Pinduoduo vies for untapped consumers in burgeoning online grocery market

Yujie Xue
·3-min read

Pinduoduo has raised the stakes in rural e-commerce by pledging to beef up investment in the digitisation of the rural supply chain as it competes with rivals Alibaba and JD.com for untapped consumers who are buying more groceries online in the wake of the coronavirus outbreak.

The social e-commerce giant said it has become China’s largest online platform for agricultural products by enabling direct selling from farms to dining tables. To strengthen its leadership in the field, Pinduoduo will invest more in building the rural supply chain infrastructure, according to a statement issued after the company reported its first quarterly profit since IPO on Thursday.

“We are committed to driving a new infrastructure built for agricultural products for all consumers and farmers in China,” Pinduoduo CEO Chen Lai said during the earnings call.

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Online grocery services have become a focus for many of China’s e-commerce companies after the coronavirus pandemic drove up demand. Alibaba’s supermarket chain Freshippo and delivery giant Meituan are both major players in the field. (Alibaba owns the Post).

Speaking on the company’s second-quarter earnings call in August, Meituan chief executive Wang Xing said the online grocery market “is going to be a very exciting business … which will eventually cover hundreds of millions of people”.

Post-Covid online spend sends Pinduoduo sales soaring 89 per cent

“Low-priced, high-frequency online grocery shopping is probably the best way for e-commerce platforms to attract and retain new users,” said Chen Tao, an analyst at Beijing-based consultancy Analysys. “It helps platforms reach more users in the less-penetrated lower-tier regions and cultivates their online consumption habits.”

However, digitising and improving the current rural supply chain infrastructure to guarantee fast and stable shipments of delicate rural produce could be a costly challenge for e-commerce platforms.

“The investment in supply chain infrastructure can be a challenge for companies’ profitability in the short term but once the infrastructure is built, the market potential is huge,” said Chen.

In August, Shanghai-based Pinduoduo introduced its Duo Duo Maicai online grocery serviceto address changes in consumer grocery shopping habits that are shifting from wet markets and supermarkets to online channels after the pandemic. It provides a next-day self-pickup service for users who order groceries on the platform.

First rolled out in Wuhan and Nanchang as a WeChat mini program, the service is now on Pinduoduo’s main app and available in most provinces in China, according to the company.

Pinduoduo‘s Chen said that while the company leveraged existing logistics networks to deliver certain fresh produce within 2 to 3 days with minimal spoilage, there were new challenges because consumer complaints increased after more people began ordering “leafy vegetables and delicate fruit” on the platform.

“We are committed to continued investments into the agriculture supply chain and ecosystem,” said David Liu, vice-president of strategy at Pinduoduo. “It is a long-term business that aligns well with our commitment to digitise China’s agriculture value chain and to be China’s leading agriculture platform.”

Nasdaq-listed Pinduoduo reported that its third quarter revenue jumped 89 per cent year on year to 14.2 billion yuan (US$2.1 billion). The number of annual active buyers rose 36 per cent to 731.3 million compared to a year ago. The company also saw its first quarterly profit since going public in 2015, with non-GAAP net profit attributable to ordinary shareholders reaching 466.4 million yuan, compared with a loss of 1.66 billion yuan in the same quarter last year.

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