Community Group Buying as China’s Next Battlefield — Who Will take the Lead?
Understand what contributes to the success of the Community Group Buying model in China and who are the major players in the market.
While citizens worldwide wear face masks and queue up in grocery markets, the Chinese homemakers are getting fresh grocery deliveries within a few taps on their phones. Community group buying (CGB), a contact-free model started in 2016 for online grocery retail, took off during the pandemic. It now has all of China’s tech giants looking for a share of the pie. In 2020, the total transaction value of China’s CGB market more than doubled to RMB72 billion (US$11.2 billion).
A CGB service collates small orders from households living within approximate locations and form bulk orders to lower the unit price of the items, working as a decentralized Costco. A designated community leader, such as a convenience store owner, will form a WeChat group to list available products for delivery. Products on the platforms can range from fresh shrimps to face masks. Individuals can order through affiliate links in the group, and the orders are collated into a bulk order for the community leader. The next day, orders will be delivered to the self-pickup spot users choose, usually at the leader’s convenience store. The leader gets 10%-12% of the sales commission per order through this process while bringing extra visitors to the store.
Key factors contributing to the success of CGB
1. An integrated ecosystem
The WeChat ecosystem, which consists of WeChat Pay, WeChat mini-programs inserted into WeChat App, and 1.2 billion monthly active users, allows the efficient and scalable spread of CGB. A complete supply chain, with takeaway businesses harnessing their warehousing and distribution capacity (built from fresh grocery e-commerce, for example), makes it possible for next-day delivery and early procurement.
2. Effective Customer Strategy
Customers in large cities value efficiency, while consumers in lower-tier cities are more price sensitive. The price sensitivity of customer groups in lower-tier cities makes CGB more attractive, which is why it became the main battlefield for CGB companies. Compared to young people living alone, a family of three tend to look for cheaper goods and stock up. Considering the buying habits of different consumer profiles, companies target bigger family sizes for CGB.
Major Players
Statistics on demographics and consumer behaviour
The 2020 China Social E-Commerce Consumer Shopping Behaviour Research Report from Internet Society of China showed that CGB consumers are mostly housewives aged 25 to 50 and living in second to fourth-tier cities. About 78% of the community leaders are female, married, home-based with extra time, and looking to improve the family’s quality of life.
Frequency: more than half of the CGB consumers order at least once a week, and 11% order daily.
Average Transaction Value (ATV): more than half of the orders are below RMB100 (US$15).
Category: fresh products are the most popular.
The CGB process starts from suppliers to central warehouses, warehouse networks, pickup points and finally reaching the consumers. Such a model introduced by the CGB platforms eliminates the middleman and minimizes costs. CGB offers a vast range of product choices and contact-free and fast delivery at affordable prices during the lockdown period. Despite its rapid growth, businesses have encountered many problems in the past year:
- Many CGB start-ups tend to recruit more community leaders than they can handle to seize the market, causing unhealthy competition.
- The market tends to be homogeneous due to the similar product structure of each brand.
- Many community leaders registered with multiple brands and promoted the most profitable one.
- The low-price strategy at the beginning impacted the traditional businesses, which called for government intervention.
- The model of online grocery shopping still poses a risk to consumers. Product quality cannot be guaranteed due to next-day delivery, while the process for refund or return remains complex.
- Most brands do not offer direct after-sales customer service. They often rely on one single community leader to support the entire group, resulting in a poor customer experience.
At the moment, the business model of CGB is at the starting phase. Replicating a successful model is impossible as major brands are still figuring it out themselves. Through sound data analysis, improvement of internal management, and customer service enhancement, companies can better understand user demand and optimize resource allocation. These factors are critical to winning a place for themselves in the CGB market.
