Han Zhipeng: After community group buying shifted to a 'profit-first' approach, suppliers and distributors are having a harder time. Hu Mingchun (pseudonym), a grid warehouse distributor in Hunan, said that in 2020, as Meituan Select and Duoduo Maicai entered Hunan, he chose to join one of the platforms and set up grid warehouses in seven cities across the province. Nearly four years later, Hu has lost over 10 million yuan on grid warehouses. According to Hu, in the first half of this year, as the platform gradually reduced grid warehouse delivery fees and subsidies for large items and long-distance delivery, profits further declined, leading 80% of distributors in Hunan to request contract termination. From grid warehouses to suppliers, it's almost 'a scene of desolation.' Jiang Yuxia (pseudonym), an ice cream supplier in Central China, told the author that since becoming a community group buying supplier in 2020, his company once sold about 1,000 items per day on each major platform, but this year, due to the platform's higher gross margins and reduced subsidies to merchants, profits have plummeted, and he is gradually exiting the community group buying business. Suppliers' choices are simple: when the business cannot sustain profitability, they vote with their feet. Lacking concepts like 'transforming e-commerce' and 'unlimited investment' that are commercially imaginative, the community group buying platforms' goal of 'everything for profit' has instead led to a more involutionary survival situation. 'Saving' to Profit When huge subsidies are not allowed and consumer habits are not deep enough, how can community group buying platforms achieve sustainable profitability? 'Saving' is the most direct method. Dige Net has analyzed that community group buying adopts a 'social collaboration' model: central warehouses are leased from professional logistics parks; grid warehouses are franchised, with delivery vehicles managed by franchisees; pickup points are converted from existing street-side shops, forming the commercial chain of community group buying. Internet giants, no longer obsessed with 'self-operated' models, have significantly reduced market expansion and fulfillment costs in community group buying; under the profit goal, platforms can also 'save' costs from all links to 'save' out profits. According to Dige Net, mainstream community group buying platforms are currently reducing grid warehouse delivery fees; Duoduo Maicai started this action in September last year; Meituan Select, although due to strategies like 'morning delivery' and the conversion of district/county agents to self-operated, did not significantly reduce grid warehouse delivery fees in 2023, but has begun adjustments this year. Hu Mingchun said that local Meituan Select and Duoduo Maicai grid warehouse delivery fees remain around 0.26-0.30 yuan (varying by product category, promotional items, etc.). According to Dige Net, some regions have grid warehouse delivery fees as low as 0.15 yuan per item. As delivery fees decrease, grid warehouse subsidies also significantly reduce. For example, for large item subsidies, this year both Meituan and Duoduo have canceled large item subsidies, but in summer, the number of large bottled water items is very high; if grid warehouses do not increase manpower, excessive handling pressure will affect timeliness, but increasing manpower means higher costs. According to comprehensive data from various parties, in the past two months, large items accounted for about 20%-50% of mainstream community group buying platforms. Along with grid warehouse subsidies, supplier marketing expense subsidies have also decreased. Previously, platforms would subsidize more marketing expenses in areas like full reduction coupons, weekly flash sales, and regular e-commerce promotions, but now merchants will bear the main part, or even the vast majority, of marketing expenses. According to community group buying self-media 'Six Brother Research', taking Meituan Select as an example, previously during promotions, the platform would bear at least 40% of costs, but now this figure has dropped to about 15%. Of course, reducing marketing subsidies does not mean reducing marketing frequency. According to a supplier in the Southwest region, local Duoduo Maicai still maintains full reduction, flash sales, and other promotional activities three days a week. What makes suppliers feel the platform's involution is not just reduced subsidies. Most critically, under the requirement of positive gross margin, the platform still wants order numbers to look 'beautiful,' which intensifies involution. According to Dige Net's visits to multiple suppliers, starting from June this year, Meituan Select began increasing product gross margins by 3-4%; currently, in regions like Southwest and Central China, the gross margin for normal slot products is about 25%, with flash sale categories maintained at 15-20%. Duoduo Maicai has been promoting 'positive