Editor’s note: This article is originally written by Pioneer State, and the authors are Chu Chunxi and Yang Xuanran.
If the entire industry is divided into main vessels, branch vessels and capillaries, then the online and offline business has completed the integration of main vessels and branch vessels in recent years, and the remaining capillaries are the chosen market for community group buying.
And these capillaries will eventually be "figured out, tied up, and turned into branch vessels", that is, operated by more refined supply chains. Once that happens, the market for community group buying will face greater challenges.
"We don’t think this trend will last long," said one investor familiar with new retail.
The short-lived "trend" in his mouth is "community group buying". After sharing bicycles and leaving chicken feathers on unmanned shelves, community group buying seems to have become the last ripple in the consumer industry in 2018.
In the two months from August to October this year, about 2 billion RMB entered the field of community group buying one after another. The industry is moving forward with capital, and it is unclear whether capital has achieved trend or trend has driven capital. For a time, it seems that all eyes in the venture capital circle are glued to "community group buying".
In fact, community group buying is not new. It uses the head of the group as the sales node to provide household consumer goods mainly fresh fruits to the residents of the second-, third- and fourth-tier communities through "online pre-sale + offline self-pickup". It is similar to the previous micro-businesses, and it is also a bit like the fire sales organized by merchants near the community in the past. But no matter what the model is, what we cannot deny is that in the second-, third-, fourth- and fifth-tier cities, a new "melee" is being staged.
01 Dig "Leader" melee
As a key node for obtaining traffic, the head of the team is the core of every community, not only the link of transactions and the guarantee of last-mile delivery, but also the after-sales function. Therefore, the head of the team often becomes the key in this competition.
The old farmer is picking fruit
So, how to maintain the stickiness between the head of the team and the platform, prevent the head of the team from being poached, and even how to prevent the head of the team from running away with traffic, is almost every community group buying company needs to think about the problem. Among them, it involves various issues such as benefit distribution, value output, traffic control and so on. "In the final analysis, excellent head of the team is a scarce resource," said a consumer investor who did not want to give his real name.
In mid-2018, Li Kai registered a WeChat account with a feminine nickname and avatar, and then used this WeChat account to sign up for the recruitment of the head of the competitor. Generally, community group buying companies will build a head group in order to facilitate communication and management. Li Kai signed up as the head of the group, and after success, he was pulled into the group, and hundreds of the heads of the group would become the objects he pried away.
In the early days of wall digging, Li Kai used a stupid method: first find the warehouse of the competing product, and then follow the delivery truck of the warehouse all the way to each community, so that almost the head of the entire line would be locked by Li Kai.
In fact, with the intensification of this competition, in the front-line battlefield of competing for traffic, information is becoming more and more transparent. Core secrets such as "contact information of the head of the team" can be bought from the other party’s employees for only a few tens of thousands of yuan.
Obtaining contact information was often only the first step, and how to find success was the key. In order to convince the other party to successfully surrender, they used all kinds of methods, even went to the head of the group’s house, gave them tasting goods, bought toys for the children, helped with housework, and invited them to dinner… After the other party agreed, they continued: "Sister, please introduce me to a few more heads of the group."
Li Kai’s company had sent 40 boxes of fruit worth more than 100 yuan to try out a group leader in Shanghai. It started with one box a day, then changed to two boxes a day, and then increased to three boxes a day, until the other party said: "Don’t send it, I will do it." Later, the group leader became the number one order in East China.
Of course, in order to prevent their leader from being pried away and traffic loss, group buying companies have also come up with various tricks. Dai Shanhui, founder of Food and Enjoy Club, said that all community group owners of Food and Enjoy Club are regular employees of the company. The ownership of the WeChat group belongs to the company, and the leader can be replaced, but the ownership of the WeChat group remains unchanged. This reduces the loss caused by the personal flow.
For example, the community partners would be graded, and the new community partners would have to enter the boot camp for training. At the same time, different levels of community partners would have different assessment criteria and commission ratios. For the top community partners, the Ten Hui Group would sign an exclusive agreement.
You, me, your chairperson Liu Kai
You, me, and you have established a standardized training system for the head of the team, from how to start a group, to how to increase sales, and even how to become a community KOL, the whole path is a set of ladder growth routes. The head of the team with different abilities can receive different guidance. "Most of the head of the team are mothers, and they are very lonely at home. This job allows her to gain money while also improving her social value and family status." Liu Kai, your chairman, said.
