---
title: "Why Community Group Buying Didn't Die Like Unmanned Vending Machines?"
description: "Community group buying has regained momentum with significant capital injections, unlike the unmanned vending machine industry which collapsed. The key difference lies in the industry's self-renewal and the entry of tech giants, which brought infrastructure capabilities, leading to a shift from aggressive expansion to refined operations."
author: "李信"
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published: "2020-08-18"
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# Why Community Group Buying Didn't Die Like Unmanned Vending Machines?

> Community group buying has regained momentum with significant capital injections, unlike the unmanned vending machine industry which collapsed. The key difference lies in the industry's self-renewal and the entry of tech giants, which brought infrastructure capabilities, leading to a shift from aggressive expansion to refined operations.

**Click the image above for details**
**The community group buying track is hot again.**
On June 1 this year, Xingsheng Youxuan completed a $200 million Series B financing; Tongcheng Life followed closely, announcing a $200 million Series C financing on June 10; at the end of the month, Liancai.com also announced a 155 million yuan Series B+ financing, with one of its investors being the food supply chain platform Meicai.com.
The continuous capital injection was not limited to June; from the beginning of the year, the industry's leading platform Shihuituan received three consecutive rounds of financing, totaling $250 million.
In contrast, the unmanned vending machine industry, which also expanded crazily due to capital injection, was not so lucky. From early 2018, the unmanned vending machine industry rapidly collapsed until it faded away.
**In retrospect, unmanned vending machines and community group buying have many similarities. Both saw a large influx of capital within a certain period, and both gained market share by seizing sales channels. After the capital tide receded, players in both industries, unable to sustain themselves, went bankrupt or merged.**
Originally, community group buying had already experienced a wave of mergers and closures at the end of 2019, but unexpectedly, due to the pandemic, it found a new turning point, with leading players achieving multiple growth in GMV and user numbers.
After the track turned around, giants also entered the fray, with Alibaba, Meituan, and Didi all launching related businesses to lay out community group buying.
**"Although capital investment has changed the industry landscape of community group buying, it has not brought the truly needed infrastructure capabilities such as supply chain, warehousing and distribution, and SaaS to the industry," said Zhuang Shuai, founder of Bailian Consulting, once commented on community group buying.**
Now, with the entry of giants, their accumulated infrastructure capabilities will inevitably bring changes to the community group buying industry, which is an opportunity for community group buying players.
Currently, leading community group buying players are also making changes, shifting from crazy expansion to refined operations, from focusing on group leaders to deeply cultivating the supply chain, while also paying attention to self-sustaining cash flow.
This series of changes has ultimately prevented community group buying from dying like unmanned vending machines. However, in the giants' game, players may also be acquired by giants.
**-01-**
**Two windfalls burning money to seize channels**
Unmanned vending machines compete for points of presence, while community group buying competes for group leaders. The number of points and group leaders determines how much market share a company can occupy.
**Because of this, the competitive barriers for unmanned vending machines and community group buying are low, and every company can quickly seize sales channels through subsidies.**
Capital is unwilling to miss the opportunity to capture the next unicorn, and entrants are driven crazy by capital.
To this end, in 2017 and 2018, unmanned vending machines and community group buying respectively received a large amount of capital injection, and the entire industry quickly entered a stage of rapid expansion.
**"We caught a wave of capital carnival," Chen Huilu, founder of unmanned vending machine company Youhe, once told the media.**
One day in May 2017, Chen Huilu met with angel investor Wu Shichun and chatted for less than an hour before receiving a Pre-A round of financing from Wu Shichun's personal investment. A month later, Youhe received another tens of millions of yuan in Series A financing.
At that time, Youhe's shelf cost was 100 yuan, point cost about 300 yuan, distribution cost about 600 yuan, and operation and maintenance costs were controlled at about 15% of monthly revenue, basically achieving break-even in the Beijing market.
**Chen Huilu once told the media that as long as unmanned vending machines achieve refined operations and control costs, they can become profitable within half a year.**
However, capital did not give Chen Huilu the opportunity for refined operations.
In June 2017, Yan Limin, founder of Guoxiaomei, decided to enter the unmanned vending machine industry. As a former general manager of Alibaba's Juhuasuan, he had deep connections in the industry.
At that time, he invited Meng Xing, founder of Diaoye Niurou, and Li Feng, founder of Fengrui Capital, to dinner, during which he mentioned his idea of starting an unmanned vending machine business. That night, Yan Limin received 1 million yuan from Meng Xing.
