After the unmanned shelf bubble burst, how long can the community group buying trend last? Every day around 5 p.m., Dong Qing (pseudonym), a resident of Meixi Qingxiu community in Changsha, receives hundreds of bags of goods and waits in the downstairs lobby for neighbors to pick them up. Dong Qing used to work in a supermarket, became a full-time mother after giving birth, and in recent years has taken on a new identity: group leader. Group leaders are the tentacles of community group buying platforms in each residential area, typically selling goods in WeChat groups and receiving goods in public areas or their own homes for pickup. Dong Qing has been a group leader for 'Niwo Nin' for three years. After the community was built, she organized neighbors to buy appliances together and handle rights protection, making her adept at the role, with a monthly income of 20,000 to 30,000 yuan. In a convenience store in Beijing's Yicheng Dongyuan community, various goods are displayed in empty spaces. The store owner recently became a group leader for 'Squirrel Pinning': "Yesterday we group-bought apples and oranges, which were good. Some milk was cheaper than in our store, and most items are not sold in the store. You just order via WeChat." Since the second half of 2018, phrases like "finding the next Pinduoduo" and "the Hundred Regiments War is about to begin" have frequently appeared, pointing to the newly popular community group buying industry. More than ten companies, including Xingsheng Youxuan, Xiaoqu Le, Linlin Yi, Shihui Tuan, and Squirrel Pinning, announced financing, with well-known institutions such as Sequoia China, IDG Capital, ZhenFund, and GSR Ventures placing bets. Unlike previous trends from first-tier cities, community group buying emerged in Changsha, a second-tier city, seizing the unmet consumer needs of local users and driving the industry nationwide within two years. ************Community Dividend Sun Yuanbo never expected that a business he started seven years ago due to his child would now be at the forefront. Niwo Nin was established in 2016, evolving from a fresh food company Sun founded in 2011. Without the pivot to community group buying, it might have been just another ordinary retail startup in a second-tier city. At the time, Sun was worried because his child couldn't eat well. After a hospital check-up, it turned out to be a minor issue—just a lack of trace elements, and eating more cherries could help. Sun's hometown in Shandong is rich in cherries, with many relatives having orchards. He decided to have some sent over and also asked neighbors and classmates if they wanted any. After several shipments, more and more people wanted cherries, and peaches and apples were also sent, all quite popular. Why not make a business of it? Sun considered quitting his job to open a store. Sun was admitted to the computer science program at National University of Defense Technology in Changsha in 1998, and after graduate school, he worked at UTStarcom in Shenzhen, but his family and children were in Changsha. In 2011, Sun's monthly salary was over 10,000 yuan. "Many people didn't understand when I said I wanted to quit and do this, so I went to study fresh food e-commerce and found that no one had done it maturely. I thought it might be a promising venture." With a try-it-out mindset, Sun went to find seasonal fruits from all over the country and promoted them in community owner QQ groups. After bulk shipping to Changsha, he set up a pickup point, and many users drove to collect, with popularity exceeding his expectations. From May to June 2011, he earned 50,000 yuan. After confirming the model had market space and economic benefits, Sun quit his job in Shenzhen, returned to Changsha, and enlisted relatives and classmates to help, starting with a small team of three to five people. Over the years, Sun set up pickup points at newsstands, promoted through QQ, Weibo, and WeChat official accounts; found agents to sell goods, with the company shipping directly to buyers; opened a Taobao store but found it hard to control losses; opened three offline chain stores but found the input-output ratio too low; and did B2B business, supplying local wholesale markets and local fresh food e-commerce companies, including some now in community group buying. Although always profitable, there were surprises. The most embarrassing was in 2013 when a supplier ran off with a batch of red pine nuts from Changchun worth over 200,000 yuan, equivalent to more than half of the previous year's profit. In the second half of 2015, some customers proposed doing group buying in their communities and asked Sun to supply them, which truly brought his fresh food business into communities. In 2016, Niwo Nin was formally established, becoming one of the earliest community group buying companies in Changsha. That year also became the first year of community group buying. From warehouse to user, the logistics cost per order dropped to less than one yuan, greatly reducing the cost of fresh food retail. This was fatally attractive to entrepreneurs, and players