Duoduo Grocery and Meituan Preferred continued to reduce losses, and the focus of community group buying shifted to profitability

Profit first, survive, and then fight.

Text丨Shen Fangwei

Editor丨Guan Yiwen

After four years of hard work for growth and scale, the only two remaining national players in the community group buying track, Duoduo Grocery and Meituan Preferred, have entered a new stage of profitability as the first priority in 2024.

"LatePost" learned that the loss of Meituan's preferred plan for the whole year of 2024 will be controlled at 10 billion to 12 billion yuan, a decrease of 8 billion to 10 billion yuan from the previous year. Duoduo plans to cut labor costs in half by 2024, from 4 billion yuan to around 2 billion yuan, while continuing to reduce costs from other aspects.

At present, Meituan's operating loss ratio has shrunk from more than 20 points to 10-15 points, and Duoduo's operating loss ratio has shrunk to a single-digit percentage, which means that with further cost reduction, Duoduo is expected to achieve profitability faster this year.

In 2023, both platforms are still trying to increase turnover and market share, but in the end, neither platform has achieved its expected growth targets. Previously, Duoduo Grocery planned to complete a turnover of 250 billion yuan, which was actually completed of about 190 billion yuan, and Meituan Preferred planned to complete 200 billion yuan, which was actually completed of about 140 billion yuan.

Both platforms have shifted their primary goal from the pursuit of scale to loss reduction, and the core is that the market in which the community group buying industry is located no longer has significant growth. In 2023, both platforms are trying to enter the deeper rural market, expanding their services to village-level administrative units that have not been covered before.

By the end of 2023, Pinduoduo's average daily order volume will remain stable at 40 million to 45 million orders, and Meituan Optimal will be at 35 million to 40 million orders, with no significant growth on both sides and no change in the market structure.

According to an industry analyst, the two platforms have attracted more than 800 million users to use community group buying, which is equivalent to about 75% of China's Internet users who have used community group buying, and the overall order volume is about 80 million, which is close to the ceiling.

Now, in order to make a profit, both companies need to face a certain degree of decline in order to make a profit. During the 2024 Spring Festival, Duoduo and Meituan Preferred saw a 10%-20% decline in orders in many regions across the country. A number of people from Pinduoduo and Meituan said that the headquarters no longer prioritized the number of orders, and the focus has shifted more to gross profit margin.

The specific loss reduction actions of the two companies have been implemented from the fourth quarter of 2023 and will be strengthened this year.

From people and processes to goods, every step of the way is as cost-effective as possible

When there was still an increase in the market, the two companies had different ways to do growth, and today they returned to reduce losses, and they could do similar things, from people, processes to goods, to reduce costs as much as possible in all aspects.

Starting in early 2023, the heads of all provinces and regions across the country who had previously gone to Duoduo from the headquarters to buy vegetables were successively sent to Temu, Pinduoduo's overseas business, and the heads of the provinces and regions took away a group of key employees who bought vegetables. Since then, the number of production and research personnel at Pinduoduo headquarters to support Duoduo has also continued to decrease. Since the second half of last year, employees who have been sent to Duoduo from the headquarters in the early years have been notified that they need to find opportunities to transfer to Temu or the main station.

A person from Pinduoduo said that Duoduo Grocery currently focuses on optimizing management and operating costs, including replacing Duoduo Grocery employees with fresh graduates and social recruitment employees, and replacing employees with employees with local recruitment and grocery shopping management trainees, so as to control salary expenses and reduce labor costs.

Meituan's labor cost control is also under great pressure. In the past few years, Meituan has insisted on heavy investment, and even after several rounds of adjustments, it still directly employs about 15,000 employees, more than double the number of people who buy groceries in Duoduo. This year, Meituan plans to reduce labor costs by merging or closing some warehouses, eliminating redundant positions, and improving labor efficiency.

In the past, platforms competed for core indicators such as delivery speed, category richness, and consumer experience. These indicators can now be compromised in the face of the first priority targets for loss reduction.

Since the third quarter of last year, both platforms have chosen to close or merge some regional central warehouses, and at the same time reduce commission rates for central warehouses, drivers, and group points.

