IT’S THE END OF COMMUNITY GROUP BUYING (AS WE KNOW IT)

June is shaping up to become an interesting month for the e-commerce sector in China.

A few years ago, the big internet companies entered the community group buying sector and pushed out the small start-ups. In this business model (mostly) groceries are delivered at a pick-up point in a community the next day, giving consumers lower prices and platforms lower logistical costs.

When the dust settled after years of fighting Pinduoduo’s Duoduo Maicai came out as market leader and Meituan’s Youxuan as #2. Now, Meituan, which lost billions of yuan last year, has decided to close Youxuan in all loss-making provinces, only leaving Zhejiang and Guangdong (down from 20 provinces and 2,000 counties and cities). Meituan overestimated the growth potential and underestimated the difficulty and costs of transforming retail. CGB has low average order values, low margins and limited market size.

Meituan will invest in its self-operated front-end warehouse business, Xiaoxang (formerly Meituan Maicai), instead, thereby strengthening its position in the instant retail market. It has been expanding into new regions and has opened hundreds of front-end warehouses, gradually surpassing competitors Dingdong and Pupu. It’s now active in 21 cities and wants to expand to 30-40 first- and second-tier cities.

As I mentioned earlier, Xiaoxiang is also opening community supermarkets in markets that Sam’s Club has already vetted.

When Meituan started scaling down a while ago, Duoduo Maicai’s growth increased and became profitable in most provinces and cities. Now Duoduo Maicai is picking the bones of Youxuan’s business and snatching up the former Meituan Youxuan merchants and market share. But despite being the market leader, margins remain thin in CGB. It experimented with adding local services in 2024, but this effort ultimately failed. It also attempted to turn grid warehouses into instant retail front-end warehouses, but the average delivery time was too long (4 hours instead of 1).

Now, Duoduo Maicai is building warehouses in Shanghai and is expected to launch instant retail in August. It will select unbranded products from Duoduo Maicai and the Pinduoduo app to ensure low prices and cooperate with third-party couriers. Pinduoduo seems worried that after winning the CGB market, it might be hurt by the rise of Meituan’s Instashopping (Shangou) division. That doesn’t sound like an unlikely scenario: the CGB market has been in decline because there are other models, including instant retail (quick commerce), where consumers can receive their order within an hour, rather than the next day. Since this is a new battlefield, prices are often also low.

After Rui Ma and I extensively wrote about CGB for TechBuzzChina, the story now appears to be coming to an end, five years after its inception and following investments of more than 100 billion yuan. Now all eyes are on instant retail.

Source: Latepost