Chinese Online to Offline (O2O) fresh food retail platforms are squaring away for a new battle. With their eyes on the lower-income group consumers, they have conjured up a new strategy called “community group discount model.”
Unlike traditional door-to-door delivery system, group discounters usually have a partner or agent in each local community. The partner collects orders from the community via social media and serves as a centre for customers to pick up their orders. The O2O platforms just deliver the orders to the agent in bulk.
The new model has already attracted the attention of Chinese online giants.
Tech behemoth Tencent-backed food delivery app Miss Fresh launched its new community group buying channel recently, starting from Shijiazhuang, a mid-sized city neighbouring Beijing. The company has recruited nearly a hundred community partners so far.
Pinduoduo, China’s online social group discounter superstar has invested in MaMa Chong, a similar O2O platform to deliver farm-fresh food in Shanghai, reported Ebrun.com, a Chinese e-commerce news website.
Meicai.cn, a B2B fresh food website also developed its own group discounting retailing business this year.
Apart from larger competitors, dozens of local players have also sprung up across China, especially in eastern and central China.
Investors including Sequoia, IDG, GGV and CapitalToday too have injected millions of dollars into these startups, fueling an imminent price war.
Nice Tuan, an agricultural products group discounting app raised around USD 14.8 million in its angel round this August. The platform operates in four north and six east China cities, covering over 3,000 communities. The company plans to develop a supply chain connecting 30 Chinese cities by the end of 2018.
Ordinarily, the fresh food delivery industry has to rely heavily on expensive cold chain to ensure that the perishable food reaches customers before getting spoiled. The rate of natural loss for fresh food is thus very high while the average marginal profit is relatively low compared with other products.
The new model promises a significant reduction in labour and packaging costs.
“Pre-sale lowers the natural loss rate a lot”, Li Yang, founder of Dai Luobo, an online fresh food delivery app operating in Anhui Province, told 36kr.com, a Chinese tech news website.
However, the community group discounting model will delay the delivery time inevitably. It takes 3 to 4 days, or even longer to finish an order. This explains why like Pinduoduo, most of the players in the fray are aiming at the lower income groups which tend to be more price-sensitive but less time- sensitive than the middle-class customers in mega-cities like Beijing and Shanghai.
The slowing down of the Chinese economy over the past couple of years too seems to favour the new model.
The rise of Pinduoduo redefined the market potential of financially poorer groups.
According to Bloomberg, the growth of retail sale in Beijing and Shanghai dropped more than the country’s average level. Last year, the third and lower tier cities contributed to 60% of China’s retail sales.
“The Tier II to IV cities will become the main battlefield for future competition”, predicts Tang Guangliang, founder of Kaola Jingxuan, an O2O fresh food retailer. His platform partners with community convenient stores in Changsha City, Hunan Province. He added that he believes that middle-class consumers in big cities, especially the younger generation, are still willing to pay extra money for instant delivery.
Partners of community group discounting platforms are usually housewives taking it up as a part-time job or community grocery storekeepers.
The firms hope to expand the group discount model to a broader range of consumer products soon.
It is yet to be seen if the community group discount model proves to be sustainable or not. However, what one can say with certainty already is that just like in any other model, only a few of the competitors will ultimately survive till the end.