance reports of various platforms' group openings and special events on their WeChat Moments every day.
But exploring new channels also means new challenges. Jiajia Food's half-year report showed a red light - due to large investment in new retail, gross margin declined, and net profit for the first half of 2021 was 15 million to 22 million yuan, down 79.51% to 86.03% year-on-year.
Jiajia's financial report mentioned that during the reporting period, competition in the FMCG industry intensified, and online platforms such as community group buying had a significant impact on traditional industries and channels.
Jiajia Food mainly adopts a distributor agency model, with distributor sales using cash-before-delivery settlement, and direct sales as a supplement, mainly through traditional supermarkets and community group buying channels. In the first half, the company's distribution model revenue was about 830 million yuan, while direct sales revenue was about 9.8 million yuan, a huge gap.
Hengshun Vinegar's financial report also mentioned that community group buying as a sales channel has gradually taken shape. After occupying the market through a 'burning money' model, it has pricing power, and now it's not just about channel-level distributors and distributors.
Manufacturers like Hengshun, at the upstream product end, also have to enter the community group buying channel, which to some extent lowers the average selling price of products and reduces gross profit.
Based on the targets of Meituan Preferred, Duoduo Maicai, Chengxin Preferred, Xingyou Preferred, and Alibaba's MMC, Zhongtai Securities expects community group buying GMV to be at least 657.8 billion yuan in 2021. If soy sauce accounts for 0.5%, that would be 3.1 billion yuan, accounting for 6.7% of soy sauce retail scale, making it one of the important channels for soy sauce at the household level.
The SKU sales input-output ratio for grain, oil, and seasonings is as high as 136%, far higher than other edible categories. That is, with the same product proportion, the sales of grain, oil, and seasonings are the highest, with high return on investment value.
For these major seasoning manufacturers, continuing to tap the community group buying market while stabilizing gross profit currently requires a trade-off.
**Community Group Buying Subtly Changes FMCG**
Since 2021, a wave of large FMCG companies have fully understood the logic of community group buying and have begun to set up separate departments, even customizing products.
These products often take a low-price route, thus often leading to a path of weakening product quality and specifications.
According to Huaxi Securities research, the soy sauce currently listed on community group buying platforms, from small and medium brands like Zhongba, Longpai, and Qiuchuanhe, to main products of big brands like Haitian and Zhongju, mostly has amino acid nitrogen content of only 0.4/0.5g/100ml, while most manufacturers can now produce soy sauce with amino acid nitrogen content above 0.8.
Mid-to-low-end products in community group buying. Image source: Huaxi Securities
This deviates from the core logic of industry structure upgrading and value enhancement, but it is a defensive strategy that has to be adopted.
According to Guojin Securities' report, the dairy products listed on community group buying are mainly ambient temperature categories. In terms of both SKU count and regional coverage, Yili has more than Mengniu.
The market pattern behind this is that Yili and Mengniu have clearly diverged in strategic focus, with Mengniu's cultivation of (higher-priced) low-temperature fresh milk being more effective.
Dairy companies like Bright Dairy intentionally create product differentiation between supermarket and community group buying channels. Bright Dairy mainly promotes Youbei at over 20 yuan in supermarkets, and Fresh Pasture at over 10 yuan on Xingyou Preferred.
Food and beverage company Jinmailang follows a similar logic. The company has set up an e-commerce special department to customize low-priced, practical products for community group buying channels.
For example, in 2021, Jinmailang mainly promoted softened water on community group buying platforms, a drinking water product launched after Liangbai Kai, adopting a low-price, high-volume strategy that opened up sales, surpassing Kangshifu purified water and Coca-Cola Ice Dew on many platforms.
For snack brands that grew up riding the e-commerce wave, challenges also exist. The financial report of snack brand Yanjin Puzi revealed this problem. In the first half of this year, Yanjin Puzi's net profit fell by 62.59%, and in Q2 it even recorded its first loss since listing, with a loss of over 30 million yuan.
Unlike Three Squirrels and Bestore, which started online, Yanjin Puzi has deep roots in offline channels, so its profit margins have always been good. But precisely because of this, Yanjin Puzi directly bears the huge impact of supermarket depression. The supermarket format has been somewhat robbed of customer traffic by community group buying.
In fact, Yanjin Puzi has also laid out community group buying channels. According to its 2020 financial report, community group buying supplier Hunan Linyun Food has become Yanjin Puzi's fourth-largest customer, with annual payments exceeding 18 million yuan.
But for Yanjin Puzi, which relies heavily on supermarkets, shifting focus and switching channels is not something that can be done 'with one click.'
Yanjin Puzi's performance affected by community group buying. Image source: Visual China
And snack companies with heavier e-commerce genes, like Three Squirrels, are seeing revenue growth without profit growth, and the capital market is 'voting with its feet.' With increasingly fierce homogeneous competition, these brands cannot quit their dependence on high marketing spending.
Community group buying, which is 'king of low prices,' is a chicken rib for e-commerce snacks constrained by their own gravity - not entirely useless, but not entirely useful either.
On the other hand, many startup FMCG companies are beginning to use community group buying as a key marketing platform to find the possibility of breakout hits.
For example, Xianzhihui seasonings and Yunnan Shanqi toothpaste, which are popular on Xingyou Preferred. These brands have an undeniable 'copycat' suspicion, but their short-term sales cannot be underestimated.
In summary, the transformative impact of community group buying is that brands, facing the rigid demand that has formed momentum, need to invest in active construction; accompanying this is short-term price cuts and losses. Caught in this contradiction, the love-hate relationship between FMCG and community group buying will continue.
**Are you 'watching' me?**


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