Click "Read Original" for details At Didi's internal all-hands meeting on the morning of November 3, CEO Cheng Wei publicly discussed Orange Heart优选 for the first time, stating: "Didi's investment in Orange Heart优选 has no upper limit, and we will go all out to secure the top market position." In April this year, Orange Heart优选 piloted in Chengdu, Sichuan. According to Didi, its daily order volume has exceeded 2.8 million. Cheng Wei noted that while other companies were still observing community group buying, Orange Heart's team was already fighting. The community group buying track, once cold, suddenly saw collective entry by major and minor giants. At the same time, capital has renewed its interest in community group buying—
In January and May 2020, Shihuituan secured $88.3 million and $81.4 million respectively In early 2020, JD.com merged Ququgou and Youjia Puzi On June 10, 2020, Tongcheng Life raised $200 million in Series C financing On June 22, 2020, Xingsheng Youxuan raised $400 million in Series F financing On July 7, 2020, Meituan launched Meituan优选 under its "Preferred Business Unit" On July 28, 2020, Ele.me launched "Community Purchase" In August 2020, Didi's "Orange Heart优选" went live On September 1, 2020, Pinduoduo's "Duoduo Maicai" officially launched In September 2020, Hema established Hema优选 Business
Looking back, 2018 was the hottest year for this track, with substantial capital influx. However, in the second half of 2019, the community group buying industry was in dire straits, with frequent reports of closures and mergers. Local traffic became expensive, product supply lacked advantages, and fulfillment costs remained high. Then, this year's pandemic turned the fresh food sector around, including group buying. Why? First, during this period, the entire fresh food industry shifted from oversupply to undersupply, greatly educating consumers. At the same time, during the pandemic, a batch of weak players died, and the remaining players proved the explosive potential of the fresh food track. Various formats saw full-scale growth. For instance, in February 2020 alone, based on daily active users, Hema grew 188%, Miss Fresh 350%, and Dingdong Maicai 480%. Community group buying generally saw 200-500% growth. It has been proven that the community model is lighter and faster. But does the revival of the track and the entry of giants indicate a sustainable business model? I believe yes. Moreover, this format may develop into a low-price fresh food chain widely deployed in third- and fourth-tier cities, similar to "General Dollar," the king of consumption downgrade chains. General Dollar's current market value is close to 350 billion yuan. -01- What exactly is community group buying? Everything starts with analyzing the essence of community group buying. Community group buying evolved from multiple iterations of fresh food e-commerce.
2015 Self-delivery model: e.g., Xingsheng Youxuan, Aixianfeng. Leveraging offline stores, they built an e-commerce platform selling existing store products, with store owners delivering to consumers for a fee. Store cooperation was low, and platform scalability was poor. ** ** 2016 Front-warehouse model: e.g., Miss Fresh, Dingdong. Self-built warehouses, stocked inventory, and delivery teams. Customer acquisition via subsidies; customers order online, and delivery is made. Home delivery has the highest fulfillment costs and burns cash severely. ** ** 2018 Pre-sale + self-pickup (community group buying): e.g., Shihuituan incubated by Youhaodongxi, Xingsheng Youxuan. Group leaders create WeChat groups, attract neighbors, and post group purchase product information. Community residents order in the group; the platform procures and delivers to the store the next day, where residents pick up. Supply chain barriers are not obvious; it's a traffic battle.