In 2023, Duoduo will divide nearly 30 provinces and regions across the country into 78 independent business units, giving local managers more decision-making power, requiring them to take care of their own profits and make profits as soon as possible. Since then, most provinces and regions have chosen to reduce the number of fresh products and put more high-margin products on the shelves, such as small household appliances, clothing, beauty, adult products, etc.

Meituan's preferred headquarters management model from the central government to the region makes its product selection more cautious. At present, Meituan still insists on selling a certain percentage of fresh products, but has also begun to shift to products with larger specifications, while increasing the number of grocery products with high gross margins.

According to people close to Meituan, Meituan's pursuit of gross profit is implemented in each product, requiring that the products on the shelves of each category cannot be lower than the specified gross profit level, and the account of a product must be calculated to every penny, ensuring that no money is lost or less money.

In terms of process, Duoduo has greatly reduced the number of employees in quality control and quality inspection positions in many provinces and regions across the country. A person who buys many vegetables understands that "the risk of fresh products in transit is uncontrollable, and instead of managing the circulation process, it is better to directly refund users only." ”

Regarding the actions of competitors, the above-mentioned people close to Meituan believe that Meituan Optimal has noticed the more aggressive refund-only strategy of its competitors, and will not rule out learning to buy more groceries in the future and launching a more extreme refund-only policy.

Since its launch, in order to seek growth, the two companies have retained low-priced products with a dime or a yuan for a long time. A number of people from the two companies believe that at this stage, these products have limited help to attract new customers, but have facilitated some users who specialize in wool, which has brought a lot of losses to the company. Today, such products are still sold in small quantities in Duoduo, and have been basically stopped in Meituan.

In the view of the above-mentioned people, the two companies have reached a consensus on loss reduction, with clear goals and consistent paths.

It is difficult to do a fresh business, hundreds of billions of dollars in tuition fees

In 2020, when the community group buying war was on the rise, major internet companies wanted to use this new fresh food retail model to operate high-frequency fresh groceries and then cut into offline retail.

At that time, the market was highly optimistic about community group buying because users placed orders in advance to lock in inventory, reducing goods loss and inventory pressure, and through centralized distribution and self-pickup, reducing logistics costs - this model gave the platform the opportunity to enter the most difficult to penetrate market in the past at the lowest cost.

Large companies want to cultivate more consumer buying habits to buy groceries first and then gradually switch to buying everything in order to expand their business boundaries, and the capital market sees the possibility of another trillion yuan in market size.

At that time, the fresh food retail model that was also pinned on by the capital market also included the front-end warehouse model represented by Daily Youxian and Dingdong Grocery Shopping, and the store-warehouse integrated model represented by Freshippo, but these models were more suitable for first- and second-tier cities and could not cover more lower-tier cities.

With the passage of time, the failure of Daily Youxian to leave the market, the sharp contraction of Dingdong grocery shopping, the exploration of discount retail formats and the learning of Sam's to transform the supply chain system, and the community group buying platform have also begun to accept the reality, in the face of huge non-standard demand, they cannot achieve scale, and it is difficult to transform the fresh supply chain in a short time.

Large companies have paid hundreds of billions of yuan in tuition fees, Didi, JD.com, Alibaba and other companies have died down, and the main players in the market are now only Duoduo Food, Meituan Preferred, and Xingsheng Preferred, which today seek to make a profit by selling more grocery products.

So far, one of the few successful grocery models has been the Sam's and Costco models, which have voluntarily abandoned the larger consumer market to focus on pursuing a subset of consumers with more purchasing power, locking in deterministic demand and transforming the supply chain system to achieve economies of scale.

Community group buying can still sell relatively low-priced products at the moment, but this is based on the company's continued losses. When they begin to pursue profitability and continue to increase gross profits, the richness of goods and low prices they provide may not be very competitive compared with regional offline retailers and online e-commerce platforms.

Meituan Preferred was founded less than four years ago, and as of the end of 2023, more people have used it than ordered Meituan takeaway, which is Meituan's core business and has been in business for 11 years.

The fresh food field, which has keywords such as "high frequency", "massive users" and "huge market", may never be a good business for platform companies that are accustomed to scale dividends. Although they were all mentally prepared to bend down to pick up the steel hammer today, it was not what they were best at.

Image source: Visual China