Click 'Read Original' for details. Community group buying has entered a deep-water zone, and the window for entrepreneurs is closing fast. As national platforms expand rapidly, issues of pricing, food safety, and scalability have become Damocles' swords hanging over the industry. Key Takeaways:
With national platforms at the gates, do regional platforms still have a chance?
When giants start price wars, should startup community group buying companies follow?
What pitfalls should community group buying platforms watch out for?
The strong entry of capital has ignited community group buying and also the city of Changsha. According to incomplete statistics from New Distribution, there are now no fewer than 300 community group buying companies nationwide, of varying sizes. The relatively low initial capital requirements, light model, and near-zero entry barriers have attracted more participants. In addition to the numerous native platforms, the entry of online and offline giants like JD.com, Suning, and Yonghui has further fueled the heat. On Baidu's community group buying search index, Henan surpassed Hunan to rank fifth. Geographically, besides Changsha—the birthplace of community group buying—Henan, also in Central China with similar economic development, has seen rapid growth. From its inception in 2017 to the influx of national giants in 2018, Zhengzhou has increasingly become a battleground for major platforms. Recently, New Distribution visited some community group buying companies in Henan to explore the hidden pitfalls in the industry from this "second battlefield."
"Barbarians" Enter: To Follow the Price War or Not? It is understood that as early as 2016, Zhengzhou saw the birth of its first local community group buying platform—Chihuo Gongshe (Foodie Commune). At that time, community group buying had not yet spread nationwide. With its novel business model and quality goods at low prices, it quickly opened the market, launching over 500 groups within a year and making a name for itself in Henan. In 2017, another local platform, Liangzi Meishi (Quantum Food), was established, quickly building its initial team by poaching talent. Subsequently, Huang Tao, founder of Er Tu Animation, incubated new retail platforms Tiansheng Wanwu and Tomato Town, achieving rapid coverage of dozens of cities including Zhengzhou, Luoyang, Anyang, and Weihai. Entering 2018, community group buying companies of all sizes began to sprout in Zhengzhou, with platforms like Qinguo Qingcheng and Yuelin Yanxuan appearing. Local fresh food B2B giant Liancai Wang also entered the fray, incubating the community group buying platform Youjing Youtian. Meanwhile, starting in August, as capital began to flow in, companies like Xingsheng Youxuan, Niwoni, Shihuituan, and Squirrel Pinduoduo secured large financings and began national expansion, successively entering the Henan market. Local companies entered a period of reshuffling.
"Before the national platforms arrived, local platforms were in a state of healthy competition. But as some national platforms entered Zhengzhou, the price system for certain categories gradually collapsed," Li Baolin, a veteran local community group buying practitioner, told New Distribution. "Take shrimp tails, for example. In early April, local prices were similar to last year, but by May the entire price system had collapsed. Normally, wholesalers need a 5%-8% profit margin to cover warehousing, distribution, and operations, while retailers add 10%-15% to ensure their own profits. But some national platforms, to quickly open the market, sold shrimp tails to retail stores at prices even lower than what some wholesalers paid, driving prices down until the market was ruined." Facing the aggressive price war from national platforms, local platforms are caught in a dilemma. If they don't follow, they lose users; if they do, their capital cannot sustain prolonged losses. In this situation, local companies are damned if they do and damned if they don't.
While price wars can educate the market to some extent, if they fail to build customer loyalty beyond price, subsidies do more harm than good. This is especially true for industries with huge offline stock, where such short-sighted tactics cause even greater damage.
Unprincipled Low Prices: Bad Money Drives Out Good? In addition to gaining market share through low prices, well-funded leading platforms also pressure upstream suppliers for even lower prices. This leads some suppliers to cut corners or even sell counterfeit or substandard goods to secure cooperation. "Our ex-factory price is usually around 1 yuan, but to cooperate with the platform, we offered 0.8 yuan, a price even our own salespeople rarely get. But the platform demanded 0.6 yuan. How can we cooperate like that?" a brand e-commerce director complained to New Distribution. Price negotiation is normal in business. But if quality is ignored in the pursuit of low prices, it can lead to bad money driving out good, and ultimately to food safety issues. "A local Western food chain launched a community group buying exclusive steak at 6.99 yuan per 100g, which translates to over 30 yuan per jin (500g). Can there be quality steak at that price? That's a big question mark," Zhao Yafeng, operator of local platform Yuelin Yanxuan, revealed to New Distribution. "Later, when we talked to suppliers, we learned that such 'low-price steaks' are made from leftover scraps. You can imagine the quality." In the community group buying industry's excessive pursuit of low prices, passing off substandard goods is not uncommon. Especially among platforms in the land-grab phase, sacrificing quality for extreme cost-effectiveness could lead to food safety scandals that would be devastating for the entire industry.
