Click to read the original article for details At the end of June, Cheng Wei was "graduated." Over the past two years, he witnessed the entire process of his community group buying platform expanding aggressively and then contracting. This time, he was "optimized" along with the entire business line. A group buying entrepreneur expressed "no surprise" at the contraction of community group buying. The "capital groups" (including the "old three groups" Xingsheng Youxuan, Tongcheng Life, and Shihuituan, and the "new three groups" Meituan Youxuan, Duoduo Maicai, and Chengxin Youxuan, as well as Taocaicai and Jingxi Pinpin) compete on who has more traffic and who can burn more money. In July last year, the startup Tongcheng Life collapsed. Since March this year, Chengxin Youxuan and Shihuituan have been reported to have shut down, and Jingxi Pinpin has contracted significantly. "It was only a matter of time," because they cannot compete with the main-site traffic of Meituan Youxuan and Duoduo Maicai, nor can they burn as much money. So far, only Xingsheng Youxuan remains from the "old three groups." Similar voices have emerged in the industry: "The community group buying landscape is set, and victory belongs to Meituan and Pinduoduo." However, since late April, Meituan Youxuan has been reported to have withdrawn from multiple places in the northwest and Beijing, and Duoduo Maicai has also been reported to have "closed, merged, or transferred" stations, with many inefficient groups being shut down or merged. From explosion to retreat, community group buying has gone through three years. "Who will be the next to withdraw?" "Is community group buying viable?" Compared to these speculations, the group leaders, suppliers, warehousing and distribution companies, and platform executives are more concerned about the "aftermath" problems that may arise from rapid expansion. Community group buying is like a huge and precisely operating machine. After three years of high-speed operation, when the switch is suddenly pulled, the core gears of this machine have to face the following problems: 1. How to "settle" tens of thousands of group leaders? 2. What should suppliers and grid warehouses do? 3. From whom can platforms still demand profits? 01 Group leaders under withdrawal: "Woke up overnight, the platform left, and the group chat was disbanded" Recently, group leader Bi Lei experienced an unprepared withdrawal. She operates two community group buying platforms simultaneously. On the day one platform withdrew, the other platform's turnover unexpectedly exceeded 1,000 yuan, and her single-day income on that platform finally exceeded 100 yuan. But she couldn't be happy at all. A platform's withdrawal means not only halving her income, but also that the remaining platform's willingness to pay commissions and rewards may continue to decrease. Bi Lei's goods piled up at the door In some regions, the market share of community group buying has become relatively concentrated. Taking the Beijing market as an example, Xu Dong, a senior practitioner in community group buying and general manager of a startup, conducted a survey of the Beijing market in early April. In terms of order volume, Duoduo Maicai ranked first, and Meituan Youxuan second. Group leader income has been continuously decreasing. Xu Dong learned that there are about 15,000 group leaders in the Beijing market, with most earning between 1,000 and 3,000 yuan per month, and only about 10% exceeding 5,000 yuan. The "ceiling" of group leader income may be more illustrative. He mentioned that the largest group leader in Beijing's Chaoyang District receives 1,000 items a day, with sales of about 7,000 yuan, an average commission of 6%, earning 400-500 yuan per day, and a monthly income of about 15,000 yuan. This scale of receiving goods generally requires two people to complete. In the community group buying machine, group leaders, as the power driving the gears, earn sales commissions and new customer referral rewards. This role is not just a distributor and server; they are responsible for online referral and group building, as well as offline pickup, sorting, handling returns, and feedback on product quality. Most group leaders are individual merchants who use their small stores, such as convenience stores or laundromats, as pickup points. A few group leaders are owners of low-floor apartments, with their homes serving as pickup points. How much they earn depends on the order volume and user base in the area they are responsible for. This creates a situation where group leaders generally operate multiple platforms simultaneously. Those with energy or helpers "basically do whichever is available," pushing links from various platforms in the same group. As platforms withdraw from cities one after another, group leaders in various regions have fewer income sources, and commissions and rewards also decrease. Liu Li from Foshan, Guangdong, recalled that she first worked for Fengchao's Chaoxianchu, where the commission rate reached 20%. She then worked for Qianxianhui (later acquired by Tongcheng Life), Shihuituan, Chengxin Youxuan, and Jingxi Pinpin, earning generous referral rewards. After these platforms contracted, she started working with Meituan Youxuan, Duoduo Maicai, Xingsheng Youxuan, and Taocaicai. "The current commission rate barely reaches 10%, and some are even less than 5%." Regarding the current commission rate for group leaders, Xu Dong learned that it is 3%-8%. If "salary cuts" have been the general trend over the past year or more, then platform withdrawal is, from the group leader's perspective, an overnight event. A group leader recalled her experience of a platform withdrawal. The day before, she noticed that the APP showed fewer and fewer stations in her community. Early that morning, she asked the delivery driver about the situation, and he only said, "The goods are all undergoing nucleic acid testing, and business will resume in a few days." At that time, the APP could no longer place orders. At around 10 a.m., staff in her group leader chat announced the cessation of operations, and then the group was disbanded. Almost simultaneously, she received a public account message saying, "Service in this area is temporarily suspended." In Xi'an, Shaanxi, over a thousand kilometers away, Fang Na has become accustomed to platform withdrawals. She started as a group leader in the first half of 2020 and has worked with almost all local platforms. Whenever a platform withdraws, she has to deal with the hassle of returns and after-sales for a while. For platforms, withdrawal must be quick. As Cheng Wei said, "When a platform withdraws from a city, there is no need to settle group leaders, as long as it does not affect their normal cash withdrawals." 