Pinduoduo: what you need to know

Date : 31 March 2021

Jiong-Jiong Yu

Senior Retail Analyst

Pinduoduo, China’s latest tech behemoth, has become the world’s largest ecommerce platform by user numbers, surpassing Alibaba. It has set its next goal to be "the world’s largest agriculture and grocery platform". Here is what you need to know about the company.

Pinduoduo surpasses Alibaba and JD.com in user numbers

The Nasdaq-listed company said it had 788.4 million annual active buyers in 2020, surpassing Alibaba’s 779 million and JD.com’s 471 million. Pinduoduo’s monthly active users reached 719.9 million in the fourth quarter.

Its earnings were up 146% YoY (year-on-year) in the fourth quarter to CNY26.55 bn (US$4.1 bn).

We are proud that we have become the world’s largest ecommerce platform by user numbers,” the company commented. “We will work hard to deliver even better results in the years to come.”

What is unique about Pinduoduo’s model?

Like Alibaba’s Taobao, Pinduoduo (the name means “Together, More Savings, More Fun”) is an ecommerce platform that offers a wide range of products from daily groceries to home appliances.

It differs from Taobao and other social ecommerce platforms in the following areas:

Source: IGD

 

Average user spending is low on the platform. In 2020, annual spending per active buyer grew just 23% from CNY1,720 (US$264) to CNY2,115 (US$325). Currently, it is the shopping frequency and number of new users that drive the revenue growth. Pinduoduo still has a huge growth headroom ahead.

Duo Duo Grocery introduced to address changes in consumer shopping habits during COVID

Pinduoduo is increasing its focus on grocery, food, beverage and FMCG products. In August 2020, it launched Duo Duo Grocery app as more shoppers shifted online to do grocery shopping. Duo Duo Grocery differentiates itself by providing next-day pickup service, typically at shops that partner with the company.

Source: IGD, Pinduoduo

 

Pinduoduo said it will build a logistics infrastructure to speed up the delivery of groceries and the company is also investing in technologies for food safety and precision farming.

An operating model that is also controversial and closely monitored by the government

This operating model, shoppers grouping together to buy goods in bulk and receive deep discounts, is under scrutiny of China’s anti-trust watchdog.

Source: Pinduoduo

 

The regulator has recently fined Pinduoduo and Meituan for offering vegetables and other perishable goods at prices well below the market average, causing harm to local trades and merchants.

The government has recently stepped up to rein in big tech groups. Vipshop, a major ecommerce platform backed by Tencent, was fined CNY3m (USD$460k) last month for anti-competitive activities.

China’s State Administration for Market Regulation (SAMR) issued a draft of new anti-monopoly rules on 10 November 2020. The goal is to prevent monopolistic behaviour, such as:

  • Platforms offering steep discounts to eliminate rivalry
  • Excessive use of subsidies

This will clearly impact Pinduoduo’s business and how it operates.

Pinduoduo founder Colin Huang quits while he is ahead

Having already handed over the reins as CEO to Chen Lei last July, Pinduoduo founder Colin Huang, 41, has stepped down as chairman of the board of directors at the social ecommerce company in March.

To many, this is a surprise move from Huang, especially when Pinduoduo has just achieved a significant milestone. The company says, “he is stepping back from day-to-day management to work on the company’s long-term strategy" and "pursue research in the food and life sciences."

Huang is still the largest shareholder with a 29% stake. In December, Huang overtook Alibaba founder Jack Ma and Tencent Holdings founder Pony Ma Huateng as China’s second richest person according to Bloomberg data.

What will the future hold for Pinduoduo?

Pinduouo is China’s equivalent of Groupon. It is one of many platforms in the country that use group purchasing to attract shoppers with exceedingly low prices. It owes its meteoric rise to:

  • Its unique deployment of viral marketing
  • Sharp understanding of shopper phycology
  • Capturing a huge customer segment that has been overlooked by other ecommerce players

However, would its current business model be sustainable in a long run? Probably not. Price might be the weapon of choice for now, but it is not a long-term strategy.

As its shoppers (mostly in lower-tier cities) have become increasingly sophisticated and used to online shopping, they would want better products, higher quality, and more inspirational brands. Pinduoduo will need to evolve to keep up with the change and new demand. It has already embarked on this journey. Three years from now, Pinduoduo will be very different to the one we know today.

Watch this space.