An investor who has invested in two leading group buying companies believes that the most important thing to maintain the head of the group is to establish a reasonable balance of interests. "Why is the head of the group willing to work hard for you? The most important thing is that he can make money." This just fits the operating logic of Community Music. Community Music is an internal incubation project of the comprehensive e-commerce platform "Gejia Network". In an interview with the media, Li Xiao, chairperson of Gejia Network, said that he hopes that the head of Community Music can have more income, and other platforms of Gejia Network can simultaneously empower the head of Community Music to ensure that the small district head has at least two or more income.
02 The pursuit of capital
In early September 2018, Changsha had not yet dissipated the midsummer heat, and the cloudy weather for several days was slightly hot. At this time, the Prosperity Preferred team welcomed Xu Xin, the founder of Today Capital, the "Queen of Venture Capital". The track of "community group buying" has been under Xu Xin’s attention for a long time, and the purpose of this trip is to inspect the community e-commerce project hatched within Furong Prosperity – Prosperity Preferred.
Later, Zhou Yingjie, the co-founder of Xingsheng Preferred, recalled that "everyone talked from 2:00 pm to 4:00 am the next day, and both parties were very interested and did not feel tired." In addition to asking in detail about the company’s startup history, operation status, future plans and so on, Xu Xin also asked many pointed questions.
After 14 hours of detailed discussion, Xu Xin signed the TS on the spot. After half a month, the due diligence team of Today’s Capital conducted a comprehensive investigation of the project. At the end of September, the two parties officially signed an investment and financing agreement. Xingsheng Preferred received tens of millions of dollars in financing led by Today’s Capital, Jinshajiang Venture Capital, and Zhen Fund.
From August to December, community group buying financing projects are endless. In addition to the above-mentioned prosperous selection, the financing amount of you and me, Shihui Group, Food and Enjoy Club, and Squirrel fight is more than 100 million yuan, and Community Music has received the largest financing in the industry of 108 million US dollars.
Community group buying project financing overview
For the community group buying project "Ten Hui Group" incubated internally, Chen Ying, founder and CEO of Good Things, believes that in the Ten Hui Group model, community leaders assume more performance functions, and in the future, this group can assume more functions, such as content, training, product selection, etc., and may derive new models.
A first-line investment institution managing partner said that the community group buying model not only has characteristics in user acquisition and relationship maintenance, but also breaks through the original model in the performance of transaction orders, achieving efficiency and cost optimization.
Zhu Xiaohu, managing director of Jinshajiang Venture Capital, which invested in Xingsheng Preferred together with Today Capital and Zhen Fund, once said, "We looked at all the projects and companies, and the logic is very simple. It is established. The main reason why it was difficult for e-commerce to make money in the past was that it had to be shipped one by one, and the logistics cost was very high. The reason why community group buying can rise is because the business model is very healthy. It saves a lot of costs by pulling together the orders of customers in a community at one time, which is to make a profit. In addition, the platform hardly needs to spend money to acquire customers. It allows the head of the team to acquire customers locally, and then finally distributes it, and allows part of the benefits to the head of the team. This model is (attractive) for customers in second- and third-tier cities
For the project, the entry of capital not only provides them with food and ammunition, but also forms a good endorsement for their promotion, thus further obtaining resources and flows.
With the blessing of capital, in order to compete for territory, "mergers" are staged among these companies from time to time. Among them, the most representative is the Food and Enjoy Association, which has merged more than a dozen companies.
"Mergers can make the scale reach a certain number of levels in a short period of time, and it can" come to the table ". [But] it doesn’t help the business model and value itself much." In an interview with the media, Wang Peng, the founder of the Ten Hui Group, put it bluntly.
Still, in the past few months, the region’s top start-ups have all but been carved up. "Now the top groups have been divided almost by everyone," Mr. Wang said. "There are seven provinces that are doing well: Shandong, Henan, Jiangsu, Zhejiang, Jiangxi, Hunan and Hubei. The top three influential companies in each province are the top three, with a total of more than 20 companies, and the division is almost complete."
Regarding the merger, an investor who invested in two group buying companies held a negative view, "In the merger, there are some projects to VC, and several teams are pieced together. You work in Jinan and I work in Wuhan. On the surface, the team can be gathered quickly, but in the future, the cohesion of this team will have a great risk of collapse."
03 Test of operational capabilities
"The core barrier of community group buying is operation, which is stronger than anyone’s fine operation ability," said Yang Ge, founder of Xinghan Capital. Because in Yang Ge’s view, the reason why community group buying appears is the market demand formed by the middle ground after both online and offline are integrated.
Differentiation Analysis of Project Models
Yang Ge said that the integration of business began offline, driven by real estate and brand chains, which was gradually formed and completed two or three decades ago, while in the past ten years, e-commerce plus group buying, and O2O The way to complete the online integration, then there are some local areas, the mobility of offline goods is slow, the degree of commodity standardization needs to be improved, and the logistics cost of the last mile is high, so the buyer’s price sensitivity and convenience have not been satisfied. Therefore, community group buying has been iterated in this middle ground.
