The Big Sell | Will Shanghai lockdown change the game for community group buying?

In locked-down Shanghai, Zhang Chen was standing by her community gate, waiting to pick up apples to be delivered to her apartment compound. She reveled in her luck at striking the apple deal because fruit had become a rare treat in the metropolis locked down since late March in response to a new Covid-19 outbreak. The city authorities prioritize delivering essential foods like rice and vegetables to the city’s 25 million residents. 

A neighbor who bought 15 kilograms of apples through a community group’s bulk buy last week was willing to split the order with her, saving Zhang days of waiting in this challenging time. 

Some Shanghainese have been locked in their homes since early March, when the city was only doing partial lockdowns. Shanghai began a two-stage city-wide lockdown on March 28 and promised to reopen by April 5, which never happened. The lockdown has been extended, and as of the time of writing, most of the city is still under lockdown. The unexpected long locking period has left many residents unprepared and scrambling to find food and supplies.  

At 10 in the evening, the little square in front of Zhang’s community gate was crowded with other people like her, either collecting their deliveries or waiting for their food to arrive. Meanwhile, more residents were clinging to their phones at home, waiting for their group buying heads to tip them off the arrival of their purchases. Delivery times have become unpredictable as truck drivers are asked to show negative Covid test results certificates to deliver goods across the city.

Zhang’s phone rang. Her neighbor called to confirm her identity because they were only connected on WeChat and had never met before. It turned out the neighbor was a casually-dressed woman standing right next to her. After collecting a big box of apples, the pair split the apples by counting out half for each because no one had a scale. Neither woman cared about who got slightly more weight in these unprecedented conditions. 

“I already bought some apples last week. But they disappear so quickly because I have a big family to support. My parents are under lockdown with us to take care of the kids,” Zhang said.

For millions stuck in Shanghai like Zhang, purchasing daily necessities has become a hassle over the month as they have been forced to stay home. During the lockdowns, reliable delivery platforms have become lifelines for people living in the financial hub, China’s second-largest city with a 25 million population. 

As other online grocery delivery services struggle to keep up with the city’s spiking online orders, community group buying has revived, thanks to its flexibility. But analysts say that a regional resurgence of the service won’t turn the tide for the cooling sector.

It’s a ‘last-mile’ problem

Shanghai’s current food shortage problem is more about how to deliver food to residents rather than a lack of national food reserves, according to the city authorities. 

Shanghai’s deputy mayor Chen Tong said at an April 7 press conference that the city had sufficient food reserves to feed locked-in residents for the foreseeable future.  Chen pointed out that the current problem lies in the lack of last-mile delivery forces, the couriers who complete the last leg of a delivery process. 

“The battle against the epidemic has affected the quality of life for Shanghai residents. There are cases when food supplies can’t be delivered to residents’ homes. We are trying our best to address the problem,” he said.

As part of the municipality’s pandemic fighting initiative, all major grocery delivery companies, like Meituan, Alibaba’s Freshippo, and Dingdong Maicai, are attempting to keep up with the rocketing online demand across categories from vegetables and rice to fruits. 

Different business models, different solutions

China’s decade-old grocery delivery industry consists of players operating under various business models. For example, self-operated platforms like Dingdong Maicai and huge grocery retailer marketplaces such as JD Daojia and Meituan.

The various business models mean the platforms are confronting locked-down circumstances differently.

The sudden surge in orders soon overloaded nearly all mainstream grocery delivery platforms, including Alibaba’s Freshippo and Ele.me, Meituan, Dingdong Maicai, JD, and MissFresh.

These services usually rely on powerful teams for a promised 30-minute delivery for individual customers, but operations have become strained this time when the labor shortage is a critical issue.

Many users of services like Dingdong set their alarm clocks for early morning to scramble for the limited number of orders couriers can deliver that day. For example, Zhang Menglin, a mother of a six-year-old, tried for a few days only to find the websites and apps repeatedly crashed due to soaring demand. After an experience similar to Zhang’s, TehNode reporter Ward Zhou resorted to using an app that repeatedly clicks the “buy” button, thus upping his chances of placing an order.

Instead of giving away hefty cash donations for disaster alleviation, Chinese tech majors have resorted to a more practical approach to address Shanghai’s delivery labor shortage: providing more hands. 

Grocery platforms and supermarket chains, including Ele.me, JD, Dingdong Maicai, and Yonghui pledged in early April to move more than 6,000 staff to the Shanghai by April 11 while also leveraging autonomous delivery vehicles, according to a rough count by local media outlet Awtmt. 

