The community group buying industry, which faced a series of setbacks in 2019 including funding chain ruptures and closures, has recently received significant positive news. With funding rounds and IPOs on the horizon, it seems that spring is not far off for community group buying.

-01- Shihuotuan, Tongcheng Life, Xingsheng Youxuan Secure Consecutive Funding

Today (June 10), Tongcheng Life, a leading community group buying platform, announced the completion of a $200 million Series C funding round, led by JOYY Inc., with follow-on investments from Yilian Capital, Legend Capital, Bertelsmann Asia Investments (BAI), Tongcheng Capital, Weiguang Venture Capital, GSR Ventures, and Yuanhe Holdings. Earlier, on May 29, another leading platform, Shihuotuan, announced the completion of a new Series C1 round, raising $81.4 million, led by GGV Capital, with participation from Joy Capital, Qiming Venture Partners, INCE Capital, and Gaohu Capital.

On the one hand, there is favorable funding news; on the other, there is the major positive of an impending IPO. Previously, media reports revealed that the Changsha Financial Office published a list of companies planning to list (or list on the New Third Board) in Changsha in 2020, and community group buying platform Xingsheng Youxuan was included, making it potentially the first listed community group buying company in China.

These favorable developments—funding and IPOs—prompt us to consider why community group buying, which seemed on the verge of collapse, has re-entered the capital spotlight. After the pandemic, is spring truly arriving for community group buying?

-02- Why Has Community Group Buying Suddenly Become Popular Again?

A year ago, in 2019, the community group buying industry was not doing well. Not only did funding events decrease significantly, but some platforms even faced funding chain ruptures or closures, leading outsiders to believe the industry was spiraling into a vicious cycle and fading away.

However, the recent news of consecutive funding rounds and an impending IPO compels us to consider why community group buying has suddenly become popular again in 2020. We can analyze this from the following three aspects:

First, community group buying is a low-cost solution for fresh food e-commerce. In the fresh food category, which is high-frequency and essential, there are currently three main models: the front-store-back-warehouse model represented by Hema Fresh, the front-warehouse model represented by Miss Fresh, and the community group buying model.

Among these, Hema Fresh, despite being an innovative new retail format, has high store opening and operational costs, can only cover first- and second-tier cities, and has a limited number of stores per city, making it unable to meet the fresh food purchasing needs of more community users. The front-warehouse model, while requiring less capital than Hema Fresh, still cannot penetrate third- and fourth-tier cities.

Community group buying, due to its asset-light characteristics, becomes a low-cost solution for fresh food e-commerce, as long as it effectively manages upstream supply chain connections and efficiently reaches the last mile through group leaders or physical stores for logistics and warehousing. Moreover, the operational model of ordering on the same day and delivering the next day means that community group buying platforms do not need to "stockpile" goods, further ensuring the freshness of fresh products when they reach consumers.

Second, the popularity of community group buying in 2020 is also due to the pandemic, which has increased recognition of home-delivery e-commerce. According to research by China Merchants Securities, the pandemic not only cultivated home-delivery habits but also can lead to long-term user retention. As a major force in meeting community consumption needs during the pandemic, long-term user retention is clearly beneficial to the community group buying industry.

It is worth noting that the pandemic is only a catalyst; community group buying already had a considerable number of loyal users. The pandemic has further strengthened consumers' strong and sustained demand for home delivery. Especially for fresh food, consumers can buy fresh and inexpensive products without leaving home, and the user experience is naturally excellent. This also allows community group buying to embark on a sustainable track.

Third, an increasing number of platforms are beginning to turn profitable, leading the community group buying industry into a new phase of healthy development. For example, Xiaoxiongle in Shandong started its community group buying business in May 2017, achieving sales of 980,000 yuan in the first month. Now, its total GMV in the Shandong market can reach up to 15 million yuan, and it has begun to turn a profit.

From the above, we can see that community group buying has been at the forefront during the pandemic, winning the recognition of community users and forming user accumulation, loyalty, and retention. At the same time, we can also see that more and more community group buying platforms are starting to become profitable, which is due to the low fulfillment costs of the community group buying model, its ability to replicate quickly, and the formation of economies of scale.

This is actually the reason why the community group buying format has been able to attract investment institutions frequently this year.

-03- How Should FMCG Companies Correctly View Community Group Buying?

When it comes to community group buying, its "image" in the industry is not exactly "high-end." Compared to asset-heavy models like JD Fresh, Hema Fresh, and Miss Fresh, community group buying may seem small-scale. As long as there are group leaders such as stay-at-home moms or convenience stores, coupled with control over the upstream supply chain and support from logistics and warehousing systems, community group buying is like a "cockroach that cannot be killed."

The value of community group buying to brand owners deserves more attention and consideration. Because community group buying is an emerging channel in the new retail era, and it focuses more on second-, third-, and fourth-tier cities, it can be an important way for brand owners to achieve channel下沉 (channel sinking). For example, Xiaoxiongle in Shandong has expanded its business to eight cities in Shandong in just three years. Apart from its home base Jinan, it has achieved full penetration in other third-tier cities, with over 1,000 groups opened across Shandong.

Obviously, for brand owners, this is undoubtedly an important lever to quickly achieve channel下沉 in a context of intense and even homogeneous channel competition. Moreover, most community group buying companies, while primarily focusing on fresh food, are also trying to expand into FMCG categories, which is a rare opportunity for major FMCG brand owners to sink their channels.

Furthermore, since fresh food is a high-frequency and essential category, it is foreseeable that the fresh food category will drive additional consumption of FMCG products. Therefore, brand owners need to correctly view community group buying. In an era of rising channel costs, choosing community group buying platforms as partners for channel下沉 is a worthwhile attempt at channel innovation in the new retail era.

Whether it is funding, impending IPOs, or an increasing number of platforms turning profitable, all indicate that spring is coming for community group buying. And if brand owners and community group buying platforms collaborate to "make things happen," the power they unleash will naturally be significant.

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