Pinduoduo’s New Venture into Online Grocery Shopping in Quest to Expand Agriculture Share

Pinduoduo, China’s largest e-commerce platform for agricultural products, has announced its Q3 earning last night. User number has strongly increased to over 730 million buyers. Market reacts the earning positively – share price has jumped 20% overnight with over $160bn market cap post earnings.

SEE ALSO: Pinduoduo Reports First Profit, And Nearly 50 Million Quarterly Net Add to 731 Million Buyers

According to a report this morning by Piyush Mubayi, research analyst of Goldman Sachs, “We attribute the strong user engagement to improving user frequency on the back of the newly launched Duo Duo Maicai in late Q3”.

What is Duo Duo Maicai?

Duo Duo Maicai, as the grocery feature is called, was introduced by Pinduoduo in response to the surging demand for buying groceries online following the onset of Covid-19 in the first quarter. It was introduced in August in Wuhan and Nanchang and is now available in most provinces in China.

The pandemic-related lockdowns forced many households to seek alternative ways to buy their food and essential supplies as brick-and-mortar shops were closed and movements severely restricted.

“Duo Duo Maicai is a natural extension of Pinduoduo‘s mobile commerce platform and an integral part of its ecosystem”, said Lei Chen, CEO of Pinduoduo in the Q3 earning call.

Consumers can place their orders through Duo Duo Maicai and pick up their high-quality agriculture products the next day at designated community points. Duo Duo Maicai is available as a mini-program and also on the main Pinduoduo app. Buyers can orders from a curated selection at lower prices and pick them up locally the following day.

To improve the supply chain efficiency, Pinduoduo has invested heavily in optimizing key areas including logistics, warehousing and delivery. The company has developed a nationwide and regional agricultural logistics system to cater to the different needs of consumers.

(Source: Goldman Sachs)

Why it matters

“What do you want to have for dinner?” Probably ranks right up there with “have you eaten?” as a frequently asked question in China.

The questions underscore the role of a good meal in Chinese culture, which makes shopping for groceries an important activity for most households. But with an increasingly fast pace of life in most big cities, more and more consumers are asking themselves whether they need to spend a precious hour after work to shop for vegetables and meat at the market.

By 2025, nearly half of China’s grocery shopping is expected to take place online, according to Goldman Sachs. The online grocery market is projected to reach RMB 7 trillion in five years.

“We are seeing sustained consumer behavior post-pandemic and expect a further shifting from wet markets to structured retail, together with multiple models and build-out of cold-chain logistics to drive ongoing online share gains in.” The fresh and FMCG categories, Goldman Sachs said in a report.

(Source: Goldman Sachs)
(Source: Goldman Sachs)

Grocery shoppers make frequent purchases while demand for groceries is relatively inelastic, making them attractive to China’s leading e-commerce companies, according to PwC. E-commerce penetration for grocery products is also lower than for other merchandise categories.

This trend of “planned consumption” is driving a surge in agricultural sales, which are estimated to double this year to at least RMB 250 billion in GMV on Pinduoduo. The company said earlier in second quarter earnings that GMV from agriculture could surpass RMB 1 trillion in five years.

Sensing a seismic shift in consumer preference, internet companies have poured resources into catering to this growing need. Other companies that have gone into the online grocery business include Alibaba, Meituan and Didi, the ride-hailing giant.