After nearly a year of fierce competition in community group buying, a two-strong pattern has initially formed on the national battlefield between Pinduoduo and Meituan. Due to their different genes, the two companies have always had different strategies: Meituan operates in a large-scale, organized manner, while Pinduoduo continues its usual野蛮 growth. This is determined by the founders' methodologies and the companies' characteristics. With supply chain challenges brought by high temperatures, the battle situation may become clearer after summer ends.

Too many people focus on boundaries rather than the core.

Boundaries are like gravity: every object exerts gravitational pull due to its mass, affecting all other matter. The difference is that the farther from the core, the weaker the influence, or the smaller the mass, the weaker the influence.

In 2017, during an interview with Caijing, Wang Xing used a boundary theory to discuss Meituan's possibilities. At the time, Meituan was competing in food delivery, dining, travel, ride-hailing, and even payment markets, fighting numerous opponents simultaneously with broad boundaries.

Three years later, Wang Xing and Meituan's attention shifted to a new core. Wang Xing's attitude is clear and firm: this battle must be won. The mature ground promotion team and experience from winning the group buying and food delivery wars have given Wang Xing more confidence.

The most direct and fierce opponent should be Pinduoduo. The 41-year-old Huang Zheng led the 5-year-old Pinduoduo to conquer territories in a nearly barbaric manner. In March this year, Huang Zheng announced his retirement, but in reality, he retired without truly stepping down. Duoduo Maicai is a project that Huang Zheng ordered to go all out. According to Baobian, to increase "combat effectiveness," Duoduo Maicai recruited more than 3,000 people around the Spring Festival.

Both founders are among the smartest minds in Chinese business. After nearly a year of fierce competition in community group buying, a two-strong pattern has initially formed on the national battlefield between Pinduoduo and Meituan.

The Q1 2021 earnings reports released one after another allow the outside world to understand the status of the two leading players in community group buying. Losses continue, with new businesses including Meituan Select losing 8 billion yuan. Wang Xing said that Meituan Select not only helps Meituan penetrate lower-tier markets and acquire new users but also improves repurchase rates, retention rates, and transaction frequency.

Pinduoduo, on the other hand, stated that although Duoduo Maicai accounts for a small proportion of revenue, it has already achieved its internal ROI target.

Due to their different genes, the two companies have always had different strategies: Meituan operates in a large-scale, organized manner, while Pinduoduo continues its usual野蛮 growth. This is determined by the founders' methodologies and the companies' characteristics.

Both companies maintain daily order volumes at the tens of millions level. With supply chain challenges brought by summer heat, the battle situation may become clearer after summer ends.

-01- Two Strong Rivals on the National Battlefield

Over the past three years, Meituan has tried different business models. Wang Xing finally chose the community group buying field (which Meituan calls community e-commerce) and founded Meituan Select. In his view, "This is the most efficient model that can help Meituan penetrate lower-tier cities and markets, especially fourth-, fifth-, and sixth-tier regions."

In July 2020, the Meituan Select business unit was established, led by Chen Liang, replicating Meituan's strong headquarters + business analysis organizational structure.

Three months later, Huang Zheng stated clearly in an internal speech, "Buying groceries is a long-term business and a touchstone for Pinduoduo people," and that they would invest heavily and make deep innovations.

Whether seeking a second growth curve or acquiring lower-tier market users and opening more scenarios, in 2020, internet giants such as Meituan, Pinduoduo, and Didi entered community group buying, engaging in fierce competition with previously established leading players like Xingsheng Youxuan and Shihuituan.

The first battles started in second-tier cities. The Wuhan battle, the Changsha siege and counter-siege, the Sichuan campaign, and the Guangdong campaign, with the flames of war then spreading to surrounding cities, burning subsidies, competing for group leaders, and vying in supply chains. At the end of 2020, the "Nine No's" policy poured cold water on community group buying, but the battles in lower-tier markets and first-tier cities continued in an orderly manner.

According to Baobian statistics, as of June 2, Duoduo Maicai had opened in 314 prefecture-level cities and municipalities nationwide, up from 303 a month earlier.

