From innovation to subsidies, what is the situation of community group buying now？
The sudden entry of the "giant" broke the development rhythm of the entire community group buying track, and the rules of the game changed accordingly. The industry changed from "fighting for innovation", "fighting for execution" to "fighting for capital" and "fighting for subsidies". It is not surprising that Tongcheng Life has embarked on an inverted "V" shaped trajectory from rise to fall.
The "giants" are still rolling in the track of community group buying, but the start-up company that started first was "easily" crushed. On the morning of July 7, the community group buying platform Tongcheng Life (now renamed Honey Orange Life) officially declared bankruptcy. According to reporters, its founder, chairperson and CEO He Pengyu was still in talks with suppliers that night. During the meeting for more than 4 hours, he cried several times and promised to try his best to pay off the debt, but he was unable to recover.
On the community group buying track, Tongcheng Life is not the first company to declare bankruptcy, but because of its high reputation, its bankruptcy was called "the first case of community group buying bankruptcy" by the media, causing industry shock.
Why did Tongcheng Life "die suddenly"? What is the situation of community group buying now? The reporter interviewed some people familiar with the matter.
Shift from innovation to subsidies
The usual cause of company bankruptcies is poor management, but Tongcheng Life, which was established in January 2018 and belongs to Suzhou Fresh Orange Technology Co., Ltd., is obviously not one of them. The inverted "V" trajectory of Tongcheng Life from rise to rapid "fall" can be clearly seen in the internal letter sent by He Pengyu to employees and suppliers. According to He Pengyu’s open letter, in only about a year and a half, "Tongcheng Life has achieved the front-end performance of the contract and entered a healthy development stage."
At that time, Tongcheng Life was still a star on the community group buying track, which was recognized by many investment institutions. According to reports, Tongcheng Life received 4 rounds of financing in a row in 2019, ranging from tens of millions of yuan to 100 million US dollars. In June 2020, Tongcheng Life announced the completion of 200 million US dollars C round of financing. According to public reports, its valuation before bankruptcy was about 1 billion US dollars, which can be regarded as a small and beautiful start-up company.
In the past two years or so, the community group buying model developed from fresh food e-commerce has rapidly developed into a new format in the e-commerce industry, providing a new way for the development of farmers and rich farmers and the absorption of flexible employment in cities and towns, and attracting a large number of entrepreneurial teams. Ten Hui Tuan, Xingsheng Preferred and Tongcheng Life are the three fastest teams, once known as the "old three groups" by the outside world.
However, the booming community group buying market has also attracted "giants" to enter the market. Since September 2020, Ali, Meituan, Didi, Pinduoduo and others have resorted to price war "big killers", and "1 cent to buy vegetables" has become popular. Even the vendors in the vegetable market have felt the pressure.
The sudden entry of "giants" broke the development rhythm of the entire community group buying track, and the rules of the game changed accordingly. The industry changed from "fighting for innovation" and "fighting for execution" to "fighting for capital" and "fighting for subsidies".
According to the reporter’s understanding, in the face of the sudden arrival of the survival crisis, Tongcheng Life has also struggled, seeking capital mergers and acquisitions while striving for performance. It has discussed acquisition intentions with JD.com, Ali, ByteDance, Meituan, etc., and even has a team settled in for due diligence, but ultimately failed due to changes in the industry trend.
Li Ming (a pseudonym), a former executive of Tongcheng Life, told reporters that "at the end of June, Tongcheng Life also hoped to get better business data through increased marketing efforts, so as to obtain the olive branch of a’giant ‘merger, but unfortunately it was rejected again. Later, due to the expiration of the brand authorization, the executive decided to start a name change and strategic transformation to make a comeback. Unfortunately, at this time, the supplier began to concentrate on the run to collect payment, which eventually led to the collapse of the capital chain."
At present, community group buying is still in the stage of rapid expansion and growth. Meituan (Meituan Preferred), Pinduoduo, and Didi (Orange Heart Preferred) have occupied the top position, and Xingsheng Preferred and Ten Hui Tuan have also been incorporated by JD.com and Ali. After the departure of Tongcheng Life, community group buying has become a game for "giants".
After the shopping, the industry will lose a lot.
After the community group buying track fully entered the era of "giants", price-fighting and long-term rebates became the norm, and no one could achieve positive benefits in the short term. Service innovation and experience innovation on the user side stagnated, and the entire industry suffered serious internal friction.