**Subsequently, Yan Limin also met with Lou Jun, managing director of IDG Capital, and finally finalized the angel round of financing. After that, Guoxiaomei embarked on a crazy financing path. Starting from August 2017, Guoxiaomei almost received a new round of financing every month, and within just half a year, it received over 500 million yuan.**
According to the "2017 Unmanned Vending Machine Industry White Paper" released by third-party data service provider TalkingData, as of the end of 2017, dozens of unmanned vending machine startups had accumulated financing of over 3 billion yuan. According to incomplete statistics, during its heyday, the unmanned vending machine industry had more than 40 companies, with nearly 5 billion yuan pouring in.
Partial financing amounts for unmanned vending machines, source: TalkingData
Starting in the second half of 2018, the community group buying industry also experienced a spurt of financing, with companies such as Shihuituan, Niwonin, and Shixianghui receiving financing one after another, and the entire industry once formed a "hundred-regiment war" situation.
According to incomplete statistics from Jiemian News, from July to October 2018, within three months, companies such as Shihuituan, Niwonin, Shixianghui, Dailuobo, and Xingsheng Youxuan received nearly 2 billion yuan in financing, with annual financing exceeding 4 billion yuan, attracting nearly 30 investment institutions including Sequoia Capital, IDG Capital, and GGV Capital.
**"At that time, it was the capital winter, but we felt we were standing at the forefront," an investor who invested in a community group buying platform once told Ran Finance.**
Under the windfall, no one cared about costs, profitability, supply chain, etc. Burning money to quickly seize the market became the industry consensus.
According to Tech Planet, the gross profit margin of community group buying products is about 30%, with net profit of 5% to 8%. The usual practice is to give the group leader one-third of the gross profit. However, in order to win over group leaders as sales channels and gain market share, community group buying platforms gave commissions + subsidies amounting to 30% of GMV, or even more.
**In other words, just on the group leader side, group buying platforms were already losing money across the board, not to mention the consumption in supply chain and other links. In such a competitive environment, community group buying platforms had to subsidize to exchange for market share.**
With the entry of capital, the unmanned vending machine industry also had to adopt a strategy of burning money for market share.
Initially, the points developed by unmanned vending machine companies were free, but after capital poured in, companies that received financing began to pay to acquire points.
**Chen Huilu calculated that an unmanned vending machine earns a few yuan a day, and a point costs several thousand yuan. Even with refined operations, it would take many years to recoup the investment, not to mention subsequent personnel visits for maintenance.**
But almost all unmanned vending machine companies in the market were using money to buy points. If Chen Huilu didn't follow, he would be eliminated immediately. To this end, competition among peers quickly entered a white-hot stage. Whoever raised more money and spent more aggressively got more points.
Obviously, both unmanned vending machines and community group buying are financing-oriented startups, requiring large amounts of capital to seize the market and using subsidies to compete for sales channels. But the consequence is that once the capital tide recedes, companies without sufficient capital supply will quickly enter a wave of closures, eventually leading to the demise of the entire industry.
**-02-**
**Fragile business models**
The business model of community group buying is that the platform recruits community group leaders, who operate community WeChat groups, pre-selling vegetables, fruits, and other products in the groups. After collecting orders for the day, the platform delivers them centrally the next day, and the group leaders receive commissions based on transaction volume.
Unmanned vending machines are simpler and more direct: the platform places shelves full of snacks in office buildings, white-collar workers pick up and pay for items themselves, and the platform replenishes regularly.
**Essentially, the key to community group buying and unmanned vending machines lies in group leaders and points, i.e., sales channels, which is also their fragility.**
Although community group buying has advantages such as centralized pre-sale, direct delivery from origin, and no rent, under the influence of capital, platforms launched subsidy wars, and group leaders became the core resource competed for among platforms.
**"Users don't see a particular platform; they just use the platform to complete transactions. What really makes users decide is actually the group leader," said Zhou Xiao, investment manager at Matrix Partners China, in an interview with Finding Chinese Makers.**
The main income of group leaders is sales commissions. The community group buying platform "Niwonin" once disclosed platform operating data: the platform's gross profit margin is generally 25%-30%, and the group leader's share is 10%-15%.
However, group leaders have basically no loyalty to the platform. Seeing which platform has lower prices, group leaders will bring consumers to take advantage of that platform. At the same time, various platforms will poach group leaders with higher salaries, further increasing platform costs.