Meituan Select opened cities faster, being the first to break through 300 cities nationwide, increasing to 322 cities in early May, and now reaching 335.

Taking Xinjiang as an example, in early May, Baobian statistics found that Meituan Select had only opened in 5 cities in Xinjiang, adding 6 cities in one month; while Duoduo Maicai grew from 7 to 10 cities.

In the more down-market county-level markets, the competition is also fierce. Baobian learned from multiple suppliers that Meituan Select and Duoduo Maicai have penetrated to townships, with some areas having very dense group points.

Behind the rapid expansion is continuous burning of cash. In Q4 2020, Meituan recorded a loss of 6 billion yuan in new businesses, of which "half of the loss came from Meituan Select." By Q1 2021, new businesses including Meituan Select lost 8 billion yuan, a year-on-year increase of 489.9%.

Pinduoduo has not directly disclosed Duoduo Maicai's losses, but its Q1 results show a rapid increase in cost expenditures, with some analysis attributing it to increased investment in Duoduo Maicai, but overall business losses are decreasing.

Since Duoduo Maicai's users overlap significantly with Pinduoduo's main site users, the customer acquisition cost for Duoduo Maicai is low through traffic diversion from the main site. In contrast, Meituan Select needs to acquire and retain new users, implying greater investment.

In Q1, Meituan added over 59 million new users in a single quarter, with Meituan Select contributing nearly half of the new users. Wang Xing is optimistic about the benefits brought by community group buying, as 80% of the new users are under 30 years old, and user transaction volume and frequency are both increasing. He also predicted that Meituan Select "will help us provide 300-400 million new users in the future."

Pinduoduo also expressed satisfaction with Duoduo Maicai's progress. Financial Vice President Ma Jing said that Pinduoduo's transaction services revenue increased 180% year-on-year, partly due to higher revenue from Duoduo Maicai.

For 2021, both companies have set the largest growth targets in the market.

According to 36Kr, Meituan Select set its 2021 GMV target at 200 billion yuan, aiming for 50-60 million orders per day, while Duoduo Maicai set its target at 150 billion yuan.

At the Q4 2020 earnings call, Meituan Select announced that its order volume exceeded 20 million orders per day, while Pinduoduo's order volume reached 15 million orders per day.

For such goals, the two sides' strategies and tactics are clearly different.

-02- "Big Central, Small Local" vs. "Small Local, Big Central"

People are animals shaped by experience, and so are companies.

When Meituan Select and Duoduo Maicai met on the community group buying track, the two companies' past successful experiences determined that they would adopt different organizational models to start the competition.

Pinduoduo's model can be roughly defined as the "big local, small central" model. Duoduo Maicai is divided into seven major regions nationwide: Northeast, North China, Central China, East China, South China, Northwest, and Southwest, with dozens of provincial heads who report directly to COO Abu.

This is related to Pinduoduo's past employment model.

Pinduoduo has traditionally followed a highly centralized model: "small group - large group - business head - Huang Zheng or Abu." All business lines are result-oriented, with goals and implementation processes assigned by the decision-making layer. Employees do not need more subjective initiative; flat teams only need to repeatedly complete each step.

A Pinduoduo provincial head understands this model change as a centrally controlled local warlord melee.

Past e-commerce experience is hard to replicate entirely. The headquarters lacks sufficient manpower and experience to invest in new businesses, so it fully delegates authority, allowing each region and provincial head to freely decide and explore. Whoever can run out the most efficient and lowest-cost model can have that model promoted to other regions.

In his view, those who can become provincial heads are either outstanding performers in Pinduoduo's headquarters business lines or those who have made outstanding contributions to Pinduoduo's supply chain in local areas. "Everyone knows how much Abu and Azhuang value grocery buying. If you do well, you can rise several levels."

However, limited by Pinduoduo's traditional management structure, some employees who became provincial heads may have previously specialized in investment promotion and cooperation, lacking practical experience in logistics, supply chain, and other links, requiring a longer time to adapt to the management process.

In contrast, Meituan has adopted a big central - small local strategy, which is also related to Meituan's successful experience.

