In the past few years, the competition in community group buying was fierce, and Pinduoduo and Meituan fought hand-to-hand, and both parties were determined to "set no upper limit on investment" in community group buying. Time has passed, and the rhetoric of the past must return to reality. Meituan's choice to reduce costs and increase efficiency, and to buy more groceries to demand positive gross profits, from radical expansion to comprehensive loss reduction, the Internet giant's adjustment to comply with the regulatory, market environment and its own strategic requirements may mean that the giant's vision of the "ideal paradigm" of community group buying has been completely shattered.
At the end of 2020, the fierce battle for community group buying was in full swing, with Duoduo Maicai besieging the main market of Xingsheng Preferred, Meituan Preferentially completing the "Thousand Cities Plan" within three months, and the founders of both sides also highly affirmed the progress of the new business.
In an internal speech on the fifth anniversary of Pinduoduo's establishment, Huang Zheng specifically mentioned the Duoduo grocery business, which has only been established for a few months, and gave high expectations for the new business: grocery shopping is a good business...... It is also the touchstone of our Pinduo people.
By the first quarter of 2021, Wang Xing highly recognized Meituan Optimal on the earnings call, calling it a "once-in-five-year, or even once-in-a-decade opportunity." He believes that community group buying will build a new e-commerce infrastructure, and once the infrastructure is completed, Meituan will have the opportunity to reach a large number of user groups.
Of course, behind the duel between Huang Zheng and Wang Xing is the determination of the two giants to "set no upper limit on investment" in community group buying.
Time has passed, and the rhetoric of the past must return to reality.
According to Meituan's 2023 financial report, the operating loss of new businesses, including Meituan Preferred, reached 20.2 billion yuan, a year-on-year decrease of 28.9%, but Meituan's growth slowed down because the scale growth was lower than expected, which made it difficult to reduce the average performance cost of the piece, and the fierce market competition made it more difficult to increase the markup rate of goods and reduce subsidies.
Meituan said in its financial report that in 2024, Meituan Optimal will adjust its strategy, with the goal of significantly reducing operating losses, planning to increase the markup rate of goods and reduce subsidies, and pay more attention to the long-term growth of user natural retention.
In March this year, Meituan Preferred suspended 10 central warehouses to further reduce costs and increase efficiency.
The loss reduction strategy of buying more groceries is more obvious. According to the long-term tracking of the author of Dige.com, since last year, Duoduo Grocery has more strict requirements for positive gross profit on the commodity side, and compared with Meituan's preferential relaxation of the requirements for commodity gross profit during the "Summer Charge", Duoduo Buy's gross profit will increase by 25%-30% for a large number of products.
According to the data of community group buying suppliers in many places, the gross profit of core products is basically within 5% during the Meituan Preferred All Category Promotion every Thursday, while the gross profit of Duoduo Grocery is about 20%-45% year-on-year.
The adjustment made by Internet giants in response to regulatory, market environment and their own strategic requirements from radical expansion to comprehensive loss reduction in community group buying may mean that the giants' vision of the "ideal paradigm" of community group buying has been completely shattered.
1. Ideal paradigm
Prior to the community group buying business, Pinduoduo had been continuing to promote the upward movement of agricultural products to directly connect agricultural producers and consumers, and Meituan had also successively launched businesses such as Little Elephant Fresh (now suspended) and Meituan Grocery (now renamed Little Elephant Supermarket) to develop fresh food products.
According to Euromonitor, the online rate of domestic fresh food products in 2021 was only 6.9%, which is lower than that of other mainstream consumer goods. Meituan and Pinduoduo are trying to sell fresh food online, and there is indeed a huge market space, but the resistance is also great.
On the one hand, the logistics infrastructure of most counties and villages in China is not perfect, and the fresh food itself is not easy to store non-standard products, warehouses and vehicles may not meet the standards of fresh performance, and the link construction of direct supply of agricultural products means high performance costs, which is also an important reason why traditional e-commerce has been unable to open up fresh products.
On the other hand, the upfront investment cost of self-built physical stores and front-end warehouses is very high, and the opening of offline stores by Internet giants is like a "gamble".
However, the community group buying model can effectively solve the pain points of scale expansion and logistics fulfillment.
The community group buying adopts the "social collaboration" model, with the central warehouse being leased from a professional logistics park, the grid warehouse adopting a franchise system, the fulfillment vehicles being managed by the franchisee itself, and the self-pickup point being directly converted from the existing street shops. Internet giants are no longer obsessed with the "self-oriented" fully self-operated model, which greatly reduces the cost of market expansion and fulfillment.
In particular, from small counties on the border to small fishing villages near the sea, community group buying has truly allowed the Internet model to penetrate into counties, towns and villages, which is a goal that takeaway and online car-hailing have failed to achieve.
