COMMUNITY GROUP BUYING IS DECLINING

I have always been fascinated by community group buying (CGB) in China. There is just so much that this business model taught us about grocery e-commerce in China: the small start-ups, the big tech companies entering the market and killing them off, the government stepping in when it started damaging the ‘real economy’, etc.

Over the past years, the CGB sector has become a battleground between Meituan Select (Youxuan) and Pinduoduo’s (the parent company of Temu) Duo Duo Maicai. Over the years, Rui Ma and I have produced many articles and podcasts about it for Tech Buzz China.

The main advantages of CGB were:

1) Absolute lowest prices.

2) Low-cost promotion for unbranded products through group leaders.

3) Solved the lack of product richness in less developed cities and regions.

By 2023, roughly every online shopper had used CGB.

Recently, I posted about the Kantar Worldpanel and Bain & Company 2024 China Shopper Report, which showed stagnation in China’s domestic e-commerce (substack.com/@techbuzzc…). One thing stood out to me: CGB shrank by 21% in 2024 and seems to be slowly dying. Warehouse facilities, suppliers, and group leaders have been pulling out. The latter saw their daily orders decrease to single digits and annual income to only a few hundred yuan. Consumers are using it less frequently.

What’s going on?

There seem to be several reasons for the decline:

1) CGB was built on very cheap prices for groceries. However, since 2023, China has seen a price war in e-commerce that has also affected CGB. Other forms of grocery delivery, including instant retail, have entered the market, offering very low prices. CGB offers next-day delivery, instant retail delivery within an hour …

2) The platforms subsidise consumer prices but have recently reduced subsidies to become profitable.

3) Platforms used to have no entry and payment feed but have started charging higher fees to suppliers and pressure them to lower prices to improve their profitability. Many suppliers decided to leave the platform, resulting in a narrower assortment.

4) Quality problems in goods purchases on CGB platforms have eroded consumer trust in group leaders and platforms.

5) Over the years, the diversity of platforms, convenience, and variety of goods have improved. Instant retail is rapidly growing, and offline retail is also expanding into developing markets and areas.

In other words, CGB prices are rising while other, often more convenient, options offer low prices,, and competition is increasing overall. Meanwhile, CGB is losing appeal for suppliers and group leaders alike.

Eight years after its first primal beginnings, CGB has lost its competitive advantage. It is not expected to disappear entirely; some forms will survive as long as they seek breakthroughs in goods and services.

Source:  summary of an article from 第三只眼看零售

Ed - Tech Buzz China