Community group-buy: another ecommerce war heats up in China

We mentioned before that Meituan, China’s largest food delivery and local service platform, survived (and won) a fierce war against practically hundreds, if not thousands of competitors years ago.

The epic battles, known in Chinese as 千团大战 (Battle of 1000 Group-buy companies), seems to be happening again.

This year, community group-buy of goods is heating up. Scores of startups have been fighting (and developing the market) since about 2 years ago. Many of them have since died – but new ones emerged.

In addition, major players, including Meituan, Didi, Alibaba, Pinduoduo, have joined the fray. Allegedly JD.com is planning to launch a community group-buy service as well.

The model this time is a bit different, as the number of people using the smartphones have grown a lot since about a decade ago, when the battle of 1000 group-buy companies happened.

Community Group-buy is seemingly easy: local agents create Wechat groups to promote daily produce (including largely groceries) and take orders, fulfilment is done through the agents as well.

Agents are driven by commission, and consumers are driven by the discounts/promotions. People have doubted the sustainability of this model: you are not exactly working directly with end consumers, and agents in China are notorious for their lack of loyalty. They will go to the next competitor who offers them 1 Yuan extra as commission.

However, big players such probably have some extra confidence. Take Meituan as an example: a tested large scale local fulfilment network, profitability (so they can invest), and strong investor confidence (their share price tripled this year).

It will be harder for startups, who do not have the same resources as the giants, to match. Xingsheng Youxuan, a Hunan-province-based service that managed to survive the war against other startups, now has to defend its turf against much better resourced competitors.

Gonna be another epic!

(P.S. We will do more analysis about this business model and its current status in China over the coming weeks).