Ries Perspective In the previous issues of the pandemic special, we shared thoughts on how several industries responded to the pandemic. Today's analysis focuses on community group buying, a business undoubtedly boosted by the pandemic. During Shanghai's citywide static management, residents faced obstacles in going out for shopping, severely impacting their daily lives. The 'Shanghai group leaders' who emerged during this period not only greatly addressed residents' rigid daily needs but also brought the marginalized community group buying back into the public eye, with soaring popularity. However, as the pandemic improved and residents gained more purchasing channels, the momentum of community group buying seems to be rapidly weakening. Is there really no way out for community group buying? Can the viral 'Shanghai group leaders' save it? During Shanghai's nearly three-month lockdown, supermarkets closed, logistics halted, and people's basic living needs faced huge challenges. At this critical moment, a group of procurement experts—'Shanghai group leaders'—stepped up, spontaneously organizing to contact suppliers, collect orders, and distribute supplies, helping Shanghai residents through the toughest period of the pandemic. Online, cries of 'My leader, my group' and 'My life is saved by the group leader' were everywhere, bringing the long-dormant 'community group buying' back into the public spotlight. Current State of Community Group Buying Platforms Industry Consolidation and Business Contraction In stark contrast to the rising online voices, community group buying platforms are seeing business contraction and retreat from major cities. The outbreak of COVID-19 in 2020 brought community group buying to the forefront for the first time, experiencing rapid growth. The entry of major internet giants and billions in financing confirmed the disruptive potential of community group buying on traditional retail supply chains and its future development prospects. However, with the introduction of the 'Nine No's' regulation in December 2020 and increasing regulatory policies, platforms lost their 'subsidy' advantage, were constrained, and struggled, accelerating industry consolidation. Externally, negative public opinion and a severe industry situation persist, but internally, new categories always face initial turbulence. Looking at the development over three years, in 2021, China's community group buying transaction scale reached 120.51 billion yuan, a year-on-year increase of 60.4%, indicating that the group buying model still has value and significance. This urges companies to introspect: after the dividends fade, in non-pandemic times, facing mature channels like supermarkets, convenience stores, community shops, and food delivery that have established awareness and networks, what is the differentiated core competitiveness of community group buying? What shopping needs does it actually solve for consumers? From industry insiders' reviews and current market actions of major players, it is clear that operational issues such as supply chain and after-sales service system construction are the core challenges that group buying giants are tackling. For example, Meituan Select promotes 'fresh goods, worry-free after-sales', leveraging its strong offline sales force to attract consumers from a service and quality perspective. Duoduo Select emphasizes 'direct from origin, fresh and cheap', leveraging its main site's rich agricultural e-commerce experience to highlight advantages in fresh supply chain and cost control, hoping to win consumers with cheaper, quality fresh produce. As a result, although Meituan Select has closed operations in four northwestern provinces (Gansu, Qinghai, Ningxia, Xinjiang) since April this year, Meituan's overall annual transaction users grew by 35.2% to 960 million in 2021, with 50% of the increase coming from Meituan Select. Duoduo Maicai became the fastest-growing sub-segment under Pinduoduo's transaction services, with revenue of 5.59 billion yuan, up 91% year-on-year. However, complaints about 'poor quality' and 'difficult refunds' continue to rise across platforms, and consumer loyalty is declining. Thus, the giants' current moves are mixed, but none have shown investors 'where future category growth lies' or given consumers a satisfactory answer to 'why choose community group buying?' To solve this problem, we should trace back to the root, start from the underlying logic, and clarify two core questions: 'What can we sell to be profitable?' and 'Why do consumers keep buying?' Only then can we guide and establish a differentiated barrier for community group buying. Clarifying the Two Core Questions of Community Group Buying What Can We Sell to Be Profitable? Building Strong Differentiated Product Selection Capability is Key The essence of community group buying is a new retail model of 'pre-sale + self-pickup + next-day delivery', an innovation in online product channels that optimizes overall supply chain efficiency, reduces channel costs by 10%-20%, and provides consumers with quality products at low prices. In terms of fulfillment efficiency, community group buying can achieve less inventory pressure and lower operating costs compared to home delivery and warehouse-store models, and reduce circulation links and loss rates compared to traditional models. In terms of circulation efficiency, the semi-social model of community leaders and internet operations enable faster circulation than other retail models. However, the three-tier warehouse distribution model also places extremely high demands on the platform's product selection capability. Platforms must achieve higher order volumes while streamlining SKU numbers to ensure higher timeliness, lower prices, and profitability. For example, with 10,000 items and only 1 SKU, sorting for 100 groups requires only 100 sorting operations. But with 5,000 items and 2 SKUs, sorting requires 200 operations. In other words, more SKUs reduce efficiency, increase sorting costs, and weaken the platform's ability to bargain upstream. Therefore, community group buying categories must optimize and upgrade traditional product selection logic to keep up with the fast-moving model. Thus, building strong product selection capability is key to running the community group buying model successfully. However, currently, platforms have not found the optimal product selection strategy specific to community group buying. They still follow traditional fresh e-commerce logic: using fresh produce as traffic drivers, selling daily consumables as main products, and profiting