Community e-commerce continues to evolve

Image source @ Visual China

Text | Retail Business Finance, author | Mr. Dongpo, Editor | Crane Xiang

2021 has ended, the market size of community e-commerce this year is fixed at GMV 300 billion, and the average number of daily pieces has increased from 40 million pieces / day at the beginning of the year to 100 million pieces / day. Looking back on this year, it is definitely an eventful autumn for the community e-commerce track.

Since 2022, Orange Heart Preferred, Jingxi Spelling, and Shihui Group have successively reported the news of a comprehensive all-round shutdown or withdrawal of layoffs in the city, and many Internet companies have opened a "slimming" movement for community e-commerce business, but from the perspective of the current stage of development, meituan preferred, more grocery shopping, Taocai vegetables to preserve strength, adjust the way of play; Xingsheng Preferred has become the only survivor in the "old three groups".

With the cooling of the community e-commerce track and the exit of many players, more and more people realize that community e-commerce pays attention to long-term value, which is a matter that changes the infrastructure and circulation mode of the entire agriculture bit by bit, rather than the industry that can be won by short-term "fighting capital" and "fighting subsidies".

01 Eventful autumn on the track

In 2021, there are not only the rhetoric of Internet companies such as Didi, Pinduoduo, and Meituan that "there is no upper limit for investment", but also the bankruptcy of the "old players" tongcheng life, the food enjoyment will turn to the snack track, the orange heart preferred Guancheng, and the broken arm survival of the Shihui group. The industry burned nearly 100 billion a year, more than half of the players withdrew, compared with the heat of the industry in 2020, the community e-commerce industry in 2021 can be described as "tragic".

In 2021, both the big guys are bowing into the game, Didi's Cheng Wei, Pinduoduo's Abu, Meituan's Chen Liang, Ali's Dai Shan, are the most capable generals in each camp, have personally commanded the battle, so that the competition of the entire track has become extremely fierce; there are still unfulfilled rhetoric, the giants have formulated a strategic goal of GMV of more than 100 billion yuan at the beginning of the year, ready to do a big job, if everyone can complete the goal, the entire industry market size will exceed 600 billion. In the end, Meituan Preferred and Duoduoduoduo competed for supremacy, each with a market share of about 80 billion yuan, and other players such as Xingsheng Preferred, Taocai Cai, Jingxi Spelling, Orange Heart Preferred, and Shihui Group accumulated about 140 billion. Although the overall market is far less than expected, it has increased by more than 3 times year-on-year.

In 2021, both the strong supervision of national policies, the State Administration of Market Supervision and the Ministry of Commerce promulgated the "nine no's" new regulations on community group buying operations, and the regulatory authorities fined a number of platforms for dumping at below-cost prices, etc. People's Daily spoke about it: Domestic Internet giants, don't just worry about a few bundles of cabbage, and small business vendors to grab business; there are also authoritative media such as People's Daily and CCTV News Network on Taocai vegetables and Meituan's preferred reports. The unique model of clearly supporting community e-commerce platforms to let fresh agricultural products catch the Internet express, as well as people-centered business innovations that continuously improve people's well-being, is a good news for the industry, reflecting the renewal and iteration of the community e-commerce industry and gradually moving towards benign development.

In 2021, the industry is so lively, but it is easier to confuse people. Therefore, we must really clarify the logic of the industry through the phenomenon, recognize the essence of business, and look forward to future development, then we must answer six questions clearly:

1. Why does community e-commerce exist and what value does it bring to the industry?

2. Does the business model of community e-commerce have a competitive advantage?

3. Can community e-commerce achieve profitability?

4. Will Internet companies continue to increase investment?

5. What is the key to the success of the community e-commerce campaign, and what is the future direction?

6..Who will win the final victory in the community e-commerce track?

02 What value does it bring to the industry?

The basic logic of community e-commerce is "pre-sale, next-day delivery, and self-pickup", which solves many industry pain points well, which is also the value of the community e-commerce model.

First of all, the inventory problem of fresh retail is solved.

One of the biggest problems with freshness is inventory, which directly leads to high losses. Before the vegetable vendor buys the goods, he does not know how much he can sell today: if the business is good, it is not enough to sell; in case the business is poor, the fresh vegetables spoil quickly, and they are thrown away and wasted. For fresh food, having inventory will inevitably lead to loss, and these wastes will eventually be added to the price of vegetables. The result is that the vegetables bought by consumers are very expensive, the vegetable vendors cannot make money, and finally the society bears a lot of waste.

