Alibaba, Meituan, Pinduoduo, and Didi have all entered the community group buying business. If we include Tencent, which has invested in Xingsheng Youxuan, most of the internet giants are now involved. Why are giants entering community group buying? What impact will it have? How will it end? This article answers all your questions through the following five issues: Why giants are entering community group buying, explaining the necessity and inevitability of the community group buying war. What is the nature of this war, analyzing its internal laws and principles. What are the strategy, tactics, and strategic thinking of this war, pointing out the guidelines for each party's actions. What are the possible outcomes, predicting each party's wins and losses and explaining the reasons. What can affect the outcome, proposing two important variables in this war. -01- Why Giants Are Entering Community Group Buying 1.1 Scalable, profitable, or with good cash flow Xingsheng Youxuan's business covers almost all cities and towns in Hunan and Hubei, as well as parts of Jiangxi, Guangdong, Sichuan, Chongqing, Shaanxi, Hebei, Shandong, and other regions. In 2020, its GMV is expected to exceed 40 billion yuan, and it has the ability to be profitable (though it has not chosen to be). Tongcheng Life, which raised 200 million USD, has also expanded its business in Central and South China, with monthly transaction volume comparable to Xingsheng Youxuan. My company has a product line that provides SaaS software for community group buying. As the product director, I have observed that these small players in third- and fourth-tier cities generate daily transaction volumes ranging from tens of thousands to hundreds of thousands, and they are profitable. I once communicated with a co-founder of Xingsheng Youxuan, who told me that they could have been profitable at a certain scale, but after moving up a level, profitability was no longer the focus. Therefore, community group buying is a scalable and profitable business. Of course, more cases prove that this market is not scalable or profitable; I can only say that is because they are foolish. Later, I will give an important reason for their failure. Profitability requirements are very harsh for e-commerce projects that have only been developing for 3-4 years. E-commerce giants like Alibaba, JD.com, and Pinduoduo were not profitable in their early days. They built business infrastructure and basic businesses through their huge scale, and successively developed platform businesses such as payment, finance, logistics, and technology. Whether it is Amazon abroad or domestic cases, as long as an e-commerce business maintains good cash flow and has great potential, it is a very good project. Community group buying is a business where users pay in advance. In the fresh produce industry, supplier payment terms are generally 1-3 months, and the settlement cycle for group leaders can be as long as 1 week or 1 month. Therefore, with certain measures and after a certain stage, cash flow is very good. Thus, community group buying itself is a viable business. 1.2 More potential than food delivery 1.2.1 Geographic penetration The chart below shows Meituan's food delivery order distribution for the first three quarters of 2019. The food delivery business is mainly in first- to third-tier cities, basically stopping at fifth-tier cities. In the county-level city where my hometown is, there is not much food delivery. In fact, the business district of a county-level city is generally no more than 3 kilometers, homes are close together, there is a lack of migrant population, and office hours are short, making it unsuitable for food delivery. Community group buying can penetrate from new first-tier cities to towns and even rural areas. According to data shared by Liu Huiyu, co-founder of Xingsheng Youxuan, Xingsheng Youxuan has entered 161 prefecture-level cities, 938 county-level cities, 4,777 townships, and 31,405 villages. Taking Hunan as an example, Xingsheng Youxuan has penetrated to a village in a town in a county-level city under Yueyang, my hometown. Residents in the town and village have generally shopped on Xingsheng Youxuan. Tongcheng Life has similar performance. Geographically, the potential of community group buying exceeds that of food delivery. It is reported that Meituan's Wang Huiwen conducted an experiment when exploring food delivery business decisions. They selected Weihai and Jining from the top 100 cities to test the food delivery business. They chose lower-ranked cities because they wanted to know the potential of the food delivery business. When they learned that the food delivery business in third- and fourth-tier cities was also good, they were excited. Would the potential of community group buying to reach rural areas make Wang Huiwen jump for joy? 1.2.2 Categories, frequency, and average order value Community group buying covers fresh produce, food, FMCG, kitchen supplies, and other mainstream household categories. The frequency can be almost daily. The average order value is about a dozen yuan. In terms of categories, frequency, and average order value, community group buying is basically comparable to or better than food delivery. 1.2.3 Order and GMV estimates Liu Yuhui, co-founder of Xingsheng Youxuan, revealed in September 2019 that Xingsheng Youxuan had several million daily orders in Hunan Province (assuming 2 million orders), with annual GMV expected to be 10 billion yuan, and each order about 14 yuan. In 2020, GMV grew to 40 billion yuan. Based on 2019 Hunan order data, it is estimated that daily orders in Hunan should exceed 3 million. Assuming that Xingsheng Youxuan's data in Hunan represents the entire community group buying in Hunan, and using Hunan's GDP and national GDP, the potential daily order scale for community group buying is about 75 million orders, with total GMV of about 380 billion yuan. According to the "2020 Food Delivery Industry Report," after six years of rapid development, the food delivery industry's GMV in 2019 was about 600 billion yuan. I believe that with the full operation of the giants, the total volume of community group buying will greatly increase, and the overall scale is likely to exceed that of food delivery. 1.3 All for growth Meituan is valued at 200 billion USD. Can it double its valuation or even push it higher with its current business? Pinduoduo is fighting Alibaba head-on in the low-end market. Is there a new business line that can bypass this hard fight and open up a new base? Where is its next growth curve? Didi has been troubled in recent years, with its valuation stagnant at 50-80 billion USD. Uber's food delivery business revenue in the second quarter reached 1.211 billion USD, exceeding its ride-hailing business revenue. Where is Didi's future? 