China Food

Community group purchase 500 days


“ 
The
shuffle continues.
 ”
After more than 500 days of brutal growth, community group buying has entered a new cycle.
 
“I won’t go to community group buying enterprises in the future. I’m afraid of being laid off for nothing else.” Said a laid-off Shihui group employee in Xiangyang, Hubei Province.
 
In July 2021, more than a dozen BD (Business Development) in Xiangyang area of Shihui group worked together to protect their rights. The above employees were laid off within two months of employment, but the other party refused to compensate him. After arbitration and court adjustment, he received double compensation,
 
It is worth noting that these BDS are dispatch contracts signed with third-party labor companies. They sign contracts with 58 Rubik’s cube and a labor company in Liaoning.
 
Contract dispatched workers are becoming the main way for community group purchase companies to avoid disputes. According to the understanding of Finance and economics, Xingsheng preferred to be vigilant in expanding the number of regular employees. A former employee said, “many BD preferred by Xingsheng are labor dispatch.” According to its disclosure, most of the peripheral employees selected by Xingsheng are dispatched by third-party labor contract workers and go to battle with light equipment.
 
During the Spring Festival in 2021, Shihui group also issued the call of “not closing during the Spring Festival” and held the Spring Festival mobilization meeting. Chen Ying, chairman of Shihui group, also officially put forward the business concept of “365 days, anytime and anywhere”. He said, “this is a long march, and its result will be a time of change belonging to the times.” According to the news of Tech planet, in 2021, Shihui group has set a target of annual gmv80 billion yuan.
 
Unfortunately, now not only the goal has not been achieved, but the Shihui group is already in danger, “mainly due to losses and high logistics costs. After the contraction of Shihui group, it has become an e-commerce including mail, and the logistics cost is too high.” Said the above employee.
 
Lin Qiang, a senior executive of the food and enjoyment Club of another fallen start-up company, said directly, “what retail makes is actually the money of distribution. If distribution is not solved well, retail can not be done well. The level of supply chain is almost the same.” In Lin Qiang’s view, now several companies have not solved the problem of logistics. The distribution method is wrong. They are using e-commerce logistics to solve community group purchase, which leads to high costs.
 
More than a year ago, Lin Qiang told burning finance and Economics on a business trip that they were going to have a big fight and would compete with meituan, pinduoduo and other giants in Chengdu and Chongqing. “Money is not a problem. This will be the last battle of the e-commerce war.”
 
But the reality is more cruel than expected, and the ammunition crisis will come soon. After the giants entered the market, the competition intensified, which led the capital side to wait and see and unwilling to continue to invest in supporting the development of the food and enjoyment club. Although the food club told these investors that they had made profits in many cities, it was useless.
 
The shuffle continues. If Didi, meituan and pinduoduo set up their own community group buying business in June 2020, it will take about 500 days. During this period, the old enterprises will live in the same city and go bankrupt, and the food club and Shihui group will be transformed. In September 2021, the orange heart preferably shrinks.
 
Even Ding Dong, who has been listed in U.S. stocks, can’t escape the dilemma of “huge losses”. On November 15, dingdong shopping released the third quarter financial report. The financial report showed that dingdong shopping’s revenue in the third quarter was 6.19 billion yuan (RMB, the same if not specified below), a year-on-year increase of 111%; But the loss continued. In the third quarter, dingdong’s net loss of buying vegetables was 2.011 billion yuan, compared with 829 million yuan in the same period last year.
 
Liang Changlin, founder and CEO of dingdong shopping, said at the financial report meeting, “in the third quarter, we took the initiative to adjust the strategic focus to make it ‘efficiency first and give due consideration to scale’.” Previously, Ding Dong’s shops were very large. In the second quarter, he also said that Ding Dong’s expansion in 16 Urban Agglomerations could bring considerable growth in scale.
 
Community group buying seems to fall into the end of the bicycle sharing and thousand group war. The start-up companies are merged by big capital and become a part of the system. Or some enterprises have come out, obtained the recognition of the capital market and listed separately.
 
But now it seems that these listed enterprises are also struggling. After all, they have failed to make profits. Starting from 2019, dingdong’s net losses in 2019 and 2020 were 1.87 billion yuan and 3.18 billion yuan respectively; Losses of 1.38 billion yuan and 1.73 billion yuan respectively in the first two quarters of 2021; Daily excellent fresh lost 2.91 billion yuan and 1.65 billion yuan respectively in 2019 and 2020, and 610 million yuan, 1.43 billion yuan and 970 million yuan respectively in the first three quarters of 2021.
 
