Why does Tongcheng's life "suddenly die"

  Our reporter She Ying

  The sudden entry of "giants" broke the development rhythm of the entire community group buying track, and the rules of the game changed accordingly.

The industry has shifted from "striving for innovation" and "striving for execution" to "striving for capital" and "subsidies."

It is not surprising that Tongcheng Life has followed an inverted V-shaped trajectory from rising to falling.

  The "giants" are still rolling on the track of community group buying, but the start-up companies are "smoothly" crushed.

On the morning of July 7, the community group buying platform Tongcheng Life (now renamed Micheng Life) officially declared bankruptcy.

According to the reporter, He Pengyu, its founder, chairman and CEO, was still in talks with suppliers that night.

During the meeting for more than 4 hours, he wept several times and promised to do his best to pay off the debt, but he was unable to recover.

  On the community group buying track, Tongcheng Life was not the first company to declare bankruptcy, but because of its high profile, its bankruptcy was called the “first case of community group buying bankruptcy” by the media, which caused shocks in the industry.

  Why does Tongcheng Life "suddenly die"?

What is the current situation of community group buying?

The reporter interviewed some people familiar with the matter.

  From fighting for innovation to fighting for subsidies

  The usual cause of company bankruptcy is poor management, but Tongcheng Life, which was established in January 2018 and belongs to Suzhou Fresh Orange Technology Co., Ltd., is obviously not included in this list.

From the internal letter He Pengyu sent to employees and suppliers, we can clearly see the inverted "V"-shaped trajectory of Tongcheng Life from the rise to the rapid "fall".

According to He Pengyu's open letter, it only took about one and a half years, "Tongcheng Life has achieved front-end performance and has entered a stage of healthy development."

  At that time, the same journey life was still a star on the community group buying circuit, which was recognized by many investment institutions.

According to reports, in 2019, Tongcheng Life received 4 consecutive rounds of financing, ranging from tens of millions to 100 million U.S. dollars.

In June 2020, Tongcheng Life announced that it had completed a $200 million Series C financing.

Public reports show that it was valued at approximately US$1 billion before bankruptcy, making it a small and beautiful startup company.

  In the past two years or so, the community group buying model developed from fresh food e-commerce has rapidly developed into a new format in the e-commerce industry, providing a new way for the development of farmers and rich peasants and absorbing flexible employment in cities and towns. It has also attracted a large number of Entry of the entrepreneurial team.

Shihui Group, Xingsheng Optimal Group and Tongcheng Life are the three fastest running teams, and they were once called the "old three groups" by the outside world.

  However, the booming community group buying market has also attracted "giants".

Since September 2020, Ali, Meituan, Didi, Pinduoduo, etc. have all offered price war "big killers". "Buying vegetables for 1 cent" has become popular, and even the vendors in the vegetable market have felt the pressure.

  The sudden entry of "giants" broke the development rhythm of the entire community group buying track, and the rules of the game changed accordingly.

The industry has shifted from "striving for innovation" and "striving for execution" to "striving for capital" and "subsidies."

  According to the reporter’s understanding, in the face of a sudden survival crisis, Tongcheng Life has also fought against it. While rushing for performance, it also sought capital mergers and acquisitions. It has discussed acquisition intentions with JD.com, Alibaba, ByteDance, Meituan, etc. , Even a team settled in due diligence, but ultimately failed due to changes in industry trends.

  Li Ming (pseudonym), a former executive of Tongcheng Life, told reporters, “At the end of June, Tongcheng Life also hopes to obtain better business data through increased marketing efforts, and then obtain the olive branch of a certain'giant' in M&A. Unfortunately, it was rejected again. Later, due to the expiration of the brand authorization, the senior executives decided to start a name change and strategic transformation to make a comeback. Unfortunately, at this time, the suppliers began to rush to collect payment, which eventually led to a break in the capital chain."

  At present, community group buying is still in the stage of rapid expansion and growth. Meituan (Meituan preferred), Pinduoduo, and Didi (Orange Heart Optimal) have occupied the top positions. Prosperity Optimal and Shihui Group have also been included by JD and Ali. .

After Tongcheng Life left the market, community group buying has become a game for "giants".

  After shopping, there is a huge loss in the industry

  The industry is not surprised by the collapse of Tongcheng Life.

After the community group buying track has fully entered the era of "giants", it has become the norm to fight for prices and rebate commissions for group leaders. In the short term, no one can achieve positive benefits, and the service innovation and experience innovation on the user side have stagnated, and the entire industry has suffered serious internal consumption.

