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Still working to turn a profit and shake off its fake-goods reputation, China’s e-commerce upstart Pinduoduo set itself another ambitious goal for 2025: surpass 1 trillion yuan or $145 billion annual gross merchandise volume of agricultural products.
The announcement arrived with the company’s Q2 results last Friday. For some context, online sales of agricultural goods in China in 2019 neared 400 billion yuan or $58 billion, a 27% increase from the year before according to stats from the Ministry of Commerce.
It’s important to note that GMV totals the dollar value of merchandise sold through a platform without factoring in discounts, refunds, returns, and so forth, so it’s not accepted as a standard accounting term for measuring revenues. The term is, however, useful for gauging the transaction size of a budding company like Pinduoduo that is still operating in the red.
The key message here is that Pinduoduo wants to lead the digitization of China’s agricultural sector. Just 2.5% of China’s agricultural goods were distributed online last year, with over half through traditional wet markets and about a third through supermarkets, said a report from research firm iiMedia.
Pinduoduo launched in 2015 as a group-buying service for fruits and has since grown into an all-purpose e-commerce service rivaling Alibaba and JD.com. Fruits and vegetables remain a key category, as over 240 million or 38% of its annual active users bought farm produce via its marketplace in 2019.
Pinduoduo believes its ‘pin’ or ‘group-buying’ approach can help standardize growing practices and bring economies of scale to small farms. Compared to countries like the U.S. where industrial farming prevails, China is dominated by small farms, for it has far less arable land per capita. As its newly appointed CEO Chen Lei said on the earnings call:
“We combine consumer demand on our platform [to] create scale, and we can leverage consumer insights we gain to help farmers make more informed decisions across planting cycles, including what to plant and when to harvest.”
Pinduoduo’s annual report dived into more details:
“We find ‘pin’ an effective solution to aggregate consumer demand, match them with batches of agricultural produce, and mobilize China’s well-penetrated and affordable logistics capability to have perishable and fresh produce shipped directly from farms to users and bypass multiple layers of distribution. This not only enhances user experience, but more importantly, helps to turn small scale agriculture production of different quality, variety, and volume into a semicustomized batch processing mechanism. It lowers the unnecessary costs of agricultural consumption and potentially makes small scale customized services viable.”
The firm’s farming push also includes bringing agricultural experts to train farmers and investing in precision-farming technologies like robots, IoT sensors, and low-powered data transmission.
Pinduoduo’s rise hs no doubt unnerved its rivals. The upstart logged 683 million annual active buyers in the year ended this June. For comparison, Alibaba claimed 742 million China-based active consumers in the year ended March, and JD.com racked up 417 million in the year ended August.
But Pinduoduo still lags far behind the others in per-customer spending. Using annual GMV and active buyer figures, our calculation shows that JD.com recorded roughly 5,760 yuan ($833) GMV per consumer, while the average was about 8,447 yuan for Alibaba (in China) and 1,127 yuan for Pinduoduo. Produce in China has notoriously thin profit margins, so the challenge for Pinduoduo is how to achieve a healthy bottom line as it works towards its dream to transform China’s agricultural industry.
https://techcrunch.com/2020/08/24/pinduoduo-145-billion-farm-produce-2025/