Entering the trillion-dollar market, is selling coffee the beginning of group buying on Xiaohongshu?

Recently, the local life business official account "Tuboshu" has become very active, and has released two rounds of recruitment for catering merchants and store explorers, showing that Xiaohongshu has sounded the important clarion call to enter the local life field. Why did Xiaohongshu increase its investment in local life? What measures have been taken? The author of this article will take you to find out.

At the end of April, the official account of Xiaohongshu's local life business, "Tuboshu", began to become very active, and launched two rounds of recruitment for local catering businesses and store explorers.

These actions indicate that in 2023, Xiaohongshu sounded the important clarion call to enter the local life field .

As expected, in the following days, Xiaohongshu users in Shanghai suddenly found that they could buy coffee packages with one click in some coffee shop exploration posts. At present, Xiaohongshu has not only expanded to Shanghai , but also started internal testing in Guangzhou.

So why did Xiaohongshu increase its investment in local life? What measures did it take?

01 Piloting in Shanghai and Guangzhou, Xiaohongshu embarks on the local life track

In fact, from 2019 to now, Xiaohongshu has been developing in small steps in local life and has never really entered into the transaction link of local life.

This time, Xiaohongshu has opened an official account related to local life, "Tuposhu", and is also building a back-end link, which directly demonstrates its ambition in commercialization this year.

Up to now, "Tuposhu" has mainly released the platform's recruitment plan for "merchants" and "experts".

• Merchant level: Launch the "Food Store Plan" to attract local catering merchants to join the platform. Merchants participating in the event can enjoy 0 commission, 0 deposit, and preferential traffic;
• In terms of influencers: we have launched the “Searchlight Plan” , a special support program for store exploration bloggers, to provide guidance and assistance in terms of traffic and content to influencers participating in the event.

After the plan was released, Xiaohongshu immediately began the internal testing of the group buying project in Shanghai.

It is understood that Xiaohongshu has designated the first phase of the weekend store exploration plan as "Coffee Shop Travels", and only coffee shops in Shanghai can participate.

Judging from the practice of Morketing on Xiaohongshu, there is no obvious entrance to this group buying project in the APP. According to "Tuposhu", users need to search for the activity name or click on the corresponding topic tag to enter.

After entering the topic page, you can see the store exploration notes posted by participating experts, and in these store exploration notes there are purchase links for group purchase packages.

In terms of the overall experience, whether it is the setting of the group purchase entrance or the scarcity of packages sold by merchants, it can be clearly felt that the nature of Xiaohongshu is very obvious.

This is also reflected in the second phase of the internal testing activities in Guangzhou. Except for replacing the coffee shops with tea shops, Xiaohongshu's activities in Guangzhou are exactly the same as those in Shanghai.

In fact, according to a research report by Guotai Junan Securities, the reason for choosing Shanghai and Guangzhou is that platform users in first-tier cities are characterized by high value, high influence and high activity .

For Xiaohongshu, where the majority of users are from first- and second-tier cities, Shanghai and Guangzhou, where people with “three highs” gather, are undoubtedly a safe choice for testing new business.

After all, after Xiaohongshu entered the local life track, its most important task at present is to run the model in a few cities and set up the local life business first.

02 Behind the entry into the trillion-dollar track: Xiaohongshu wants to take a serious gamble

From the above, we can draw a conclusion: in 2023, Xiaohongshu hopes to "snatch food from the tiger's mouth" in the local life field from Meituan and Douyin. So why does Xiaohongshu still want to focus on this field in the face of such powerful and mature competitors?

Perhaps we can roughly analyze it from the two dimensions of " inside " and " outside " :

Let’s look at it from the inside first. Even though its competitors are strong, Xiaohongshu actually has some natural advantages in local life. Everyone knows that Xiaohongshu’s strongest attribute is “content seeding”.

Initially, Xiaohongshu was known by consumers for sharing information about beauty products and overseas purchasing. Now, Xiaohongshu has covered all aspects of food, clothing, housing and transportation, and has become a community for most people to share their lives. This means that the process from planting seeds to pulling seeds will happen more naturally.

But in this matter, Xiaohongshu has always found it difficult to build its own "back-link" conversion path.

On the one hand, e-commerce platforms such as Taobao and JD.com have long cultivated deep-rooted online shopping habits among users. On the other hand, the channels, supply chains, logistics, warehousing and distribution involved in e-commerce are all tough nuts to crack.

In comparison, Xiaohongshu's entry into local life can not only make full use of the natural traffic generated by a large number of users sharing content in terms of food , clothing, housing and transportation, but also does not require excessive investment in supply chain, logistics, warehousing and distribution, etc., making it a very "cost-effective" choice.

Of course, on the other hand, Xiaohongshu’s absence in the transaction closed loop in the past not only affected the company’s overall commercialization, but also had a corresponding impact on the user experience.

A user said, " I often see my favorite restaurants and popular shops on Xiaohongshu, but unfortunately there is no one-click purchase button ." What Xiaohongshu is doing now in the local life track is to add a one-click purchase button for users, which to some extent opens up a closed loop for Xiaohongshu from content planting to transactions.

From the internal testing in Shanghai and Guangzhou, we can see that after Xiaohongshu entered local life, it directly improved the user experience and made consumption more convenient and hassle-free.

In fact, for platform users, it doesn’t matter much which purchasing channel to choose when the price difference is not big. Xiaohongshu, which can easily complete group buying after planting grass on the platform, will undoubtedly become a more convenient choice.