1.4 Few opportunities left 5G, artificial intelligence, and industrial internet are still building infrastructure, and the future is unclear. Social, e-commerce, gaming, search, information flow, and video have basically taken shape, and no large-scale growth is visible for now. Where are the visible hundred-billion-level businesses? Which hundred-billion-level market, like community group buying, has a clear model, classic examples, and no giants entrenched? For giants, opportunities like community group buying are rare. 1.5 Solving competition through growth vs. containing opponents at all costs Meituan is facing Alibaba in local life services, and Pinduoduo is facing Alibaba in the low-end e-commerce market. How will they break through? How will Alibaba counter? For the weak, confronting a behemoth head-on will only drag them down. The best strategy for the weak is to focus on themselves, develop themselves, find new battlefields, and solve competition through growth. Wang Huiwen said "compete without fighting," using growth to solve Meituan's four-kill dilemma. General Secretary Deng said to solve problems through development. Chairman Mao said the first priority in war is to preserve and develop oneself, not to kill the enemy. For the strong, development and confrontation are equally important, and confrontation may even be more important than development. For a hundred-billion-level incremental market, if Alibaba takes it down, it will not significantly improve its scale and valuation, but if Meituan or Pinduoduo takes it, the gap in scale and valuation between them and Alibaba will narrow significantly, and Alibaba will be hurt. As long as Meituan and Pinduoduo cannot take it, Alibaba achieves a strategic victory. For the sake of development and competition, the giants must follow. 1.6 Fresh produce strategy and the giants' layout Fresh produce is one of the few areas in the internet that has not been conquered but has always been coveted. As early as 2013, the first wave of entrepreneurs and giants tried fresh produce. Several founders of my company were among those players. The logic at the time was: if e-commerce can sell clothing, beauty products, daily necessities, etc., why not fresh produce? Until recent years, players such as Miss Fresh, Dingdong Maicai, Hema, and Meicai have appeared. It is clear to anyone that after catering, the fresh produce industry is a must-choose industry for giants. Meituan's Kuaitui handles B-end fresh produce delivery, fresh produce food delivery, Meituan Meicai, and Meituan Youxuan handle C-end fresh produce business. If we add Meituan's cash register entering fresh produce stores, Meituan will occupy the front, middle, and back ends of the fresh produce industry. Alibaba invested in Yiguo early on to enter the fresh produce field, and later did Hema and Cai Hesuan itself. This year, it cooperated with the G-end to fight the agricultural market, let its Keyun POS enter the fresh produce store market, invested in Shihuituan twice, and incubated multiple community group buying projects internally. Pinduoduo started with fruits, rose through social e-commerce, and focuses on agricultural products. Doing community group buying is not only familiar but also a strategic choice. 1.7 Summary Why are giants collectively entering community group buying? Because community group buying is a money-making business even bigger than food delivery; Meituan, Pinduoduo, and Didi need community group buying as their Nth growth curve; Projects like community group buying that meet various stringent conditions are rare; Meituan and Pinduoduo need to solve competition through development, while Alibaba needs to solve development through competition; Alibaba and Meituan have layouts in both C-end and B-end of the fresh produce sector, with strategic synergy, and Pinduoduo is returning to its old trade. Note: Writing so much to argue why giants are entering community group buying is to demonstrate the necessity and inevitability of this war. The stronger the necessity and inevitability, the more patience each party will have, the more resources they will invest, and the more they will not stop until they achieve their goals. Each party's response strategies need to be fully estimated. -03- The Nature of the War - Protracted War and Regional Separatist War Borrowing Chairman Mao's words in "On Protracted War," is this a war of quick victory or quick defeat? I believe it is a protracted war, and it is a regional separatist war; no one can unify the market. I will analyze from the regional factors of fresh produce, regional strategic depth, business model, business importance, player strength comparison, and the special status of Alibaba and Tencent, and use a case to support it. 2.1 Regional factors of fresh produce The main category of community group buying is fresh produce. Users' requirements and expectations for fresh produce, the perishable nature of fresh produce, and the regional industrial structure of fresh produce make fresh produce and community group buying strongly regional. To meet users' demands for freshness, meet the expectation of buy-now-use-now, and solve the problem of perishability, merchants need to provide warehousing, sorting, and distribution infrastructure in each region, and most products are purchased locally. The source/goods and intermediate circulation links make the fresh produce industry structure strongly regional. Taking the same variety of chili pepper as an example, peppers produced in Yunnan and Hunan differ in size, spiciness, color, and price. The source/goods have strong regional characteristics. In the intermediate circulation links, most fresh produce follows the chain: farmland → base → regional first-tier wholesaler → platform. Only a few fresh produce categories can be directly sourced from bases, and basically cannot bypass the regional first-tier wholesaler. Large B2B fresh produce players like Meicai, Shuhai, and Kuaitui cannot bypass this chain. The reason for not being able to bypass it is enough to write an article; just remember the conclusion. 