Why is the Community Group Buying Model Surging in China?
People in China shop online for nearly everything. However, the elderly are usually left out due to the rapid growth of technology. To expand the market size, China saw new opportunities in the community group buying segment.
China’s community group buying model usually has a designated community leader, who creates a social media group (usually a WeChat group) to coordinate grocery orders in a community. Many food items can be ordered via mini-programs within WeChat or through other apps. The products are not limited to groceries but also daily essentials, such as paper towels and shampoo. The collective orders of the group are then delivered in bulk to a designated place for the community leader to pick up and send out to community members at their chosen time.
Buying in bulk ensures a lower cost for individuals, and as such, has become especially popular in China’s lower-tier cities. What’s more, the simplicity of ordering from a community leader has made this option accessible for the elderly.
The pandemic has stimulated the expansion of the community group-buying model in China as people shift to online shopping. China’s online grocery market is expected to reach 122 billion yuan by 2022, according to iiMedia.
Chinese technology giants like Alibaba, JD.com, and Pinduoduo all jumped on the bandwagon and are battling over this thriving market.
Interactive e-commerce platform Pinduoduo revealed plans to raise $6.1 billion to expand next-day delivery of fresh produce. Duo Duo Maicai, the self-pickup service established by Pinduoduo in August, may contribute 15%, or nearly 1 trillion yuan ($152 billion), of the platform’s gross merchandise value by 2025, according to JP Morgan analysts.
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Alibaba also launched its own community group buying application, Freshippo Youxuan, to battle the retail downturn that the pandemic has brought. This October, Freshippo Youxuan hired over 5,000 community group leaders in Wuhan to deliver fresh produce to the public, according to Rixin.
Chinese e-commerce giant JD.com just announced this week that it has entered into a preferred share purchase agreement to invest around $700 million in a community group-buying e-commerce platform, Xingsheng Preference Electronic Business Limited.
The Community Group Buying Model may effectively eliminate the layers of distribution and can provide customers with lower prices. However, fierce competition among these technology firms could lead to low-quality products and potential fraud. Some community leaders have violated state consumer fraud laws by using misleading product photos.
To solve this problem, the Nanjing Municipal Market Supervision Bureau issued an official notice about the “Compliance of E-commerce Platforms’ Community Group Buying” on Dec. 9. The regulation clearly states that firms should abstain from trading opportunities in unfair competition, and forbids monopolistic behavior, the disruption of normal business order, and harm to national interests or to the legitimate interests of other operators.
“We believe that grocery shopping in China is undergoing similar structural changes in consumer behavior to those we saw in other sectors a few years ago,” said Chen Lei, CEO of Pinduoduo, during the company’s quarterly earnings call in November.