To this end, platforms can only retain group leaders by giving more benefits.
Songshu Pinpin, in addition to giving group leaders a 10% GMV incentive, also encouraged group leaders to develop one to two levels of subordinate group leaders, and could receive rewards of no less than 1.5% of GMV from the subordinate group leaders' GMV.
Youhaodongxi, in addition to normal commissions, set up an eight-level incentive policy. For example, if daily GMV is 500 to 999 yuan, the reward is 150 yuan, with the reward rate close to 30%, equivalent to giving all the platform's gross profit to the group leaders.
Unmanned vending machines are exactly the same as community group buying: points become a must-fight place, but they are also their fragility.
**"Whoever can quickly lay out points and have a larger volume will have the opportunity to gain an advantage in competition," said Si Jianghua, founder of unmanned vending machine company Xingbianli, in a media interview. "Whichever company first reaches a point scale of about 300,000 can basically occupy an absolute advantage."**
Under the influence of capital, entrepreneurs in the unmanned vending machine industry were forced to move forward.
At the end of 2017, when Chen Huilu was asked by investors about Youhe's 2018 plan, he answered that it would lay out 40,000 to 50,000 points nationwide. Unexpectedly, the investor directly said, "Others do 50,000 in a month; that's your goal for a year."
In order to keep up with the expansion speed of the first-tier players, during the craziest period, the Youhe team expanded from 40-50 people to over 400 people, with more than 200 BD (business development) personnel. This also led to a sharp increase in salary costs, with a maximum net expenditure of over 4 million yuan in a month, of which about 80% was used to pay BD salaries.
Of course, the money spent also brought points. Youhe once developed 50-60 points in a day.
Youhe unmanned vending machine, source: Internet
**However, the vicious competition in the industry made point costs higher and higher. Some unmanned vending machine companies' BD personnel privately contacted multiple competitors' BD personnel, openly purchasing competitor points and data. For companies with more than 100 people in the office, a shelf cost 2,500 yuan.**
All entrants were red-eyed, and the leading platforms spared no expense to lay out points extensively.
Founded in June 2017, unmanned vending machine company Xingbianli exceeded 10,000 points within three months, and at its peak laid out 40,000 points nationwide, setting a sales record of breaking 1 million orders in 12 hours in just half a year.
At the end of 2017, Guoxiaomei reported covering 59 cities, serving over 80,000 enterprises, with nearly 100,000 shelf terminals, and daily transaction volume exceeding 1 million yuan.
**As the point war became increasingly fierce, no one paid attention to gross profit margin, loss rate, replenishment speed, and other data, and the loss rate also increased, which is an important indicator of profitability.**
Sometimes, when delivery personnel replenished goods to a point, no one signed for them, and the quantity could not be clearly determined, which easily led to loss of goods. As a result, some unmanned vending machine companies had loss rates of 20% to 40%, or even higher.
In early 2018, unmanned vending machines ushered in a dark moment. In January of that year, Qizhi Kaola was exposed to lay off 90% of its staff, retaining only the warehousing and logistics departments; in February, GOGO Xiaochao stopped operations, becoming the first unmanned vending machine project to fall; in March, Bianlifeng withdrew from 38 cities where simple shelves had been laid out; in April, Guoxiaomei laid off 2,000 people and transformed into social e-commerce business...
Similarly, community group buying players, which had been in the windfall for a year, also began to close stations, be acquired, or even go bankrupt at the end of 2019.
In June 2019, "Niwonin" reported a broken capital chain; "Linlinyi" successively withdrew from Jiangsu and Zhejiang areas, shrinking its scale; "Songshu Pinpin" was exposed to lay off 2,000 people, with a layoff rate as high as 80%; in August, Shihuituan merged with Niwonin, and the industry began to accelerate reshuffling.
**"It's not a problem that the entire industry will die a batch, but that the first tier may die a batch," Yang Jun, founder of Songshu Pinpin, once publicly stated.**
Whether it is community group buying or unmanned vending machines, their business models are extremely fragile, and due to the lack of self-sustaining cash flow, once the capital tide recedes and the windfall dissipates, they are destined to die out.
**-03-**
**Why is community group buying still doing well?**
Unmanned vending machines died in early 2018, and community group buying also fell into a wave of mergers and closures at the end of 2019, but the sudden pandemic in 2020, to a certain extent, allowed community group buying to revive. It can be said that this is a key turning point for the industry.