2.2 Market breadth and regional strategic depth We know that in the food delivery and ride-hailing markets, it took 2-3 years to occupy the top 100 cities. The community group buying business is broader than food delivery and ride-hailing, so any player in the next 1-2 years has only two choices: either occupy points nationwide or occupy areas regionally. If the opponent first occupies key cities nationwide, later entrants can adopt a regional strategy, focusing on certain regions, attacking counties, towns, and even rural areas, and use these as bases to counterattack key cities. Forming a regional advantage can attack the opponent's strongholds, then adopt a "pulling nails" approach, advancing region by region, gradually pulling out the opponent's national strongholds. Because regional strategy is superior to national strategy, the community group buying business will inevitably show regional characteristics. This is different from ride-hailing and food delivery. In the ride-hailing and food delivery markets, once a prefecture-level city is occupied, it becomes a defensive battle with no strategic strongholds to support, making it very passive. Therefore, the ride-hailing and food delivery markets adopt rapid national expansion strategies and show a pattern of a unified national market. Let's look at the urban-rural population distribution to see the basis for the regional pattern of community group buying. Although the national urbanization rate exceeds 50%, and most provinces claim urbanization rates above 50%, most people do not live in prefecture-level cities or above. As shown in the table below, the urban population of Hunan Province accounts for 24.6% of the province's population, but the urbanization rate is 54%. 2017 Hunan population statistics, source: Hunan Statistics Bureau Hunan population statistics, source: Hunan Statistical Yearbook Population and business foundations make community group buying inevitably long-term and regional. 2.3 Heavy and complex business model We know that the more participants, the more services or products, the heavier the supply side, the more SKUs, and the heavier the asset attributes, the harder the business is, the slower it develops, the easier it is to form long-term competition, and the less likely it is to have a unified market. Community group buying is a much heavier business than bike-sharing, ride-hailing, and food delivery. Just analyzing the warehousing and distribution links shows how heavy community group buying is. The infrastructure for food delivery is riders, motorcycles, phones, systems, and necessary equipment. The fresh produce warehousing and distribution infrastructure for community group buying includes: large warehouses, sorting equipment, cold chain fleets, phones, systems, and necessary equipment. The three major items that are extra compared to food delivery - large warehouses, sorting equipment, and cold chain fleets - not only make assets extremely heavy but also make the operation process long and complex, with low mechanization, much more complex than standard e-commerce warehousing and distribution, and much less efficient. Therefore, fresh produce e-commerce is the heaviest business. Although players like Xingsheng have simplified all links as much as possible, the model is still heavy and complex. The heavy and complex business model makes it impossible to quickly gain the national market, and the long-term and regional characteristics are more obvious. 2.4 Business importance The first part of this article analyzed the importance of the community group buying business to each player. This is a business that no one dares to ignore. If Meituan or Pinduoduo succeeds, the threat to Alibaba will greatly increase. If Alibaba succeeds, Meituan and Pinduoduo will be severely blocked. The more important something is, the more people value it, and the easier it is to create a balance, leading to long-term struggle with no complete winner. 2.5 Many participants, balanced power This battlefield gathers Alibaba, Tencent, Meituan, Pinduoduo, and Didi. Only Toutiao, JD.com, Baidu, and Kuaishou are missing to complete the collection of first-tier internet companies in China. Alibaba, Meituan, Pinduoduo, and Didi are neither capable of killing each other nor will they be killed by each other. Alibaba cannot kill Meituan in local life services, cannot kill Pinduoduo in the low-price e-commerce market, and the latter even has a greater local advantage. In the new business of community group buying, Alibaba is even less capable of killing any of them. Of course, others are even less capable of killing Alibaba. This battlefield has many participants and balanced power. As long as the market has enough value, they will fight each other, compete for a long time, and eventually carve out separate territories. 2.6 The special status of Alibaba and Tencent Because WeChat is one of the most important infrastructures for community group buying, Tencent's attitude largely determines the difficulty of the war. Tencent certainly hopes that what lies beside it is a cat rather than a tiger, so Tencent is also unwilling for any of Pinduoduo, Meituan, or Didi to swallow up community group buying. Tencent is one of the invisible forces for market fragmentation. Because the community group buying business model naturally relies on WeChat, and Alibaba cannot coexist harmoniously with WeChat, Alibaba cannot win the community group buying business itself. It will definitely support third parties to fight a proxy war, making the market more fragmented and divided. This is the most realistic plan that best serves Alibaba's interests. The influence of Alibaba and Tencent is like the United States and the Soviet Union back then. Whether enemy or ally, the rise of anyone is a threat to them. Therefore, Alibaba and Tencent are happy to see long-term competition in this market, with no one or two dominating, and the more fragmented and dispersed, the better. 2.7 Case study Next, let's use a case to verify whether the judgment of protracted war and regional separatist war is correct. We know that in 2018, community group buying broke out, with various entrepreneurial projects and projects incubated within internet companies entering the track. It was like the Eight Immortals crossing the sea, each showing their special prowess. Why did Xingsheng Youxuan and Tongcheng Life survive in the end? What did they do right? They have one thing in common: they built regional depth and extended their reach to towns and rural areas. Self-pickup point of Tongcheng Life in Tubu Town, Yongxiu County, Jiujiang City, Jiangxi Province Self-pickup point of Xingsheng Youxuan in Luoping Village, Taolin Town, Linxiang City, Hunan Province Players who marched into the national market that year all died, such as Squirrel Pinpin. Only Xingsheng Youxuan and Tongcheng Life firmly chose regionalization and ultimately prevailed. Although it cannot be said that implementing