After community group buying turned to 'profit first', suppliers and agents have suffered even more.

Hu Mingchun (pseudonym), a grid warehouse agent in Hunan, said that in 2020, as Meituan Youxuan and Pinduoduo entered Hunan, he chose to join one of these platforms and followed the platform's layout of grid warehouses in seven cities in the province.

Nearly four years later, Hu Mingchun has lost more than 10 million yuan on grid warehouses.

According to Hu, in the first half of this year, due to the platform gradually reducing grid warehouse delivery fees and subsidies for large items and long-distance deliveries, grid warehouse profits have further declined, leading 80% of agents in Hunan to terminate their contracts with the platform.

From grid warehouses to suppliers, almost everyone is in distress.

Jiang Yuxia (pseudonym), an ice cream supplier in central China, told the author that since becoming a community group buying supplier in 2020, his company has consistently sold around 1,000 units per day across various mainstream platforms. However, due to increased gross margins and reduced subsidies to merchants this year, profits have plummeted, prompting him to gradually withdraw from community group buying operations.

Suppliers' choices are simple: when a business cannot continue to be profitable, they will vote with their feet.

Lacking concepts with strong commercial imagination such as 'transforming e-commerce' and 'unlimited investment,' the goal of 'everything for profit' for community group buying platforms has instead led to an even more intense competitive environment.

'Saving' for Profit

How can community group buying platforms achieve sustainable profitability when huge subsidies are not allowed and consumption habits are not deeply ingrained?

'Saving' is the most direct approach.

Digeo.com has analyzed that community group buying adopts a 'social collaboration' model, with central warehouses leased from professional logistics parks; grid warehouses operate under a franchise system, with delivery vehicles managed by franchisees; and self-pickup points are directly converted from existing street-side shops, forming a commercial link for community group buying.

No longer obsessed with 'self-operated' internet giants, community group buying businesses have significantly reduced market expansion and fulfillment costs. With the goal of profitability, platforms can also reduce costs at every stage to 'save' for profits.

According to Digeo.com, currently, mainstream community group buying platforms are reducing grid warehouse delivery fees, with Pinduoduo starting to take action since last September. Although Meituan Youxuan did not significantly reduce grid warehouse delivery fees in 2023 due to strategies such as 'morning delivery' and converting county-level agents to self-operation, adjustments have begun this year.

Hu Mingchun said that local grid warehouse delivery fees for Meituan Youxuan and Pinduoduo are maintained at around 0.26-0.3 yuan (varying based on product categories and promotions). According to Digeo.com, grid warehouse delivery fees in some regions are even as low as 0.15 yuan per item.

As delivery fees decrease, grid warehouse subsidies have also been significantly reduced. Taking large item subsidies as an example, both Meituan and Pinduoduo have eliminated large item subsidies this year. However, the number of large items like bottled water is high during summer. If grid warehouses do not increase manpower, the excessive handling pressure will affect delivery times, and increasing manpower means increased costs.

According to comprehensive data from Digeo.com, large items account for approximately 20%-50% of mainstream community group buying platforms in the past two months.

Along with the reduction in grid warehouse subsidies, supplier marketing expense subsidies have also decreased.

Previously, platforms would subsidize more marketing expenses for activities such as buy-one-get-one discounts, weekly flash sales, and regular e-commerce promotions. However, now merchants will bear the majority or even the entire cost of marketing expenses.

According to the community group buying self-media 'Sixth Brother Research,' taking Meituan Youxuan as an example, previously during promotional periods, the platform would bear at least 40% of the costs, but now this figure has dropped to around 15%.

Of course, reducing marketing subsidies does not mean reducing marketing frequency. According to a supplier in southwestern China, local Pinduoduo still maintains a frequency of three days a week for promotions like buy-one-get-one discounts and flash sales.

What makes suppliers feel that the platform is intensifying competition is not just the reduction in subsidies. Most importantly, under the requirement of positive gross margin, the platform also hopes that the order volume remains 'impressive,' exacerbating competition.

According to interviews with multiple suppliers by Digeo.com, since June this year, Meituan Youxuan has increased commodity gross margins by 3-4%. Currently, the normal gross margin level for products in southwestern and central China is approximately 25%, with flash sale categories maintained at around 15-20%.