Figure source / @ e-commerce news
 
The market environment has changed. Stricter supervision means the convergence of giants, which gives entrepreneurial enterprises opportunities, but the premise is to stick to it and work patiently. In the future, where community group buying will go is unknown. The only thing we can be sure is that this road will not be very easy.
Retreat and fill
 
The fate of stopping business and leaving still falls on Wang orange. He is the last person left by orange heart before closing its business in Shanxi. The headquarters told him that the business in Shanxi, Mengxi and other places would be completely shut down by the end of November, and the applet service had been shut down by the end of October.
 
Wang Cheng is responsible for purchasing. In some categories, he can even get a lower purchase price than his competitors, but on the platform, it is higher than his competitors. “Before, we could set prices independently, but later, the pricing power was transferred to the operation Department, and we didn’t participate.” Wang Cheng said that this made them lose their price advantage.
 
Previously, more than 200 people gathered around Wang orange. They came from big companies such as pinduoduo, meituan and Ali. They gathered here from Shanghai, Shandong and Hunan. They also stayed up late to fight, but failed to win.
 
The preferred contraction of the orange heart may be greater than expected. Previously, 36 krypton reported that orange heart preferred to reduce 31 provinces in 9 regions to 9 provinces in 3 regions. However, according to the information learned by fuel finance, orange heart preferred to leave only four or five provinces in the end and seek a virtuous circle or even profit,
 
In mid-2021, orange heart preferred to turn to seeking profits, each theater was responsible for its own profits and losses, and the wartime subsidies for employees were cancelled. Wang Cheng told burning finance that the price of external platforms and the number of users did not decrease significantly, because everyone cancelled subsidies, but the collapse came soon.
 
The first is the price increase of goods. Shanxi and Mengxi districts have raised the price of goods for gross profit, which makes the tide of customer loss come soon and the vicious circle begins. “It’s not feasible to forcibly correct the business that doesn’t make money.”. Wang Cheng said. Second, the income of employees in all departments decreased, refused to work overtime, and their work enthusiasm declined. Employees began to look down on the company’s business. He said that if you want to do a good job with Gmv, not only the commodity procurement department, but also the operation and BD should cooperate well, but all departments have no intention to fight.
 
Wang Cheng attributed the failure of orange heart optimization to the frequent internal organizational structure adjustment. After entering the post in December 2020, he has successively changed five or six leaders. For example, his colleagues suddenly transferred from grain and oil to fresh food, and he repeatedly adjusted from standard products and fresh food. “There is a kind of leader who is born in business, born from operation and also manages procurement, so it must be a little chaotic.” He said.
 
The players who fill the vacancy in the orange heart preferred market are HEMA market, Jingxi competition and so on.
 
“Good evening, family and friends! Please understand the inconvenience caused by orange heart’s preferred exit from (Hunan) Shaodong market. In addition, Alibaba’s HEMA market will be settled in Shaodong soon. Please continue to pay attention.” On September 14, the veteran who had been the leader of orange heart for more than half a year sent a message in the group, but until mid November, he had not sent a small program link to the box horse market in the group.
 
According to the financial observation, the box Mart has already launched a small program and supports WeChat payment. In Taobao App, the vegetable dishes not only support Alipay’s payment, but also can save pictures for WeChat friends to pay.
 
He told Caijing that HEMA market and Jingxi Pinpin do not have advantages. Now most of them are 4-5 points, but they give various cash subsidies, such as incentives for new users.
 
From April to June 2021, Alibaba community e-commerce Gmv increased by about 200% month on month, becoming one of the fastest growing businesses in all Alibaba’s business lines.
 
But the time window has passed, leaving few opportunities for Alibaba. The market gap left by the retreat of start-up companies was soon occupied by meituan’s optimization and buying more vegetables. According to the data of paidong Research Institute, meituan’s preference and buying more vegetables basically realize the full coverage of national tier 1-5 cities, and the coverage rate of Tier 5 cities is close to 80%, which has ranked the first echelon.
 
