There are many reasons why community grocery group-buying companies can fail. For one, the traditional grocery shopping experience is still popular. The process of moving fresh produce from farms to wet markets and supermarkets for customers to peruse and buy what they need has been stable for decades. Changing these unit economics is akin to walking a tightrope—a slight imbalance means a deep plunge in potential profitability.
But China’s cities are ideal for group-buying to replace traditional shopping. There are dense residential neighborhoods, a general appreciation for fresh food, and a population that is accustomed to making purchases through smartphones. Upstarts, as well as the country’s e-commerce pioneers and popular tech companies, have launched their own group-buying platforms, securing torrents of capital as they adopt business models to bring fresh food to homes across China.
In the battle of the platforms, one company is sitting pretty. On March 11, Nice Tuan scored USD 750 million in its Series D round led by Alibaba Group and DST Global—a rapid escalation through eight funding rounds after its founding in Beijing in 2018.
Nice Tuan has focused on agricultural products since its inception. In just three years, the company’s footprint has spanned the country. Its service is live in 25 provinces, covering 1,598 cities and towns, primarily in second- and third-tier cities. Nice Tuan’s latest figures reveal that its daily order volume surpassed 15 million in January, making it the most formidable competitor of the leading e-grocer, Xingsheng Youxuan, which has backing from Tencent and JD.com.
Getting fresh produce into the hands of customers is a daunting task, especially when each order may vary slightly (or not so slightly) from the next. Perishable goods can go bad if they sit too long in warehouses or on trucks. The other issue is that warehouses and trucks require heavy upfront investment with regular maintenance expenses, which can quickly erode margins.
Whereas online grocers that operate in China’s first-tier cities are able to charge a slight premium when they cater to customers who are short on time but may have slightly higher spending power, Nice Tuan’s playbook of community group-buying has gained ground in other parts of the country.
The company recruits “group leaders” who are usually well-connected, trusted members of a community, such as grocery store owners or stay-at-home moms, who are responsible for user acquisition, promotions, and last-mile deliveries. They manage residents living within their vicinity via WeChat groups, where they provide updates about each day’s selection of fresh produce and household items that are being sold at bargain prices. Aggregated orders arrive at their pick-up point in a day or two to be collected by community members.
This substantially reduces logistics and user acquisition costs, giving Nice Tuan space to undercut its competitors’ prices and appeal to those willing to spend a little time hunting for bargains and wait a day for the order to arrive.
Major tech companies who noticed Nice Tuan’s success were eager to replicate it. To quickly build their own customer base, they recruited group leaders of their own, at times even poaching individuals who had sizable community pools on Nice Tuan in hopes of moving blocks of customers over at a time.
Though perhaps morally questionable, it was a clever play. The top 5–10% of group leaders manage 80–90% of sales for e-grocery platforms, according to a report by China Merchants Securities. That means the competition between platforms has been fierce not only in pricing but also in the art of bluntly lifting clusters of users from their competitors. The consequence is stark, as the statistics suggest—is nonexistent, and many group leaders underperform.
A 36-year-old shop owner, Jia Xun, serves as a group leader for two online grocery platforms. He said customers have become overwhelmed by the flood of choices they have, so he goes through the promotions to select what may fit his members’ habits and needs best. This active engagement is how he maintains his pools of buyers. “Once you earn their trust, they will continue to buy from you,” Jia said.
The tech-empowered aspect to the operation of Nice Tuan (and other e-grocery platforms) may provide a degree of convenience, but it cannot replace some fundamentals of existing shopping habits. One group leader, Zhu Jilian, a 27-year-old stay-at-home mother, said the product promotions she sends to her WeChat group each day do not garner many responses. Also, her members sometimes drop out because the process doesn’t have the human touch that some shoppers need. “I am less appealing than the convenience store owner,” Zhu said. “He’s more of a people’s person and has the advantage of easy pick-ups.”
To its credit, Nice Tuan has a reputation for managing its group leaders well. The company selects its group leaders with care, provides job training and guidance, conducts performance reviews, and terminates those with poor sales turnout. Its layoff rate is as high as 60%, according to media reports.
But with aggressive, deep-pocketed internet giants entering the game, firms like Nice Tuan may need to reevaluate their undertakings.
The company’s CEO Chen Ying, who spent years involved with poverty alleviation work through rural e-commerce and group-buying operations before co-founding Nice Tuan, seems confident in his company’s playbook.
In a letter circulated within the company last year, Chen said that community group-buying is, in its essence, a form of retail. What ultimately determines user retention is whether the company meets customers’ expectations for consistent product quality and service.
In addition to streamlining supply chains and broadening its variety of fresh produce procurement, Nice Tuan is also extending its stock categories. Fresh produce now accounts for 40–50% of what Nice Tuan sells, a dip from 60% in 2020, the company said. Nice Tuan now features 300 to 700 products for sale on any given day and expects to bump that number up to 1,000 by the end of 2021.
Nice Tuan also seeks to elevate users’ trust in the company by engaging with them directly. In 2019, it introduced a livestreaming service to demonstrate product sourcing, production, and the delivery process, offering a glimpse behind the scenes that no supermarket had ever done before.
Strong customer outreach is beneficial for Nice Tuan in the long run. Its WeChat mini program is a direct line to customers, and the company says 30% of its users actively place orders through this portal. That lifts part of the workload off the shoulders of group leaders, who increasingly function as fulfillment agents rather than sales representatives with significant influence over swathes of customers.
Nice Tuan sees community group-buying as a market where multiple companies coexist and differentiate based on local preferences and their target consumer groups. Chen Ying said Nice Tuan’s mid-term goal is to serve one-third of China’s population.
To reach that mark, Nice Tuan is moving into fourth-tier cities, smaller towns, and rural areas. It plans to create 3 million pick-up points in the next three years, making it possible for most users in China to collect their fresh produce orders by walking no more than five minutes from their homes.
“If we are confident enough […] the entire Chinese consumer goods market [aside from fixed assets such as houses and cars] can be ours—this is a 35 trillion yuan market,” Chen wrote in an internal letter.
Even though Nice Tuan was fined RMB 1.5 million (USD 230,000) in March by the State Administration for Market Regulation for selling groceries below cost, it looks like the company isn’t about to give up on its vision of building what Chen Ying says is “all-inclusive retail” for people in every corner of China.