The pandemic changed users' cognition and habits, thereby allowing surviving community group buying companies to obtain a large number of orders.
**In April this year, Shihuituan's GMV exceeded 650 million yuan, with daily order peak reaching 1.6 million orders; during the entire pandemic, Xingsheng Youxuan's order volume increased by 3 times compared to the same period last year, new users increased by 4 times, and GMV increased by 5 times; Bubugao's Xiaobu Youxian had a maximum daily order of 300,000 orders.**
After the pandemic improved, community group buying companies also maintained strong business growth.
According to reports from Retail Boss Insider, after the pandemic, Shihuituan's user retention, repurchase rate, and daily active visit frequency were relatively stable. Among them, the proportion of vegetable and fresh food consumption remained above 60%, and the monthly order frequency of old users (those who purchased more than twice) also reached more than 10 times.
Such excellent performance also attracted continuous attention from giants. During the pandemic, Alibaba supported Shihuituan, while Tencent bet on Xingsheng Youxuan.
Unlike investment institutions that can only provide financial support, giants' investments can provide more assistance to startups.
After Alibaba supported Shihuituan, it opened up Alibaba's supply chain for it, and Tencent provided traffic support for Xingsheng Youxuan.
At the same time, major giants also personally entered the community group buying market.
**On July 7, 2020, Meituan established the "Youxuan Business Unit," announcing its official entry into the community group buying market; Didi also launched "Orange Heart Youxuan," testing community group buying in Chengdu; Cainiao Post, backed by Alibaba, opened community group buying in 15 large and medium-sized cities including Shanghai, Nanjing, and Suzhou, and Alibaba's Retail Tong business unit also prepared to establish a community group buying department.**
It is worth noting that the pandemic was not the only factor that saved community group buying; the industry's self-renewal was also an important factor.
At the end of last year, the merger of Shihuituan and Niwonin allowed it to cover more cities, reducing the cost of opening new cities and reducing fulfillment costs.
Community group buying companies have already realized that burning money cannot lead to long-term development. To stay on the stage, they must find the ability to self-sustain.
In contrast, unmanned vending machines also had multiple mergers, including Guoxiaomei merging with Fanqie Bianli, Xingbianli acquiring 51 Snacks, and Bianlifeng acquiring Lingwa, but the unmanned vending machines that fell from the windfall, even if they expanded their scale through mergers, failed to attract capital again.
In April 2018, Guoxiaomei was supposed to announce strategic investment from Alibaba, but internal disagreements within Alibaba caused the financing to be shelved. Without capital support, Guoxiaomei announced the cancellation of its offline business and transformed into social e-commerce.
Guoxiaomei announced transformation, source: Internet
**For unmanned vending machines, seizing points is important, but if operational capabilities and business expansion do not keep up, subsequent development costs will only become more expensive, which also accelerates their failure.**
Now, community group buying shows a trend of emphasizing operations and shifting offline.
Xingsheng Youxuan originally started from offline wholesale small shops, connecting online and offline channels all the way. By 2020, Xingsheng Youxuan had more than 15,000 offline stores, with over 90% of them profitable.
Shihuituan's development also focuses on offline, with a new goal of "fresh-enhanced convenience stores," where fruits and fresh products are essential, and additional services can be provided based on offline points.
"I prefer companies with offline resources," said Cai Jingzhong, partner of Galaxy Creation Ventures, in an interview with Jiemian News.
**He also said that several leading companies in the industry have already produced a head effect, and in the future, behind these companies will be industrial funds from Alibaba or Tencent.**
Now, after giants have independently tested community group buying, competition will become more intense. At the end of July, Tongcheng Life and Linlinyi completed a strategic merger. After the merger, Xianghe Capital, Bertelsmann, and Yuanhe Holdings continued to invest tens of millions of dollars in the C+ round.
The window for new players has closed, and the next battlefield belongs to leading players and giants. For players in it, they must get rid of the original low competitive barriers to prepare for competition with giants.
The elimination round will not completely disappear because of the pandemic. Shao Hongjie, head of JD.com's district purchase, mentioned in a media interview that **in the second half of this year, the community group buying industry may see a new reshuffle. Good companies will become better, and worse companies will be eliminated after the pandemic ends.**
Source: Lianxian Insight (ID: lxinsight); Author: Li Xin; Editor: Shui Sheng


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