China’s community group grocery buying surges as vast market size offers economies of scale

Zhang Huan, a former kitchenware seller in the Covid-19-torn city of Wuhan, has found herself in the middle of one of the biggest new growth areas in e-commerce in the past decade – community group buying and the rapid expansion of online grocery deliveries in China’s lower-tier cities.

In China’s community group buying model, a designated community leader usually creates a WeChat group that coordinates food orders on behalf of a group of people. Why is this popular? Because during the pandemic, elderly people – many of whom are already frail – were afraid to venture outside along with others and also because buying in bulk can help to lower the cost of groceries for individual consumers.

Many of the food items can be ordered via mini-programs within WeChat or through other apps. The products are not limited to groceries but also include other daily essentials, such as paper towels and toilet rolls. The combined orders of each group are then delivered in bulk to collection points – usually morning of the next day – for the community leader to pick up, before collection by community members.

“The community group buying model reduces cost and improves efficiency because of its scale advantage,” said Zhao Yue, an analyst at research firm Analysys. “The online grocery delivery model costs 3 to 5 yuan in additional fees for couriers to deliver to a consumer’s doorstep. But the community group buying model saves platforms [these] costs, as it delivers to group leaders directly.”

Last-mile delivery costs for community group buying account for about 2 per cent of each sale, compared to roughly 13 per cent [for individual deliveries] at e-commerce grocery chain supermarkets such as Missfresh and DingDong Maicai, according to a recent research note from Kaiyuan Securities.

As a community group buying leader, also known as Tuan Zhang in Chinese, Zhang manages two groups of 400 people on Tencent’s pervasive messaging app WeChat, in addition to running a bricks-and-mortar store in a residential area of Wuhan, ground zero of the Covid-19 pandemic in China. But her “store” is actually a collection point for members to pick up their grocery parcels.