Suppliers have changed a large number, mainly because they don’t make money. An employee of a daily chemical laundry detergent company said that the activity of the products they supply to the platform is less than 15% of the national standard, only 4-5. The cost of 10 kg of detergent is 7 yuan. The supply price to the platform is 7.99 yuan, leaving a profit of almost 1 yuan. However, the transportation cost, personnel sorting and express delivery fee still have to deduct a profit of 0.5 yuan, leaving only a profit of 0.5 yuan in the end.
 
“Tangshan warehouse laundry detergent shipments from 1800 to 2000, which means that your gross profit is almost 1000 yuan, but the after-sales cost is also relatively high.” He said.
 
The retreat and replacement continue.
 
Fuel finance learned that Duoduo has recently adopted the “platform e-commerce” approach to manage suppliers and implemented the principle of 100% return of pinduo, which puts pressure on suppliers. The main reason is that pinduoduo businesses are assessed once a week. Within a week, the after-sales rate of all businesses shall not exceed 2%. In Jinan, if it exceeds 2%, it will be fined 2000 yuan, more than 3% is 5000 yuan, and more than 5% is 10000 yuan.
 
Meituan preferred to appear in meituan’s financial reports several times. The constant sentence is that “it is our most important investment area in this quarter”. According to the third quarter financial report, the operating loss of new businesses including meituan preferred was 10.9 billion yuan, compared with 8 billion yuan and 9.2 billion yuan in the first and second quarters. Meituan still maintained heavy investment in preferred businesses.
 
According to Wang Xing, community group buying is a once-in-a-decade opportunity, or will bring 300-400 million new customers to meituan. According to meituan’s financial report, in the first quarter of 2021, meituan’s trading users reached 570 million, with a net increase of 58.7 million, of which nearly 50% came from meituan preferred. In the third quarter, meituan’s trading users reached 667 million, an increase of nearly 40 million over 630 million in the second quarter.
 
It is worth noting that meituan has tested the mode of “1 yuan delivery fee, please transfer it to the head” in some regions, which shows the pressure of the cost of expanding in the prefecture level market.
 
In addition, a former employee of meituan who buys vegetables said that the vegetable buying business is turbulent and personnel adjustments are frequent. Every half month, he can change a lot of strategies. Previously, the finance and economics department had contacted different resigned employees of meituan who bought vegetables. They said that meituan executives had discussed the integration of buying vegetables and group buying business. By the end of 2020, meituan community group buying business will expand in Beijing, which may have an impact on the vegetable buying business in the future.
 
As a start-up star enterprise, Xingsheng optimization has shrunk in volume. For example, in Shandong market, one of the largest community group purchase markets, Xingsheng optimization has shrunk the investment layout of the market, and suppliers in many places in Shandong have withdrawn from Xingsheng optimization.
 
According to the estimate of Guosen Securities, the first echelon of the community group purchase industry is to buy more vegetables and meituan, with a daily order volume of nearly 30 million; The second echelon includes Xingsheng optimization and Shihui group, with a single volume of about 12 million. Other competitors include HEMA market, orange heart optimization and Jingxi group.
 
Jingxi pinlian, Jingdong’s community group purchase platform, withdrew from Fujian, Gansu, Guizhou, Jilin, Ningxia and Qinghai. After the change of the management of MMC business group, the daily order volume of HEMA market has increased from about 2 million in April to about 6 million.
 
Old players have felt that there is a huge pit, but new suppliers continue to come in. A supplier who has not done community group buying said that pepper with the cost of 0.3 yuan / kg can be sold for 1.99 yuan in some supermarkets, which is unlikely to be sold on the community group buying platform. “It depends on how much money you earn and how much money the platform makes you earn.” In other words, the pricing power is in the hands of the platform.
User loyalty has stood the test
 
However, users are still loyal to community group buying.
 
“Buy more vegetables at 0.92 yuan a catty, carrots at 0.98 yuan a catty and green peppers at 3.68 yuan a catty; while the corresponding unit prices in the supermarket are 1.79 yuan, 1.89 yuan and 3.99 yuan. Why should I go to the supermarket to buy vegetables?” Li Ying calculated that if all vegetables, eggs and milk were bought from the community group purchase, hundreds of yuan could be saved a month.
 
Li Ying’s point is in a nearby supermarket. With the recommendation of the supermarket sister, she used community group buying. According to her understanding, about 20 housewives in their unit building use it to buy more vegetables.
 
However, they also found that although the community group purchase platform maintained the advantage of offline price, the quality became uneven.
 
