The traffic anxiety of giants

2019 is a year of reshuffle of community group buying. In addition to the squirrel fight, at the end of 2019, fresh food e-commerce Daradish announced that it was in crisis, and the community group buying platform “Xianlaiduo” jointly invested by JD and Mogujie also withdrew from the community group buying market. But if the radish and squirrels can survive 2019, the ending may be very different.

In 2020, a new crown pneumonia epidemic has cultivated the consumption habit of people across the country to buy food online, helped the fresh food e-commerce company with the pre-warehouse model such as Daily Youxian solve the profit problem, and also saved the community struggling with life and death. Group buying company. During the epidemic, Xingsheng Optimum’s new user rate was 4 times that of normal, and the average store order volume increased by 3 times.

On the other side, Internet giants that have gone through waves of turmoil are falling into new traffic anxiety. Traffic is the most important asset of an Internet company, but after years of development, the traffic portal of the Internet world has basically been divided up. At the beginning of this century, the earliest traffic portals were portals and search engines. In this wave, established Internet giants such as Sohu, Sina, NetEase, Tencent and Baidu were born, and then e-commerce platforms such as Taobao and JD.com rose. Since 2012, the mobile Internet has entered the era of rapid development. We have witnessed rounds of mobile payment platform wars, takeaway wars, online car-hailing wars, shared bicycle wars, and short video platform wars. From these outlets, Alipay, Emerging Internet giants such as Meituan, Didi, Douyin, and Kuaishou…In the past two years, the traffic growth of these portals has been close to peaking. The giants have coincidentally focused on the “private domains” represented by the circle of friends and WeChat groups. flow”. The rise of Pinduoduo not only allowed the giants to see the potential of sinking the market, but also strengthened their confidence in tapping private domain traffic.

Didi is an Internet giant that entered the community e-commerce track earlier, and began to explore the feasibility of the community group buying model as early as the second half of 2019. The epidemic has accelerated the advancement of the Orange Heart Selection Project. During the epidemic, users could not go out. Didi organized a medical team and a community security team in Wuhan to pick up medical staff and help community residents buy daily necessities. “At that time, we discovered that Didi drivers could provide services such as helping neighbors to buy things, which deepened our understanding of community e-commerce.” The relevant person in charge of Orange Heart Optimal said to a reporter from Caijing.

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Didi began intensive discussions on community group buying in March of this year. In April, it entered Hunan for research and found that this is a commercial cut that can achieve large-scale and extremely high user penetration, and its business covers cities and towns from the provincial and municipal levels. “Such a large business scale and user group are places where Didi did not have deep coverage before. Based on market conditions and business model potential, we are finally determined to do community group buying.” He said.

Currently, Orange Heart Optimal has been launched in 20 provinces and cities.

Followed by Meituan. In July of this year, Meituan issued an organizational adjustment announcement stating: In order to further explore the community’s fresh food retail format, meet differentiated consumer needs, and promote the accelerated integration of fresh food retail online and offline, it will establish a “preferred business department” and enter the community group buying track . The “Optimal Division” launched the community group buying business “Meituan Optimal”, focusing on the sinking market, adopting the “pre-purchase + self-pickup” model, empowering community convenience stores, and selecting cost-effective fruits and vegetables, meat and poultry for community family users Eggs, dairy products, beverages, household kitchen and bathroom products. The user places an order online on the same day and the store picks it up the next day.

Pinduoduo’s community group buying project “Duo Duo Cai” was officially launched in Wuhan and Nanchang in August this year. Hema, a subsidiary of Ali, established the Hema Optimal Business Unit in mid-September this year and officially entered the community group buying track. Jingdong entered the game late, and it was not until the end of November that Liu Qiangdong personally led the team, but then quickly announced that the leading company in the field of strategic investment of $700 million in community group buying was thriving and preferred. Shihui Group, another leading company on the track, has completed 4 rounds of financing in 2020, and Alibaba led the investment in the last two.

Yang Ge, the founding partner of Xinghan Capital, has extensive investment experience in the consumer sector. He told the Caijing reporter that the key to the re-emergence of community group buying lies in the shift from the public domain to the private domain for traffic competition. “There is such a trend in both the Internet and consumption. The original supermarkets and e-commerce companies want to gradually move towards private domain traffic.” Yang Ge said.

Yang Ge believes that in the past, the giants were a bit disdainful of community group buying because it has not yet established a truly standardized, systematic, and large-scale system. It has higher requirements for cost efficiency and more difficult business models. However, in recent years, the public domain traffic field of e-commerce has formed a three-pronged pattern of Ali, JD, and Pinduoduo, which is easily difficult for new players to shake. The meat is eaten up, and what is left is the difficult “bone” of community group buying.

In other words, for-profit companies value not the petty profits of selling vegetables—they can’t make money at this stage—but that they can harvest the e-commerce potential condensed in each community after they quickly occupy the market.