Compared with other fresh food formats, fresh group buying has several characteristics: 1) Ultra-low prices and ultra-few SKUs Comparing community group buying prices with the lowest prices at Xinfadi wholesale market, it's clear that retail prices for frozen products are even lower than wholesale prices, making them very attractive compared to other retail. Only fruits maintain relatively normal markups. Based on prices, the frozen goods in group buying may come from smuggled or surplus stock. Surplus refers to local frozen distributors needing to clear products nearing their shelf life. Near-expiry doesn't necessarily mean reaching the expiration date; frozen products can degrade in quality after months due to dehydration, so they are sold at low prices. Smuggled goods are 20-30% cheaper than legally imported ones, avoiding various taxes. In terms of imported varieties, only pork, beef, mutton, and imported fruits are common; poultry is rare. Price comparisons show that pork has the largest price gap between smuggled and legally imported goods. During the pandemic, the state has strict control over imported goods, with extensive random checks in markets and restaurants to ensure all compliance procedures are followed, so smuggling should be greatly reduced. 2) Ultra-few SKUs Xingsheng Youxuan has only 800 SKUs, Meituan优选 has 200+, while other formats typically have 2000-3000—generally needed to meet one-stop shopping needs. Logically, community group buying would want higher average order values, more customer stickiness, and logistics scale to reduce costs, but such few SKUs may be due to the difficulty in finding enough low-price products. 3) Ultra-low average order value Take Xingsheng Youxuan: daily orders exceed 8 million, revenue 100 million yuan, with an average order value of 10-14 yuan. This is comparable to domestic convenience stores, far lower than other formats. Considering community group buying is next-day delivery, it doesn't satisfy convenience needs, so consumers are more focused on low prices. This is also related to the order-volume-oriented incentives in community group buying. 4) Focus on lower-tier cities Xingsheng Youxuan covers over 160 prefecture-level cities, 938+ county-level areas, 4,777 townships, and 31,000 villages. Clearly, first-tier cities are not the primary service area. Now Pinduoduo and Didi's group buying businesses are also entering second-tier cities, while Meituan leverages its advantages in first-, second-, and third-tier markets to expand to lower-tier towns. The consumption power of lower-tier cities has been proven by Pinduoduo, and it also proves the lack of local supply. At the end of the distribution chain, lower-tier cities have more expensive fresh food and fewer choices. Although lower-tier cities are closer to rural areas, they are actually farther from fresh produce origins. For frozen products, as farming and slaughtering industries consolidate, urban consumers typically buy fresh meat that has been frozen. Fresh food in lower-tier cities comes from their provincial capitals, which in turn get supply from larger upstream wholesale markets like Beijing's Xinfadi, with the most upstream being origin wholesale markets. On the other hand, less obvious is the lack of cold chain logistics infrastructure. Lower-tier cities' logistics systems rely heavily on wholesale systems, which are incompatible with supermarkets and fresh e-commerce, thus constraining the development of new retail formats. Internally, fresh group buying also differs fundamentally from other fresh formats: 1. Unstable supply chain, bidding mechanism Since stores/front warehouses have limited SKUs (hundreds to thousands), fresh retailers aim to build long-term supply chains, using curated products and stable, planned procurement to achieve lower prices or better quality with suppliers. Community group buying selects suppliers through bidding. For suppliers, the community group buying channel is like a fashion brand's view of Vipshop—a drain for surplus stock. This makes products unstable; today's cheap meat may be gone tomorrow, and quality may vary. But this is a short-term factor; price is crucial for current community group buying. Any attempt to improve quality gets eliminated due to order volume and GMV—eliminated by high fulfillment costs and VCs focused on GMV. 2. Group leader-based customer acquisition Community group buying uses group leaders to mobilize users, meaning it doesn't directly face consumers but is controlled by group leaders. In other words, consumers belong to the private traffic built by group leaders. Compared to Pinduoduo, where customers recognize the platform and search for any low-price product, community group buying has lower community penetration than typical retail. With 4 group leaders per community, each contributing 300 yuan/day in sales, an average order value of 10 yuan, daily traffic is only 120 people. Shopping every 2 days means 240 people. For a community of 1,500 households, penetration is only 16%, compared to 30% for supermarkets. 