including WeChat business teams, e-commerce companies, and supermarket chains entered. According to reports, at the peak, there were over 200 teams in Changsha alone. What truly pushed the industry to the forefront was capital entry in the second half of 2018. From August 2018 to now, Sun Yuanbo, founder and president, has met with over 20 investors. In fact, the person responsible for financing at Niwo Nin is Liu Kai, chairman and CEO. For a while, Liu Kai came to Beijing almost every week to meet investors and brand partners. In June and December 2018, Niwo Nin announced the completion of a Series A financing of tens of millions of yuan led by GGV and a Series A+ financing of over 100 million yuan led by Minsheng International Investment, respectively. Li Xiao, who claimed to have "always paid attention but didn't want to do it," also entered the industry in April 2018, launching the Xiaoqu Le project, and in November announced the completion of a $108 million Series A financing, the largest single financing in the field to date. Li Xiao is the founder and CEO of social e-commerce platform Global Catcher. He told China Entrepreneur that because the average order value in community group buying is not high, he initially thought the user base would differ from Global Catcher's. Later, he found that if divided by housing prices, users in communities above a certain price point are actually Global Catcher's users. The efficiency and experience of community group buying were key to Li Xiao's interest: from warehouse to community, the cost per bag is between 0.5 and 0.8 yuan, much lower than express delivery, which is impossible for other e-commerce; and the experience is closest to physical stores—if there's a problem with goods, you can immediately contact the group leader to resolve it. From warehouse to community, simple packaging is enough, greatly reducing costs. To quickly verify the synergy between Xiaoqu Le and Global Catcher, Li Xiao placed the first Xiaoqu Le site in Changsha, where the market was already mature. "If we can't stand out, our business model is fooling ourselves." In the view of Hu Bin, partner at Qiming Venture Partners, community group buying can succeed because it fits another shopping scenario for people. This community-based recommendation shopping method already existed offline; now it's replicated online, complementing original e-commerce. Additionally, with the popularity of WeChat, e-commerce attributes have begun to play out, especially with mini-programs, which lower development and usage thresholds compared to apps and improve dissemination efficiency. "Pinduoduo's listing also influenced the rapid rise of community group buying because it opened people's imagination about this matter," Hu Bin told China Entrepreneur. ************Leaving the Comfort Zone "In the fresh food industry, everyone loses money, but in second-tier cities, you can make money. The fulfillment cost per order from warehouse to community to user is controlled within one yuan, which I've never encountered in my years of e-commerce," Liu Kai exclaimed. Liu Kai worked at Tencent for 13 years and joined Shenzhen Qimingxing E-commerce Co., Ltd. after leaving Tencent. In early 2017, a friend introduced Liu Kai to Sun Yuanbo. After a night of conversation, Sun believed Liu Kai had "a deep understanding of the national market," and they confirmed cooperation that night to replicate the model beyond Changsha. Previously in Changsha, Niwo Nin had been profitable, but opening new cities required more investment. One goal for Liu Kai joining Niwo Nin was to help with national expansion. Leaving the comfort zone to take risks in other cities is not easy. Some partners left the team because they wanted to hold onto the fruits of victory in Changsha. To better serve the national market and address the talent shortage in second-tier city startups, Niwo Nin also moved its headquarters from Changsha to Shenzhen, separating Sun Yuanbo from his family in Changsha again. Each city's situation is different. "A company that does well in Changsha may find it very difficult elsewhere," an investor in the field told this magazine. Community group buying has little network effect; promoting across three to five communities may be difficult, and opening new cities is even harder. Supply chains can cover surrounding cities but struggle to reach farther ones. After deciding to expand nationally, Niwo Nin spent half a year preparing before choosing Guangzhou as the first stop. First, they needed to understand Guangzhou people's eating habits. For example, coconuts don't sell well in other cities but are popular in Guangzhou, where locals like to eat them and use them for soup. Hunan people like chewing betel nut and don't like sour fruits, while many other city residents prefer sweet and sour fruits. Entering a new city also requires finding local group leaders, who are key in transactions. According to multiple industry insiders, the profit margin in community group buying is between 20% and 30%, with nearly half paid to group leaders as commissions. "In