Pinduoduo has been continuously promoting 'positive gross margins' since last year, with gross margins for most regions maintained at around 25-30%. At the time, Jiang Yuxia told Digeo.com that Pinduoduo's products did not have a price advantage compared to Meituan Youxuan's.

Changes have already spread from the upstream to the 'nerve endings.' At the self-pickup point stage, Meituan Youxuan now requires the abandonment of inefficient group points, driving mid-tier group points, and focusing on high-value top-tier group points.

For suppliers and agents, the platform's goal of 'wanting both' is too demanding. The essence of participating in community group buying operations is to 'make money.' However, due to the platform's strategy fully oriented towards profitability, most suppliers and agents are becoming increasingly distant from the essence of doing business.

Many suppliers bluntly stated: We can't compete anymore!

Unable to Compete Suppliers

Initially, community group buying platforms leveraged the low costs brought about by the 'social collaboration' model to rapidly accumulate market scale. Leveraging economies of scale, they achieved direct sourcing from origins for fresh produce and direct supply from manufacturers for fast-moving consumer goods (FMCG), further shortening intermediate links and reducing circulation costs.

The ideal is full, but the reality is lean.

Due to the scattered origins, non-standardized products, and high transportation losses, fresh produce has always been the toughest fortress for e-commerce platforms to conquer. Community group buying platforms have attempted to change the status quo, getting as close as possible to fresh produce source regions, supplemented by various logistics infrastructures, to a great extent realizing the ideal path of 'direct delivery from origin to consumer tables.'

In the early stages, community group buying platforms used fresh produce to attract customers, hoping to further increase profit margins after accumulating scale. However, due to the platform's positioning towards price-sensitive consumers, a vicious cycle of 'low price, low quality' was created at the product end, making it difficult for community group buying to fully realize the ideal supply chain paradigm.

Cui Yiqiu (pseudonym), a supplier of free-range chickens and eggs in Jiangxi, began supplying eggs to mainstream community group buying platforms in 2020 and once reached an exclusive sales agreement with one platform, which also sent procurement and quality control personnel to the factory to guide production.

However, since this year, Cui Yiqiu has gradually reduced the proportion of community group buying operations and now supplies more to the platform's distributors rather than directly from the source.

'Cooperating with the platform means engaging in low prices and 'selling for good data,' but we are a source farm and cannot afford too much inventory, loss, or returns and exchanges, and there is also financial pressure,' said Cui Yiqiu.

The increasingly competitive platform ecosystem is like a 'besieged city,' with suppliers inside beginning to lose interest; suppliers outside are even less interested in participating, as it is difficult to grow into a 'towering tree' even if they enter the city.

Digeo.com has analyzed that as a new supply and marketing channel, second-tier new brands have greater opportunities on community group buying platforms. For example, under Coca-Cola and Pepsi, there are regional cola brands like Laoshan Cola. Similar new consumption and new Chinese fashion brands will be more suited to community group buying platforms.

However, the reality of community group buying is that new products take a long time to gain traction after being listed.

According to insiders at Meituan Youxuan, while the platform has assessment targets for introducing new suppliers, few actually grow. Even if new products have advantages in specifications and varieties compared to old products, without a price advantage, it is difficult for them to gain traction.

'The platform hopes that mature suppliers will develop new products suitable for community group buying channels, but the willingness of old suppliers is not strong,' they said.

Unlike fresh produce, the market for FMCG is more certain, and brand owners have more decision-making power over distribution channels and pricing. The intermediary system centered on 'interpersonal relationships' remains a necessary link in current commodity circulation. In 2020, some first-tier brands prohibited distributors from supplying to community group buying platforms.

Of course, under the new reality, community group buying platforms are also making adjustments. Multiple suppliers interviewed by Digeo.com stated that the platform's bidding mechanism has become more moderate, and the pricing system for brand merchants has gradually stabilized.

However, in a highly competitive market environment, moderate adjustments bring limited change. After the disruptive innovations of internet platforms have come to an end, the incremental improvements in community group buying have struggled to stem the retreat of old suppliers and ignite the enthusiasm of new suppliers. The moat surrounding the 'besieged city' of suppliers will only deepen.

