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Will Community Group buy model work in Southeast Asia?

Written by David Ng Published on 

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Community Group buy models have worked well in China, but is the Market in Southeast Asia ready for a similar model as well?

Imagine a potential $71B USD market that was created in 2018 – You would think that hundreds of startups would be chasing to copy the model. However, the opposite is true with few founders and VCs either aware or willing to venture into this new space.

In this article, I’ll examine a few of the first movers in SEA to see if the market is ready or too early. Note, I’m not including the marketplaces which have tried having ‘group-buy’ like features, or the Pinduoduo group buy startups (which are discount-driven, not sales agents).

Understanding the China original

With the rise of Pinduoduo, China entrepreneurs started looking at the next innovation for group buying. While PDD proved the value of discount group based purchases, it’s agents are more promoters then salespeople. Shihuituan (十荟团) and others saw an opportunity to focus more on agents as salespeople.

If there is one aspect that stands out about Shihuituan’s model, it’s the power of pooling of agents using WeChat. In China, with WeChat and its min programs, the pooling of agents is possible, and the market so large that 13 companies including Shihuituan (aka Nice Tuan) raised over $288M USD in 2018. Since then, Shihuituan has raised $100M USD on its own.

A basic template on Community Group Buy Business Model.
A basic template on the Community Group Buy Business Model. Image courtesy of WalktheChat

For founders and investors in SEA, Chen Ying has even given advice on how to apply the template:

Community leaders — agents that need to do sales for the bulk group based orders, and have some location to collect bulk shipments for pickup. Who are the agents, and how do you acquire them?

Social Networks – SEA like most emerging markets spends a huge amount of social networks. The problem is that it isn’t always the same one. Which social networks outside of WeChat work well?

Mobile Payment — Not an issue in Singapore or most of Malaysia. The rest of SEA? It isn’t clear cut. How are startups in SEA handling, and what can be leveraged from the leading marketplaces and payment gateways already working on that problem?

Chilibeli

Founded in 2019 by Alex Feng, Damon Yue, and Matt Li, the company recently raised a $10M USD Series A round in April 2020.

Who are the Agents and how are they acquired?

Chilibeli focuses on groceries and targets housewives who are looking to save on those groceries, while also earning income. It’s a common theme we see and one in which Shihuituan focused on before moving to focus more on Shop Owners.

Social Networks

Chilibeli Instagram
Chilibeli Instagram

In Indonesia, large groups are usually found on Whatsapp. However, unlike WeChat that has full e-commerce features with mini-programs, Whatsapp is still mainly used for just communication.

It’s hard to know how many Whatsapp groups Chilibeli agents have formed, as well as offline gatherings. We can only assume that a significant number are needed to sign up and pool the agents.

Mobile Payments

Indonesia, like most emerging markets, still uses Cash and has a plethora of local and global E-Wallet and payment gateways to help with payments.

Most payment gateways in Indonesia have a strong retail network for Cash-Based payments (think of paying cash at a 7–11). In addition to bank transfers, E-wallet payments and Credit Card payments are all available.

In the agent model, the customer can pay cash to the agent who in turn transfers the cumulative cash in the group buy to either a local retail outlet or to a bank that updates the system the group buys has been funded. Customers can also buy directly themselves.

So while mobile payments aren’t as integrated or as common as China, there are still many ways to still enable the unbanked or cash only customers to participate. However, without having easy to use WeChat enabled mobile payments, scaling the model is still difficult.

Super

Founded in 2018 by Steven Wongsoredjo, and a YC18 graduate, the company made headlines when it raised funds from Jay-Z Roc Nation VC fund Arrive in February 2020.

Who are the Agents and how are they acquired?

Super focuses on women in villages (tier 2 and 3 cities). They also signed up some Warung (the local mom and pop shops) owners to be the agents. This is very similar to Shihuituan, but what sets them apart from Chilibeli is a greater investment in supply chain logistics.

Source

When looking for agents, they target people who are the ‘community leaders’ based on the number of social media followers.