For example, the cost of only 10-20 yuan / kg of cherries, sold to consumers, it will reach 60-70 yuan / kg. The difference in the middle is mainly broken, not what you eat. Is there a way to reduce inventory? Yes, that's pre-sale.

The pre-sale model has no sales pressure and lower inventory losses, so it can achieve preferential prices, consumers pay less, and farmers can earn more. Through the pre-sale model, community e-commerce can control the loss at about 3%, while the loss of traditional supermarkets, vegetable markets and other models is as high as 30%.

Second, the cost of performance is reduced.

Compared with other traditional fresh e-commerce models in the market, community e-commerce has creatively changed the last-mile "single delivery" link to "collection and distribution mode", which has greatly reduced the cost of performance.

Compared with the 6-7 yuan / piece per single of the final performance link in real time, and the performance cost of 2-3 yuan / piece of express delivery, the community e-commerce platform adopts the unified sorting of the central warehouse, the secondary sorting of the grid warehouse and distribution to the group point, and the user's self-mention mode reduces the performance cost to 1 yuan and below per piece, which improves the performance efficiency and greatly reduces the performance cost.

Improving the efficiency of performance, reducing the cost of performance, and exploring the best balance between timeliness and cost, the transformation of contract performance is one of the key breakthroughs of community e-commerce.

Third, it really reduces the intermediate circulation links, reduces the loss and mark-up.

At present, the community e-commerce platform adopts a 30% proportion of direct source procurement (fresh) or the national general agent (standard), 70% of the sales of a batch of merchants + two batches of merchants (regional, local suppliers) model, compared with the community fresh shop or vegetable market to sell three batches, four batches of merchants to buy goods, saving 2-3 layers of commodity circulation links, improving the efficiency of commodity turnover, to achieve the dual effect of reducing the loss rate and the mark-up rate, compared with the traditional model of more than 50% mark-up rate, the community e-commerce model of the mark-up rate of 20%-25%.

In summary, the "pre-sale + next-day delivery + self-pickup" model, with the help of the Internet platform, with a very low cost the night before the collection of massive pre-sale demand, through high-tech-driven efficient warehousing and logistics, the next day will be delivered to the community, really play the power of this model, so that consumers benefit.

Community e-commerce allows consumers to buy cheaper vegetables, and farmers can make more money, achieving cost reduction and efficiency improvement of the entire industrial chain.

Relying on the support of a strong digital supply chain system, Taocaicai has realized the accurate matching of offline people, goods and fields through digital technology; buying more vegetables to promote the scale of agricultural products, so that an efficient and accurate agricultural supply chain has come into being, solving the problem of agricultural product loss; Meituan Preferred promotes demand to drive supply through efficient performance ability, and supply creates a better dynamic balance of demand, so that urban residents benefit and farmers can increase their income.

03 Does the business model have a competitive advantage?

In the face of the collapse and withdrawal of the community e-commerce veteran players, the large losses of Internet giant players, the defection of grid warehouse franchisees, and the capital from enthusiasm to cold frost, the major media also frequently publish articles on the leader of the group, the grid warehouse, the supplier running away, and lying flat, asking "Is the community e-commerce OK?" Is its business model a pseudo-proposition? ”

To answer the question of whether the business model is valid, it first depends on whether it has enough advantages over its competitors.

The target of community e-commerce is supermarkets and community vegetable stores, because the consumption portraits and commodity composition of the two almost completely coincide. The users are all women, married and child-oriented, focusing on the planned consumption of the kitchen and the family; the product composition is fresh, rice and flour grain and oil, milk drinking water, daily hundred, home cleaning, snacks and so on.

In 2021, the rapid development of community e-commerce will have a huge impact on supermarkets such as Yonghui Supermarket, Renrenle, Hualian, xinhuadu and so on, resulting in the stock prices of these companies being cut off.

Compared with supermarkets, community e-commerce is a regional retail business based on central warehouses, and the supply and performance can cover millions of users within a range of about 200 kilometers, which is an order of magnitude higher than the supply and performance range of supermarkets.

The procurement advantage and circulation efficiency are also much higher than that of supermarkets, and the supply price of offline dealers to community e-commerce is generally lower than that of KA (supermarket) channels and circulation channels; and the proportion of second batch of community e-commerce merchants is less, and the proportion of direct supply of a batch of merchants and places of origin/origin is higher.

In addition, because it is a pre-sale, the platform and the supplier do not have an account period, basically T+1, compared with the traditional channel to the supplier 30-60 days of account period, the capital turnover efficiency is high, the supplier is also willing to give a larger discount price.

