In-Depth Analysis: The Biggest Pitfall of Community Group‑Buying Shared Warehouses

Release date:

2021-11-17

Author:

Jinhua Logistics

As for the business model of community group buying, despite some lingering skepticism, since capital investors rushed into the market in 2020, a rapid three‑plus‑one competitive landscape has now taken shape.

The growth of community group buying has been accompanied by stringent government oversight; even amid widespread criticism, the real drama is already halfway through. In the first act, some so‑called protagonists unexpectedly found themselves out of the running, while the full cast—leading roles, supporting characters, and minor figures—took their turns on stage. The climax is still unfolding, but from the perspective of all parties involved, this isn’t a serialized TV series—it’s a blockbuster movie with no dull moments from start to finish.

We know that, The core competitive strengths in the community group‑buying sector are concentrated in three key areas: front‑end traffic acquisition, mid‑stream warehousing and logistics fulfillment, and back‑end supply chain capabilities.

As order volumes on community‑group‑buying platforms continue to grow, these platforms have largely established a three‑tier warehouse‑logistics fulfillment system—comprising shared (collaborative) warehouses, central warehouses, and grid‑level warehouses—to strike an optimal balance among spoilage, timeliness, and costs. This model has become the industry standard, with major players such as Duoduo Maicai and Meituan Youxuan currently adopting it.

Shared warehouses emerged alongside the rise of community group buying; just as community group buying was met with skepticism from the outset, the growth trajectory of shared warehouses has likewise been fraught with challenges.

The three-tier warehouse‑to‑delivery fulfillment system for community group buying

Community group buying operates on a “211” model: customers place orders on the platform by 11:00 PM that day, and can pick up their purchases from a nearby store (the group leader’s location) as early as around 11:00 AM the next day, with the latest pickup time no later than 4:00 PM.

Clearly, with the platform’s vast network of suppliers and thousands of SKUs, it is simply impossible to meet delivery deadlines when products are shipped from manufacturers or channel warehouses to the platform’s nationwide central warehouse.

Accordingly, suppliers opt to store their goods in advance at shared warehouses located near the central warehouse—sometimes even within the same industrial park or the same facility.

From that evening until 2:00 a.m. the following day, goods will be delivered to the central warehouse in batches.

Before 4:00 a.m. the following day, the central warehouse will consolidate order processing and sort and dispatch goods delivered by suppliers to the respective grid warehouses.

From 3:00 a.m. to 8:00 a.m. the following day, once the grid warehouse receives the goods, they are sorted according to the group‑point coverage and delivered to the group leaders.

The next morning, from 8:00 a.m. to 11:00 a.m., the team leader will receive the shipment, sort and organize it by customer, and then notify the group members to pick up their orders in person.

After 11:00 a.m. the following day, users may pick up their orders from the group leader as early as around 11:00 a.m. If there are a high volume of orders or delivery delays on that day, the latest pickup time will be no later than 4:00 p.m.

In terms of coverage, a single central warehouse typically serves 3–5 shared warehouses, which in turn can cover 40–70 grid warehouses. Each grid warehouse can serve 300–500 groups, meaning that one central warehouse indirectly reaches 12,000–35,000 groups. To ensure swift delivery of goods to the central warehouse, suppliers often locate their shared storage facilities close to the central warehouse, sometimes even within the same industrial park and effectively sharing the same facility.

The central warehouse has a coverage radius of approximately 100 km, primarily serving one province or multiple cities, while the grid warehouses have a coverage radius of 15–20 km, mainly covering districts, counties, towns, and villages.

The “shared warehouse + central warehouse + grid warehouse” model is seamlessly integrated, working in concert to achieve cost reduction and efficiency gains.

Shared warehouses enable earlier lead times, with the central warehouse serving as a centralized hub for the flow of all products. Streamlined sorting and processing operations boost operational efficiency. As the final link in the platform’s fulfillment chain, grid‑level warehouses leverage consolidated order‑picking and delivery to significantly reduce fulfillment costs—this is the three‑tier warehouse‑and‑delivery fulfillment model of community group buying.

The Development Landscape of Community Group‑Buying Shared Warehouses

Wherever there are people, there is a world of intrigue; wherever there are interests, there will be competition.

From the industry’s prevailing perspective, profitability in grid warehouses is quite challenging—quite simply because of one key reason.