The acquisition costs are hands-on and go from village to village. Agents leading a group buy must secure at least $50 per order. Those orders are then shipped to one of the Super partner locations run by one of their agents. Orders $200 and above are shipped to the specific address listed by the agent. Ensuring a high enough minimum order lowers the shipping cost and also allows enough commission paid out to each agent.

Social Networks

The model works the same as Chilibeli in that agents are expected to pool orders outside through Whatsapp. The app is used for transactions, while Whatsapp is used for marketing. There is not a large presence on either Facebook or Instagram

Mobile Payments

According to the CEO, when Super launched 90% of transactions were COD (Cash) and 10% were bank transfer. Now through education, they have improved those ratios to 50/50. While promising, it is still prohibitive compared to China.

WeBuy

Founded in 2020, Webuy is an evolution of the founder Vincent Xue startup Ezbuy. Heavily inspired by China, unlike Chilibeli and Super, Xue decided to focus on Singapore and Malaysia which have a large Chinese demographic familiar with WeChat.

Mr Xue, founder of the app, said: “If we get 1,000 orders for ice cream, it’s not practical to send them to 1,000 houses. So we send them to 400 group leaders, and this kind of small distribution model is much more manageable.”

Who are the Agents and how are they acquired?

Housewives are the main focus group. The acquisition is centered upon particular HDB (public housing) areas in Singapore, and from group chat rooms on WeChat, Whatsapp and Telegram.

Categories of products - Webuy
Categories of products are what you would expect from an E-grocer.

Social Networks

Because of the different market focus (Singapore and Malaysia), Webuy has a closer link to China with the ability to use WeChat for the Chinese speaking Agents. In addition, just like in Indonesia, Whatsapp is also widely used in Malaysia and Singapore.

Mobile Payments

The real advantage Webuy has though isn’t in a social network but in payments.

With Credit Cards, bank transfers and E-wallets widely used, there is no need to combat 50–90 pct of agents and customers using cash found in Indonesia. The flip side is that the market for agents and demand isn’t as high, so it is really a battle to secure higher AOV per group buy due to smaller market size

Where do we go from here

After researching all 3 startups, they are all at a similar stage (early Series A) about 1 year in, and  about $10M in funding and more or less identical models and product categories.

None of these startups have been able to crack a dent in either offline grocery or FMCG e-groceries. Is it possible that changes in the next 1–2 years? Most likely no.

If we look at the market conditions that powered Shihuituan, there was already a huge market of agents on WeChat and other apps (Pinduoduo) that had educated the market about group buy. Southeast Asia simply doesn’t have the groundwork or infrastructure ready.

In SEA, the players are still figuring out the right fit. So far, companies are doing their best to imitate the exact same China model, even down to the supply chain (like super).

What is most exciting will be which one of these startups (or others) evolves the model to fit the local market needs and demands.

For the founders and investors, this is a classic example of ‘first mover’ over traction, and it’s certainly great that people are willing to venture into the unknown and see what happens.


This article has been edited for brevity, and was first published here on July 17, 2020.

David Ng is originally from Singapore but grew up in the SF Bay Area and attended UC Berkeley and Southwestern Law School. With one foot in the US and another in Asia, David has been a co-founder of 2 VC backed B2B startups, Gimmie and Pollen. His current focus is writing about trends in community commerce, and growing  Pollen (www.pollen.store) to be Asia’s largest B2B liquidation marketplace designed for sustainability. 

Disclaimer: This article was written by a contributor. All content is written by and reflects the personal perspective of the writer. If you’d like to contribute, you can apply here

WRITTEN BY

David Ng

David Ng is originally from Singapore but grew up in the SF Bay Area and attended UC Berkeley and Southwestern Law School. With one foot in the US and another in Asia, David has been a co-founder of 2 VC backed B2B startups,  Gimmie and Pollen.   His current focus is writing about trends in community commerce, and growing  Pollen (www.pollen.store) to be Asia's largest B2B liquidation marketplace designed for sustainability. 

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