regionalization guarantees victory, not implementing regionalization inevitably leads to death. Past winners and losers confirm this. Community group buying has been developing at high speed and scale for 3 years now. Xingsheng's main base is in Hunan and Hubei, and Tongcheng Life, of the same size, is mainly based in East China. It took so long to develop so little space. Is it because this generation of entrepreneurs is incompetent? No, it is because community group buying is a protracted war, not a blitzkrieg or annihilation war. 2.8 Summary Because of the regional characteristics of fresh produce, the broad regional strategic depth, the heavy and complex business model of community group buying, the importance of the business to participants, the lack of ability of any participant to overturn the others, and the special status of Alibaba and Tencent, this war is inevitably a protracted and separatist war. The successful and failed community group buying cases since 2018 also demonstrate this. -03- Strategic Thinking, Strategy, and Tactics for Community Group Buying Community group buying is a protracted and regional separatist war. We must formulate strategic thinking, strategy, and tactics accordingly. Don't turn a marathon into a 100-meter sprint. Those who cannot clearly recognize the nature of the war are cannon fodder. 3.1 Strategic thinking 3.1.1 Invincibility lies in oneself, victory lies in the enemy "The Art of War" says: The skillful warriors of old first made themselves invincible, and then awaited the enemy's moment of vulnerability. Invincibility lies in oneself, victory lies in the enemy. Therefore, the skillful warrior can make himself invincible, but cannot make the enemy vulnerable. Hence it is said: Victory can be known, but cannot be made. The above analysis fully reveals the complexity, difficulty, and protracted nature of this community group buying war. For such a protracted, separatist, and pattern-changing war, do not妄想 to win through single-point breakthroughs or rapid market occupation. Be mentally prepared and have the strategic thinking of "invincibility lies in oneself, victory lies in the enemy." 3.1.2 Subduing the enemy without fighting Meituan, Pinduoduo, Didi, and others have all come through hundreds of battles, leaving countless casualties, and have become regional overlords. This easily creates a belligerent impulse internally, believing that war can solve everything and that everything should be resolved through confrontation. Obviously, this thinking is wrong. War is necessary, but it is not everything. Take ride-hailing as an example. During the most brutal period of the ride-hailing war, Huangfeng (a ride-hailing company) sought financing from Baidu. Cheng Wei proactively met with Baidu's strategic investment head to try to prevent Baidu's investment, and also actively attacked Huangfeng's market on the battlefield, solving the opponent strategically. Imagine if Huangfeng had received Baidu's investment; even with Didi's strong combat effectiveness, it would have been very difficult to defeat Huangfeng. Solving a war does not necessarily require close combat and mutual slaughter. Subduing the enemy without fighting is the best strategy. The current community group buying war is not the war of Didi, Kuaidi, and Huangfeng, nor the war of Meituan, Ele.me, and Baidu Waimai, but a war among Meituan, Didi, and Pinduoduo after they became giants, with the participation of Alibaba, Tencent, and venture capital. The difficulty of the community group buying business far exceeds that of food delivery and ride-hailing. Any attempt to solve problems through war is naive. We must consider subduing the enemy without fighting. 3.2 Basic strategy 3.2.1 Protracted war strategy This war is a protracted war, so a protracted war strategy must be adopted. How can we implement a protracted war strategy? We must be fully prepared in thought, organization, personnel, funds, and action. In thought, abandon the idea of quick victory, change short-sighted vision, give up short-term interests, and emphasize system over action. In organization, give full attention and independence, and fully support the front line. Long-term large-scale wars can significantly change a country's political structure and power distribution, requiring the whole country's strength to support the front. The ancients said, "The general outside the court is not bound by the monarch's orders," and gave the front line the power of life and death. The same applies in companies. In personnel, give sufficient human resources, whether in quality or quantity, to be prioritized. Troops are the basic plate of war. In funds, have ample cash flow and a continuous source of funds. A protracted war is fought on the basic plate and consumption. Funds are the lifeline. If you don't have this, don't participate. In action, give up celebrating short-term city victories as milestones. The success of one or several cities has no substantial impact on the overall situation. Aim to build a complete, efficient, and sustainable system. 3.2.2 Vertical and horizontal alliances Chairman Mao mentioned in "On Protracted War" that the factors that can sustain a protracted war and achieve final victory include: the establishment of an internal united front, the development of revolutionary and opposition forces within the enemy, and international support. This shows that doing one's own part is not enough; we must also pay full attention to external conditions. Vertical and horizontal alliances are the best strategy. The current market structure is three giants + venture capital (Xingsheng, Tongcheng, Shihuituan) + Alibaba. Further, the essence of this structure is three giants + Alibaba. Meituan, Pinduoduo, and Didi form a vertical alliance, respectively dividing the core territories of Xingsheng, Tongcheng Life, and Shihuituan. This is the best strategy for the three giants to win. If the three giants do not form an alliance and fight separately, consuming each other, then the three giants will not only face the big giant Alibaba but also external venture capital (Xingsheng, Tongcheng, Shihuituan). In an unclear situation, Tencent will also participate. Such a melee will seriously hinder the development of the three giants. Even if they win, it will be a pyrrhic victory. If the three giants form an alliance and target Xingsheng, Tongcheng, and Shihuituan, then external venture capital will not dare to enter, and Tencent will wait and see. In the end, only Alibaba will support them behind the scenes, fighting the three giants alone. If Alibaba goes all out to support them, given