Market opportunities have shrunk drastically, and platforms can only continue to 'endure.'

Cleaning Up the Mess

Pinduoduo Buy Food and Meituan Youxuan are still struggling, but JD.com and Taobao have long since retreated.

Last August, JD.com relaunched Jingxi Pinpin, renamed it JD Pinpin, and was the first to open in Hefei. However, after experiencing events like 'warehouse explosions' on the first day of opening and direct refunds via the backend, JD Pinpin, which encountered setbacks from the start, almost completely suspended its expansion plans.

JD.com's battle to expand into lower-tier markets still faces significant resistance.

Taobao's situation is similar. While Taobao Grocery was still continuously opening in new cities in 2023, it has gradually withdrawn from marginal areas with declining order volumes this year. According to Taobao Grocery's WeChat mini-program, it has now withdrawn from Guangxi and Shanxi provinces.

At the same time, after returning to the Taobao ecosystem, Taobao Grocery has further deepened its integration with the Taobao system. According to a supplier, the GMV of 'sharing back to Taobao' is also included as a key performance indicator.

The once-vibrant 'internet-transformed grocery shopping' battle now only has a handful of leading platforms clearing the battlefield, with the business model returning to the heaviest and slowest retail format.

Driven by the overall goal of profitability, platforms can only change the inefficient and extensive ecosystem of traditional supply chains from the details. However, when a leafy green vegetable can only sell for 1 yuan or even less, suppliers view community group buying as a channel for clearing excess inventory and slightly damaged goods. Platforms also need to control logistics and warehousing costs while ensuring faster delivery, reduced losses, and near-constant operation throughout the year.

Under immense pressure, suppliers are unwilling to compete with platforms on prices, and platforms are starting to compete on quality and service.

According to Digeo.com's interviews with Meituan Youxuan suppliers, the platform now places more emphasis on product quality before considering price. 'For example, in Chongqing, previously, leafy green vegetables would sometimes appear yellowed or wilted, but this has now been largely eliminated.' More reasonable handling measures will also be taken if customer complaints are too high.

For grid warehouses, according to some grid warehouse agents of Pinduoduo, the platform has strict requirements for fulfillment timelines, with clear assessment metrics for the proportions of 'delivered before 11 am' and 'fulfilled within 6 hours,' and assessments are conducted on a 'ten-thousandth dimension,' allowing only a very small difference rate.

More Difficult Than Ever.

Improving product quality and service levels in a healthy manner is the right direction. However, amid the diversion of consumption scenarios such as supermarkets, wet markets, and dark stores, although Meituan Youxuan and Pinduoduo have covered more than 2,600 counties and cities nationwide, consumption habits for community group buying are far from ingrained, and 'next-day delivery' is more suitable for planned purchases.

Without explosive growth in sales volume, it is impossible for platforms to realize the vision of 'retail transformation.' Moreover, platforms have already started telling new stories.

In the first quarter of 2024, Meituan Flash delivered an average of 8.4 million orders per day, setting a new record high. Flash is rooted in Meituan's operational experience and fulfillment capabilities in the food delivery business, with demand growing rapidly. In the fourth quarter of last year, Flash's daily orders reached 14.5% of food delivery orders, and its gross transaction value (GTV) exceeded 20% of food delivery GTV.

Meituan aims to vigorously develop Meituan Flash, which has stronger business synergies, to maintain its position as the leader in the instant delivery market. It will also invest more resources to compete with the more versatile competitor - Douyin.

Pinduoduo is no different. Temu, formed by transferring staff from Pinduoduo Buy Food, has become a strong second growth curve. According to a HSBC report, in 2023, Temu contributed 23% of Pinduoduo's total revenue.

Faced with the current market environment, internet companies are more cautious about resource allocation and investment in internal businesses. Without investment, community group buying has lost its growth engine, and there is no internal impetus to change the status quo. The 'grand dream' of community group buying to restructure traditional e-commerce has come to an end.

However, internet giants have invested hundreds of billions of yuan in community group buying, and companies already on this path cannot turn back. Even if they are left with a mess, platforms can only 'scrape up pennies' from every detail to squeeze out profitability.