02 Neglected partners: Grid warehouses haven't recouped investment, suppliers clear inventory at a loss When a platform withdraws, group leaders may recover soon, as their investment is not too high—perhaps just a freezer. Warehousing and distribution companies and suppliers are not so lucky. In the community group buying machine, these are two gears that are easily overlooked by end consumers but involve high investment and operate day and night. Community group buying platforms do not participate in the procurement of goods; they act as an "intermediary." We place orders on our phones the day before, and the next day we can pick up goods at a nearby pickup point. The circulation process is: central warehouse - grid warehouse - pickup point. The first transfer point, the central warehouse, is built by the platform. Platforms generally build one or two central warehouses in each region or city (except Xingsheng Youxuan, which has a shared warehouse-central warehouse layout; other platforms only operate self-operated central warehouses). The second transfer point, the grid warehouse, is built/leased and operated by warehousing and distribution companies. Throughout the process, the main transportation, sorting, and terminal distribution of goods are basically completed by suppliers and warehousing and distribution companies, and most of the work is done at night. When a platform withdraws from a city, what awaits them? A former expansion manager responsible for coordinating grid warehouse fulfillment at a community group buying platform told Kailuobo Finance that before withdrawing from a city, the platform generally notifies the grid warehouse about a month in advance and "gives some compensation" as appropriate. "Warehousing and distribution companies operating grid warehouses are in a worse situation," a same-city logistics practitioner told Kailuobo Finance. The initial investment for a grid warehouse is several hundred thousand yuan. The main costs are the construction and management of the grid warehouse, as well as the piece-rate wages for drivers and sorters. Income mainly comes from the delivery fees paid by the platform per piece, plus some subsidies and rewards. He revealed that in the past two years, basically 50% to 70% of grid warehouses have been operating at a loss, and grid warehouse owners are trying every means to save costs. Two group leaders both mentioned that they voluntarily gave up some platforms because the delivery link was "too cost-conscious." One group leader gave an example: when drivers deliver, frozen products are not placed in insulated boxes but in ordinary baskets like other items, which seriously affects product quality and easily leads to returns or even complaints. Since the beginning of this year, some grid warehouse owners who have been suffering continuous losses and lack motivation have been looking for new ways out. The same-city logistics practitioner noticed that some owners with warehousing and same-city logistics capabilities have become partners of chain community stores or have built their own urban distribution network systems. Suppliers have also been affected. According to media reports, both Tongcheng Life and Shihuituan were visited by suppliers demanding payment after withdrawing from cities. As one of the gears supplying goods to the community group buying machine, suppliers' income is the sales revenue after deducting the platform's commission of about 10% (the specific deduction points vary by platform and category), and the risks are inventory and transportation costs. Suppliers who hoard goods have always faced high inventory costs and capital turnover pressure. From a competitive and profit-improving perspective, suppliers cannot avoid hoarding goods. An operator of a community group buying platform revealed that the main suppliers for each platform are the same group. Whether and how the platform cooperates with a supplier depends on which supplier supplies goods first. What platforms need most are suppliers with large quantities and complete product ranges. Everyone knows that community group buying sells goods cheaply. To have sales, the terminal sales price must be appropriately lowered. To obtain lower purchase prices and spread transportation costs while ensuring sufficient order volume in each city, large quantities must be purchased. A supplier supplying nuts to community group buying platforms mentioned that hoarding is a basic "quality" of suppliers. The platform and business development team do not promise daily listings; suppliers need to sign up daily, making it difficult to estimate stock levels. If stock is too low, purchase prices may be high; if too high, products may be listed for two days and then, if they don't sell well, be classified as "pit production," and the business development team will not allow sales. It is common to find other channels to clear inventory at a discount. Once a platform withdraws from a city, the impact on suppliers of all sizes can be imagined. A supplier supplying FMCG products to community group buying platforms said that they had to clear near-expiry inventory at a loss, and in the first half of this year, they continuously transferred goods to discount warehouses and discount stores. 