3. Logistics In logistics, fresh e-commerce ships from large warehouses to distribution points, then delivers to consumers. Front warehouses or stores can be distribution points. Community group buying's order volume per community isn't large enough, so it uses two layers: large warehouse - grid point - pickup point. Pickup points are equivalent to distribution points. In terms of goods, other fresh retail formats are direct-operated: they buy and sell themselves, bearing inventory risk. Community group buying avoids inventory risk through pre-sale. 4. Different team mindsets Many fresh e-commerce founders come from e-commerce or supermarkets, so they are accustomed to traditional retail thinking—focusing on location, product selection, and providing retail services around users. Many community group buying operators come from convenience store backgrounds, where local chains focus on centralized procurement. These people think more about how to make the supply chain advantageous. Different backgrounds determine different approaches and strategies in community retail. -02- Is community group buying a capital bubble? Will fresh group buying be a long-term format? Or another capital bubble? The criteria are simple: 1) Does it have scale effects that make the entire chain's costs lower than other formats? 2) Are there greater risks? 1) Scale effects From the procurement side, local distributors' goods are neither exclusive nor have scale advantages. All fresh retail formats need to extend upstream to origin areas for scale advantages. For example, poultry requires involvement in slaughtering and farming. That is, procurement costs cannot be reduced. From the consumer side, if customers remain in the hands of group leaders and are not sticky to the platform, the platform cannot compress group leader commissions, meaning sales expense ratios cannot be reduced. From the fulfillment perspective, customer pickup has lower fulfillment costs than home delivery. In community group buying, grid points and end points are paid per order. Grid points get 0.4-0.5 yuan per order, and end points get tiered commissions based on order volume, typically 10-15%. The biggest scale effect in community group buying comes from the end: by weakening the group leader's sales function, pickup services become similar to express delivery stations. On the other hand, incentives are per order; if the average order value can be significantly increased, overall fulfillment costs can be greatly reduced. 2) Risks Customer stickiness: How sticky are customers to the platform? Even for the leading Xingsheng Youxuan, in its home base of Changsha, similar group buying platforms share 70% of suppliers and over 60% of group leaders. A business driven by a single product inevitably leads to low dependence on the platform by suppliers and customers, so neither group leaders nor suppliers are barriers. Of course, community group buying is aware of this. Xingsheng Youxuan has launched its self-developed app, indicating a shift toward pursuing effective repurchase and repurchase retention. This step seems simple, but the core operational logic has changed. Food safety: Community group buying has higher food safety risks than fresh e-commerce. Online reviews often mention poor quality of frozen products, while fruits fare better. This supports our speculation about product sources. If it's a shelf-life issue, it's manageable, but smuggling carries significant safety and compliance risks. Why will community group buying be an independent format? Compared to new retail concentrated in first- and second-tier cities, community group buying will develop into a retail format with a stable supply chain in lower-tier markets, similar to Dollar General (DG), the "consumption downgrade chain giant" abroad. Who is Dollar General? It's a US supermarket chain with 16,000 stores and $27 billion in revenue in 2019. Walmart, the king of chains, tried to launch mini-stores to compete with Dollar Tree and Dollar General but ultimately failed and sold those stores to Dollar General. Moody's believes Dollar Tree is hardly threatened by Amazon. DG has three main characteristics:
1. Low prices: two-thirds of products cost no more than $5; ** ** 2. Few SKUs but enough for basic consumer needs: two-thirds are consumer goods, with fresh and packaged food accounting for 39%; ** ** 3. Operating model similar to supermarkets: fresh food drives traffic, while non-consumables and private labels contribute gross profit. When we think community group buying could develop into China's DG, we mean there is an opportunity for low-price retail chains to grow in lower-tier Chinese cities. Why? First, as mentioned earlier, community group buying has clear price advantages, attracting a large customer base. DG developed against the backdrop of a large influx of Latin American immigrants to the US in the mid-to-late 1990s, who had significant demand for cheap goods. At the same time, China's WTO entry brought low-cost supply chains to the US, making it possible for DG to provide low-price goods to low-spending customers. Corresponding to wages in China's third- and fourth-tier cities, typically 3,000-5,000 yuan, the absolute low income makes consumers in lower-tier cities more price-sensitive. Pinduoduo has educated and developed these consumers, so the cost of moving them online is now low. In the domestic market, overcapacity in fresh and consumer goods needs an outlet—besides frozen products with large near-expiry inventories, packaged foods have similar issues. Of course, low-price goods cannot be supplied stably; they must be supplemented with normal-priced goods. Combining both can create a new retail format. Even low-price product factories or distributors prioritize long-term partners, so a stable supply chain is essential for retail. Dollar General achieves low prices by partnering with second-tier brands and factories, offering smaller packages, etc. Observing the main retail forces in lower-tier cities—wet markets and local supermarkets—it's easy to see the multi-level wholesale distribution system behind them. Based on the above calculations, community group buying