The value-conscious behaviour of Indian consumers has largely been capitalised by retail apps like Meesho, Udaan, and DealShare, etc. that has fuelled the growth of community group buying or loosely known as social commerce India.
These community group buying apps have tasted success by expanding the ambit of online shopping to the consumers of tier-II cities and beyond and providing affordable products. Witnessing the immense popularity, the food aggregator app Swiggy is introducing the community group buying model in the grocery vertical by the name Swiggy Bazaar. Following the same suit, online grocery platform BigBasket has recently revealed the ongoing testing of a group buying model for delivering groceries in Tier-IV towns.
This puts a question if this community group-buying model is a profitable move in the grocery vertical for the food businesses, although it is poised to become a $16-20 billion opportunity by 2025 and $60-70 billion by 2030 according to a joint report by Bain and Company and Sequoia India.
The two models of community group-buying
Presently, in India, there are two kinds of community buying models being implemented namely: reseller-led and the Pinduoduo model. Let us analyse if these models in grocery have remained profitable.
The Pinduoduo model: Pinduoduo is China’s largest online grocer that has pioneered the community buying model. In this model, a buyer can initiate a team purchase and invite friends and relatives through social networks to enjoy lower prices. The buyer is eligible for attractive discounts after a purchasing team of certain members is formed with the size decided by the merchant. Pinduoduo’s model has been emulated by DealShare in India, whose revenue according to Fintrackr had grown over 18 times in 2020 to become Rs 58.71 crore from Rs 2.96 crore in 2019. Towns from tier-II and tier-III cities have embraced online grocery shopping through its platform like never before.
The reseller-led model: The majority of community buying in India is based on a reseller-led model where the resellers act as middlemen between the app and the end-user and with every sale they earn a margin. The orders are then delivered to community leaders or resellers who then distribute them among the network.
This reseller-led model has been profitable for Otipy- a social commerce platform for fresh groceries that clocks daily orders of more than 5000 from over 1lakh consumers, since its launch in 2020. Its resellers consist of women and small neighbourhood stores that sell fruits and vegetables from farmers to their communities through WhatsApp groups.
Lower customer acquisition costs-appealing to investors
The low cost of customer acquisition is luring investors to invest in community group buying business models. The use of social media platforms having a significant user base and trust-based influencers brings down the cost. These businesses spend a minimum of Rs 50 to acquire a single customer as compared to Rs 300 to Rs 400 in conventional e-commerce. This reduces the expenses of a business to a huge extent and appears to be a lucrative opportunity giving a good return of investment for investors.
According to Fintrackr, DealShare’s total expenses in 2020 stood at a negligible Rs 4.3 lakh against a revenue of Rs 58.75 crore.
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Community group-buying is poised to become a $16-20 billion opportunity by 2025 and $60-70 billion by 2030 according to a joint report by Bain and Company and Sequoia India.
What lies ahead for the community group buying model in grocery?
Not just limited to low prices and heavy discounts, the community buying model can be a good revenue churner for resellers in the small cities who are looking for alternate sources of income in turn bringing in more customers. The resellers on the Otipy platform on average earn a commission of Rs 2500-3000 and the top 20 percent of them make more than Rs 15000 per month. Besides, increasing smartphone usage and cheaper data plans, the community buying model in India will thrive on trust and establish a quick and direct interaction between buyers and sellers replicating the experience of traditional offline commerce also open to negotiation.
