---
title: "What Sustains the Low-Price Advantage of Community Group Buying?"
description: "Community group buying's rapid growth is largely due to low prices, which currently rely on platform subsidies costing billions. In the long run, sustainability hinges on improving supply chain efficiency and reducing costs, not just subsidies."
author: "满满哥"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2021-12-06"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/what-sustains-the-low-price-advantage-of-community-group-buying-42b2fb24/"
markdown: "https://xinjignxiao.com/en/articles/what-sustains-the-low-price-advantage-of-community-group-buying-42b2fb24.md"
original_source: "https://mp.weixin.qq.com/s/rtYEQWEAxMOhBo8mstFMEg"
translation: "https://xinjignxiao.com/zh/articles/%E7%A4%BE%E5%8C%BA%E5%9B%A2%E8%B4%AD%E7%9A%84%E4%BD%8E%E4%BB%B7%E4%BC%98%E5%8A%BF%E5%88%B0%E5%BA%95%E9%9D%A0%E4%BB%80%E4%B9%88%E6%9D%A5%E6%94%AF%E6%92%91-42b2fb24.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/what-sustains-the-low-price-advantage-of-community-group-buying-42b2fb24/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# What Sustains the Low-Price Advantage of Community Group Buying?

> Community group buying's rapid growth is largely due to low prices, which currently rely on platform subsidies costing billions. In the long run, sustainability hinges on improving supply chain efficiency and reducing costs, not just subsidies.

Source: FengCang Technology (ID: FengCangKeJi) Author: Manman Ge
We all know that a key reason for the rapid development of community group buying is the low prices of goods, which come from platform subsidies. Meituan and Pinduoduo have already paid billions of yuan for this. Whoever burns money feels the pain; even without stricter national regulation, relying on burning money won't last long. So in the long run, **is the low-price model of community group buying sustainable? What will support the low prices?**

**Platforms Say Goodbye to Subsidies by Year-End**
The product pool of community group buying is similar to that of supermarket-to-home or front-warehouse models, focusing on fresh produce, supplemented by daily necessities, household cleaning, and personal care, but with less variety.
Currently, the average order value in community group buying is around 10 yuan, still lower than B2C e-commerce, supermarket-to-home, or front-warehouse models.
According to sample surveys, fresh produce prices on community group buying platforms are generally over 20% lower than front-warehouse platforms. For general goods, brand-name product prices are similar across platforms, with the low-price advantage mainly from subsidies. For white-label goods, community group buying has a clear price advantage, **with price differences sometimes exceeding 30%.**
Before mainstream players establish core competitive barriers, the strategy of low prices for volume and daily flash deals is the most direct and effective in accelerating channel penetration and user coverage. Despite strict national regulation, due to inertia, Manman Ge believes the subsidy war in community group buying will continue for a short while, ending before year-end. This does not rule out short-term strategic subsidies at various stages.

**The Logistics Logic of Community Group Buying**
Currently, community group buying has formed a logistics chain: **"Origin/Factory → Supplier → Shared Warehouse → Central Warehouse → Grid Warehouse → Community Leader → Consumer"**, which is closer to JD.com's warehouse-integrated distribution model.
The basic idea of JD's warehouse-integrated distribution is "data-guided stocking to reduce goods handling": based on historical sales data, sales forecasts are made, goods are pre-stored in city warehouses, and after orders are placed, they are shipped from the nearest city warehouse. Compared to traditional Alibaba sellers who ship from one warehouse nationwide, the distance goods travel is greatly shortened. JD's logistics efficiency relies more on warehouse "layout" and storage/sorting efficiency.
Community group buying's logistics logic is similar: platforms collect orders daily to guide supplier stocking, goods are pre-stored in shared warehouses and transferred once to central warehouses, grid warehouses perform secondary sorting, and goods are dispatched to pickup points before dawn, significantly shortening the time from supplier to consumer.
Comparing with parts of JD's socialized logistics system:
1. Shared warehouses and central warehouses function similarly to JD's large warehouses. Shared warehouses are responsible for stocking, with third-party operations as the main model and some platform self-operation. In terms of area, JD's Asia One warehouses are hundreds of thousands of square meters, while central warehouses are typically tens of thousands of square meters.
2. Grid warehouses are similar to JD's city small warehouses/distribution stations, but grid warehouses need secondary sorting, with franchise operations as the main model and some platform self-operation.

**Analysis of Community Group Buying's Efficient Turnover Mechanism**
Community group buying's high efficiency is reflected in two aspects:
On one hand, it accelerates capital turnover, with platforms temporarily giving up the benefits of capital retention.
Compared to the typical one-to-two-month settlement cycle in supermarkets, **community group buying's T+3 or even T+1 settlement significantly speeds up suppliers' capital turnover.**
On the other hand, **community group buying shifts inventory upstream, reducing inventory levels across the entire chain.**
In physical retail like supermarkets, each store bears inventory; fresh produce that doesn't sell is discounted or written off, and general goods require a certain inventory depth due to unstable demand, slowing down overall inventory turnover.
Front-warehouse models like Dingdong Maicai need to forecast demand two days in advance, with limited accuracy, but storage conditions are better than supermarket fresh produce exposed to the environment.
Community group buying's three-tier logistics model changes the fulfillment of goods below the city level, moving inventory responsibility upstream.
Breaking down the supply chain, compared to front-warehouse, community supermarkets, and wet markets, community group buying changes the fulfillment of goods below the city level. Due to pre-sale and next-day pickup, shared, central, and grid warehouses all use flat-floor operations, with no shelf picking.
At the same time, the picking and distribution cycle is generally controlled within 12-18 hours, greatly shortening the time goods stay in platform warehouses. Central and grid warehouses only perform rapid transfer and distribution, pushing inventory responsibility upstream to suppliers or shared warehouses.
From a business model perspective, the internal mechanism for efficiency improvement comes from pre-sale-based procurement driven by sales.
From an operational perspective, goods move upstream through inventory to achieve better distribution matching, ultimately reducing losses and speeding up turnover, compressing and accelerating the supply chain path. This is supported by the warehousing and logistics system of community group buying.