the current size of the three giants, Alibaba will definitely be dragged down, and whether it can maintain its position as one of the AT (Alibaba and Tencent) is questionable. If Alibaba does not go all out to support them, Xingsheng, Tongcheng, and Shihuituan will either die or be acquired. If the three giants form an alliance and defeat Xingsheng, Tongcheng, and Shihuituan, it is equivalent to cutting off the hands of AT and venture capital participating in the war. This is the fastest and least costly way to quickly clear the battlefield. After clearing the battlefield, the three giants can then compete. With such a large market, even dividing it casually is a big business. This strategy is not only the most effective but also has a relational foundation. The three giants are representatives of the second-generation internet giants (including Toutiao). They have Tencent as a common ally and Alibaba as a common enemy. Tencent and Alibaba are mortal enemies. Xingsheng, Tongcheng, and Shihuituan are the waves that want to take their rice bowls. No matter how you look at it, the three giants are more likely to become allies. "The Art of War" says: Winning a hundred battles is not the best; subduing the enemy without fighting is the best. Meituan, Pinduoduo, and Didi are all full of vitality and look determined. Even if they each succeed after the war, how much loss will there be? Subduing the enemy without fighting, minimizing losses, and increasing the probability of success is the best strategy, not charging head-on. Let me emphasize again: on the capital side, AT, the three giants, and venture capital are involved; on the business side, the community group buying business may be more capital-intensive and complex than JD.com's e-commerce model. If the three giants fight alone and consume each other, failure is inevitable. 3.2.3 Regional strategy Community group buying should adhere to a regional strategy rather than a national strategy. Why a regional strategy? The above mentioned that the outcome of this war is regional separatism. Is the process also regional? This requires using the three characteristics of community group buying: regional fresh produce, broad regional depth, and heavy business model. The regional nature of fresh produce means that victory in one region has little impact on the whole. Because after victory in Zhejiang, coming to Hunan still requires building warehousing, distribution, supply chain, and customers from scratch. Except for experience and organizational accumulation, everything else starts from zero. Some may say that food delivery and ride-hailing are also regional, and business in Zhejiang cannot be applied in Hunan. Why can food delivery and ride-hailing quickly advance and form oligopolies, but community group buying cannot? This is because the regional depth and business model of community group buying are broader and heavier than food delivery and ride-hailing. As mentioned above, because of the breadth and strategic depth of the community group buying business, regional strategy is superior to national strategy. Food delivery and ride-hailing are suitable for rapid national strategy, while community group buying is not suitable for national strategy. Because the business model is heavy, the requirements for funds, personnel scale, and quality are greatly increased, and efficiency and output are greatly limited. If you first form scale effects in a region and build a sniper position, it will cost the giants a great deal to attack. If food delivery and ride-hailing are plain and hilly wars, community group buying is a mountain and jungle war. In the two terrains, the loss ratios of attackers and defenders are completely different. It is said that the cost of food delivery is 3 times, and I guess the cost of community group buying may be 10 times. In a heavy asset model, no one can afford a 10 times cost. Therefore, if you cannot achieve scale in a region and build broad and deep barriers, you should weaken that region and focus on developing several adjacent regions to form barriers. For example, Xingsheng's business in Hunan and Hubei covers all towns in the region, which is in line with the regional wall-building strategy. Regional strategy is both a defensive strategy for Xingsheng Youxuan and an offensive strategy for the giants. Implementing a regional strategy requires attention to two points: 1. A single city or multiple cities is not regional; only urban-rural clusters linked by geographic space are regional, and regional depth should be fully utilized; 2. Regionalization requires maximizing the use of warehousing, distribution, and supply chain infrastructure to spread costs, improve experience, and generate regional scale benefits. The above analysis once again emphasizes a fact - community group buying is a regional separatist war. Only by grasping this law can one gain strategic initiative. 3.3 Basic tactics 3.3.1 Defensive tactics for regional oligarchs - scorched earth Under a regional strategy, regional oligarchs can adopt scorched earth tactics to defend - saturating the region and users, raising the switching cost for group leaders, and weakening dependence on group leaders. 1. Saturate the region and users: strive for full coverage of the market and users in the region, even if the economic benefits are not so good. The core here is to give the opponent no opportunity, make it impossible for them to find a foothold, and increase their losses. If you don't occupy, the opponent's occupation cost is lower, and it is easier for them to find a point of attack. If we implement this strategy in all controlled areas, the opponent's entry cost in each area will be higher, and in the long run, they will not be able to bear it. Just like the ancient scorched earth tactic - harvest all the grain outside the city, whether mature or not. Although we lose, the opponent loses more. 2. Raise the switching cost for group leaders: bind group leaders to the platform through withdrawal agreements and interest binding. Once a group leader defects, they will face huge withdrawal losses, such as extending the settlement cycle, signing exclusive agreements, and stipulating exclusive rights to groups and users. Capable group leaders have a lot of interests on the platform, which will make them cautious about cooperating with giants to the greatest extent. The higher the group leader's sunk cost, the higher the cost for the opponent to poach. 