Of the total, the Alibaba-affiliated services Ele.me, RT-Mart, Freshippo, and Cainiao account for a combined 3,000 workers, mainly filling delivery and sorting positions. 

Meituan launched urgent deliveries and vowed to move at least 1,000 delivery workers to the city after its vice president Mao Fanglie made a rare public appearance at Shanghai’s April 7 government briefing. 

Pinduoduo, WeChat benefit from community group-buying surge 

In normal times, community group-buying platforms operate by selling products in bulk through group heads, typically stay-at-home mothers or local store owners who collect orders from residents in nearby housing compounds. The platform’s couriers drop off products at community stores or the compounds’ gates for consumers to pick up overnight. 

This model has emerged as a more reliable food source for millions of people in Shanghai, compared with the above-mentioned platforms catering to individuals. On the one hand, the models’ bulk sale approach allows grocery apps to make the best use of their available delivery forces. On the other hand, customers are much more tolerant of the less predictable delivery times. 

“I have given up on grocery delivery apps like Dingdong after multiple failed tries and depend solely on community groups buying my food now,” said Wang Jia, a 40-year-old Shanghainese. 

After being locked down for three weeks in Shanghai, the reporter of this article tried to order bread from JD on April 9. Instead of its standard same-day delivery, the retailer’s app showed the bread would arrive in two weeks. In frustration, the reporter turned to her neighborhood’s group buying head, which delivered two loaves of bread in two days. She was thrilled and grateful to get bread for her six-year-old daughter’s breakfast sandwich. 

Besides the veteran group heads already in the business before the outbreak, novices are becoming group-buying leaders, both to meet their own needs and to help neighbors. 

Given that most group heads communicate and promote their products through various WeChat groups, WeChat-based mini-programs gained popularity among group-buying participants.  They are Pinduoduo’s community group buying service Kuaituantuan, Tencent’s e-commerce feature Weidian, and WeChat Jielong.

Platforms like Freshippo and Carrefour have moved to a wholesale model too, requiring a minimum price or number of orders to support delivery. That’s similar to the community group buying model, except that unpaid volunteers, who are locked-down residents themselves,  are functioning in the group heads’ intermediary role. E-commerce platform Pinduoduo also rolled out wholesale services in the city, encouraging individuals to resell the goods to their neighbors.

A comeback for community group buying?

The inflow of venture capital and internet giants plays a bigger role than real consumer demands in driving the rise and fall of the community group-buying industry.

—Zhang Yi, consulting CEO and chief analyst at iiMedia Research

However, looking beyond its current boom in Shanghai, the dust had already settled for China’s grocery community group-buying vertical after a crazy ride in the past two years. High regulatory fines and cash-burning battles put the sector on the brakes. As the market tide ebbs, the once red-hot sector has become an area where tech giants have enacted deep headcount counts amid industry-wide layoffs. 

Covid-driven demand will become an opportunity for the broader online grocery shopping industry, and the trend will live on after this wave of epidemics subsides. But it won’t be a game-changer for the failing community group-buying vertical, according to Echo Gong, a Shanghai-based analyst with global research agency Coresight. 

Data from market intelligence agency Emarket shows that online food and vegetable sales reached an annual growth rate of 61.4% in 2020 when the coronavirus hit China the hardest. The growth rate slowed down to 24.6% in 2021, but the sector nonetheless was still growing. “Shanghai’s epidemic will reinforce the use of online grocery shopping for certain groups, such as the elderly who didn’t use the platforms before,” Gong told TechNode.

But it’s a different case for the community group-buy vertical. “Most of the group leaders who initiated group-buy are motivated to help each other during difficult times. Most of the parties engaged in the group-buys now, either group heads, volunteers, vegetable suppliers, or catering services providers, are not profit-driven. After the pandemic, it will be difficult to keep them motivated without incentives,” she said.

Long-term drivers: VC, tech giants

“The inflow of venture capital and internet giants plays a bigger role than real consumer demands in driving the rise and fall of the community group-buying industry,” said Zhang Yi, consulting CEO and chief analyst at iiMedia Research, echoing Gong’s opinion. 

Shanghai’s Covid outbreak highlighted the importance of last-mile delivery capabilities. Zhang said he’s bullish on companies with mature inter-city delivery forces like Meituan and JD, as well as Freshippo, all of which have strong offline presences.

“At the end of the day, the industry threshold and winning factor for a platform is the ability to ship products to customers in an efficient and timely manner,” said Zhang.