gross margin' since last year, with most regions maintaining product gross margins around 25-30%. At that time, Jiang Yuxia told Dige Net that Duoduo had no price advantage over Meituan Select. Changes have already transmitted from the most upstream to the 'peripheral nerves.' At the pickup point stage, Meituan Select now requires abandoning inefficient group points, driving mid-tier group points, and focusing on high-net-worth head group points. For suppliers and distributors, the platform's 'both this and that' goal setting is too harsh; the essence of participating in community group buying is to 'make money'; but as platform strategies fully orient towards profitability, most suppliers and distributors are getting further from the essence of business. Many suppliers directly say: 'We can't keep up with the involution!' Suppliers Who Can't Keep Up Initially, community group buying platforms used the low costs brought by the 'social collaboration' model to quickly accumulate market scale, leveraging economies of scale to achieve direct sourcing from production areas for fresh produce and direct supply from manufacturers for FMCG standard products, further shortening intermediate links and reducing circulation costs. The ideal was grand, but reality is harsh. Fresh produce categories, due to scattered production areas, non-standardized products, and high transportation loss, have always been the hardest fortress for e-commerce platforms. Community group buying platforms tried to change the status quo, getting as close as possible to fresh produce source areas, supplemented by various logistics infrastructure, to greatly achieve the ideal path of 'from production area directly to consumer table.' In the early days, community group buying platforms used fresh produce categories to attract traffic, hoping to further increase profit margins after accumulating scale, but due to the platform's positioning for price-sensitive consumption, a vicious cycle of 'low price, low quality' formed at the product end, making it difficult for community group buying to fully realize the ideal supply chain paradigm. Cui Yiqiu (pseudonym), a supplier in Jiangxi who raises free-range chickens and native eggs, began supplying native eggs to mainstream community group buying platforms in 2020, and once reached an exclusive supply agreement with a platform, which even sent procurement, quality control, and other personnel to the factory to guide production. But since this year, Cui has gradually reduced the proportion of community group buying business, supplying more to platform distributors rather than direct source supply. 'Cooperating with platforms means competing on low prices and 'selling for the sake of data,' but we are a source farm and cannot bear too much inventory, loss, and returns; there is also financial pressure,' Cui said. The increasingly involutionary platform ecosystem is like a 'besieged city': suppliers inside begin to think of retreat; suppliers outside are even less willing to join, because even if they enter the city, it's hard to grow into 'towering trees.' Dige Net has analyzed that as a new supply and marketing channel, second-tier new brands have greater opportunities on community group buying platforms, such as local cola brands like Laoshan Cola under Coca-Cola and Pepsi; similar new consumer and new national trend brands will be more adaptable to community group buying platforms. But the reality of community group buying is that new products start slowly after listing. According to an insider at Meituan Select, although the platform has assessment goals for introducing new suppliers, very few suppliers actually grow; even if new products have advantages in specifications and varieties over old products, without price advantages, new products are hard to scale. 'The platform hopes mature suppliers develop new products adapted to the community group buying channel, but old suppliers are not very willing.' Unlike fresh produce, the market for FMCG standard products is more certain, and brand owners have higher decision-making power over distribution channels and pricing; the traditional intermediary system centered on 'interpersonal relationships' remains a necessary part of current product circulation. In 2020, some first-tier brands prohibited distributors from supplying community group buying platforms. Of course, under new realities, community group buying platforms are also adjusting. Multiple suppliers visited by Dige Net said that the platform's bidding mechanism has become more moderate, and the price system for brand merchants is gradually stabilizing. But in a highly involutionary market environment, the changes brought by moderate adjustments are not significant. After the disruptive innovation of internet platforms came to an end, the gradual improvement of community group buying is also hard to stop old suppliers' retreat or ignite new suppliers' fighting spirit; the moat of the