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Upcoming great changes to China’s community group buying

People’s Daily, an official newspaper of China, lately commented on China’s community group buying: “Don’t just think about the consumer traffic flow toward a few bundles of cabbage, pursuits in technological innovation will work to your advantage.” This comment makes community group buying – the “vegetable market” – once again under the spotlight.

In the mainstream of community group buying still exists a minority against the wave. According to the news reported on 9th December, some insiders disclose that Hello Global, a mobile travel platform that runs a string of commute solutions from shared bikes to ride-hailing services in China, has given up its half-year pilot business in community group buying and is exploring a new business model.

It is also mentioned that the peak of group buying at the starting time in “Hello Hui life”, the community group buying business of Hello Global, has once exceeded 1000, but most of them can’t reach breakeven. Thus, unprofitability, supposedly, is one of the main drivers leading to Hello Global’s abandoning the group buying market. Another factor behind its retreating is the lack of competitive advantage. The fierce race for community group-buying market is joined by many sophisticated companies in this area, such as Meituan, Didi Chuxing, Pinduoduo, and even the front runners – Alibaba and JD.COM. Considering the big gap with its rivals, Halo Global has no other better choice but to withdraw.

It is predicted that great changes are coming up to the fierce competition in China’s community group buying.

Capital is swallowing up China’s community group buying market

In addition to Hello Global, Xingsheng Youxuan, a successful survivor in the fierce competition for China’s community group buying market, is also intended to retreat.

It’s said that Meituan and Pinduoduo, two of China’s biggest group-buying platforms, had thrown billions of dollars to fight for the control of Xingsheng Youxuan in early December. According to some insiders, Xingsheng Youxuan had asked for the US $10 billion, but the final price given by Meituan was the only US $6 billion. However, Xingsheng Youxuan later denied this rumor.

No matter whether Xingsheng Youxuan decides to sell itself or not, it has been getting closer to the giants of the industry. Tencent, a Chinese multinational technology conglomerate holding company, has invested in Xingsheng Youxuan in July this year, which is the only capital giant among other investors. According to the latest news, Su Hua, the co-founder, and chief executive officer of the Chinese video-sharing app Kuaishou, is interested in participating in the latest round of funding of Xingsheng Youxuan after the visit to its headquarters in November.

In addition, Xingsheng Youxuan is still facing the continuous impact of the giants. Under the pressure from Meituan and Pinduoduo, Xingsheng Youxuan has seen a decline in gross merchandise volume (GMV) as a whole by 30%-40% in the China domestic market except Hunan (a southern province in China), according to the data reported. It is understandable how stressful it is. Losses in China’s community group buying are commonplace. In this case, powerful companies like Meituan can capitalize on their adequate capital, while Xingsheng Youxuan has to count on capital injection from others.

Xingsheng Youxuan should know that the longer it stays in this battle-like competition, the more dangerous it is. At present, the impact of Meituan and Pinduoduo will not be weakened in the near future. If Xingsheng Youxuan fails to fight back by selling its control of the business to other industry giants, it seems only a matter of time before it goes broke. The latest news is that JD.COM announced a promised strategic investment of US $700 million in Xingsheng Youxuan.

Full integration of China’s community group buying by Internet giants  

Giants are urged to integrate resources and capital, as the privilege is based on the order of arrival time.

It is reported that JD.COM has upgraded its Jingxi business division into a business group, where group-buying services are absorbed. CEO and Chairman Liu Qiangdong himself is in charge. Late last month, some insiders disclosed that a new group-buying project “Jingdong Youxuan” is on the drawing board, which is based on the integration of four internal group-buying projects.

In addition to its internal resource integration, JD.COM starts from the high point by capitalizing on its sound capital.

Although it doesn’t behave like Meituan, Pinduoduo and Didi with high-sounding words “Take over community group buying”, JD.COM’s emphasis on the sector is no less than theirs. However, considering its relatively unfavorable position as a newcomer, JD.COM must speed up resource integration and acquisition.

Alibaba also starts late with its new business group Hema Youxuan, set up in September this year.  While, it is accelerating now. In its latest round of financing on November 30, Shihui Tuan, an e-commerce platform with group-buying, got the investment from Alibaba, one of the lead investors. Alibaba has invested in Shihui Tuan many times before, and the earliest one was the A round financing in early 2019.

Shihui Tuan
One of China’s Community Group Buying Competitors, Shihui Tuan (Nice Tuan), Photo: Handout

Besides investment, Alibaba also cooperates with Shihui Tuan in community group buying. It is reported that revently Shihui Tuan is working well with Nongcun Taobao, a growing E-commerce hitting the countryside. As there are business overlaps in Alibaba’s internal platforms, such as Hema, Ele.me and Cainiao, the company is trying to reach the synergy effect. For instance, using Taobao, which has already performed well, to drive traffic to Hema. Thus, although Alibaba and JD.COM entered into the new sector later than Didi, Meituan and Pinduoduo, no one will take the two giants lightly, considering their resource and capital advantages in fresh food retail sector.

Lurkers in China’s community group buying track

Although Internet giants are currently the front runners in China’s community group-buying track, the position is under potential threat from the flocking newcomers.

A large number of listed companies from different fields have entered into the track, according to Cailian Press. Some of them start from scratch by themselves, while some focus on the development of online channels or supply chains. For example, Eternal Asia, which provides supply chain services, will continue to improve its group-buying platform Xiaoyijia by optimizing the business layout in cities.

Zhongbai Holdings Group, a big enterprise operating chain supermarkets, has launched a number of community group-buying mini-programs. A subsidiary of CCOOP Group, a company engaged in merchandise wholesaling and retailing business, has set up its own community group buying system. In addition, the sector has attracted various companies like Jiajiayue Group, Fujian Snowman, Lakala, SND Group, etc.

In a sense, compared to the high-profile Internet giants threatening to take over the whole market, these top players in various fields are actually lurkers. While, currently they can’t compete for attention with the front runners like Meituan, Didi and Pinduoduo.

However, in terms of regional business, those lurkers’ local-snake attribute, featured with regional advantages in fixed assets, is a potential risk to the powerful-dragon-like giants. As community group buying is not only based on online channels, offline stores, warehouses, and logistics also play an important role in its service efficiency.

Great changes are coming soon in China’s community group buying sector

Meituan, Didi, and Pinduoduo, the big three in low price competition, have brought the first shake to the sector-battlefield, resulting in the early restructuring of the industry. No matter whose hands Xingsheng Youxuan falls into, the tripartite confrontation will be broken. While the biggest variability is Alibaba and JD.COM for sure. Although they are not as brave as Meituan to be that radical, the sound and rapid integration of resources and capital have indicated their potential power in the near future.

Therefore, the battle in China’s community group buying will certainly get more intense and price wars will break out across regions. If Alibaba and JD.COM also aim at taking over the whole market, the battle will be probably the bloodiest one of all time.

For now, it seems like a stand-off over one prey, which may end with carved up or swallowed by the strongest force. But it is certain that the battle in China’s community group buying is intense as competitors are scrambling for limited resources. All in all, great changes are coming.

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Sylvia G

Reporter at Firmknow News. U.S. IPOs, consumer and private equity deals. Preemptively skeptical. My opinion belongs to me.
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