"Alibaba's Retail Link division is currently preparing to establish a new community group buying department." The community group buying sector has been quite busy recently. Smaller players born from the fresh food track are frequently securing new funding, with the new dark horse Xing Sheng You Xuan already at the stage of preparing for an IPO; meanwhile, larger companies eager to enter the track are also building their own platforms or making investments, with Alibaba, Tencent, Meituan, and others all present. This model, which layers social interaction, product promotion, and private traffic on top of fresh food e-commerce, while simplifying warehousing and last-mile delivery, has outpaced time and even reached the stock market. But will it have a disruptive impact on the fresh food industry? "Some new approaches have indeed brought relatively high gross margins to community group buying, and some brands have achieved regional success. However, fresh food e-commerce is essentially a supply chain-driven industry. The ultimate form of community group buying is likely still fresh food e-commerce, and it hasn't truly changed the industry's shape," said a supply chain insider. -01- Small Players 'Break Out,' Big Players 'Fill the Gap' Since community group buying entered a chaotic battle mode in 2018, the first to truly 'break out' is Xing Sheng You Xuan. On July 23, Xing Sheng You Xuan announced it had secured $800 million in a Series C+ round. Reports suggest this may be its final funding round before going public. This company, which previously seemed relatively low-profile, has outpaced platform-based fresh food e-commerce companies like Daily You Xian and Dingdong Maicai without aggressively capturing first- and second-tier city markets, becoming the 'first stock' in the fresh food sector. Another highly watched community group buying brand is Yi Pin Fresh. On August 5, Yi Pin Fresh announced the completion of a 2.5 billion RMB Series C round. It currently operates 900 stores nationwide and plans to open over 800 new stores in 2020 with this funding. Although its store count still lags behind Xing Sheng You Xuan's 12,000 stores, "the 2.5 billion RMB funding is already substantial in the fresh food sector, enough for Yi Pin Fresh to sustain operations for a while," said a fresh food investor. Data shows that in 2018, community group buying saw about 23 funding rounds totaling over 4 billion RMB; in 2019, community e-commerce had about 16 funding rounds totaling 7.99 billion RMB, with several platforms raising over 100 million RMB. "The recovery of community group buying this year is closely related to the sudden increase in online shopping (especially fresh food) during the pandemic," said the aforementioned investor. "The pandemic cultivated and unearthed a group of users who didn't originally use the internet, especially elderly users, changing their grocery shopping habits. Moreover, recent data shows that these users cultivated during the pandemic have not been lost as communities reopened." At the same time, 'big players' have also begun to 'fill the gap' in the community group buying sector. Both Xing Sheng You Xuan and Yi Pin Fresh have Tencent Investment behind them. In May 2019, Tencent participated in Xing Sheng You Xuan's strategic financing, and in July this year, it added to the Series C+ round. Yi Pin Fresh had already received 2 billion RMB in funding led by Tencent in March 2019. In August this year, Tencent remained one of the lead investors in Yi Pin Fresh's Series C round. On July 7, Meituan renamed its Xiaoxiang Business Unit to the Grocery Shopping Business Unit and announced the establishment of a 'Preferred Business Unit,' officially entering the community group buying track, and launched a vigorous recruitment campaign for group leaders in Jinan. Alibaba, which holds Hema, acquired RT-Mart, and invested in fresh food e-commerce companies like Shihui Tuan, quickly followed suit. Recently, Alibaba's Retail Link division has been preparing to establish a new community group buying department, planning to further expand into fresh food community group buying using its existing small store resources. -02- Why 'High Gross Margin but Low Value' However, Meituan's 'Preferred Business Unit,' announced just over a month ago, is currently only piloting in Jinan. Its relevant person in charge said in an interview, "It's still in testing; we can't say much." According to a source close to Retail Link, Alibaba's community group buying business might just be 'riding the trend.' "Alibaba doesn't truly intend to make a major push into community group buying; placing a foot in every track is more about comprehensive layout." Since 'group sales' is the main feature, 'group leaders' have become one of the core assets in community group buying, and the promotion process heavily relies on the group leader's influence and private traffic. Additionally, because after-sales issues can be reported directly to the group leader with instant communication, the user experience is relatively good. Another advantage is that "the customer acquisition cost for community group buying is very low. For example, if a regular platform's customer acquisition cost is 100 RMB, community group buying might only be 1 RMB. Compared to models that distribute large numbers of coupons, flyers, or run ads, this commission-sharing model has very low costs," said a fresh food investor in an interview. Another analyst in the fresh food e-commerce sector confirmed this view. "Normally, the gross margin for community group buying is generally around 40% (excluding special fruits and vegetables), which is about 10% higher than traditional fresh food e-commerce platforms—the average gross margin in the fresh food e-commerce industry is about 30%." However, the profit margins for currently operational community group buying platforms are mostly only 15%-20%, "because a large portion goes to the group leaders." According to a 'group leader' in Xi'an, he is currently operating community group buying for about 300 convenience stores, with a monthly income of approximately 30,000-50,000 RMB. "The so-called group leader can be understood as a community KOL or KOC, playing the role of a product promoter, similar to the 'internet celebrities' in live-streaming sales. The essence is different, but the form is the same," said the aforementioned analyst. A common characteristic of influencer sellers is: strong private traffic, but not very loyal to brands. 