A fruit and vegetable supplier in Shandong told fuel finance that the price of vegetables has risen sharply, and it is difficult for you to get the goods at the supply price of community group purchase. “There are many price increases for daily necessities on the platform, which can be added to 1 to 2 yuan, while there are few fruits and vegetables, only about 0.5-1 yuan.” He said. In fact, this is to let the platform subsidize the prices of fruits and vegetables with the profits of daily chemical products, so as to make up for the low with the high.
 
But the supplier also said that he can only control the cost from the choice of fruits and vegetables. The supplier has several principles for community group buying. First, it does not make a single product; Second, not for high-quality goods; Third, learn to control transportation costs, labor costs and consumption.
 
“Even if you use high-quality goods, the price of the platform will eliminate you. The low price mechanism determines that there will be no high-quality goods here.” He said.
 
This makes the vegetables purchased by the community sometimes have uncontrollable quality and poor user experience because they are not refrigerated, transported and preserved.
 
Therefore, meituan preferred to establish cold chain logistics and refrigeration, and use more fines to improve performance. For example, the platform requires that 85% of the sales volume be fulfilled before 6 o’clock. If the performance is unqualified, there will be a fine of 500 yuan; If 85% of the sales volume is not reached before 9:00, the penalty for breach of contract is 800 yuan; If all sources of goods are not replenished at the last receiving time before 12 p.m., RMB 1000 will be fined.
 
But low price is still the core attraction.
 
A report from Guosen Securities shows that the history of American retail can conclude that low price is the core competitiveness of retailers, consumers can compromise “more” and “faster” in order to “save”, and all category retailers have strong anti risk ability. For example, Costco in the United States, relying on the membership system and super SKU strategy, enables Costco to sell a large number of products with a low gross profit of 13%, reduce the cost sharing rate, obtain a net interest rate close to Wal Mart and a higher turnover rate, and finally achieve a higher roe than Wal Mart.
 
User consumption habits are still what community group buying players most want to cultivate. Compared with the initial wool gathering behavior, the platform is undoubtedly improving the performance and quality, and looks forward to leaving users.
 
Vegetables, meat, eggs, milk and fruits are still the consumables with the highest frequency on the community group purchase platform, and the margin of the platform is also the highest. For example, pinduoduo’s regular commodities are 10000 yuan and fruits and vegetables are 20000 yuan; Meituan’s regular category is 5000 yuan and fruit and vegetable is 8000 yuan.
 
Although the transaction volume generated by these categories is low, these products are just needed and have a high frequency, which is the biggest power source driving the development of community group buying. A person from meituan said that the platform has the largest subsidy for fruits and vegetables, which can generally reach 50-60%.
 
This is still attractive to users. After all, for users, low prices represent advantages.
Is it the end now?
 
The transformation and liquidation of start-ups have accelerated the concentration and efficiency of the industry, and the order volume of major platforms has remained high.
 
Pinduoduo claims that it has carried out the business of buying more vegetables in 300 cities; Meituan is trying to sink. It has reached tens of thousands of villages and towns outside the first and second tier cities. Alibaba is gearing up and seems to want to get stuck again.
 
Guosen Securities even predicted that if meituan preferred to maintain the current unit quantity and price level (30 million pieces / day, unit price of 7 yuan) in 2021, the annual Gmv (total transaction volume) could reach 76.6 billion yuan, close to the business income of 90 billion yuan of Gaoxin retail and Yonghui supermarket, but meituan preferred SKU (minimum inventory unit) was only about 1000, far less than 15000 yuan of supermarkets, It can be inferred that the average single SKU sales volume is much higher than that of Yonghui.
 
It seems that people see a bright future. But the market is not so optimistic.
 
The Internet has successfully transformed many industries, such as clothing, beauty and other standard products. However, in the field of fresh e-commerce, after more than 10 years of evolution, enterprises have always been bankrupt, loss and exit. In 2020 and 2021, the community group purchase mode represented by Xingsheng optimization and the front warehouse mode dominated by dingdong buying vegetables ushered in a high light moment. The former giant took shares and was sought after by investment institutions. It obtained more than $4 billion in financing in two years, while dingdong buying vegetables was listed in the United States.
 
If we take the listing of enterprises as the success standard, the front warehouse model has basically been opened up, but the community group purchase is still suffering from loss, contraction and bankruptcy. If more stringent profit standards are adopted, in addition to Xingsheng’s preference to make profits in some regions, the problem of profitability has not been solved in most regions, including buying more vegetables and meituan’s preference.
 