The platform centrally allocates orders, ensuring that cost control is optimized to the utmost. And… The customers of shared warehouses are platform suppliers, and during periods of rapid growth, these suppliers tend to focus primarily on the speed and volume of product turnover. Consequently, in the shared‑warehouse sub‑sector, an increasing number of competitors have been drawn in by the lucrative opportunities.

As community‑group‑buying platforms evolve at breakneck speed, shared warehouses are racing to keep pace. Participants in this competitive fray find themselves caught in an unprepared skirmish—colliding with rivals and suddenly finding themselves under fire.

Precisely for this reason, the players competing in the shared‑warehouse space vary widely in their capabilities, and the scale and management standards of these facilities differ dramatically.

From the perspective of the participating groups, they can be broadly categorized into four types:

1. Warehousing, logistics, or supply chain companies—large ones include Ande and Yuehai;

2. Operators of the first-generation e-commerce cloud warehouses, such as Fawang;

3. Professionals in the express delivery and freight‑forwarding networks, such as ZTO Cloud Warehouse;

4. The platform’s suppliers or the distributors of fast-moving consumer goods constitute a large and diverse group.

From the perspectives of scale and geography, shared warehouses come in three forms:

1. Nationwide network‑based shared cloud warehouses, such as Fengcang;

2. Regional shared cloud warehouses, such as Gaosheng in Shandong;

3. Small-scale, single-warehouse operations that serve only a specific region are colloquially referred to in the industry as “wild warehouses.”

Based on current scale and trends, the leading shared‑warehouse operators include Ande Cloud Warehouse, Qianhai Fengcang, Fawang Cloud Warehouse, and Yuehai Cloud Warehouse. A common feature of these companies is that they are network‑based cloud warehouses, each with a nationwide footprint of more than one hundred facilities.

The key differences are that Ande, leveraging Midea’s robust backing, has evolved into a comprehensive supply-chain enterprise; Fawang focuses on end-to-end e‑commerce warehousing and logistics across B2B and B2C omnichannel channels; Yuehai is a fully integrated supply-chain player with both domestic and international operations; while Fengcang concentrates exclusively on community group‑buying and shared cloud warehousing.

Potential pitfalls of community group‑buying shared warehouses

In fact, in terms of the corporate nature of the enterprises participating in shared (collaborative) warehouses, there are both private and state-owned firms; however, private enterprises appear to be more dynamic.

No matter what role one plays in this sector, they must contend with powerful, near‑monopolistic platforms and a vast array of suppliers. In particular, they face the fast‑evolving, complex, and ever‑changing landscape of community e‑commerce. Anyone following the industry’s trajectory can sense just how rapidly things are shifting: companies that were still valued at several billion dollars in April or May found themselves reduced to little more than “crocodile meat” within a matter of weeks.

In the ever‑changing landscape of social e‑commerce, what challenges and pitfalls do shared warehouses (collaborative warehouses) face?

First, the contradiction between rapidly growing demand and the need for coordinated balance within the warehousing and distribution network is, in the author’s view, the primary challenge in the development of shared warehouses.

We all know that shared warehouses are designed to serve the central warehouse and the platform’s suppliers. For example, in March, demand for shared space was 5,000 square meters; factoring in future growth, we leased 6,000 square meters, which may result in a few months of vacancy costs amounting to 1,000 square meters.

But by August, demand surged to the point where even 7,000 units were no longer sufficient. Switching warehouses would mean forfeiting the deposit, while adding another warehouse would entail higher operational costs. Virtually all network‑based cloud warehouses encounter this challenge—especially the larger ones.

Second, the platform’s central warehouse operates under a robust “urban management logic.”

Although shared warehouses serve suppliers and charge merchants, delivery fulfillment is centered around the platform’s central warehouse. Daily interactions are with the warehouse staff at the central hub, whose management wields significant authority—enabling them to impose fines or even ban suppliers for issues arising during the shared‑warehouse delivery process.

In their view, failing to deliver according to the platform’s requirements or exhibiting an inappropriate attitude on the part of delivery personnel—among other issues—can result in an on-the-spot fine. The warehouse managers on site have the final say, imposing penalties of ten or twenty thousand yuan, which has left shared‑warehouse operators in a dire situation.

Third, the “second-generation participants in shared warehouses” are stirring up the market.

At present, some sizable shared‑cloud‑warehouse companies have seen the rapid growth potential of this business and, perceiving it as highly profitable, have chosen to strike out on their own. They poach suppliers and customers, or employ duplicitous tactics—working diligently for the company on the surface while secretly engaging in underhanded, self‑serving activities behind the scenes.