can build a new retail system through pre-sale, with lower prices and a richer product assortment than the wholesale market system. For community group buying, everything is ready; all it needs is the east wind. Lower-tier market + fresh food consumption = massive market. From DG's product distribution shown below, it's clear why Pinduoduo cares so much about this market: non-consumables account for 25% of its core categories differentiating it from Taobao. If community group buying succeeds in the remaining 75%, that 25% could be at risk. Therefore, I believe community group buying will evolve into a retail format with a stable supply chain, similar to Dollar General abroad, rather than remaining a promotional group buying model. In the US, DG's low-price chain retail format accounts for only 5% of the market. Considering China's population is four times that of the US, and per capita income levels, the scale of this low-price retail format in China will be larger than in the US. Mass: warehouse supermarkets, Grocery: supermarkets, Drug: drugstores, C-store: convenience stores More imaginative is that community group buying will build new infrastructure for lower-tier markets, spawning more new formats. In first- and second-tier cities, cold chain for urban delivery is relatively complete. The delivery network built by community group buying has no special advantage. But at the township level, cold chain infrastructure is basically nonexistent. The proliferation of community group buying will actually create new infrastructure on which more new retail formats can be built. Just as Meituan started with traditional group buying, amassed a huge user base, and then monetized through hotels. -03- Who will be the ultimate winner? Here are our two judgments: 1. Fresh food is a prolonged attrition war across multiple formats; unlike food delivery, it won't end with just one or two companies, but more likely with multiple formats coexisting; ** ** 2. China needs consumption downgrade rather than upgrade. Beef, coffee, processed foods, and other consumer goods are not yet widespread; without widespread adoption, consumption upgrade lacks a large enough base of users. Judgment 1 determines that group leader commission cuts and supply chain construction are unlikely within a few years, so who wins cannot be judged in the short term. Retail relies on traffic in the short term and supply chain in the long term. In the short term, these group buying players mainly compete on city coverage and traffic. In the long term, they must rely on supply chain advantages—the ability to integrate suppliers and industry chain maturity. If you pay attention, you'll notice that recent chains like Juewei, Huangjihuang, and Zhengxin Chicken Steak are all in poultry, which is the most industrialized and lowest-margin segment of the meat industry. Here, we also briefly compare the advantages and disadvantages of the main relatively leading players: Xingsheng Youxuan: Leading company, smooth financing. Most extensive lower-tier market coverage, relatively mature supply chain. ** ** Meituan: No traffic worries, extensive lower-tier coverage, experience with Meituan Maicai and Kuaitui, relatively complete supply chain. Will definitely be a major player in the future. ** ** Didi: Plenty of capital, no pressure from public financial reports. Quickly raises market barriers, squeezing out smaller competitors. Lots of traffic, but limited lower-tier presence and no supply chain experience. Will be aggressive in the short term; long-term sustainability remains to be seen. ** ** Pinduoduo: Strong in capital and lower-tier markets. Has a stable group of suppliers but lacks experience in logistics infrastructure. However, it is highly adaptable and quick to learn; if it avoids major mistakes, it will certainly be a major player. ** ** Alibaba: Multiple business lines but limited internal synergy. Hema is unlikely to be a major player; it may acquire Shihuituan in the future, replicating a second Ele.me. -04- How to build supply chain advantages? If group buying players want to build supply chain advantages, the core lies in efficient, low-cost logistics and lower-priced goods. Efficient logistics is easy to achieve within the same city, mainly depending on sufficient order volume; the cost from large warehouse to distribution point will quickly drop to a minimum. Lower product prices come from two aspects: 1. Shortening and stabilizing the entire chain, reducing distribution inventory, and stabilizing factory capacity; ** 2. Irregular surplus stock. Factories or distributors periodically dispose of surplus, usually to familiar partners.** To build such supply chain advantages, relying on direct operation is clearly not feasible. Even a large player like Meicai, with 28 billion yuan in revenue, has only established advantages in a few SKUs like potatoes and eggs. Currently, there seem to be two feasible and faster entry points: One is top-down: entering the industry chain through supply chain finance, establishing cooperative relationships with major distributors. Support large distributors to build lower-tier channels, reduce layers, and integrate factories upstream. ** The other is bottom-up: integrating distributors that serve customers, forming collective procurement, developing new products, and integrating factories upstream. The former suits frozen meat, the latter suits KA.** Who will truly break out from group buying? How will each company get involved upstream? How to balance speed and depth? The war has just begun. Source: Hupu Pro Members (ID: huxiupro), Author: Peng Cheng