Group-buying faces challenges, market snub

Discounts target neighborhoods as grocery shoppers keep social distances

The popularity of community group-buying, in which neighborhood residents receive discounts on bulk buying online, is increasing among China's tech-savvy consumers. But the emerging sector needs to deal with certain challenges, besides playing a responsible role in society, industry experts said.

Given the experience of the COVID-19 pandemic, many consumers prefer the convenience of e-commerce as it helps reduce visits to shops and supermarkets, cut down exposure to public places and minimize physical contact with others and objects.

Industry experts said group-buying is seen mostly in scenarios where demand is steady, like high-frequency grocery consumption. It is set to become a new battlefield for technology titans. E-commerce behemoths are constantly seeking new growth engines like group-buying.

But, in early stock-market trading on Monday in China, shares of listed companies that offer group-buying plummeted.

Market mavens attributed the fall to an article in Chinese-language People's Daily on Friday noting that internet-based companies should not just think in terms of boosting sales of a few bundles of cabbage or a few crates of fruit, but undertake more responsibility for promoting scientific and technological innovation.

At a meeting on Friday, the Political Bureau of the Communist Party of China Central Committee called for intensifying measures to curb monopolies and prevent disordered capital investment.

Industry experts said logistics capacity, profitability and the need to ensure good quality of products are key to growing the number of new users.

Shares of Zhanjiang Guolian Aquatic Products Co Ltd dropped 3.4 percent to close at 5.68 yuan (90 cents), while CNFC Overseas Fisheries Co Ltd plummeted 4.69 percent. The prices of on-demand service provider Meituan Dianping fell 3.81 percent.

A string of Chinese internet-based giants including e-commerce behemoths Alibaba Group Holding Ltd and JD, online group discounter Pinduoduo Inc, on-demand service provider Meituan Dianping and ride-hailing company Didi Chuxing have made big-ticket investments in the fast-growing segment of group-buying.

JD announced on Friday evening it will invest $700 million in Xingsheng Selected, a Hunan province-based online grocery startup. The two partners will cooperate in the fields of data, technology, supply chains and logistics, JD said.

Liao Jianwen, chief strategy officer of JD, said they aim to use technology and supply chain capability to empower offline stores, especially those in underdeveloped areas, and to help shopkeepers in low-tier markets reduce costs and improve operating efficiency.

Duoduo Maicai was introduced by Pinduoduo in response to surging demand for purchasing vegetables, fruits and other daily necessities online during the COVID-19 pandemic. Launched first in Wuhan, Hubei province, and Nanchang, Jiangxi province, in August, this service is now available in many lower-tier cities across the nation.

Consumers can place an order for groceries through the app at a lower price and pick up their goods the next day at designated pick-up points in communities.

To improve the supply chain efficiency, the company has invested heavily in optimizing logistics, delivery and warehousing by working with millions of farmers, merchants and logistics providers. It has developed a nationwide and regional agricultural logistics system to meet the different needs of consumers.

Meituan Dianping has launched a community group-purchase model called Meituan Select, which mainly aims at lower-tier cities, and sells fresh foods, including fruits and vegetables, meat, poultry, eggs, snacks, alcohol and beverages at steep discounts. So far, the program has covered more than 20 provinces across the nation.

The community leaders are playing a vital role in the community group-buying model. They create WeChat groups, post product links for residents in the same community, place group orders with suppliers and have items delivered to pick-up spots in the community.

They will receive commissions based on how many orders are made. Online platforms are also competing for these community leaders fiercely.

"The pandemic has given a big boost to the development of community group-buying models, which is gaining traction in lower-tier cities where people have enough purchasing power, and their relationship within one community is tight," said Mo Daiqing, a senior analyst at the Internet Economy Institute, adding this new model is expanding to first-and second-tier cities quickly.

Mo said community group-buying is a kind of sharing economy. Apart from providing pre-sale and after-sale services, it solves the last-mile delivery problem, and competition in this burgeoning sector has intensified, she said.

Data from market consultancy iiMedia Research showed the revenue of the country's community group-buying market will surge nearly 112 percent year-on-year to 72 billion yuan this year. This figure is expected to rise to 102 billion yuan in 2022.

The group-buying model faces many challenges, experts said.

"More efforts are needed for these online platforms to improve the construction of supply chains and ensure the quality of the products strictly, while taking control of the costs, as the gross profit margin of this model is relatively low," said Zhao Yue, an analyst at Beijing-based internet consultancy Analysys.

These internet giants should also provide differentiated goods and strengthen the professional training for community leaders, whose loyalty and operational capacity might be low, Zhao said.

Pan Helin, executive director of the Digital Economy Academy of the Zhongnan University of Economics and Law, said: "Once the users' consumption habits have been established, the new business model will greatly enhance user activity, drive the consumption of products on the platforms, and become an important channel for internet companies to gain new user traffic."

Pan also said as the penetration rate of the internet is increasing and the number of people that use location-based online services for daily essentials continues to expand, community group-purchase will be a very critical consumption scenario.

About 60 percent of community group-buying platform users are from the country's lower-tier cities and rural areas, according to data from market consultancy Quest Mobile.

"Compared with traditional brick-and-mortar stores, these online platforms have gained an upper hand in obtaining massive user traffic and their requirements for commodities," said Zhang Shule, an independent commentator in the IT and video game industry.

He also said the platforms should utilize big data technology to produce community-level portraits and accurately predict and satisfy users' needs.