**Factors Supporting the Low-Price Advantage of Community Group Buying**
E-commerce efficiency can be divided into two layers: information distribution efficiency and goods fulfillment efficiency.
In the short term, community group buying meets the matching needs of some relatively low-quality, low-price goods; in the medium to long term, it has great potential in restructuring goods fulfillment efficiency.
In the short term, the model relies on low prices, where customer acquisition and fulfillment costs are crucial.
Comparing community group buying with traditional supermarket offline transactions: community leaders take on customer acquisition, fulfillment, and after-sales functions. The average 16% sales expense ratio of traditional supermarkets is replaced by a 10% commission rate for community leaders, greatly reducing customer acquisition costs.
Although community group buying can run a low-average-order-value e-commerce model, it is still not profitable overall. Community leader commissions are a major cost item; maintaining low warehousing and logistics costs and increasing gross margins are the long-term direction.
Let's analyze the supermarket-to-home model. Its main cost items include picking, delivery, and platform commissions, with per-order delivery costs relatively high and rigid.
With limited room for gross margin improvement, supermarket-to-home businesses pursue high average order values to cover costs. According to information from Gaoxin Retail's earnings call, in the second half of 2020, the company's online order average value (net of tax) reached 66 yuan.
For community group buying, we believe warehousing and logistics costs have room to decline but with limits. Maintaining low warehousing and logistics costs while increasing gross margins is the long-term direction.
Inventory in community group buying is held in shared warehouses or with suppliers, with extremely low daily loss rates for fresh produce. The central warehouse-to-consumer chain is no more than 18 hours, no inventory depth is needed in transit, and pre-sales avoid inventory buildup at end retail points.
Compared to B2C e-commerce shipping from one warehouse nationwide, community group buying is a typical multi-warehouse model (similar to JD), which may actually increase inventory needs.
According to relevant data, most platforms currently have fewer than 1,000 SKUs. As SKUs expand, shared warehouse inventory pressure and sorting costs may face challenges.
Overall, maintaining low prices in community group buying has two dimensions:
1. Lower quality: selling lower-grade fresh produce, cost-effective general goods, etc.
2. Improve efficiency: optimize logistics systems, reduce inventory buildup, enhance traffic entry efficiency, and build efficient warehousing and distribution systems. The latter is the long-term core competitive barrier.

**SKU Expansion Will Constrain Warehousing and Distribution Efficiency**
Community group buying's product pool has expanded to general goods, and increasing SKU count is an industry consensus.
Just as hypermarkets use fresh produce to attract traffic and monetize non-fresh and leased areas, community group buying's endgame is to maximize the consumption potential of high-frequency, essential traffic.
Therefore, the efficiency of the warehousing and distribution system may be constrained by SKU richness, which is something those in warehousing and distribution need to pay special attention to and prepare for early.
According to public data, leading players have surpassed 1,000 SKUs, with platforms laying out daily necessities, clothing, home textiles, and even trying lower-frequency categories like digital appliances.
Currently, general fresh produce like fruits, vegetables, meat, poultry, eggs, milk, and frozen foods still contribute the majority of GMV. Whether a wider range of categories can be achieved in the future remains uncertain.
Turnover efficiency and SKU richness are conflicting KPIs, and SKU limitation is a common challenge for current industry players.
From a price and quality perspective, community group buying will not stop at distributing so-called "low-price products"; upgrading quality and richness is inevitable, and as average order values rise, sensitivity to warehousing and distribution costs naturally decreases. SKU increases significantly impact sorting efficiency.
Consider a single central warehouse model: central and grid warehouses use flat-floor operations. Assume one central warehouse corresponds to 30 grid warehouses, with total goods at 3,000 items. Increasing SKUs will directly increase operation time.
At this point, SKU count is the only variable (assuming each operation takes the same time):
1. Sorting product A to 30 grid warehouses requires 30 operations, with 100 items per grid warehouse.
2. Similarly, N SKUs require N times the operations of a single SKU, with the number of items per grid warehouse unchanged.
This simplified model shows that central warehouse operation efficiency is significantly affected by SKU increases. The actual situation may be more complex: total items often increase with SKU count, each SKU maintains a certain number of items, and when SKU count increases, grid warehouse pressure also rises.
Turnover efficiency and SKU richness are not linear; generally, when SKU count exceeds a threshold, the risk of warehouse overflow greatly increases.
In the community group buying chain, shared warehouses take on the role of a new-era distributor, serving as a connection and buffer between suppliers and platforms.
The introduction of shared warehouses will enhance SKU richness. Inventory is distributed in shared warehouses; a single central warehouse is supplied by multiple shared warehouses, using social resources to increase large warehouse storage and sorting capacity.
With shared warehouses, suppliers can ideally achieve cost savings.
A single supplier or brand's daily supply may not meet vehicle loading rate requirements. By delivering to shared warehouses, which consolidate and merge orders, goods are combined and delivered to central warehouses, avoiding waste from small, frequent deliveries.
**In this fulfillment system, shared warehouses actually perform the distributor function and compress multi-level distributors. From this perspective, shared warehouses are expected to become super distributors in the new model. The vigorous development of community group buying is expected to give rise to a new era of super distributors, with shorter levels and higher efficiency than traditional distribution networks.**

**Are you "watching" me?**


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671