Loss and profit are becoming the curse of community group buying platform. According to a survey by CICC, in June and July this year, buy more vegetables and meituan preferred to stop subsidies in some regions. As a result, the number of orders fell by nearly 20%, and the decline of other regional small platforms was even higher, reaching 60%.
 
“Although some enterprises in the community group buying industry have quit, large enterprises have not completely given up and quit. There are still a large number of small community group buying enterprises in other places. Whether large enterprises do it or not, the industry will not quit the stage. They are still evolving and developing.” An industry source said.
 
In November 2018, Xu Zheng, founder of daily excellent fresh food, said that at the beginning, they split their business and got a financing of $200 million. They planned to fight in the fresh food industry, “but they were lucky. After financing, almost no one ran on this track. In fact, the war on this track was over.”
 
However, the rise of dingdong shopping broke this illusion and still achieved competitive advantage by relying on operation optimization and supply chain control.
 
This shows that the Internet transformation of fresh food has only reached the initial stage. There is no doubt that this is a trillion yuan market, but including the front warehouse mode and community group purchase mode, it may only create 10% of the market share, most of which are created by offline supermarkets and vegetable markets.
 
As Lin Feng, a senior executive at the beginning of the food sharing meeting, said, at present, community group buying is solved by e-commerce logistics. He believes that as long as new logistics methods are not found, losses are inevitable and every link in the logistics link is bleeding.
 
According to the survey of 200 grid warehouse owners in meituan, orange heart preferred and Duoduo conducted by grid warehouse owner circle in January 2021, the loss rate of grid warehouse reached 63%, another 13% closed or transferred, and 37% was flat or profitable. At this stage, grid warehouse franchisees share part of the losses of the whole business model.
 
According to Guosen Securities, the revenue mode of grid warehouse is different for each platform. For example, meituan is 0.35 yuan / piece + 3 yuan / group point, multiplied by 1-1.2 coefficient according to different regions, and the minimum number of pieces is 3000-5000; Buy more vegetables for 0.3 yuan / piece + 3 yuan / group point, and the minimum number of pieces is 3000-7000.
 
These grid warehouses bear the heavy responsibility of central warehouse distribution and distribution outlets. A single grid warehouse covers about 300-500 teams.
 
A franchisee of Shijiazhuang grid warehouse said that the recruitment of truck drivers and the construction of cold storage are great investment, but the subsidies given by the platform are few. As long as the single quantity becomes less, the loss is inevitable.
 
There is also a model called “cloud warehouse”. The merchant directly stores the goods in the local warehouse according to the order quantity, and then talks with the platform procurement. One piece of grid warehouse can be realized, and the cost is not high. It is 100 yuan and 1 ton for distribution. This allows suppliers to fully expand their categories. The above fruit and vegetable suppliers said, “do community group buying and never consider making only one product, which may not make a cart of goods.”
 
“The profit is too thin, the platform card is relatively strict, and there is no profit at all.” A supplier who has quit said that he judged that community group purchase could be made if it could all be localized rather than centralized purchase. For example, buy more vegetables, the reason is that the standardization of fresh food is difficult to do, and localization should be pursued first.
 
Of course, community group buying also came out. In July 2021, the daily excellent fresh food and Ding Dong vegetables were listed respectively, and the hard and tired work of transforming the fresh food supply was finally recognized by the market.
 
However, listing does not mean that community group buying has really run through this business model. After all, even if these companies have been listed, their market performance is not satisfactory.
 
This can be seen from the market performance of dingdong shopping and daily excellent fresh food. As of November 26, the share price of dingdong shopping was $23.21, with a market value of $5.479 billion, still lower than the issue price of $28 when it was listed at the end of June. Daily Youxian shares are US $5.04, with a market value of US $1.187 billion.
 
Everyone is waiting for the industry, which has been speculation by giants and investors, to fall to the bottom and rebound, although they don’t know when the rebound will begin.
 
*Lin Qiang, Wang Cheng and Li Ying are pseudonyms.
*Disclaimer: under no circumstances shall the information or opinions expressed herein constitute investment advice to anyone.
Author: Yan Junwen; Editor: Rao Feixia; Source: burning dimension (ID: chinatruth), reprint has been authorized. Reprint authorization and media business cooperation: Amy (wechat: 13701559246);
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