In the long run, community e-commerce can achieve about 15% cheaper than the price of supermarkets, and the level of net profit margin is not lower than that of supermarkets. On the whole, the community e-commerce emperor does have more advantages than supermarkets and community restaurants.

04 Is it profitable?

The community e-commerce model can achieve profitability. Of course, certain conditions also need to be met.

From the perspective of the cost structure of community e-commerce, there are mainly three links: commodity, performance and customer acquisition. At present, the overall gross profit margin of the industry is about 15%, and the overall is not high, because the categories operated by community e-commerce are mainly fruits, vegetables and other fresh foods, which are basically high-frequency consumer goods with low gross profit margins; and positioned as a sinking market, the retail price itself is not high. Such a gross profit margin leaves a very limited profit margin for performance and customer acquisition.

Figure / Financial model of the pre-track period

On the customer side, in order to grab the market in the early stage, a large number of subsidies were given, accounting for up to 15%, and almost all profits were eaten. After the introduction of the "nine no's" regulatory policy, the subsidy policy was restricted, coupled with the gradual withdrawal of competitors from the market, the subsidy of the platform was almost gone, and only some promotional means, accounting for 2%. At the same time, in order to win more regimental leaders, the platform initially gave a high commission ratio of 15%, with the growth of the platform, the bargaining power is getting stronger and stronger, and the current commission of the regimental leader is generally maintained at about 10%.

At the performance end, in the early stage, because the management is relatively extensive, the order saturation is not sufficient, the human efficiency and ping efficiency are not high, and the performance cost accounts for about 13%. With the scale effect and management becoming more refined, the proportion of the current performance cost has dropped to about 10%.

In summary, in the early stage of the market development period, the operating profit margin was -28%, which also led to huge losses on the major community e-commerce platforms. With the cancellation of commodity subsidies, the reduction of the commission and performance costs of the head of the group, the operating profit margin increased by 21%, but it was still -7%, although the loss has been greatly narrowed, but it is still unable to make a profit.

So the question is, can we achieve profitability in the future?

Referring to the financial model of Xingsheng Preferred in the more mature markets in Hunan Province, the answer is yes.

First of all, compared with the gross profit margin of the supermarket is about 25%, the gross profit margin of community e-commerce still has 10% room. The key lies in the optimization of categories, at present, the main categories of community e-commerce rely on low-end agricultural products, and the gross profit margin itself is low. In the future, with the construction of cold storage, more frozen and refrigerated foods with high gross profit and high unit price can be increased. Coupled with the expansion of procurement, it can achieve more direct procurement of the place of origin or self-built production warehouse, can continue to reduce the supply link, and the gross profit margin can be achieved to be in line with the supermarket, according to the experience of Prosperity, it is expected to reach 22%.

Secondly, at the fulfillment end, with the continuous expansion of the scale effect, the platform management is more refined, and the use of some automated equipment in the warehousing and logistics links, the human efficiency and ping efficiency will be improved.

At present, the performance cost of a commodity is 1 yuan / piece, and it can achieve 0.7 yuan / piece in the future, and the overall performance cost accounts for 7%. In this way, it is possible to turn a loss into a profit and achieve an operating profit margin of 3%. In fact, Xingsheng Preferred is in the more mature market areas of Hunan Province, and it is already possible to achieve such a financial model.

Figure / Possible future financial model of the track

It can be seen that it is not a fantasy for community e-commerce to achieve profitability. The business model of "pre-sale + self-pickup + next-day delivery" provides a profit possibility for fresh e-commerce companies, and may be the only model that can achieve profitability in the fresh e-commerce track. Referring to the growth curve of the Xingsheng Preferred market, Meituan Preferred expects to be profitable in 2024.

05 Will Internet companies continue to increase investment?

The investment of Internet companies in community e-commerce in the early stage is tens of billions of levels, will such investment continue?

The author believes that although there is a phenomenon of personnel optimization in some community e-commerce enterprises at this stage, this is mostly a temporary measure to deal with multiple factors such as the siege of the epidemic, weak business formats, and sluggish consumption. On the basis of the right business direction, the Investment of Internet giants in the future of community e-commerce is likely to only increase, because this battle is indeed of great significance to the giants.

First of all, for Internet companies, there are not many opportunities for community e-commerce.