For the platform and merchants, Xiaohongshu's group buying not only shortens the path from user seeding to consumption, but also leverages the platform's content advantages, achieving a positive cycle from content seeding to marketing and then to consumption.

In addition, the continued pressure on its core advertising business is also one of the realistic factors that forced Xiaohongshu to make changes.

According to media reports such as 36Kr, Xiaohongshu's advertising business in 2020 will contribute up to 80% of its total revenue. Among Xiaohongshu's advertisers, cosmetics and skin care brands account for more than 70%.

A problem arises at this point. Once the cosmetics track performs poorly, the budget may decrease, so it is particularly important to find a new commercialization path.

Therefore, Xiaohongshu's offline group buying business is not only to create a closed transaction loop of " planting grass + consumption " for the platform, but also an important transformation to cope with the pressure on the advertising business and open up a second growth curve.

From an external perspective, when we turn our perspective to the external dimension to explore the reasons why Xiaohongshu entered the local life, the local life track itself seems to contain the answer.

As we all know, after years of hard work, Meituan was once the most heavyweight player in the local life field, but the Douyin platform has also sat at the table after a fierce attack in recent years with its traffic advantage.

Xiaohongshu's entry into local life amid the battle between the two giants was described by some media as "stealing food from the tiger's mouth". Some people believe that it is not a good choice for Xiaohongshu to enter a new field and compete with the giants.

However, the challenge of competing with giants also provides a convincing reason for Xiaohongshu's behavior: since leading platforms such as Douyin are eyeing local life, it means that the local life track is indeed a market worth exploring in depth.

In general, the process for Internet companies to do offline group buying is to buy coupons online and consume in stores offline (redemption). Of course, when it comes to the specific transaction links, Meituan and Douyin have different approaches due to the differences in the nature of their platforms, and it can even be said that they each have their own styles.

Users may place group purchase orders based on the enthusiasm of short videos, but they are likely to lose interest in going to stores after their interest fades, so it is difficult to go to stores to settle transactions in Douyin's transaction chain. As a tool platform, Meituan often has more advantages in terms of in-store settlement as consumers often have clear plans before purchasing the corresponding products.

Now that both consumption models are dominated by giant companies, if Xiaohongshu, which has entered the market at this time, wants to develop, it must not only survive in the gap between the two giants, but also find a suitable positioning for itself based on the characteristics of the platform.

From the perspective of the way of planting grass, Xiaohongshu is more similar to the Douyin platform. It uses interest orientation to meet users' random needs. Consumers complete the planting of grass because of their interest when they are browsing posts.

As for the in-store check-out rate, some believe that Xiaohongshu's active users are mainly young women, who may show better check-out data due to the community atmosphere.

Generally speaking, interest-based recommendations make Xiaohongshu more similar to Douyin, while the content format of pictures and texts is closer to Meituan. However, as more and more users get used to using Xiaohongshu as a search platform with tool attributes, the similarity with Meituan platform has been further enhanced. Xiaohongshu has become the "middle ground" between the two major platforms of Douyin and Meituan.

Fortunately, for Xiaohongshu, which is seeking to increase its performance, the local life market covering in-store catering, leisure and entertainment, and travel and accommodation is a large enough plate and a rare incremental blue ocean track, which is enough for Xiaohongshu to display its capabilities.

According to iResearch Consulting data, the scale of China's local life services was 19.5 trillion yuan in 2020, and this figure will grow to 35.3 trillion yuan by 2025 .

Even with the joint efforts of Meituan, Douyin and many vertical software, the current overall online penetration rate of local life is only 12.7%. This means that the local life market is not a brutal competition for existing market share, and Xiaohongshu does not need to compete with Meituan and Douyin for victory or defeat.

With a huge blue ocean market and extremely low online penetration rate, the tens of trillions of local life track can not only easily accommodate the development of more Internet companies, but can even create several more Meituans.

Although Xiaohongshu faces pressure from giants when entering the local life market, the returns brought by the market are equally impressive. Therefore, local life, which has huge room for imagination, naturally becomes one of the appropriate choices for Xiaohongshu's further growth at this stage.

03 Conclusion

Even if Xiaohongshu has finally made up its mind to enter the local life market, we still need to question whether Xiaohongshu, which is known for its sophistication, can handle the cumbersome local life market.

Gan Jiawei, former chief operating officer of Meituan, once said that doing local life requires "crazy visits and crazy orders." For this reason, the number of offline sales staff in Meituan's group buying department once exceeded 9,000 .

This means that Meituan’s dominant position in the food delivery wars and community group buying competition is closely related to its large-scale offline sales staff.

Douyin, which is growing rapidly in the local life field, has also verified the effectiveness of this strategy. It is understood that the size of Douyin's life service team is about 5,000 people . Meituan and Douyin may have different strategies, but at present, at least thousands of offline teams are necessary to do a good job in local life .

It is understood that the total number of employees in Xiaohongshu company currently only reaches about 6,000. Therefore, for Xiaohongshu, which entered the market late, it will inevitably be difficult to take center stage in local life before it has done a good job in offline team building.

There is no large-scale marketing team to compete for merchant resources, nor a huge budget to launch a price war. Judging from the current development speed of only being able to buy coffee packages and tea drinks on the platform, Xiaohongshu still has a long way to go to realize the wonderful vision of local life driving performance.

Author: Lumens

Source: WeChat public account "Morketing (ID: Morketing)"