It is understood that the profit margin of the community group buying industry has rapidly declined from profit to loss. Li Ming revealed that before the "giant" entered the market (before September 2020), the monthly sales of platforms like Tongcheng Life were between 800 million yuan and 1.20 billion yuan, and the gross profit was about 20%. After the "giant" entered, with the huge subsidies for consumers and the competition for the "head", the monthly revenue of the platform fell by up to 80%, and the gross profit directly became negative. The entire community group buying market also further slid into the quagmire of industry-wide losses.
In December 2020, the State Administration for Market Regulation and the Ministry of Commerce jointly organized an administrative guidance meeting to standardize the order of community group buying, which was attended by six Internet platform companies including Alibaba, Tencent, JD.com, Meituan, Pinduoduo, and Didi. At the meeting, the community group buying "nine must not" was proposed. In March this year, the operating entities behind five community group buying platforms including Meituan Preferred (Shenzhen Meituan Preferred Technology Co., Ltd.) were fined 1.50 million yuan for suspected unfair price behavior.
But this still failed to curb the expansion of the "giants". On the one hand, they "hide their positions" and continue to engage in similar "1 cent" activities. On the other hand, they seize the end point market by greatly increasing the commission rewards and subsidies for the "heads". Li Ming said that at present, the rewards and subsidies given by several giants to community groups buying end point "heads" have reached a maximum level of 15% to 18%, basically subsidizing the platform’s own income. This is already irrational competition and is suspected of disguised price war.
On July 8, the reporter inquired about some community group buying platforms, not only the activity of "15 eggs clocked in 5 days", but also 1.25 yuan a catty of sand sweet potatoes and 0.99 yuan a red dragon fruit. On the community fresh platform, similar red dragon fruits cost about 4 yuan to 5 yuan each, and sand sweet potatoes cost 5 yuan a catty, which is much higher than the community group buying platform.
Behind the shopping prices and subsidies is the huge loss of the entire industry. According to public reports, Meituan’s adjusted net loss reached 3.892 billion yuan in the first quarter of this year, and Meituan’s investment in the community group buying business was about 10 billion yuan, which is expected to reach 20 billion yuan this year. In the first quarter, Pinduoduo’s gross profit fell to 49.74%. Pinduoduo invested about 6 billion yuan in buying vegetables in Duoduo, and will increase investment in 2021.
Under the mess, suppliers are affected
From thriving performance to being forced to declare bankruptcy and exit, the closure of Tongcheng Life is not only regrettable, but also leaves a trail of chicken feathers.
In the early morning of July 8, He Pengyu issued an open letter through his personal Moments, proposing three solutions to the bankruptcy of Tongcheng Life: to maximize the protection of the rights and interests of all creditors within the scope of the law; to make every effort to preserve existing assets, hand them over to the court for proper storage and treatment, and actively cooperate with the government’s guidance to offset debts with company assets; if the assets are not enough to offset debts, He Pengyu promises to start a business again, "I will record every debt clearly, and use all my personal efforts to repay debts."
It is also understood that on July 8, Tongcheng Life issued a repayment plan for the supplier before initiating the bankruptcy liquidation process. Previously, it had paid employees’ salaries in June and also promised to pay social security for employees in the future.
Although the entrepreneurial team of Tongcheng Life tried their best to make up for it, there were still many vegetable farmers, small traders, and even large and medium-sized suppliers who did not receive the payment on time.
A livestock company has cooperated with Tongcheng Life to supply egg products since 2019, and it was owed nearly 800,000 yuan. After the crisis broke out in Tongcheng Life, Mr. Wang, the person in charge of the company, came to ask for the arrears. "There are hundreds of egg farmers behind me, so I have to come to collect debts."
According to the latest situation, on July 8, Tongcheng Life has started to repay some of the suppliers’ debts in advance, and the rest will be allocated by the court after the bankruptcy liquidation process starts. The work is still being carried out in an orderly manner.
As of the morning of July 9, there were more than 600 suppliers who had reached repayment agreements with Orange Technology, mainly from the financing loans raised by He Pengyu and his team.
On July 9, Mr. Wang booked a return ticket with a repayment agreement. But next time, if there is another community group buying platform flash crash, will the suppliers be so lucky?