communities where housing prices exceed 50,000 yuan per square meter in first-tier cities, our expansion becomes very cautious," Liu Kai said. First, users may choose faster methods; second, it's hard to find group leaders who have time and are willing to use social relationships to sell fruit. Some industry analysts say group leaders have become a scarce resource in this battle. Sun Yuanbo said that when opening new cities, Niwo Nin sends its market team, the "Sharp Sword Iron Army," to do ground promotion, hold investment conferences locally, and find group leaders through community storefronts; they also leverage the relationships of nearly 2 million existing customers to introduce group leaders. Li Xiao also said that if there's one most critical competitiveness for Xiaoqu Le, it's "the ability to help group leaders make money," which continuously attracts group leaders to join. Hu Bin compares community group buying to an online version of convenience stores. Because supply chains vary and have strong regional attributes, even with significant capital investment, rapid expansion is difficult. Once solidly established in multiple regions, high barriers can be formed. Shihui Tuan, invested by Qiming Venture Partners, is a community group buying project incubated by social e-commerce "Youhao Dongxi." Shihui Tuan CEO Wang Peng said in an interview with Ebrun that they will first set a core second-tier city as the center and circle third- and fourth-tier cities within 200 kilometers for expansion. In highly competitive areas like Changsha, Shihui Tuan covers the entire Hunan province by acquiring a company. ********The Future of Sparrow Warfare How much imagination space does community group buying have? An optimistic view is that community group buying is a supplementary channel for daily household consumption. Fresh food plus FMCG is a trillion-yuan market, while supplementary channels are a hundred-billion-yuan market. However, as competition intensifies, incidents of poaching group leaders and price wars are common. After the unmanned shelf bubble burst, what is the future of community group buying? Some investors warn that community group buying may die from excessive competition, especially when a large amount of capital enters, potentially disrupting a business model that originally made sense. "During the most intense competition in the second half of 2017, there were eight community group buying platforms in our community. Several came in and gave away coupons frantically, then raised prices. Some have already gone bankrupt," Dong Qing said. She is hard to poach, but her neighbor and assistant encountered an attempt by another platform to "poach" her. However, before discussing commission ratios and other details, Dong Qing persuaded her assistant to stay. Price wars are common, but many industry insiders are optimistic: fruits are non-standard products with low unit prices, and price is not as important as taste. "Community group buying has moved from the stage of staking territory to a stage where gaps gradually widen based on supply chain and management capabilities. Some small and medium players will gradually be squeezed out of this market," an investor who has already invested told China Entrepreneur. Will community group buying be the next unmanned shelf? "Impossible. The efficiency and experience of unmanned shelves are very poor," Li Xiao said. "Unmanned shelves sell only a few dozen yuan a day, and you might have to deliver goods." "The average order value for unmanned shelves is only about 7 yuan, too low. Community group buying has an average order value of at least 30-40 yuan, and the scenario expands from individual consumption to family consumption, offering more imagination space," an investor told this magazine. More investors are concerned about whether the team has combat effectiveness and whether they can become a small giant before the big players enter, so they won't be easily killed. "If Meituan does this, their ground promotion and partner store numbers are advantages, but we've accumulated for so long, with a better understanding of end-customer consumption habits and supply chain construction. Group leaders are also hard to poach; they cherish relationships with neighbors, and the platform only needs to provide better supply," Sun Yuanbo said. Although no major company has publicly announced plans to launch related businesses, Hu Bin believes, "Whether it's group leaders, convenience stores, or front warehouses, these are the last landing points for internet giants to contact users, and these are contested areas. Exaggeratedly speaking, these business forms will be offline traffic entrances in the future, complementing online well, and giants should all covet them." "Big companies' dimensionality reduction attacks are suitable for positional warfare, while community group buying is sparrow warfare. Each battlefield is scattered, which is not easy for giants either," the aforementioned investor said. Source: China Entrepreneur Magazine (ID: iceo-com-cn) -END- Good article! Don't forget to click "Like"