  It is understood that the current profitability of the community group buying industry has rapidly fallen from profit to loss.

Li Ming revealed that before the "giant" enters the market (before September 2020), the monthly sales of platforms such as Tongcheng Life are between 800 million yuan and 1.2 billion yuan, and the gross profit is about 20%.

After the entry of the "giant", with the huge subsidies to consumers and the competition for the "group leader", the monthly revenue of the platform fell by up to 80%, gross profit directly became negative, and the entire community group buying market also slipped further to the entire industry. The quagmire of losses.

  Regulators have repeatedly taken actions to curb this crazy involution under the disorderly expansion of capital.

In December 2020, the State Administration for Market Regulation and the Ministry of Commerce organized an administrative guidance meeting on regulating the order of community group purchases. Six Internet platform companies including Alibaba, Tencent, JD.com, Meituan, Pinduoduo, and Didi participated.

At the meeting, the community group buying "nine must not" was proposed.

In March of this year, the operating entities behind five community group buying platforms including Meituan Optimal (Shenzhen Meituan Optimal Technology Co., Ltd.) were fined 1.5 million yuan for suspected improper price behavior.

  But this still failed to contain the expansion of the "giants".

On the one hand, they "secretly hold their positions" and continue to engage in activities similar to "1 cent"; on the other hand, they seize the terminal market by substantially increasing the commission rewards and subsidies for the "heads".

Li Ming said that the current rewards and subsidies given by the big giants to the community group buying terminal "leader" have reached the highest level of 15% to 18%, basically subsidizing the platform's own income.

This is already irrational competition and is suspected of a price war in disguise.

  On July 8, the reporter inquired about some community group buying platforms. Not only did there "check in and get 15 eggs in 5 days" activities, there were also sandy sweet potatoes worth 1.25 yuan a catty, and red pitayas worth 0.99 yuan apiece.

On the community fresh food platform, similar red pitayas cost about 4 to 5 yuan per individual, and sandy sweet potatoes cost 5 yuan per catty, which is much higher than the community group buying platform.

  Behind the shopping prices and subsidies are huge losses for the entire industry.

Public reports show that in the first quarter of this year, Meituan’s adjusted net loss reached 3.892 billion yuan, and Meituan’s investment in community group buying business was about 10 billion yuan, which is expected to reach 20 billion yuan this year.

In the first quarter, Pinduoduo’s gross profit fell to 49.74%. Pinduoduo invested about 6 billion yuan in Duoduomai. It will increase investment in 2021.

  Suppliers are hit by the mess

  From thriving performance to being forced to declare bankruptcy and exit, Tongcheng Life's bankruptcy not only made people regret, but also left a lot of feathers.

  In the early morning of July 8, He Pengyu issued an open letter through his personal circle of friends, and proposed a three-point solution to the bankruptcy of Tongcheng Life: protect the rights and interests of all creditors to the maximum extent within the legal scope; spare no effort to preserve existing assets and hand them to the court to properly seal them. To deal with it, actively cooperate with the government's guidance and use company assets to pay off debts; if assets are not enough to pay off debts, He Pengyu promises to start a business again, "I will record every debt clearly and make every effort to repay the debt."

  It is also understood that on July 8th, Tongcheng Life introduced a repayment plan for the supplier before starting the bankruptcy liquidation process. It had already paid its employees in June and also promised to pay social security for the employees in the future.

  Although the entrepreneurial team of Tongcheng Life tried their best to make up for it, many vegetable farmers, small vendors and even large and medium-sized suppliers who did not get the payment on time were affected.

  An animal husbandry company has cooperated with Tongcheng Life to supply eggs since 2019, and it has been owed nearly 800,000 yuan.

After the crisis broke out in Tongcheng Life, the company leader, Mr. Wang, came to ask for arrears. "Behind me is hundreds of egg farmers, and I have to come to collect debts."

  According to the latest situation, on July 8th, Tongcheng Life has begun to repay some of the suppliers' debts in advance, and the rest will be distributed by the court after the bankruptcy liquidation procedures are initiated. The work is still proceeding in an orderly manner.

  As of the morning of July 9, more than 600 suppliers have reached a repayment agreement with Fresh Orange Technology, and the funds are mainly from He Pengyu and the team's financing loans.

  On July 9, Mr. Wang booked a return ticket with a repayment agreement.

But next time, if another community group buying platform crashes, can suppliers be so lucky?