Pinduoduo the 2nd Chinese social e-commerce platform

Pinduoduo (拼多多) is the second-largest online marketplace in China by number of users and number of orders behind Alibaba Group. It has pioneered several new trends that have revolutionized online shopping in China, including:

  • social e-commerce,
  • team purchase,
  • consumer-to-manufacturer (C2M).

Pinduoduo ranks just behind Alibaba Group with close to 700 million users and recorded 1 trillion yuan in GMV in under five years. Getting to the same scale took Alibaba 10 years to achieve.

On Friday the company reported its second-quarter results in 2020, saying that it would pursue more strategic investments and partnerships to accelerate the digitization of the agriculture supply chain. Pinduoduo aims to become China’s n.1 agriculture social e-commerce platform by investing in related technologies and operations across different parts of the agriculture value chain to speed up e-commerce penetration.

 

China’s agriculture sector lack of digitization

When it comes to digitization, China’s agricultural sector has lagged behind other sectors. There are many open challenges in this area:

  • Almost 98% of farmers in China work on farms smaller than two hectares, so it is difficult to standardize farming practices and achieve economies of scale.
  • The rural workforce is aging and shrinking as young people choose to work in cities.
  • Lack of coordination for food production then leads to price fluctuations, while high incremental distribution costs add a burden to consumers.

Pinduoduo aims to solve these problems thanks to its e-commerce platform and has now become the reference destination for high quality agricultural products.

This recognition deepened with the pandemic. During 6.18 PDD witnessed an increase in orders of agricultural products of 136% to 380 million RMB. Nearly three-quarters of the orders came from Level 1 and Level 2 urban users. The company expects to continue to gain market share on agriculture and see the potential for agricultural GMV to exceed RMB trillion in five years.

 

Pinduoduo has launched programs to support farmers

In the agricultural sector, the traditional supply chain faced severe stress after the pandemic disrupted the flow of labor and logistics, threatening the journey of food from farm to table.

Pinduoduo (PDD), China’s largest agricultural e-commerce platform, stepped in to bridge the gap by connecting producers directly to consumers. In fact, with digital platforms, the availability of real-time information can enable small companies and farmers to get detailed insights and make better decisions.

Online retail has an advantage in terms of increased visibility and PDD has, from manufacturing to distribution, a unique transition to make the value chain more efficient and bring more value to producers and consumers through investments and partnerships that can also unlock commercial opportunities.

 

How PDD is helping farmers in China?

  • The company used its team purchase model to aggregate demand from its more than 600 million consumers for agricultural produce, helping farmers sell their perishable crops.
  • The Duo Duo Farm is an initiative by Pinduoduo to empower farmers to keep more of the economic value in the supply chain of agricultural products.
  • Pinduoduo is hosting the Smart Agriculture competition to bring the farming and tech community together. The competition, which attracted interest from teams worldwide, has the aims to help the agriculture sector in the country embrace digitization by exploring the use of the latest technologies.

 

The PDD team purchase model

Traditionally, agriculture produce go to at least five layers distribution before reaching consumers. Industry research estimates as much as 105% added costs, 37% wastage across the chain for vegetables. Pinduoduo team purchase model aggregate scattered interest into sizable coordinated demand and connect sellers directly with consumers to eliminate unnecessary cost.

 

Duo Duo Farm to teach farmers how to sell on Pinduoduo

PDD efforts have centered around the development of human capital through farmer training as well as the initiation of pilot farms in the Duo Duo Farms program. Together with partner institutions such as China Agricultural University, so far PDD has provided agricultural knowledge and business training to nearly 90,000 new farmers who tend to be younger and more digitally tech savvy.

Duo Duo Farms is a demonstration of how PDD is helping farmers living in impoverished regions to sustainably improve their productivity and family income.

Pinduoduo provides week-long training sessions to equip farmers with important skills, such as understanding of:

  • e-commerce
  • finance
  • business operations
  • online marketing

Through this training, farmers can sell their products directly on the Pinduoduo e-commerce platform. The platform connects farmers directly with consumers, without relying on layers of intermediaries in the traditional supply chain, allowing farmers to earn a better living and consumers to buy at lower prices.

 

PDD Smart Agriculture Competition

The Smart Agriculture Competition is organized by Pinduoduo and the China Agricultural University, with technical support from the Food and Agriculture Organization (FAO).

Participating teams with experts from all over the world will compete in the cultivation of the best strawberries. Winners will be determined based on:

  • the economic value created
  • the reliability
  • scalability
  • technical merit of the agritech solutions deployed.

The winners of the challenge will receive:

  • research funding
  • implementation support at a Duo Duo Farm in Yunnan
  • academic and commercial support from PDD

PDD plans to invest in technology necessary to implement precision farming such as robotics, IoT sensors and low power transmission. Precision farming can help optimize inputs, better control diseases and reduce production costs.

 

Pinduodo Q2 2020 results

Chen Lei, Chief Executive Officer of Pinduoduo, said that:

“Agriculture is a sector that touches the largest number of people and yet had the least amount of digitization in the past decades, therefore any technology that can improve productivity and efficiency along the agriculture value chain would have a huge impact”.

Results:

  • The number of annual active buyers rose 41%YoY to 683 million for the 12 months ended June.
  • Revenue increased 67% year-on-year to 12.2 billion yuan in the quarter ended June.
  • The company’s cash reserves increased to 49 billion yuan from 41.1 billion yuan at the end of December 2019.
  • Non-GAAP net loss attributable to ordinary shareholders narrowed to RMB77 million, compared with RMB411 million in the same quarter last year, the smallest net loss since IPO.
  • Sales and marketing expenses as a percentage of revenue declined to 73% from 81% for the same quarter last year as the company moderated its investments in 2Q to reduce the huge monthly amount of money used to fund expensive marketing efforts and high discount subsidies.

 

Pinduoduo aims to become China’s n.1 online agriculture platform

As part of its plan to improve China’s agricultural sector, Pinduoduo plans to make some improvements in the future such as:

  • Further invest in and develop its proprietary agricultural analytics system, which will help farmers in their planting and distribution decisions and refine consumer recommendations to reduce supply and demand mismatches.
  • Invest in the technology needed to implement precision agriculture. As we mentioned earlier, precision farming can help optimize inputs, better control disease, and reduce production costs.
  • Collaborate with logistics service providers in order to optimize deliveries and improve service standards.
  • Look for advanced packaging solutions to offer to sellers.
  • Invest in technology for quality control and food safety to safeguard the interests of consumers who rely on the platform to purchase their food.

 

Will PDD’s efforts lead it to become the most used e-commerce platform in China?

As consumers in China become more health conscious especially following the pandemic, Pinduoduo expects they will be willing to pay more for the quality and safety of their food.

Therefore, this year the company began collaborating with a research institute to develop a faster, more cost-effective and robust method for testing fresh produce that is pesticide contaminants.

Thus, the company is looking to get out of its low-quality products and logistics services, investing in technology for quality control and food safety and developing logistics due to complaints about counterfeit products offered on the site and delivery issues.

By enhancing these points, will PDD be able to surpass Tmall and become the most used e-commerce platform in China?

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