Community e-commerce will be the last large-scale battle of physical e-commerce, and such a statement is not empty. China's Internet has entered the second half, and the consumer Internet has also entered the end. For Internet giants, the community e-commerce business is a "once in five, or even once in a decade" opportunity, and can create a new infrastructure for e-commerce. Once the infrastructure is built, there is an opportunity to reach a large number of user groups, and once the new infrastructure is available, there will be the opportunity to create a completely new value chain.

Second, get the needs of sinking users.

Community e-commerce can run from the new front line to towns and even rural areas. According to the data shared by Liu Huiyu, co-founder of Xingsheng Preferred, Xingsheng Preferred has entered 161 prefecture-level cities, 938 county-level cities, 4777 townships and 31405 villages. Commodity categories cover fresh, food, FMCG, kitchen supplies and other mainstream household categories, the frequency can be almost daily, the unit price of customers is about ten yuan. In terms of category, frequency and unit price, community e-commerce is basically equivalent to takeaway, and the potential even exceeds takeaway.

Third, the second curve of the valuation growth of Internet companies.

According to relevant public statistics, the scale of community e-commerce in the fourth quarter of 2021 is about 35 million orders / day (100 million pieces / day), equivalent to: 270% of JD.com in 2021 (13 million singles / day); 100% of online ride-hailing in 2021 (35 million orders / day); 60% of takeaway in 2021 (60 million single / day). From the perspective of time dimension, from the second half of 2020, the giant officially entered the community e-commerce, and the order volume of one and a half years is equivalent to Jingdong's 22 years, Didi's 9 years, and Meituan's takeaway 7 years. This also means that the development and growth rate of community e-commerce business under the same volume is one of the best growth rates of all Internet businesses in China in the past 10 years.

In summary, the original intention and determination of the giants to invest in the community e-commerce track will not change much in 2022, which will inevitably mean a large amount of short-term investment and endure continuous losses.

06 What will be the market pattern?

How to judge the future direction of community e-commerce? The high probability is that small platforms will continue to withdraw, leaving Internet giants alone, and the industry will form 2-3 oligarchs.

From the current trend of the average daily number of pieces of the top four platforms, it can also be seen that the business of other players has continued to reduce and is not worth mentioning, the average number of pieces of Meituan Preferred and Duoduo buying vegetables in December reached 35 million pieces / day, Xingsheng Preferred stabilized at 8 million pieces / day, and Taocai cai came to 10 million pieces / day.

Figure / Trend chart of the average daily number of pieces of the top four platforms (Data: China Merchants Securities)

At the same time, the community e-commerce business is too expensive, the model is too heavy, and the operation is too difficult. How much money does it burn?

Relevant data show that Meituan Preferred was established less than 1 and a half years ago, burning more than 15 billion yuan. And meituan takeaway took 7 years to burn 13 billion yuan. Community e-commerce burns money 6 times faster than takeaway, and may eventually burn 3 times the takeaway money. This is obviously a battle that companies such as Orange Heart Preferred, Prosperity Preferred, Ten Hui Regiment, Tongcheng Life, and Food Enjoyment Club cannot afford.

How many patterns are there?

The warehouse allocation system of community e-commerce should sink to townships and rural areas, and what to do is to expand the similar work with Jingdong Logistics by 5-10 times, and to solve the cold chain problem of fresh performance, which shows that there will be more to do.

How hard is it to operate?

On the commodity side, it is necessary to overcome fresh commodities that are highly dispersed, non-standard, easy to wear and tear, and low gross profit. At the end of the performance of the contract, sinking to the township and rural areas also needs to solve the different needs of normal temperature, refrigeration, and freezing of the warehouse allocation infrastructure. On the user side, it is necessary to grab users in a well-competitive traffic market.

In summary, community e-commerce may be one of the most difficult projects in the history of the Internet, and it does require the top Internet companies to do a good job.

After experiencing the stage of seizing the city, opening positions, and pulling franchises, the current head player has basically completed the full coverage of provinces and prefecture-level cities across the country, the horizontal layout has been completed, and in the future, players will sink like a more vertical sinking county and township market, while lean operations improve efficiency, reduce costs, maintain existing urban positions, and maintain stable development is an important issue.

From the data point of view, 2021 compared with 2020 the market tripled, 2022 is expected to fall back to 40% -70% between the growth rate, the entire market size between 420 billion -510 billion, the average number of daily pieces of about 150 million.

07 Where are the winners?

The competition of community e-commerce is a marathon long-distance run, the daily single volume and the GMV lead are temporary, the victory or defeat of this battle lies in endurance, and the key to endurance is the supply chain.

