Sunday, 17 October 2021

Pinduoduo becomes China’s largest e-commerce company

5 min read

By Kevin Luarca

Chinese e-commerce player Pinduoduo revealed in its latest report it recorded over 788 million annual active users, surpassing Alibaba’s 779 million registered users

  • Pinduoduo is China’s largest e-commerce company by annual active users
  • Pinduoduo still lags behind in other metrics
  • It faces challenges that need to be resolved

Pinduoduo was founded in 2015 and marketed itself as an e-commerce platform for agricultural products that enables farmers to sell their goods fresh and cheap without middle men. Traditionally, fresh produce did not sell as well as consumer products like electronics, clothing, and personal accessories. However, restrictions on mobility due to lockdowns during the pandemic increased the demand for fresh produce delivery.

Pinduoduo has largest number of active users in China

Pinduoduo has reached a milestone as it surpassed Alibaba in the number of registered users. The Shanghai-based e-commerce platform recorded 788.4 million annual active users in its 2020 fourth quarter report, overtaking Alibaba as the largest e-commerce platform in terms of number of users which reported 779 million registered users in its 2020 annual report.

Online grocery shopping has historically been less popular in China. But the COVID-19 pandemic changed the shopping behaviour. Lockdowns restricted one's mobility and consumers looked for alternative means to buy their fresh produce and meat. Even after lockdowns were lifted, consumers were reluctant to go out and found it more convenient to place orders through mobile apps and collect their purchases in designated pick-up points in their own time.

To cater to the shift in consumer behaviour, Pinduoduo launched Duo Duo Maicai, a service that is part of the main Pinduoduo app, in August 2020. The service allows users to select from a daily curated list of fresh items for a reduced price before 11 in the evening and pick them up the next day. Consumers are able to purchase their items at a cheaper price and ensure that goods prone to spoilage are delivered as soon as their local grocers receive them.

Pinduoduo expanded its catalogue to include retail items to compete with Alibaba and JD.com but still considers fresh produce to be its core product. “In the past years, Pinduoduo’s contribution in agriculture has been mainly in downstream distribution and improving midstream supply chain efficiency. However, improved efficiency in distribution and sales still does not fundamentally add value to agricultural products, nor inherently improve our health significantly,” said Colin Huang, founder of Pinduoduo. Huang recently stepped down as chairman of the company was succeeded by Chen Lei who was formerly chief technology officer.

Pinduoduo still lags behind in other metrics

Despite a 146% increase from its 2019 annual revenue to RMB 26.55 billion ($4.08 billion) according to its 2020 Q4 report, Pinduoduo is still behind Alibaba which reported RMB 221 billion ($33.9 billion) revenue in 2020. Furthermore, while Pinduoduo has surpassed Alibaba’s annual active users, the story is the opposite in terms of monthly active users. Pinduoduo reported 720 million monthly active users, while Alibaba has over 902 million.

This shows that Alibaba is still the largest e-commerce platform in China by revenue. However, it should be noted that Pinduoduo is an app mostly known for its fresh produce catalogue. Alibaba, in comparison, offers more business than any other e-commerce company. In 2019 the Ministry of Agriculture and Rural Affairs of the People’s Republic of China estimated rural online retail sales to be a mere RMB 400 billion ($61.9 billion) of the total trillion dollar Chinese e-commerce market.

Pinduoduo’s focus on agricultural products has allowed it to gain dominance in its chosen field. The company extended its offerings to include other retail items like electronics. Its investments and goals still show that it intends to focus on agricultural products and has little intention to surpass other e-commerce platforms like Alibaba, JD.com, and Meituan when it comes to other retail offerings. Whether this is good or bad remains to be seen.

“This is a win-win situation for everyone. With our commitment to social responsibility, we definitely want to and will do more here, including by providing further training for farmers to sell well on our platform,” said Chen.

Challenges that need to be resolved

The e-commerce player has been vocal in its efforts to support local farmers and strengthen China’s agricultural industry through agritech. However, several scholars have warned that e-commerce platforms that directly connect farmers to consumers put the entire industry in trouble. This is because intermediaries like small vendors could lose their jobs and logistics of fresh goods will be reliant on the few big e-commerce players. Furthermore, this practice will reduce the value of goods, making it even more difficult for small businesses to turn a profit.

In fact, Meituan, Pinduoduo and three other online sellers were fined RMB 500,000 ($77,000) to RMB 1.5 million ($231,000) for improper pricing practices that undercut small businesses.

China has also bared its plan to regulate large tech players by passing several antitrust laws in order to thwart monopolistic behaviours of multi-billion dollar companies. This forces companies like Alibaba, Tencent, Pinduoduo, and JD.com to re-asses their long-term goals depending on how much regulators intend to step in.

Another risk is the agri-commerce focus does not offer seamless transitions to cross-border transactions and could be a barrier to international expansion, keeping Pinduoduo confined to China.



Keywords: E-Commerce, Online Shopping, Deliveries, Logistics
Institution: Pinduoduo, Alibaba, JD.com, Meituan, Tencent
Country: China
Region: East Asia
Guest: Colin Huang, Chen Lei
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