supplier 'besieged city' will only deepen. Market opportunities are extremely shrinking, and platforms can only continue to 'endure.' Cleaning Up the Mess Duoduo Maicai and Meituan Select are still struggling to hold on, but JD.com and Taobao have long since ceased. In August last year, JD.com restarted Jingxi Pinpin, renamed it JD Pinpin, and first opened in Hefei, but after experiencing 'warehouse overflow' on the first day and backend refund operations, the ill-fated JD Pinpin almost completely suspended its city expansion plan. JD.com's battle to develop lower-tier markets still faces huge resistance. The situation for Taobao Maicai is similar. Taobao Maicai, which opened new cities continuously in 2023, has been gradually withdrawing from marginal regions with severe order declines this year. According to Taobao Maicai's WeChat mini-program, it has already withdrawn from Guangxi and Shanxi provinces. At the same time, after returning to the Taoxi system, Taobao Maicai has further deepened integration with the Taotian system. According to a supplier, the 'GMV brought back to Taobao via product sharing' has also been included as a key assessment indicator. The once vigorous 'internet transformation of grocery shopping' battle now has only a few leading platforms cleaning up the battlefield, and the business model has returned to the heaviest and slowest retail format. Driven by the overall profit goal, platforms can only change the inefficient and extensive ecology of traditional supply chains from details, but when a leafy vegetable can only sell for 1 yuan or even lower, suppliers will regard community group buying as a channel to clear out end-of-life inventory and slightly damaged goods. Platforms also need to control logistics and warehousing costs, and make fulfillment parties deliver faster, reduce lost goods, and work almost 365 days a year without rest. Under layers of pressure, suppliers are unwilling to compete on price with platforms, and platforms are starting to compete on quality and service. According to Dige Net's interviews with Meituan Select suppliers, platforms now value product quality more, then consider price. 'For example, in Chongqing, previously leafy vegetables might appear yellowed or wilted, but now this is basically eliminated.' If customer complaints are too high, there are also more reasonable handling methods. For grid warehouses, according to some Duoduo Maicai grid warehouse distributors, the platform has strict requirements for fulfillment timeliness, with clear assessment numbers for 'delivery before 11 am' and '6-hour fulfillment' ratios, and they are assessed 'per ten thousand,' for example, allowing only a few ten-thousandths of a difference rate. It's getting harder. Improving product quality and service levels is the right direction, but under the diversion of consumption scenarios like supermarkets, wet markets, and front warehouses, although Meituan Select and Duoduo Maicai have covered more than 2,600 counties and cities nationwide, community group buying consumption habits are far from deep, and 'next-day delivery' is more suitable for some planned purchasing needs. Sales scale will no longer see explosive growth, and platforms cannot realize the vision of 'retail transformation.' Moreover, platforms have started telling new stories. In the first quarter of 2024, Meituan Flash Purchase's daily orders reached 8.4 million, a record high; Flash Purchase is rooted in Meituan's operational experience and fulfillment capabilities in food delivery, and demand is running fast; in the fourth quarter of last year, Flash Purchase's daily orders reached 14.5% of food delivery, and GTV (gross transaction value) exceeded 20% of food delivery. Meituan wants to vigorously develop Meituan Flash Purchase with stronger business synergy, maintain its first position in the instant delivery market, and invest more resources to face a more versatile competitor—Douyin. Pinduoduo is the same; Temu, established by transferring personnel from Duoduo Maicai, has become a strong second growth curve. According to HSBC's report, in 2023, Temu contributed 23% of Pinduoduo's total revenue. Facing the current market environment, internet companies are more cautious in resource allocation and investment for internal businesses, and community group buying, lacking investment, has lost its growth engine, and internally there is no motivation to change the status quo. The 'big dream' of community group buying to reconstruct traditional e-commerce has completely ended. However, internet giants have invested hundreds of billions of yuan in community group buying, and companies on the road cannot turn back; even if a mess remains, platforms can only 'bend over to pick up coins,' 'squeezing' out profit margins from every detail. PS: Click 'Read Original' to view more about the Sixth China FMCG Conference and the Third China FMCG Hard Discount Conference & the Third China FMCG Distributor Conference...