#7. What shapes the future
Community buying in China, alana shutting down, and The Generalist having a global perspective
Welcome! Issue #7 of Emerging Markets explorer 🧭 speaks of something hard to predict: the future. Community buying as the future for groceries in China, alana failing to understand the market and the Generalist, having a wide outlook on business and trends.
If you wonder what Emerging Markets explorer 🧭 is, start here.
👀 Remember the Ant Group IPO that never happened? Its CEO, Simon Hu, resigned last week.
Community buying: the future of groceries in China?
Community buying or group-buying is an emerging business model in China in which people in a neighborhood come together and bulk order grocery items, achieving a steep discount.
The model goes as follows: a self-designated Community Leader creates and maintains a WeChat group, in which they can sign up up to 500 individuals in the region. They have a schedule of posting a product selection in the group, and the members place their orders. Then, orders, get delivered in bulk and the leader picks them up and organizes the delivery.
This is a model that gained a lot of popularity during the COVID-19 restrictions in China. It promises to change the grocery landscape in many parts of China.
Positive impacts
This trend has brought benefits to distributors of fresh groceries, which can be associated with the role of the Community Leader:
A reduction of Cost of Acquisition of Customers: the Community Leader knows the people and has the trust of their neighbors, thus, it is easy for them to sign them up in the WeChat group.
An extension of Customer Lifetime value: Frequent purchases are encouraged in these groups, and the Leader provides customer support.
Increase of conversion rates: in e-commerce conversion rates are usually 2-3%. In these groups, it’s 10%.
The Community Leader takes care of last-mile delivery, meaning the companies need fewer SKUs and groceries are most likely to remain fresh on arrival.
A decrease in the cost of an online grocery order:
In a regular one, the cost is 12RMB (1,55€) (1-2RMB storage of unit, + 7/10RMB of delivery).
In community buying, the cost is 1,5RMB per order (0,19€).
Negative impacts
The main value that customers perceive from community buying is an effective fulfillment of fresh groceries, and a cheaper price.
The impacts:
A decrease in demand for traditional grocery stores.
Price wars: the competitive landscape for community buying is very fragmented, and competition based on price has become a common scenario.
The Chinese government is still skeptical of this model due to the employment destruction of grocery retailers, and due to these price wars. Thus, they have fined relevant players like Nice Tuan, a startup backed by Alibaba, Meituan, and Shixianghui, a startup backed by Tencent, for the price subsidies using their capital advantage.
Failure story: alana did not achieve a product-market fit
alana was an HR software specialized in medium companies in Latin America, born as a job marketplace for hotels, stores, and restaurants, that shut down in 2021. Ignacio Martínez, CEO and co-founder, wrote its story on LinkedIn, humbly sharing with everyone the journey and the learnings.
Balance is hard to achieve when running a startup: you need a good product, you need to grow, your employees need to eat and it’d be nice to be actually profitable. When the product sells itself, it’s done. But when trying to tackle a market and find what it really needs, the experiments and iterations are bets that might be won or lost.
alana was a bet, one backed by Y Combinator, with an amazing team, but it did not make it.
alana started as the project of Ignacio Martínez, Rafael León, and Daniel Bernardez. The first funding round was tiny, and the initial product was not perfect. After a year of hard work, they got more funding and turned their focus on growing the business, hiring more people, and managing the organization.
However, they missed a strong focus on the product, which was not great yet. This led them to fail in 2018, run out of cash, and fire many people.
They almost shut down, but they kept trying and grinding, achieving their first great contracts, a decent pre-seed round, and admission to Y Combinator in 2019.
Y Combinator was a life-changing experience for them, which taught them to focus on progress. It also had a positive impact: they raised a significant amount of money and built a team of really smart people. They were making all the headlines.
However, as this was happening, they started to have doubts about the sustainability of the business: it was unclear how they were going to make a profit or when. They found themselves in a winner-takes-it-all market, realized it would take too much fundraising, and decided to pivot again. They tested 4 services at once.
The products were great, but their core business was recruiting for restaurants, and 2020 arrived. They underestimated the sales cycle, thinking they could focus on building and sales would come fast. It did not happen. This time, they made the hard decision of going out of business.
A lesson for Ignacio? Hype and headlines are just that: hype and headlines. Success is on delivering value.
I highly recommend reading Ignacio’s post to get all the insights. I respect the fact that he told his story admitting to fail, and taking ownership of his narrative. It’s the most insightful LinkedIn post I’ve read in months.
Source recommendation: The Generalist
Speaking of the future, Mario Gabriele in The Generalist is a media company, writing several newsletters, analyzing existing companies and new ideas.
The Generalist of Mario Gabriele is a newsletter I have been subscribed to for a while that has provided me with company ideas and thoughtful analyses. It covers companies worldwide, including Emerging Markets, such as:
Coupang in one minute, the Korean e-commerce taking customer obsession to the next level
Ant Group, a financial infestation - co-authored by Lillian Li of Chinese Characteristics
If this sounds interesting to you, you can subscribe here.
That’s it from me! If you liked this, share it with someone who’d like it too. Furthermore, if you have feedback or interesting stories you’d like to learn from, do not hesitate to reply!