In China’s competitive e-commerce industry, group buying is becoming increasingly popular—and more diversified.

E-commerce giant Pinduoduo was built on group purchases. The company offered low prices to “teams” of online buyers, encouraging consumers to recruit friends and family to buy together.  

Now, another approach has emerged, one more focused on a user’s location. Dubbed community group buying, the feature allows a group of residents within the same apartment compound to get discounts by buying together in bulk. This location-based approach has gained increasing popularity among China’s internet population. 

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Deborah Weinswig is CEO and Founder of Coresight Research. Additional contributions by Eliam Huang.

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The e-commerce giant then launched its own community group buying platform Kuaituantuan in March 2020, selling groceries and daily necessities. The service currently covers more than 10,000 apartment compounds around China. 

Enter Meituan

Now, Pinduoduo faces competition from another young tech giant. On July 7, Chinese food delivery platform Meituan launched a community group buying platform called Youxuan, which means “best pick.” 

The platform sells fresh food, including fruits and vegetables, as well as alcohol and beverages. As of July 27, the service had launched in several cities around the country, including Beijing, Dongguan, Guangzhou, Jinan, Shanghai, Shenzhen, and Wuhan. Meituan also recently began piloting a group buying function for take away deliveries. 

The community group buying model usually centers on a group of residents who live in the same compound. Meituan’s Youxuan recruits a leader from these communities, who then creates a Wechat group and starts posting product links for residents of his or her community. The links direct consumers to Youxuan’s Wechat mini program to place their orders. Community residents are not required to buy the same products as one another and only need to pay for their order once the collective bill exceeds a designated value. 

Youxuan carries limited inventory and the products are typically sourced from selected suppliers (in Chinese). The produce is sent to regional central distribution centers after an order is placed. Youxuan staff then delivers the orders to collection points in communities the next day.

This form of group buying is reminiscent of one that became popular after Covid-19 began spreading across China earlier this year. Many communities designated a team to pick up groceries amid citywide lockdowns,  in which residents had their movements limited to curb the spread of the disease.

Why are the platforms pushing this approach? 

As with standard group buying, the community-based model relies on offline social ties. The model helps to quickly establish consumers’ trust in the platform, as residents typically know the community leader. 

In the standard model, consumers from different cities can form a group to purchase goods—it is not restrained by geography. This standard model is often more spontaneous in the way that a shopper can share product links with anyone in their network.

But community group buying is more intentional and organized. This model usually has a community leader who takes responsibility for maintaining relationships among the residents in the buyers’ Wechat group. Consumer trust in the community leader is the foundation of this purchasing model. 

The community leader often receives a commission based on how many orders are made within their community. This provides more motivation to socialize with the residents in the WeChat group.

The community model not only ends up being cheaper for buyers but the platforms, too. Since all members of one buying group live within the same community, platforms can replace individual deliveries with daily bulk deliveries to service a community.

Community group-buying is more established in lower-tier cities, where tight neighborhood communities are prevalent and mutual trust between community leaders and residents is easier to build. Some 60% of community group buying platform customers are from lower-tier cities, according to data from QuestMobile, a business intelligence company.

What is ahead for community and standard group buying?

China’s grocery market is huge. Sales in the sector are expected to reach RMB 5 trillion ($713 billion) in 2020, representing year-on-year growth of 5%, according to financial firm Pingan Securities.

Currently, around 10% of all grocery sales are made through e-commerce platforms, with wet markets accounting for 50% and retail supermarkets 40% of these sales. This provides great room for growth.

Both community and group buying share the idea of buying groups but the goals of each of fundamentally different.

Standard group buying focuses more on incentivizing consumers to become salespeople.  Without geographical limitations, shoppers can reach as many people as possible to access good discounted rates. This type of buying also applies to more discretional categories, such as apparel and jewelry. Residents from the same compound might not all need products such as these at the same time, so there is still a role to play for standard group buying platforms. 

Meanwhile, the community group-buying model centers on bulk delivery. The aim is to get people who live close to one another to order together. This results in increased efficiency and lowered costs for the platforms, allowing them to order in bulk instead of dispatching legions of delivery people on electric scooters. 

This model focuses on selling groceries and daily necessities, and building trust among shoppers who are looking for healthy consumable items. Community buying also allows consumers to voice their concerns about products they have bought more easily, as their community leader is just a Wechat message away. 

Correction: An earlier version of this article incorrectly stated that Pinduoduo invested in group buying app Chongmalinlitua.

Deborah Weinswig

Deborah Weinswig is CEO and Founder of Coresight Research, a research and advisory firm that provides future-focused analysis and consulting on the intersection of retail, technology, and fashion. Deborah...