But it is not a mainstream model, and its characteristics make it difficult to standardize and integrate. "The culture, degree of standardization, logistics costs, and user preferences of each region are different, so it is more difficult to integrate, and it is difficult to form a big brand and perfect system."
A managing partner of a first-tier capital believes that the most important thing that community group buying companies should have is supply chain capabilities. "Most companies do not have supply chain capabilities. Once they expand across regions or grow in a single city, the specific performance will be huge losses."
From the current situation, several leading projects are born out of large companies with supply chain resources, such as Ten Huituan was incubated from community e-commerce, and about 50% of the supply chain resources in the early days came from having good things; Community Music was incubated from Gejia Network, founder Ma Xintong said that basically all mainstream cities across the country have the basic supply chain of Gejia Network Group, which is enough to support the current front-end business of Community Music.
Ma Xintong, founder of Community Music
According to media reports, there are more than 13,000 convenience stores in the country, and there are many landing convenience stores and supply chain resources. Also starting in Changsha, Xingsheng Preferred chose community convenience stores as sales nodes.
In addition, what kind of category to enter from is also crucial. Since the digestive capacity of the community is limited, up to 20 products can be launched a day. Too many categories and too frequent sales will greatly reduce the benefits. According to the information obtained from the interview, you, me, Squirrel, Neighborhood One, and Ten Huituan all have about 20 SKUs online every day.
At the same time, fresh fruits, as a high-frequency rigid demand category for household consumption, have become the first choice for drainage of various projects. In different seasons, you and I will choose to launch different popular categories such as Aksu apples and Guangxi sugar oranges for drainage; in the early stage of the ten Hui group, it used popular products provided by good things for hot start; similarly, squirrel neighbors, which mainly focus on fresh fruits, snacks, specialty gifts, etc., account for 60% of fresh food; in addition, in order to enhance the revenue of the head of the group and the platform, Community Music has also introduced products with high unit price of home appliances.
Chen Ying, founder and CEO of Good Things, said that the community group buying model is a selected model. When entering second- and third-tier cities, it is difficult to sell fresh food casually purchased from the local wholesale market and sold in the community. Only fresh food with different tastes can cut the market.
04 is essentially a marketing tool
"A lot of times, user experience is not necessarily cost-effective, it may be service ability, it may be emotional consumption, herd psychology, so there is psychology in it, and it may also be some marketing methods," said one investor.
These comprehensive factors have created some capital’s optimism about community group buying tracks. But Yang Ge believes that although community group buying is a good business during this period, its investment value has yet to be verified by the market. In fact, from 2014 to the present, the trends that have emerged are accompanied by some bubbles, and the life cycle of trends is getting shorter and shorter, from last year’s new retail, unmanned retail, to the Mini Program at the beginning of this year.
For investment institutions, the "kinetic energy" and "energy" of a trend are the key to survival time. For example, the "Mini Program" trend that only lasted for four or five months is the behavior of specific companies using specific technology implementation products, so it is difficult to generate large kinetic energy. The "kinetic energy" of community group buying seems to be weaker, because it is the only small business trend formed within this stage after the flow dividend of the entire Internet wave and the business model dividend of the entire (online) group buying fade. Whether this wave of dividends can be used to extend to the upstream and downstream of the industrial chain for more development is a more important test in the future.
Community group buying seems to be more like a marketing method. For brands, promotion through community group buying enhances the liquidity of inventory; for consumers, their price sensitivity is satisfied.
But after all, it is after the Internet dividend, offline business was hit, counterattacked, and then borrowed the Internet idea in this stage of the short-term product. If the entire industry is divided into main vessels, branch vessels and capillaries, then, in recent years, online and offline business has completed the integration of main vessels and branch vessels, the remaining capillaries, is the community group buying the choice of the market.
And these capillaries will eventually be "cleaned up, tied up, and turned into branch vessels," that is, operated by more refined supply chains. Once that happens, the market for community group buying will face greater challenges. "Although it may be a slow process, the entire stock market will gradually shrink," Yang Ge said.
But perhaps, in the future, community group buying will become a tool like group, live broadcast and other traffic acquisition forms, rather than appearing in the form of independent projects, such as future unmanned retail stores can also carry out community promotions.
"In the future, it is very likely to evolve into LBS (Location Based Service), which is a kind of automated placement based on location, or like sharing, it will eventually find that the cost structure is difficult to maintain, and eventually return to online and offline formats." Yang Ge said.