3. Weaken dependence on group leaders: strengthen product operation and staff operation capabilities to offset the impact of group leader defection, and even replace the group leader's functions of attracting new users and operations. Make it easier for group leaders to make money, reduce their motivation to defect, and add an insurance policy for yourself. Scorched earth is a further implementation of the regional strategy, focusing on the two key elements of users and group leaders, using regional scale benefits and attack-defense attrition for active defense. Once you drag the opponent in terms of efficiency, cost, and time, the giants cannot drive out players who have formed barriers in the vast market. This tactic is only suitable for mature players like Xingsheng in defensive markets, and is not applicable to new players or new markets. It should be noted here: why only adopt scorched earth tactics for users and group leaders? Because users and group leaders are limited and need to be fought over. Suppliers and warehousing are in sufficient supply and can be quickly matched. That is, scorched earth tactics cannot be applied to suppliers and warehousing. The fresh produce wholesale and distribution market is trillions in scale. Xingsheng's full-year GMV in 2020 is expected to reach only 40 billion yuan, and community group buying fresh produce suppliers account for less than 1% of local fresh produce suppliers. The same is true for warehousing. Any latecomer can obtain these resources at low cost. In contrast, group leaders and users are in insufficient supply. Because the group leaders of a local regional oligarch represent the number of group leaders in that region. Although there is a large reserve of group leaders - store owners - developing store owners into group leaders requires significant cost and time. Users are also in insufficient supply. Once the first entrant occupies users, latecomers must face offensive and defensive battles. In summary, users and group leaders are limited and need to be fought over. Suppliers and warehousing are in sufficient supply and can be quickly matched. Therefore, it is effective for regional oligarchs to adopt scorched earth tactics for users and group leaders. 3.3.2 Offensive tactics - step by step, systematic advancement Theoretically, if you recognize this war as a protracted war, do you still care about traffic tactics? Do you still care about breakthroughs in a single factor like orders? Do you care about rapid advancement in 3-6 months? Practically, Didi uses red envelopes and commissions to occupy the traffic end, but if warehousing, distribution, and supply chain cannot keep up, how long can users stay? Will users come to your platform to communicate and buy goods because you are a few yuan cheaper per order, but your meat cannot be delivered the next day, only arriving in the afternoon or evening of the next day, and users can only eat it the third day? Will users still cook? Over time, the delivered goods are not fresh, and the platform's subsidies become meaningless. Because fresh produce that is not fresh is also discounted in community stores, and you can get it immediately. In addition, this operation method particularly hurts suppliers. Fresh produce is not a standard product and cannot be hoarded in large quantities. The depreciation loss is very large. This e-commerce operation method will kill suppliers, and product quality and service will be poor, making users dissatisfied. Therefore, don't think about single-point breakthroughs, don't think about applying e-commerce things, don't be obsessed with traffic tactics. Study the characteristics of the community group buying business and fresh produce. Insist on step-by-step, systematic advancement of users, group leaders, warehousing, distribution, and supply chain construction is the correct tactic. 3.4 Summary In strategic thinking, adhere to "invincibility lies in oneself, victory lies in the enemy" and "subdue the enemy without fighting"; In strategy, adhere to "protracted war strategy," "vertical and horizontal alliances," and "regional strategy"; In tactics, regional oligarchs should adhere to "scorched earth," and attackers should adhere to "step by step, systematic advancement." -04- Who will win the central plains? 4.1 Tencent - sitting firmly in the fishing boat Because community group buying relies on group leaders' social relationships to attract new users and operate, WeChat is the only choice. If users are attracted to a standalone app, not only is the effect of attracting new users poor, but the group leader operation function is almost abolished. Once this path is taken, whether the entire business model can be established is a big question. Even if it succeeds, is it better than the current model? Therefore, Tencent sits firmly in the fishing boat with WeChat. So what will WeChat gain? I think Tencent will gain at least two things: huge transaction flow and potential small B merchants. Currently, most group leaders are store owners. Through community group buying giants driving store owners to join WeChat, they learn about private domain traffic. Since group leaders already use WeChat to do business for the platform, will group leaders also open their own businesses on WeChat? The cost of attracting and educating here is very large, and this precious strategic resource is like a windfall. Whether WeChat or Enterprise WeChat becomes the main battlefield is a question. I personally lean towards Enterprise WeChat, because this case will bring Enterprise WeChat to a new height. 4.2 Alibaba - unlikely to win, unlikely to lose Because of WeChat, Alibaba's community group buying will definitely not work, so Alibaba is unlikely to win. Alibaba is also unlikely to lose because Alibaba has two strategies: either stir up the market to make community group buying a fragmented regional market, or improve the business model to seize this market. Alibaba will support Xingsheng, Tongcheng, and its own internal projects, so that no one can occupy an important share and threaten itself. As long as community group buying eventually becomes a regional separatist market, Alibaba will not lose. Improving the business model to get rid of dependence on WeChat is also possible. See later. 