Judging from the development of fresh retail in the past few years, it is difficult to form barriers for simple model innovation, and it is easy to be imitated by opponents with greater traffic and financial strength, and only by deeply cultivating the supply chain can we enhance profit margins and establish core competitive advantages.

Supply chain management mainly involves commodity organization and product procurement, "central warehouse - grid station - group leader / pick-up point" warehouse logistics and user self-pick-up three links, and the optimization of these three links is also the key to the community e-commerce model to run smoothly.

Warehousing and logistics is the core link of the supply chain and the key to the long-term success of the community e-commerce model. In the community e-commerce business, warehousing logistics from the central warehouse sorting, packaging, loading - grid station pick-up / secondary sorting - self-pick-up point pick-up / shelf of the whole process, the performance cost behind it is the largest cost item in the community e-commerce model, so efficient performance to improve profit margin is the key to platform competitiveness.

From the perspective of logistics operation, the entire community e-commerce is divided into three major links: the first link is the central warehouse collection and sorting; the second link is the sorting of the grid warehouse; the third link is the consumer through the pick-up point to complete the final distribution and distribution of goods. The central warehouse is one of the most important links, which is essentially to complete the role of "centralized order production + order fulfillment", as the connection position between the supplier's goods and the grid warehouse, it is the centralized circulation center of all goods, the operation of the chain directly affects the performance time and commodity difference rate, and is the only link for the platform. The key to upgrading the supply chain is to be able to reconstruct the infrastructure of the industry.

In general, community e-commerce starts from the innovation of business models and the upgrading of warehousing and distribution systems, and will finally reconstruct the construction of new infrastructure in the industry.

Why do I need to refactor? Because the warehousing and logistics system of community e-commerce is completely different from the traditional e-commerce model.

First of all, the role of the community e-commerce center warehouse and the grid warehouse is only to transfer the warehouse, and it requires "Nissin", so the speed of commodity processing is required to be fast, and the basic requirements are to complete the warehouse operation within 2-5 hours, and it is basically processed at night.

Secondly, community e-commerce products are more non-standard, fresh is currently the largest proportion of categories, non-standard goods can not be efficiently sorted and processed through traditional automation.

In addition, the orders for all these goods are sorted according to the smallest unit of pieces, and the orders are very scattered, so it is difficult to solve the problem of order standardization, which makes it rare to use traditional automated conveying and sorting equipment. The construction of community e-commerce warehousing and logistics infrastructure is completely different from traditional warehousing and logistics, even Jingdong, when laying out the "Jingxi Pinnacle" community e-commerce business, it is also necessary to reconstruct the logistics warehousing system.

At this stage, each platform has its own advantages and understanding and positioning of community e-commerce, which will slowly reflect its advantages in long-term competition.

Alibaba is an enterprise with a far-reaching layout for digital agriculture.

The competitive chip of Taocai vegetables is to build a community "a quarter of an hour to facilitate the people and benefit the people's wisdom community life circle" on the front end, relying on millions of small shops to provide more affordable and good goods for the people; in the back end, help farmers increase their income, so that farmers and small shops can get rich together.

Through flexible site selection, effective control of cost and efficiency of batch performance of self-pick-up, to provide consumers with nearly a thousand kinds of daily high-consumption commodity list, Taocaicai has a very clear choice of goods and positions from the first day of its birth. With the continuous improvement of the fresh supply chain system, the delivery rate of Taocai before 12 o'clock ranks first among all platforms. Overall, Alibaba sees it as a long-term business and a business that creates value for users.

Pinduoduo focuses its development on the deep cultivation of the sinking market. Buying more vegetables to expand sales channels for high-quality agricultural products will also help improve the ability of relevant entities in China's agricultural industry chain to cope with risks, thereby significantly reducing the vulnerability of the industrial chain.

Compared with other Internet players, the biggest advantage of Meituan is that the front and back ends are more balanced, with strong learning ability and strong funds. The advantages of Meituan's preferred choice are fully reflected in its ground pushing ability, performance ability, agent control ability, scale ability and multi-service collaboration ability.

There is no doubt about the profitability of Xingsheng Preferred Region, but with the entry of Internet companies, community e-commerce has changed from a regional war to a national war. At present, Xingsheng Preferred is expanding its categories and developing in the direction of "online supermarket + next-day self-pickup".

In the long run, the ultimate wrestling force of community e-commerce is not a price war, but the laying of new infrastructure, which can reduce costs and increase efficiency from all aspects and achieve new value creation for the industrial chain. The "winning hand" between the giants also depends on the application of technology. Whoever can redefine community e-commerce will eventually dominate the end of the industry.