Of course, due to the fact that community group buying mainly faces the sinking market and the logistics cost is low, the platform has focused on low prices since its inception, and cases of "0.01 yuan seckill" and "0.99 yuan four eggs" are not uncommon.
The e-commerce platform achieves low prices, and direct supply from the source is an ideal path, so as to save circulation costs, eliminate unnecessary intermediate links, and truly make profits for source suppliers;
According to the author's research on the community group buying market in the past two years, some dealers have quoted "flat in and flat out" to the community group buying platform, without any profit margin.
Taking agricultural products as an example, the prices of fresh fruits and vegetables are often floating, and they are two prices in different seasons and even rainy and sunny days, but once the price of the community group buying platform is locked, it is basically not subject to external factors, and multiple suppliers bid together, and finally "the lowest price wins".
However, capital subsidies are only a short-term strategy, and direct supply at the source is long-termism, and the platform is also working hard to achieve this ultimate goal.
In the middle of 2021, the author of Dige.com participated in a supplier investment conference for buying more groceries, and the procurement also hoped that suppliers could follow the platform to work together to the source of supply.
Direct supply from the source of all categories is the ideal of abundance, but the reality is far more cruel than the platform expected.
Second, the moment of broken dreams
The first major turning point in the industry occurred in the summer of 2021, when various platforms of community group buying responded to the regulation, stopped excessive subsidies, and bid farewell to the historical stage of the normalized "0.01 yuan seckill".
In fact, low commodity prices and drainage of fresh products are the short-term strategies of community group buying platforms, and according to the performance path and market scale of community group buying in the sinking market, it is entirely possible for the platform to reshape physical e-commerce. At that time, Xingsheng Preferred had already begun to sell mobile phones, small household appliances and other products in Hunan.
However, it is undeniable that Internet giants have brought the Internet model to community group buying, and in the early stage, in order to seize market share, they had to stimulate consumers with low prices, which also shaped consumers' low-price mentality towards community group buying, as well as the supply strategy of suppliers "without serious quality problems".
In addition, although Meituan Optimal and Duoduo Grocery had covered more than 2,600 counties and cities across the country at that time, the consumption habits of community group buying were far from deep enough due to the diversion of consumption scenarios such as supermarkets, wet markets and pre-warehouses, and the "next-day delivery" model was more suitable for some of the needs of planned procurement.
The lack of in-depth consumption habits means that the growth of GMV is slow or less than expected, but if GMV can maintain a healthy and stable continuous growth, it can increase the bargaining power of the platform over the upstream supply chain, which is a necessary condition for realizing the direct supply link at the source, and also provides the possibility for community group buying to change the traditional circulation link.
However, contrary to expectations, according to "LatePost", in 2023, Duoduo plans to complete a turnover of 250 billion yuan, achieving a turnover of about 190 billion yuan, and Meituan Preferred plans to complete 200 billion yuan, and actually completing about 140 billion yuan.
With the changes in the general environment of Internet cost reduction and efficiency increase, giants have gradually stopped expanding new businesses, and the loss reduction strategy of community group buying is "about to emerge".
Not only has the external environment changed, but the giants have also reduced their internal investment in community group buying and invested in other businesses.
In the past Q4 of 2023, the average daily order volume of Meituan's flash sales reached 8.3 million, a record high, and the flash sale is rooted in Meituan's operational experience and fulfillment capabilities in the food delivery business, and the demand is running fast, with the daily order volume of flash sales in the fourth quarter reaching 14.5% of the takeaway, and its GTV (total transaction value) has exceeded 20% of the takeaway because of the higher customer unit price.
Meituan needs to vigorously develop Meituan flash sales, which has stronger business synergies, to maintain its No. 1 position in the instant delivery market, and also invest more resources to meet a more versatile competitor - Douyin.
The same is true for Pinduoduo, where Temu has become a strong second growth curve, driving Pinduoduo's transaction services (commission) revenue to grow much faster than online marketing services (advertising) revenue in the fourth quarter of last year. According to HSBC's March report, Temu contributed 23% of Pinduoduo's total revenue in 2023.
On the contrary, Duoduo Grocery was originally scheduled to launch its local life business after the Spring Festival this year, but the project has now been completely suspended.
In today's market environment, Internet companies are more cautious in the allocation of resources and investment in internal business, while community group buying without investment has lost its growth engine, and it is even more difficult to achieve the ideal link of comprehensive direct supply from the source under the condition that consumption habits are not deep enough, and finally the platform falls into a vicious circle of "low quality and low price" of goods and no internal motivation to change the status quo.
A vigorous experiment in the community group buying model, after the Internet giants have invested hundreds of billions of funds and a number of new and old platforms have left the market one after another, they still have not been able to get through the initial ideal paradigm;
Similar stories have happened in the past, and they may continue to happen in other areas in the future.
Columnist
IT Friends, WeChat public account: IT Friends, everyone is a product manager columnist. Guarding professionalism, long-term focus on community e-commerce and new consumption fields
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