4.3 Meituan - worth looking forward to Meituan's relationship with WeChat is okay, its ground promotion ability and team are rarely rivaled, it has the largest terminal distribution team and infrastructure, and it has layout synergy in the fresh produce B-end business. Except for Alibaba, Meituan's core business is the most compatible with community group buying. Meituan's strategy and execution level are first-class domestically. Although Meituan formulated a thousand-city plan early on, it is said that it has recently sunk to county towns, and it pays great attention to supply chain and warehousing and distribution, clearly finding the way to regionalization. "Invincibility lies in oneself, victory lies in the enemy" is Meituan's specialty, very suitable for protracted and separatist wars. Meituan temporarily has no shortcomings and is worth looking forward to. 4.4 Pinduoduo - turning back from the brink or still a hero Pinduoduo started with fruits and social e-commerce, and its business capabilities are more matching. Moreover, the company was founded relatively recently, with stronger innovation ability and efficiency, and more internal motivation. But Pinduoduo is too impatient. On one hand, it pours traffic, ignoring warehousing and distribution, leading to poor reputation, and the traffic it attracts is also virtual. On the other hand, it spends money to grab group leaders and employees (one of my subordinates was also taken away), both urgent and fierce. From observation, Pinduoduo is implementing a national expansion strategy, or a regional strategy without obvious inclination. Obviously, Pinduoduo has not yet realized that this is a protracted and regional separatist war. 4.5 Didi - the most likely to be eliminated or destined not to be in the game Didi's business genes, business assets, and personnel composition all do not match the community group buying business. Everyone thinks Didi also came out of wars, but the business depth and complexity of ride-hailing are lower than food delivery and e-commerce, and food delivery and e-commerce are lower than fresh produce e-commerce/community group buying. Didi is not just one mountain away. Didi has been established for a long time, and in recent years, it has not shown the quality of innovation and efficiency. Can the so-called long-exposed, comfortable soldiers still fight? Didi started with the old trick of red envelopes, running a marathon at a 100-meter sprint pace, not knowing that this is a protracted separatist war, and preparation is the key to victory. Among the current participants, who has less money than Didi? Throwing money to attract users cannot retain users. Where are the supply chain and warehousing and distribution? The market is there. Didi has expanded to 7 provinces: Shandong, Yunnan, Guizhou, Guangxi, Sichuan, Chongqing, and Shaanxi. Not a single province has penetrated the regional market. It is really like rushing to death, comparable to Squirrel Pinpin. From the current situation, the community group buying business will not only not help Didi's IPO in the short term but will also worsen its core financial indicators and hinder the IPO. Whether it is the initial intention, strategic literacy, organizational motivation, business matching, or capital, it is worrying. Didi should be the most likely to be eliminated, or it is destined not to be in the game. 4.6 Xingsheng Youxuan and others - chess pieces fighting for fate Xingsheng Youxuan's fate depends on itself and the external situation. If Xingsheng Youxuan adheres to the regional strategy, if it continues to gain insight into the internal laws of the community group buying business as before, and if any of the three giants is eliminated, there will be enough market space for Xingsheng Youxuan. With the support of AT, Xingsheng can become another giant. If the three giants can quickly clear the battlefield, for example, through alliances, then Xingsheng Youxuan, because it is limited to regional business, limited market potential, and blocked funds, finding a good father is the best final choice. So Xingsheng Youxuan is like a chess piece, but it can fight for its own fate. From the current point of view, I think Xingsheng Youxuan has more potential than Chengxin Youxuan, after all, Xingsheng Youxuan far exceeds Didi in strategy and tactics. 4.7 Summary Tencent sits firmly in the fishing boat because of WeChat, and is likely to help the development of Enterprise WeChat; Alibaba finds it difficult to participate directly because of its relationship with WeChat. Through proxy wars, it can achieve market fragmentation and strategic goals. Meituan's performance has no flaws and is worth looking forward to. Pinduoduo's strategy is wrong or unclear; turning back from the brink is still a hero. Didi is coming fiercely, but its internal and external foundations are unstable, making it the most likely to be eliminated. The fate of Xingsheng and others depends not only on themselves but also on whether the three giants make mistakes and whether AT continues to support them. Here I summarize the fatal mistakes that community group buying must avoid: 1) Those who do not take the regional scale route but take the national route will die; 2) Those who simultaneously focus on users and group leaders and warehousing and distribution, both spending money to grab group leaders and users and building their own warehousing and distribution, will die; 3) Those who cannot do warehousing and distribution and supply chain well will die; 4) Those who think the battle will be decided within 1-2 years will die; 5) Those who want to use this as a main business to boost performance will die; In short, any practice that conflicts with the nature of protracted and separatist war is stepping on a mine. Although this mine is not enough to blow up the giants, it is easy to destroy this project and injure the giants. -05- Are there variables? 5.1 Business model variables The community group buying business model is not a perfect final model. For example, the response strategies of Xingsheng and others mentioned de-group-leaderization and productized operations. This is an improvement to the community group buying business model under special circumstances. Greater improvements need to be considered from a higher perspective. From the perspective of business model changes, new species are likely to appear. First, let's look at what e-commerce is and what community group buying is. The essence of e-commerce and community group buying is retail, not the internet. The core user experience is quality, price, category, and convenience. Let's look at the first-generation e-commerce of Alibaba and JD.com. Take a speech by Ma Yun on CCTV as an example. A guest born after 1985 said that he uses Taobao because it saves money; a few hundred yuan can buy clothes for the whole family. This shows that Taobao's essence is to provide good quality, low price, and rich categories. Another big killer that Alibaba rose with is Double 11. Isn't Double 11 just a retail promotion activity? Promotion is the core of retail and also the core of e-commerce. Doesn't this show that e-commerce