Every morning, Wu Zihong receives a massive delivery of food to her apartment in Changsha, a mid-tier city in China’s southern Hunan province. The shipment includes grocery orders for nearly 200 of her neighbors, which Wu spends the next few hours distributing around her residential complex. “It’s hard work doing it alone,” she said on a recent Saturday.
Wu is a wellspring of local knowledge: She can recall where every family lives, who is planning to make sour Hunan pickles, and who was satisfied with the milk they got the day before. It’s the kind of mundane information that any friendly neighbor might come to learn. But Wu’s expertise is proving to be a priceless asset for China’s biggest tech companies now engaged in a cutthroat battle to dominate the fast-growing grocery delivery industry.
Wu works as a community leader for Nice Tuan, Chengxin Youxuan, and Meituan Youxuan, three Chinese platforms that use a unique model called 社区团购, or “community group buying.” The system is a little like Costco meets Nextdoor: Wu manages a handful of groups on WeChat, where she posts a daily selection of food and household items at bargain prices. After neighbors place their orders, Wu is responsible for delivering them on time as well as being the first point of contact for questions, returns, and other issues. Group leaders usually make between 5% and 10% commission on sales, and those who spoke to Rest of World reported earning between $250 and $500 from the gig each month — a respectable part-time salary.
Across China, thousands of community group buying leaders are helping tech companies overcome some of the biggest obstacles of online grocery shopping, which until the coronavirus pandemic, remained a relatively niche business. Transporting perishable food to millions of people who live outside China’s densest urban areas is complicated and expensive. To compete with physical grocery stores, tech companies need to make significant investments in logistics and marketing.
Group leaders help e-commerce platforms to save on both costs. They are responsible for the last mile of delivery, eliminating the need for couriers to stop at individual homes. Group leaders can easily convert friends and family into new users, serving as the familiar face of marketing and customer service. By September 2020, according to market research firm QuestMobile, 101 million people in China were buying fresh produce through WeChat mini-programs, mostly group buying apps, up nearly 70% from the year before.
Most group leaders are well-connected community members, such as local convenience store owners or stay-at-home moms like Wu, who exited the workforce a few years ago to help her daughter study for the national college entrance exam. “I think group buying depends on the group leaders’ network, their level of trust,” said Wu. About half of the 380 households in her residential complex have already joined at least one of the groups she manages.
Community group buying is unlocking millions of customers in second- and third-tier Chinese cities that were previously hard to reach. That includes elderly people wary of more complicated shopping sites, caretakers who can’t leave their relatives at home, and price-conscious consumers unlikely to pay a premium for other forms of grocery delivery. The potential opportunity is enormous: McKinsey estimates China’s retail grocery industry to be worth roughly $800 billion, only 10% of which is currently online. (For comparison, the U.S. grocery store business is estimated to be worth around $660 billion in 2021.)
Tech firms are now frantically trying to capture a slice of the market. “This will be a war of attrition, fought block by block, residential compound by residential compound,” said Michael Norris, research and strategy manager at the e-commerce and marketing firm AgencyChina.
The long-term goal is that people will not only use group buying but also a platform’s other services, like ride-hailing or takeout delivery. Many companies are engaging in questionable tactics to lure new users, like selling products below cost, which has angered suppliers. Some are also pushing employees to work long, grueling shifts.
In recent weeks, two corporate workers at the e-commerce behemoth Pinduoduo have died, underscoring how intense the group buying wars have become. A former employee later posted a viral video on the social media site Weibo, alleging that employees in the company’s grocery department were subject to “constant exploitation” and expected to work 380 hours a month.
So far, investors and tech companies appear undeterred by any potential downsides. Since the coronavirus pandemic supercharged group buying, they’ve spent billions trying to edge out the competition. Food delivery giant Meituan started its Youxuan division in July, and Pinduoduo opened its Duo Duo Maicai (“buy more groceries”) service in August. Ride-hailing company DiDi Chuxing launched its own program called Chengxin Youxuan in June, and a spokesperson said it’s now available in 21 provinces. CEO Cheng Wei reportedly told employees in November that there’s no limit to how much money the company is willing to spend to become the number one player in the space.
China’s biggest tech firms also have skin in the game. In December, JD.com announced it had invested $700 million in group buying platform Xingsheng Youxuan; Tencent reportedly poured another $100 million into the same company earlier this month. In November, Alibaba co-invested nearly $200 million in another platform called Shihuituan, also known as Nice Tuan. ByteDance and Kuaishou — two social media platforms with little experience in logistics — are also rumored to be circling. So far, profits from group buying range from low to nonexistent for most companies, and intense competition means they have to keep prices down.
Group leaders in Changsha, Wuhan, and Wenzhou who spoke to Rest of World said tech companies were “burning money” in an effort to offer the lowest prices possible to customers. In Wuhan, Sun Wei, a stay-at-home mom, works full time managing groups for Meituan Youxuan, Chengxin Youxuan, and Xingsheng Youxuan, which collectively have around 900 participants. Wei has served as a group leader for three years. She said that after larger companies entered the space, existing firms began spending even faster. “If the price advantage doesn’t exist, then a large number of the customers could be lost,” said Sun. “This year, group buying can be considered stable; after another year, this might not be as easy to say.”
On a recent day in Changsha, group buying deals included a pound of local oranges, potatoes, or carrots each for about $1.50. In Beijing, WeChat buying groups lit up with a series of flash sales: half a pound of fresh ginger for about 50 cents, a block of fresh tofu for 15 cents, and persimmon cakes for only 50 cents.
The Chinese government has signaled it’s unhappy with the predatory tactics used by group buying companies. A recent article in party mouthpiece The People’s Daily chided tech firms for investing in “a few bundles of cheap cabbage,” over more futuristic innovations. Authorities in Beijing also recently introduced new antitrust regulations targeting internet platforms and imposed more stringent regulations for internet service providers.
Beijing may be concerned about what could happen if community group buying were to quickly take over China. The model has the potential to disrupt millions of physical grocery and corner stores and decimate local produce vendors who line the streets of many Chinese cities. “These people aren’t going to suddenly be retrained into data scientists; they tend to be the least educated part of the workforce, who are living on low wages,” said Lillian Li, a former venture capitalist who writes Chinese Characteristics, a newsletter about tech in China. “I think the biggest weakness, therefore, could be the implied social cost in a short span of time.”
For now, group leaders like Wu are feeling cautiously optimistic about their new role in the rapidly growing group buying business. “It is a challenge. But the way I see it, I also think it reflects your capability,” Wu said. “In the internet age, it’s new territory.”