Need to reflect under fierce competition

Before “People’s Daily” poured cold water on community group buying, the competition among community group buying platforms had reached a fierce stage.

Wang Feng (pseudonym) started operating community group buying around the end of October this year. There are currently five group buying outlets in Changsha, taking into account platforms such as Orange Heart Selection, Duoduo Shopping, Meituan Selection, Xingsheng Selection, and Shihui Group. He told a reporter from Caijing that community group buying is blooming everywhere in Changsha, and competition among delegation leaders is fierce. In many communities, five or six group leaders are doing it at the same time. 10 meters away from his store, there is another group buying point.

In the fierce competition, the gameplay of the giants is still consistent with the original thinking in the battles of online car-hailing, takeaway, and shared bicycles: burning money subsidies and rapid expansion. Open the apps and small programs of community group buying platforms such as Orange Heart Optimal and Duoduomai. There are four newcomers’ exclusive price eggs for 1 cent, and yellow heart potatoes for 1.24 yuan a pound. An investor who pays attention to the fresh food sector calculates that the current average price of community group buying is generally 20% lower than the retail price of the vegetable market.

Due to the co-ordination of giants, the price of group-buying vegetables is often lower than that in the vegetable market. The strong subsidies in the Hundred Regiment Wars have allowed consumers to reap benefits. Just how long this low-price strategy can last is still unknown.

The fight for the leader also requires burning money. The group leader is the core resource of the community group buying platform and the direct entrance to traffic. But on the other hand, “the leader is very disloyal,” Cheng Xiaoyun said, “it is very likely that he will connect to several platforms at the same time, and may start to belong to your traffic. You work hard to maintain it, but in the end it does not belong to you. “Rong Jian said that the platform cannot force the group leader to connect to only one platform, but he will ask the group leader to distribute only one product in a group, so as not to cause consumer confusion.

Wang Feng told the reporter of Caijing that the cooperation model between the team leader and the platform is based on commissions, which are generally 10%-15%, with high commissions for fresh food and relatively low prices for rice, flour, grains and oil. This means that for every 100 yuan of merchandise sold, the group leader can get 10-15 yuan in commission. Didi’s orange heart preferred subsidy is the most powerful. For a product priced at 0.9 yuan, Didi can return 0.6 yuan to the head of the group at one time. Although it has dropped to 0.3 yuan and 0.4 yuan, it is also very impressive. The subsidies for Meituan Optimal and Duoduo Maicai are relatively limited. The attraction to the group leader comes from its own traffic, and users are often redirected to the group leader by their App. “The people who place orders with me are sometimes not in our community, nor in my group.” Wang Feng said.

As a group buying unicorn in the local community of Changsha, Xingsheng Optimal Group also felt the threat of the Hundred Regiment War and was forced to increase the commission for the group leader. Wang Feng recalled that Xingsheng Optimal’s earliest commission rebate averaged 15 points and then stabilized at around 7 points. However, after the Hundred Regiment War, Xingsheng Optimal increased its commission rebate to about 10 points.

“From the current situation, the loyalty of users is weak. Whoever pays more, users will go wherever they go; the same is true for the group leader, whoever gives more commissions will follow whoever; the only thing we can control is Commodity and supply chain, whoever can achieve these two to the extreme will have a greater chance of winning.” Rong Jian said.

The negative effects of huge subsidies have gradually begun to appear. The huge subsidies have disrupted the price system, not only endangering the livelihood of vegetable vendors, but also affecting thousands of suppliers.

According to the daily economic news report, Cangzhou Huahai Shunda Grain, Oil and Seasoning Co., Ltd. issued a “Notice on Prohibition of Supply to Community Group Purchase Platform Supply Companies”. The company stated that it has received complaints from many parties, and buys more vegetables and Meituan chooses. The community group buying platform represented by the others has experienced serious low prices, and even individual products are far below the ex-factory price, which has a serious impact and harms the interests of customers. Therefore, dealers must be authorized by the company before operating any community group buying platform and the price must not be lower than the terminal retail price set by the company.

People began to reflect on what benefits did community group buying bring to consumers and even the society in addition to the low price subsidies?

“It is undeniable that the community teamwork has caused a considerable impact on traditional supermarkets and traditional business models, and has also changed consumers’ consumption habits. It may overdraft future consumption and allow consumers to stock up while creating demand. Let the need that shouldn’t have surfaced.” Rong Jian said.

The relevant person in charge of Orange Heart Optimal believes that food, drink and travel are closely related to people’s lives. Community e-commerce and Didi Chuxing are both service businesses, and the ultimate goal is to serve more users.

The “cold water” splashed by “People’s Daily” is probably not to kill this new business model with a stick. Internet companies don’t have to study rockets to create value for society, but giants should take this opportunity to calm down. For a moment, think about how community group buying can develop healthily and sustainably, and how to bring increments to the society, instead of just bringing about an “involvement” of “giants grabbing hawker business”.

article links:The traffic anxiety of giants

Reprint indicated source:Spark Global Limited information


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