Fourth, some experts argue that direct platform involvement in shared warehouses may be the biggest pitfall facing third-party shared cloud warehouses.

Indeed, if shared warehouses can generate sustainable profits, why wouldn’t the platform get involved? The platform is certainly well‑capitalized; when the central warehouse’s capacity remains underutilized, it could designate certain areas as shared warehouses, and once the central warehouse reaches full capacity, it could establish standalone shared warehouses.

In fact, it’s not a matter of the future—several major platforms are already involved in shared warehousing. Meituan and Pinduoduo have established shared warehouses at their regional hub facilities, while Xingsheng even operates its own proprietary shared‑warehouse network. So does that mean third‑party shared warehouses no longer have a market?

The author holds a slightly different view, for two reasons:

1. On the one hand, the number of suppliers is vast and growing rapidly; on the other hand, constrained land availability means that warehouse space in various regions is always limited, imposing restrictions on platforms seeking to acquire land for new warehouses or lease additional storage.

2. In recent years, the rapid growth of community‑group‑buying platforms has continued to face intense competition and mounting pressure. As a result, these platforms have increasingly focused on attracting users and expanding their market reach. Letting specialized third parties handle warehousing, logistics, and order fulfillment is a sound strategy.

Development Trends of Community Group‑Buying Shared Warehouses

As a critical component for ensuring timely order fulfillment and enhancing the efficiency of processing, packaging, and sorting, shared warehouses are receiving increasing attention. Looking ahead, four major trends may emerge:

First, the franchise model may become mainstream.

As everyone knows, the franchise model has been instrumental in shaping China’s express delivery industry. While SF Express and JD.com’s direct‑operation model offers significant advantages, the high costs involved have left these two giants struggling. Meanwhile, ZTO and Yunda—both built on the franchise model—have firmly established their reputation and market standing, making them virtually untouchable. And in recent years, “J&T Express,” which has been aggressively disrupting the sector, has risen to prominence like a rising sun.

The franchise model for shared cloud warehouses is essentially the same. Compared with direct operation, franchising has two key characteristics: First, it’s “fast,” which aligns with the rapid pace of community group‑buying’s development. Another key feature is low cost, which also closely matches the industry’s stringent cost‑efficiency requirements.

Second, as services are upgraded and scale expands, we may see the emergence of finely segmented shared warehouses that break down large storage units into smaller, more granular offerings.

In the future, shared‑warehouse services will become more diversified and specialized. Beyond basic warehousing, services such as loading and unloading, processing, packaging, sorting, and returns/exchanges will grow increasingly varied, requiring a multi‑faceted approach to meet suppliers’ needs.

Given the platform’s increasingly stringent timeliness requirements, and as business scale and the volume of shared‑warehouse operations continue to grow while warehouse resources remain limited, we may see a trend toward “breaking down the whole into smaller parts,” with more specialized, niche shared warehouses emerging—such as dedicated seasoning and grocery warehouses or daily‑consumer‑goods warehouses.

Third, proprietary information systems have become standard, and automation has become feasible.

At present, the system technologies designed specifically for community‑group‑buying shared cloud warehouses remain immature. Mainstream WMS solutions are unable to meet the unique requirements of such shared‑warehouse models, leaving participants to navigate uncharted territory. The sheer scale and complexity of supplier‑driven operational scenarios necessitate that proprietary information systems become standard equipment.

At present, due to product variety and insufficient scale to cover costs, automated systems are more expensive than manual labor. However, with the rapid growth of social‑commerce, as business volumes become larger and more stable, introducing additional automation for sorting and processing specific SKUs could become feasible.

Fourth, in the future, leading shared‑warehouse operators may become the platform’s largest suppliers.

Head‑end shared‑warehouse operators enjoy cost and network advantages in warehousing, fulfillment, and logistics. By extending upstream into third‑party operations and downstream into supply‑chain integration, and with the backing of capital, they could well become indispensable suppliers to the platform.

Community group buying is a new business model that operates simultaneously on the dual logics of the consumer internet and the industrial internet. However, the warehousing and logistics infrastructure required to support delivery in this sector remains underdeveloped—precisely what presents a significant opportunity for all players, including shared (collaborative) warehouses.

Community group buying is far more than just a transaction involving a few pounds of pork or a handful of cabbages; it embodies a forward‑looking, overarching logic and is forging a new foundational framework for local life in the era of digital intelligence. As for who will rise and fall among the various players, let’s wait and see!