Community Group Buying: China's Internet Giants' New Battlefield

According to QuestMobile, the number of monthly active users in the fresh food WeChat mini-app industry reached CNY 88.47 million in May 2020, a significant year-on-year increase of 65.6%. Also, the structure of terminal retail channels for agricultural products during the pandemic has changed significantly, with the proportion of community group buying consumption channels surging from 2% to 11.9% after the epidemic. 

The fresh food industry is embracing the online channel

The adoption of online channels in the fresh food market is still low, creating huge growth potential due to the frequent rigid demand characteristics. According to Euromonitor, the market size of fresh food in China reached CNY 4.98 trillion in 2019 and is expected to reach CNY 5.1 trillion in 2020. 

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From 2017 to 2020, the online penetration rate of fast-moving consumer goods (FMCG) and grocery increased by 2% annually. Catalyzed by the pandemic, Statista predicts that this number will increase by 3% to 15% in 2021. For agricultural products, 52% of their sales are in traditional channels and e-commerce channels only accounted for 3% in 2019, which creates a broad room for future development. 

Community group-buying is likely to help the fresh food industry achieve profitability 

Fresh food, as non-standard products, requires a robust supply chain capability. Simultaneously, it is subjected to multiple costs such as labor, rental, terminal distribution, and waste, which can lead to an overall loss. However, community group buying provides fresh food e-commerce companies with increased revenue due to pre-sales mode adoption: sales determined production. This model can also improve the current situation where the loss rate of fruits and vegetables caused by the complicated circulation process under traditional channels exceeds 10%, reducing the mark-up rate.

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Assuming that the terminal markup rate is 25-30% while maintaining the same gross profit margin, community group buying requires a much lower unit price than fresh food platforms, as group buying can get lower prices from upstream suppliers. Fresh food platform's logistics cost is also higher than community group buying due to its heavy asset model. Besides, the presale model can reduce inventory pressure, effectively improve inventory turnover and reduce wastage costs. Therefore, the possibility of community group buying to achieve profit is greatly enhanced in general. 

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Disclaimer: Please consult your own advisor before making any investment decision. 

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