Community group-buying initiatives take off in China as next billion-dollar market

18-Sep-2020 Intellasia | South China Morning Post | 6:02 AM Print This Post

In a small neighbourhood in Chengdu, capital of southwest China’s Sichuan province, a group of about 380 people from the same residential community goes online every day to check the grocery list sent via WeChat by their local express courier station.

He Fang, a 55-year-old homemaker, joined this WeChat group hosted by the station in March, when most of the country was still on government-imposed lockdown to prevent the spread of Covid-19. She said this group-buying effort in the local community enables members to get discounts when buying items in bulk, with individual orders ready for pickup in a day or two.

“It’s very convenient and occasionally cheap,” He said. “I remember one time when apples sold for only half the price of what supermarkets charged.”

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While group-buying is not new in China, services that are focused on the basic needs of local communities without all the hoopla from live-streaming video influencers may be ripe for expansion amid continued health and safety concerns across the country.

“Chinese internet companies are looking for new markets to drive growth,” said Zhao Yue, a logistics analyst at Beijing-based research firm Analysys. “There are pots of gold to be found in the community group-buying market, especially in terms of providing online groceries in lower-tier cities.”

With more communities staying at home and relying on various online services to work, shop and get entertainment, nimble start-ups Shihuituan and Xingsheng Youxuan are currently leading the charge in the community group-buying market.

These companies serve group-buying programmes organised by local stores, restaurants, logistics stations and even homemakers. Organisers who are also able to temporarily store groceries help lower the cost of packaging, warehousing and delivery for e-commerce services providers.

Shihuituan, also known as Nice Tuan, was founded in 2018. It served nearly 20 million families across more than 100,000 communities across the country as of April.

“We have more people today using mobile payments, in WeChat groups to communicate and do business… and more logistics and delivery services nationwide,” said Shihuituan chief executive Chen Ying. “So all of these have put us in a good position to serve more people, especially in lower-tier cities.”

Shihuituan is backed by Alibaba Group Holding and GGV Capital. The company raised $80 million in its Series C2 round of fundraising in July. Alibaba is the parent company of the South China Morning Post.

Also founded in 2018, Xingsheng is backed by the likes of Tencent Holdings, Sequoia Capital China and China Renaissance. The company, which now operates in 13 provinces, started as the e-commerce unit of supermarket chain Furong Xingsheng, which is headquartered in Changsha, capital of south-central China’s Hunan province.

The online grocery market in China is forecast to reach 1 trillion yuan (US$147 billion) in three years, up from 400 billion yuan in 2019, as more consumers continue to buy everyday goods through various e-commerce platforms amid public health concerns, according to CLSA.

Other internet companies see new growth opportunities in that market. Meituan Dianping, the country’s largest on-demand delivery service provider, set up a premium business division for community group-buying services in May and launched a programme called One Thousand Cities Project earlier this month to bring that operation to more lower-tier cities and villages across the country by the end of this year, according to the company.

“It is going to be a very exciting business… which will eventually cover hundreds of millions of people,” said Wang Xing, chief executive of Meituan, in the company’s second-quarter earnings call last month.

Pinduoduo, the social commerce platform known for its group-buying feature, launched this month a community group-buying mini-app on WeChat, initially available in the cities of Wuhan, Nanchang, Xi’an and Xianyang.

Zhao of Analysys indicated that other Chinese retail outfits, including Alibaba’s own Freshippo supermarket chain, to adopt community group-buying strategies, with an eye on expanding in the country’s less-prosperous areas.

About 60 per cent of community group-buying platform users are from China’s lower-tier cities and rural areas, according to data from QuestMobile.

That is because lower-tier cities and rural communities typically do not have bricks-and-mortar grocery stores near residential communities, according to Analysys’ Zhao. She said the interaction between community leaders and their neighbours help to build trust and increase user stickiness.

The community group-buying business model, however, is not without challenges, such as varying quality and prices of the groceries sold.

“Whether community group-buying programmes can grow further depends on future developments,” said Mo Daiqing, senior analyst at the China E-commerce Research Centre. “After the pandemic, whoever can quickly develop a complete and advantageous supply chain will win this community group-buying market.”

https://sg.news.yahoo.com/community-group-buying-initiatives-off-103604516.html

 


Category: China

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