from high-margin items like luggage, home appliances, and 3C products. This fails to differentiate from competitors and is dragged down by shortcomings like 'slow delivery' and 'inconvenient self-pickup', leading to low repurchase rates and higher order volume challenges, ultimately making profitability very difficult. Why Do Consumers Keep Buying? Telling the 'Save Money' Story Attracts Consumers, but What Keeps Them? Daniel Kahneman in 'Thinking, Fast and Slow' suggests that people are lazy; in most cases, consumers make decisions through the fast thinking of 'System 1'. This requires retail channels to provide clear reasons for consumers to choose them, so they can appear on consumers' decision lists. Although community group buying is a major innovation in the industry, it has failed to define its core differentiated competitiveness for consumers, explaining why they should choose to buy on community group buying platforms. In non-pandemic times, consumers have four major needs for purchasing channels: 'more, faster, better, cheaper'. Due to the business model, community group buying platforms are at a disadvantage in SKU numbers and only slightly better than traditional e-commerce with 'two-day delivery', unable to surpass home delivery and front-warehouse models that deliver within 30 minutes. Consumers who value quality will not be converted by a few yuan difference if it means sacrificing some shopping experience. Community group buying has always focused on telling the 'save money' story. The group-buying model can simply and directly explain the core benefit, but it also attracts price-sensitive consumers, and this group is characterized by high conversion rates but low loyalty. Before the community group buying category is fully developed and its differentiation barrier is built, these consumers will immediately switch to cheaper channels. This is confirmed by the continuous decline in DAU and consumer loss after industry regulation tightened and platform subsidies decreased. Many channel categories also tell the 'save money' story, but without establishing a differentiated advantage, even if community group buying offers more categories, higher fulfillment efficiency, and better product quality, it is like scratching an itch through a shoe, failing to achieve long-term stable growth. The Way Out for Community Group Buying With the state's renewed support for the platform economy and the ongoing pandemic, community group buying is seeing a turning point. Combining the two core questions mentioned above: If community group buying can find its own product selection logic, supported by unique operational strategies, and form its own differentiated competitiveness, it can truly release the category's potential and usher in explosive growth. Digging into Demand to Find Unique Product Selection Logic Go against the grain, turn disadvantages into advantages, and tap into unmet shopping needs of consumers. As mentioned earlier, community group buying indeed has many shortcomings compared to other channels, but this can also force platforms to think about 'what remains unchanged' in their business model, thereby finding their own unique product selection logic. Membership-based retail supermarkets are a good example. In their business model, the immutable category is 'earning money only from membership fees', so the most important product selection criterion is to minimize product circulation costs and maximize value for members, thereby increasing product turnover and completing the business model loop. For community group buying, group-buying is the immutable core operational model. Therefore, in product selection, we need to consider what products, within the traditional product matrix, would make consumers willing to reduce decision costs through group buying and compromise on timeliness. For example, high-quality niche fruits and fresh produce with higher decision costs, ultra-long-distance or internet-famous takeout, etc., leveraging trends and consumers' desire to try new things to drive sales and increase average order value. Creating Unique Positioning for Group Leaders and Improving Operational Strategies Leverage the 'personal charm' of group leaders to build a category moat. The group leaders who broke through during the Shanghai pandemic should inspire community group buying players and validate the irreplaceable value of group leaders in the entire business model. From the perspective of category origin, community group buying is precisely a category innovation differentiated from social retail, driven by private domain traffic and semi-social networking. Therefore, community e-commerce should leverage this advantage, focusing on frontline group leaders who are closest to consumers and best understand their needs, to create unique positioning for each leader and build a differentiated barrier for the category. Currently, major platforms have not realized the key role of group leaders; instead, they are gradually reducing commissions or expecting to replace leaders with machine operations to cut costs. But platforms need to consider that compared to core competitors that rely solely on big data for product recommendations, empowering group leaders not only increases consumer trust and improves group efficiency but also deepens 'emotional' bonds through interactions between consumers and leaders with different roles, improving retention. This is actually a core weapon distinguishing community group buying from other formats. At the operational strategy level for group leaders, reference can be made to successful experiences of platforms like Douyin, Kuaishou, and Xiaohongshu in operating KOCs. Currently, purely commission-based incentives are far from sufficient. How to mobilize more community forces and meet leaders' 'self-actualization' needs through operational and incentive mechanisms is also a key issue for companies to consider. Conclusion: The group buying boom caused by the pandemic is unique and non-replicable. The power of Shanghai group leaders brought community group buying back into the spotlight, but this heat alone cannot sustain the category's long-term development. After the pandemic, community group buying platforms should focus more on 'looking inward', honing their skills, optimizing product selection logic, maximizing the unique advantages of 'group leaders', and forming their own differentiation barriers to find a path for development in the fiercely competitive retail landscape. Source: Ries Strategic Positioning Consulting (ID: positioningpioneers) Are you 'watching' me?