Food & Drink

Will Community Group Buying Work In The US?

By Emma Cai

Community Group Buying (CGB) is considered the last large consumer battle ground in Chinese Tech. Many heavy weights (e.g. Pinduoduo, Meituan and Didi) are entering this market ready to compete. What does CGB mean exactly? 

CGB represents group purchase and delivery of groceries in bulk to the community, mainly people who live in the same neighborhood. Grocery delivery. That’s it? Are these big tech companies nuts?

How CGB Works

According to Lillian Li, who writes a newsletter on China Tech called “Chinese Characteristics,” online grocery shopping 1.0 is challenged by 2 factors in China: attracting users, and first/last mile delivery that eats into a business’s margin. 

China is largely comprised of first-tier and second-tier cities. The second-tier cities consist of 1 billion people and, historically, a green field for big tech. Members of this group are usually more price-sensitive than their peers who live in first-tier cities. 

Since COVID limits people’s movement outside of their apartment, and the CGB model reduces last-mile delivery cost by grouping the community’s order together, it makes sense for people in rural China to become adopters of CGB. As such, the battle to acquire these 1 billion users is hotter than ever.

Now that we understand how CGB works in China, I wonder: Can this business model be successful in the US?

China vs. US Demographic Comparison

China has the competitive advantage of having a high urban density, and online grocery market penetration has crossed the Chasm—about 15% of consumers adopted this model. But what could be the future of CGB in the US? I conducted research with Paul Lang, the founder of a NY-based CGB company, YunBanBao (YBB). 

Like many entrepreneurs powered by WeChat buying groups, YBB started their business on WeChat in 2015 to meet demand from Chinese workers who crave Chinese food during lunch time while working in Manhattan. YBB connects these individuals with restaurants in Flushing, Queens, the largest Chinatown in NYC. 

When COVID started, 90% of YBB’s business vanished, leading them to quickly pivot to grocery delivery in addition to food delivery. Their grocery delivery mainly focuses on exotic fruit and seafood that most Chinese love and, some would say, need.

What Challenges CGB Faces in the US 

We concluded that there is a market for CGB in the US, especially in a post-pandemic economy. However, CGB faces several challenges in the American Market:

  • Consumer behavior is different. Americans, especially the ones who live in urban areas, usually are picky. They require a near frictionless experience in order to try CGB and potentially become repeat customers. 
  • The supermarket network is extremely robust. In each town, there is usually a Walmart or Stop & Shop within a 15-minute drive. The quality of goods isn’t outstanding, but it’s sufficient, and they are reasonably priced. 
  • Americans’ food preferences are relatively simple. People usually won’t spend a lot of time cooking every day. They go grocery shopping once a week to take care of basic needs.

Online grocery is not a pain point for Americans. Therefore, I predict  CGB will not become a replacement for traditional grocery shopping, but rather an alternative channel to purchase exotic, high-quality goods that are not typically seen at your local supermarkets.

What is the Secret Path to Success? 

High-quality, reasonably priced goods and delivery convenience are the secret paths to success for a CGB platform. Among these factors, quality is the most important to build a brand name that is sustainable in the long run. 

Therefore, supermarket chains that traditionally carry high-quality goods (i.e. Costco, Whole Foods etc.) could be winners in CGB because the first-mile sourcing of high quality goods is the key to making the CGB business model work. 

The Takeaways 

  • CGB is a harder problem to solve in the US than in China. CGB is an alternative channel to traditional grocery shopping, rather than a replacement. However, as more and more companies continue to invest in CGB, it will ultimately take off.  
  • The secret sauce to win this market is to figure out first-mile sourcing of high-quality goods. Online ordering and last-mile delivery are just add-ons. Supermarket chains that traditionally carry high-quality products could be winners of CGB.

What’s next for CGB in the US? 

  • Understand the community. Community can be broadly defined as people who have similar interests. Existing community-based social media such as Nextdoor can potentially be leveraged for CGB last-mile delivery. 
  • Establish the supply chain mechanism. The supply chain is the bread and butter of CGB. Traditional supermarket giants appear to have an advantage in this area. However, other business models such as community supported agriculture (CSA) can be modified to meet the demand and scale that CGB requires.

The online grocery market is quite young, and it’s too early to tell who will be the ultimate winner. There will definitely be more investments and innovations happening in this space. I look forward to seeing what’s next.

Emma Cai (’19) is an MBA graduate from Columbia Business School and a principal product manager at Vimeo. She is a self-proclaimed payments nerd and a China Tech enthusiast who spent 20 years in China before moving to the United States.

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