'Group leaders' face the same issue. "In the current community group buying model, group leaders have very low loyalty, and platforms find it hard to bind them. As far as I know, many group leaders cooperate with several platforms simultaneously. They might create a separate group for each platform, but these groups are fake. Then they create a real promotion group and promote products from all these platforms daily. The end result is that group leaders earn commissions from multiple platforms, but no platform sees a significant increase in sales," said the aforementioned fresh food investor. "So the community group buying model is destined not to become mainstream; it can only serve as a beneficial supplement to cabinet, home, and store delivery." -03- Regional 'Shackles' Hard to Break Another factor restricting the scale of community group buying is regional limitations. Compared to platform-based fresh food e-commerce companies like Daily You Xian and Dingdong Maicai, which are based in Beijing and Shanghai, the two community group buying companies currently in the spotlight are closer to the lower-tier markets. Tianyancha App data shows that Xing Sheng You Xuan is registered in Changsha High-tech Development Zone. Its predecessor was Furong Xingsheng, which started as a convenience store in 2000 and launched Xing Sheng You Xuan in May 2018. Currently, Xing Sheng You Xuan has basically achieved full coverage of group buying in Hunan Province, and its B2B FMCG ordering platform 'Abida' covers over 80 prefecture-level cities and over 200 county-level cities across 16 provinces including Hunan, Guangdong, and Hubei. According to the recruitment information for group leaders on Xing Sheng's official account, its next step is to deepen its presence in Hubei and Jiangxi. Meanwhile, Hefei-based local brand Yi Pin Fresh, founded in 2013, initially operated mainly in Hefei and Chongqing, then expanded to Chengdu, Wuhan, Guiyang, Nanjing, and other cities. It wasn't until 2018 that it quietly entered Beijing, Shanghai, and Guangzhou at a pace of one city per year. "Community group buying is more suitable for small players because its regional operating model is hard to replicate. Local supply chains have their own limitations, namely limited warehousing and delivery coverage. Therefore, before reaching the stage where 'dishes go directly from the supply chain to the consumer,' small players face competition from other local small players," said an analyst. Moreover, in the supply chain-driven fresh food e-commerce industry, the supply chain has a nearly decisive impact on the quality, sales, and timeliness of front-end fresh products. On one hand, even with group leaders conducting small-scale targeted promotions, the product quality and SKU cost-effectiveness must be high enough to create 'best-sellers.' Therefore, only when the supply chain can provide exclusive sources can these group buying products truly be promoted within these communities. On the other hand, the current warehousing and logistics of community group buying differ from the supply chain initiators of fresh food e-commerce. In fresh food e-commerce, the platform handles warehousing and delivery, while in community e-commerce, the supplier handles warehousing and delivery. The former has the platform control quality and deliver to home, while the latter has the supply chain control quality and mainly uses a self-pickup model. There are significant differences in the last mile of delivery. When regional community group buying brands go beyond their 'local' areas and expand to other regions, the supply chain becomes longer, making the original regional model difficult to replicate. Platform-based suppliers, on the other hand, can mobilize a broader supply chain, making multi-city expansion more streamlined, standardized, and smoother. -04- 'Front-End Players Want Traffic, Not to Sell Vegetables' Community group buying is a cross-industry, cross-category form, not unique to the fresh food sector. The fresh food sector produced the first unicorn because of the high frequency and repurchase rate of fresh food consumption. "But community group buying hasn't changed the industry's shape; it coexists with existing fresh food sales models. Because it's internet-based, it seems new, and the roles of participants are more flexible. In the existing model, the role that has changed the most is the fresh food supplier, who now directly engages with consumers and accelerates the arrival of the ultimate form of fresh food sales," said an analyst in the fresh food supply chain sector. An interesting case is Dingdong Maicai. Before Dingdong Maicai launched in 2017, founder Liang Changlin had created a mother-and-baby community called 'Mama Bang,' which sold products through social interaction and recommendations from acquaintances. In 2014, he tried to bring this model to another project called 'Dingdong Community,' which mainly sold fresh food. "I once envisioned gathering neighbors in a community to discuss pets, shopping, grocery shopping, and other daily trivialities, just like mothers exchange parenting experiences, but it turned out I was wrong," Liang recalled. According to a Dingdong Maicai employee, Liang once said in internal communications, "We can't just do community group buying; we must move up (to the platform)." Furthermore, precisely because of regional limitations, small players focusing on lower-tier markets can 'live comfortably' in the short term. But "the purpose of big players entering is different. If you think Hema does fresh food to make money, you're way off; they're spending money for traffic. Fresh food is a business that can capture the housewife's wallet; it's the future 'Pinduoduo.'" When asked about the 'community group buying' model, a large supply chain manager in Sichuan held a similar view: "The development of fresh food will ultimately move toward dishes going directly from the supply chain to the user. Whether it's the existing sales channels or the emerging community players, in my view, they are just products of a stage. The profit model in the ultimate form of fresh food will also shift to primarily acquiring traffic, rather than 'selling vegetables.'" Currently, the fresh food e-commerce sector is roughly divided into front-end, mid-end, and back-end companies. The back-end is closer to the supply chain, while the front-end is closer to users. "When investing, we place more emphasis on back-end companies, and we even invest in some origin warehouses, such as dragon fruit farms in Yunnan and shrimp-lotus root bases in Shandong. But for front-end companies, our main purpose is to acquire traffic. " said the aforementioned fresh food supply chain investor. The Sichuan supply chain manager, who has been operating vegetable market supply in the Sichuan region for decades, has recently been very anxious. He is looking for an operating company to plan a 'fresh food community cabinet' project. "In the current situation, I basically control whether vegetable prices in the entire market rise or fall. But recently, I've been thinking about how to create a platform and how to attract traffic. Why? Because fresh food itself is becoming less and less profitable." Source: Finance Tuyu (ID: caijingtuya) Tips will be paid 400-2000 RMB once adopted.