is retail? Liu Qiangdong said that JD.com and JD Logistics aim to reduce the number of times goods are moved in society, generate economic effects, achieve good quality and fair price, and provide fast delivery. See, JD.com's core goal is also the core goal of retail: good quality, fair price, and convenient experience. So e-commerce is retail. Users are willing to shop online because of the combined experience of good quality, low price, rich categories, and convenient shopping, not because surfing the internet is fun or the interaction design satisfies user psychology. Pinduoduo, regarded as the second-generation e-commerce, focuses on extremely low prices and cost performance, with marketing methods of price killer and group buying. The core of group buying is not the function but the marketing method, serving the goal of extremely low prices and cost performance. Community group buying, regarded as the third-generation e-commerce, focuses on low prices, with marketing methods of pre-order, self-pickup, and semi-acquaintance shopping guidance. Alibaba, JD.com, Pinduoduo, and community group buying all work on the four core retail elements of price, quality, category, and convenience. Everything serves these four elements, with different highlights and different implementation methods and technologies. Therefore, the user-group leader-supplier iron triangle and the pre-order and self-pickup characteristics of community group buying are not natural or unique. The above mentioned is the C-end business model. The supply and warehousing and distribution side is the highlight and the decisive point. Xingsheng Youxuan has always adopted the warehousing and distribution model of "city shared warehouse - city regional warehouse - distribution station - store." In 2020, it tried to remove the city regional warehouse and go directly to the distribution station. For example, from the Changsha shared warehouse, directly ship to the town distribution station for sorting and distribution. When building warehouses, it uses a leasing model rather than self-building, and because Xingsheng's shared warehouse will drive suppliers to build warehouses nearby, Xingsheng's rent can even be waived. The distribution stations are not self-built by Xingsheng but contracted out. The contractor is responsible for sorting, distribution business, and investment, while Xingsheng is only responsible for shipping and orders. Many community group buying projects that became cannon fodder adopted the self-built warehousing and distribution model. It is no wonder they dragged themselves to death. Can the supply and warehousing and distribution side continue to improve? I provide an industry insider's observation: the big players in agricultural markets distributed in various urban areas have their own warehouses and distribution centers. If they can be brought in, it is possible to cancel the distribution stations in the Xingsheng Youxuan model. This may combine warehouses, sorting, and distribution stations into one, and also package the B-end distribution business to support the agricultural market business. This is of great benefit to participants like Meituan that have both B-end and C-end fresh produce businesses. Of course, this is just an idea. It is said that Cainiao Logistics is testing a fresh produce logistics model, renting warehouses in first-tier wholesale markets, using the first-tier market as a base, and directly delivering to express stations. Compared to Xingsheng's warehousing and distribution model, it has one less link (distribution station), and centralized sorting in the first-tier market will be more efficient. From the perspective of business model evolution, community group buying has significant room for improvement. This improvement should start from both the order side and the supply/warehousing and distribution side, focusing on the four elements of price, quality, category, and convenience. 5.2 Participant variables Anyone who has studied economics knows that the government is an important force affecting the market, and super-large enterprises are also important forces affecting the market. For example, the AT payment subsidy war that supported Didi's rise directly changed the supply and demand in the taxi market. Therefore, every participant is a variable, but Alibaba is the biggest variable among participants. If the war situation eases and all parties are evenly matched, Alibaba will put in less effort and try to maintain balance. If the war develops rapidly and any of the three giants occupies a very significant advantage, Alibaba will inevitably invest heavily to snipe the opponent. If Alibaba uses chess pieces like Xingsheng and Tongcheng well and grasps Tencent's subtle psychology, it is highly likely to successfully snipe the opponent in this war. Any participant who grasps the essence of this war can create variables. But the only constant is that this is a protracted and separatist war. -06- The endgame I foresee It is highly likely that Alibaba and Tencent will support the current oligarch players, and together with Meituan and Pinduoduo, they will divide the market, forming a regional separatist market, and it will take at least 3-5 years to see the outcome. Didi will exit due to strategic failure, too small a share, or too much capital loss, unless Didi is determined and completely changes its mindset. A regional separatist market does not mean each person occupies a few provinces, but within a region, there is a mix of you and me, with different market shares in different regions, and it is impossible to form a relatively unified market like food delivery and ride-hailing. Why does it need a 3-5 year protracted war? You can refer to the food delivery business; the war time will only be longer than food delivery. There is a high probability that players will improve the business model and form new businesses, but if fresh produce still dominates, the outcome will still be regional separatism and long-term struggle. Existing players like Xingsheng Youxuan will be eliminated due to historical baggage and mismatched business assets. It is basically impossible for one or two companies to dominate, and it is basically impossible for the war to end within 1-2 years. -07- My suggestions 1) Understand that the nature of this struggle is a long-term war, and the endgame is regional separatism. 2) Return to the business model and its evolution. 3) Fully estimate variables such as Alibaba and Tencent. 4) Pay attention to the characteristics of the fresh produce business. Source: Product No Return Road (ID: yiguojiren), Author: Chen Weilong