Regional vs. National: Do Regional Platforms Still Have a Chance? As the industry enters deeper waters, second- and third-tier platforms are finding it hard to attract capital. Even those that have secured funding face grim prospects. According to New Distribution statistics, since 2019, investment and financing events in community group buying have decreased significantly compared to last year. Even among funded companies, very few have managed to raise beyond Series B. The general consensus is that the Matthew effect is already evident, leaving less and less room for second- and third-tier platforms. Yang Jun, founder of Squirrel Pinduoduo, even predicted that by the end of the year, only two or three platforms will remain, with not only tail-end companies eliminated but also some in the first tier falling. Do regional platforms really have no chance? Zhao Yafeng disagrees.
"Not just regional platforms, even individual group leaders will still have strong vitality," Zhao Yafeng gave an example: some community residents often go to wholesale markets to buy goods. When they find good products, they share photos in community groups. Although transaction amounts are small, sales volumes are large and deals close quickly. In fact, there are many such "group leaders" in wholesale markets. Another reason national platforms can't easily replace regional ones is supply chain and operations. "Each region has different culture, standardization levels, logistics costs, and user preferences, making integration difficult. It's hard to form a big brand and a complete system," a founding partner of a first-tier consumer fund said in an interview. The direct consequence is that supply chain capability remains the core indicator of a platform's competitiveness. Without supply chain support, most platforms that expand across regions end up with huge losses. In contrast, platforms that stay rooted in their regional markets and operate steadily are more likely to be profitable and achieve long-term development. Returning to the essence of retail, whether B2B, unmanned retail, or community group buying, supply chain capability and refined operations are the most important indicators of whether a business model is viable and sustainable. For community group buying, the game is mid-way. Whether a few platforms will dominate or there will be a nationwide blossoming remains uncertain, according to New Distribution. As long as second- and third-tier platforms stay steady, don't leave the table, differentiate themselves from giants, avoid blindly following price wars, and ensure product quality, they can build their own unique competitiveness.
Industry Expert Wang Jun's Commentary After June 2019, reports of financing for community group buying platforms began to decline, reminding people of past fads and raising concerns: Are they facing problems? Is capital unwilling to invest, or have they hit a pitfall? Recently, I and a New Distribution reporter had extensive exchanges with local community group buying platforms in Zhengzhou, Henan. Some details may help those with such anxieties.
- The models and tactics of platforms of all sizes are now fully transparent.
- The development trends of each platform stem from team genes and path dependence.
- The fresh produce share of local platforms is not necessarily high.
- Many community consumers have not been well tapped; there is still huge room for user growth.
- Prefecture-level cities and county markets will soon enter a red ocean of competition; the good days for early entrants are numbered.
- National platforms have not shown technological or operational advantages locally; they mainly rely on burning money and price-driven competition.
- Manufacturers and brands are paying more attention to this distribution channel and may offer various small policy supports on a trial basis.
- The technological shortcomings of local platforms may not be obvious in the short term, but according to development trends, the gap will widen.
- Traditional offline chains still don't pay enough attention to community group buying, and their territory is being eroded without their knowledge.
- Supply chains are localized, even for national platforms; the so-called national supply chain network is still at the business plan stage.
- In terms of order stability in residential communities, consumers have not yet shown abandonment or aversion; the logic of product push based on community WeChat groups still holds.
- Local platforms are no longer following category price wars; the low-price strategy of big single products is a double-edged sword and often leads to self-destruction. Regional platform founders are willing to talk about mergers and acquisitions. Those who have been quietly cultivating their fields are now speaking out: "I won't easily leave this table."