03 Platforms: From offense to defense, to cutting losses If withdrawal is an abrupt stop for the gears of the community group buying machine, for the platforms, it is the finishing move after completing the withdrawal deployment. Nationwide, platforms' withdrawal actions began in 2021, after the State Administration for Market Regulation proposed the "Nine No's" new regulations at the end of 2020, banning the low-price traffic-driving tactics like "selling vegetables for one cent." However, the continued withdrawals are widely attributed to the fact that each company invests billions annually, paying expensive tuition but failing to achieve scale profitability. The "new three groups" all failed to meet their KPIs in 2021. According to LatePost, Meituan Youxuan targeted 200 billion GMV but ultimately completed 120 billion; Duoduo Maicai targeted 150 billion but completed 80 billion; Chengxin Youxuan targeted 100 billion but the business did not last until the end of the year. Taocaicai targeted 120 billion GMV but only completed about 20 billion. Earlier, we mentioned that the grid warehouses and terminal distribution are outsourced. So where do community group buying platforms lose money? "Except for terminal distribution, the platform participates in all other links, especially price subsidies," Xu Dong summarized. Community group buying needs to cultivate user habits and loyalty. Without price subsidies, there are no orders; without orders, there is no data; without data, there is no investment. To stay in the game, platforms must show investors the possibility of profitability and find ways to squeeze profits from the "gears" of the machine. A merchant supplying goods to community group buying platforms told Kailuobo Finance that since the beginning of this year, not only have the deduction points for multiple categories increased, but platforms also require suppliers to subsidize prices themselves. Group leader income is related to the platform, city, and region, but almost all group leaders complain about being "squeezed" and "not making money." Three group leader operators from community group buying platforms said that with lower commissions and fewer rewards, many veteran group leaders have left. Feng Lili from Wuhan, Hubei, witnessed the two years from the explosion to the collective contraction of community group buying. In the second half of 2021, she gradually withdrew from multiple platforms. "The rules of these platforms are all adjusting in one direction: reducing group leader commissions and desperately pushing group leaders to refer new users." When one gear lacks power, it creates friction for the next gear. As the machine builder, platforms need to oil the gears from time to time. For example, some platforms try to use tools to improve group leaders' marketing efficiency and order rates. Zuo Lin, a product manager at a leading community group buying platform, told Kailuobo Finance, "The platform burns money upfront to expand into unserved communities, while group leaders mainly refer new users within already influenced communities." "But we internally noticed that many group leaders are in a state of lying flat every day. The more active ones take photos and post them on their Moments." Fang Na is a typical example. In the past, she actively operated her community, set up a points system, and held irregular free order events. This year, she has let everyone order casually. A group leader operator at a community group buying platform told Kailuobo Finance, "High-level group leaders have already used the platform to build their own private domain traffic." A ground promotion company owner who once recruited group leaders for Meituan Youxuan and Duoduo Maicai said that group leaders with personal IP take on high-profit goods from outside or engage in high-margin businesses, no longer earning money from group buying platforms. At the end of last year, Zuo Lin was internally responsible for a marketing tool aimed at group leaders' pain points, helping them post to Moments with one click and increase order rates. The feedback data after application showed "good results." There are benefits, but for giant platforms, the value is limited. Since the end of last year, platforms have finally turned their knives on themselves. The community group buying business line has become the hardest hit area for layoffs, and no capital group has been spared. Community group buying is a high-frequency traffic window that can bring new users to the original platform at a very low trial-and-error cost and can be combined with multiple business lines. "It's just that the golden period has passed. When the overall environment worsens, large companies cannot continue to waste huge manpower for this meager benefit." In the first quarter of this year, Zuo Lin was "optimized" along with the entire business line. "The entire line was cut by 60% to 80%, leaving only staff needed to maintain operations." Finally, let's look at the current situation of the giants after three years of struggle. Based on the statements of multiple community group buying platform participants, in terms of current national market share, Duoduo Maicai ranks first, and Meituan Youxuan second. The ranking of the top two has swapped compared to the previous year, but regional battles remain fierce. Duoduo Maicai's stronghold remains the lower-tier markets and the Yunnan-Guizhou-Sichuan region; in Central China, South China, and some northeastern cities, Meituan Youxuan still has an advantage in order volume. "Future opportunities belong to platforms that can withstand losses and don't look too ugly while doing so," Xu Dong summarized. After a two-year frenzy, more than half of the platforms have now shut down. This great retreat is not over yet, and perhaps more hidden "aftermath" will gradually emerge. *Cover image from unsplash. At the request of the interviewees, Cheng Wei, Fang Na, Liu Li, Feng Lili, and Zuo Lin are pseudonyms. Source: Kailuobo Finance (ID: kaiboluocaijing) -END-