In the past, Meituan used a strong headquarters model to win victories in food delivery, in-store, and other businesses, adapting to large-scale group warfare. According to China Merchants Securities research report, in terms of organizational structure, Meituan Select's business is divided into three major departments: product, logistics, and sales. Regional business personnel report directly to the headquarters. The business analysis team is responsible for strategic research, business analysis, intelligence gathering, etc., providing comprehensive support for the business.

For Pinduoduo, which has been highly centralized in the past, how to delegate authority in community group buying without losing control excessively?

One of the most intuitive standards is performance appraisal. There is a strict set of assessment criteria from GMV (gross merchandise volume), order volume, and fulfillment rate. Provincial heads with poor performance may be warned or even replaced.

The need for internal competition and direct competition with rivals makes Duoduo Maicai more aggressive and high-pressure.

An employee who previously worked at Meituan's Kuailu business unit and joined Duoduo Maicai in November 2020 believes that Meituan excels at a combination of a set of solutions, while Pinduoduo uses unorthodox moves, but can also beat the master with random punches. The former replicates a proven logic to various regions, while the latter iterates quickly with small steps, using some clever tricks to sting opponents.

In the more than half a year since joining Duoduo Maicai, he has witnessed Pinduoduo's rapid improvement in speed and efficiency.

According to his observation, a logistics issue that took 3-5 days to resolve in Duoduo Maicai in December 2020 can now be responded to within 12 hours, while at Meituan, similar issues still require layer-by-layer communication, costing 2-3 days.

-03- Stable Output vs. Barbaric Iteration

Duoduo Maicai's regional "warlords" racing system has brought some aggressive tactics.

In the early days of city opening, Duoduo Maicai maintained a rapid march route, but often faced fulfillment issues such as high product damage rates and untimely delivery.

Since then, Duoduo Maicai has made many attempts to optimize the supply chain, especially by optimizing central warehouses, high-intensity overtime, and worker training to solve problems. In some central warehouses, in addition to strict operating procedures and steps, timers are set, and the time for each packaging is fully recorded to ensure workers operate at high speed.

In April this year, through low prices and traffic diversion, surrounding townships encircled cities, and Duoduo Maicai defeated two competitors in Meituan Select's home turf of Sichuan and Chengxin Youxuan's stronghold, with peak daily orders exceeding 2 million.

"The biggest help is traffic diversion," a Chengxin Youxuan employee in Chengdu told Baobian. Since entering 2021, relying solely on group leaders for customer acquisition is inefficient. Each platform uses various means to increase order volume, and among all applications, Pinduoduo has an absolute advantage.

Data shows that Pinduoduo's daily active users in March were 287 million, and monthly active users were 524 million. In the same period, Meituan's daily active users were 73 million and monthly active users were 315 million, giving Pinduoduo a considerable advantage.

Over the past six months or so, every Pinduoduo user has received pop-ups inviting them to use Duoduo Maicai. The incentive methods are simple and crude: first order free, buy five get one free, and other promotional rewards constantly stimulate users' nerves.

Such gameplay is exactly what the target customers in lower-tier markets need most. Pinduoduo has considerable experience and advantages in this regard.

Regarding competition with Pinduoduo, a Meituan Select employee described that Meituan Select's path is relatively more stable, with more refined service quality and improved customer satisfaction, but under the continuous traffic input and rapid iteration of Duoduo Maicai, they still feel tremendous pressure.

Duoduo Maicai completes iteration through small steps and fast runs, gradually narrowing the gap with competitors.

Meituan Select, with its organized teams, is more stable in continuous output. Attracting users through subsidies, making fewer mistakes and no mistakes, and steady improvement is the greatest success.

Multiple community group buying leaders in counties and townships in Sichuan, Guizhou, Henan, and other places told Baobian that in the most terminal connection, Meituan's operational refinement exceeds Duoduo Maicai.

For example, after the driver delivers the goods, they check the delivery list and remind merchants to pay attention to cold storage to avoid losses. The service manuals issued by the platform operation are also more detailed and meticulous, but Duoduo Maicai's drivers often just deliver the goods and complete the task.

At the Q1 earnings call, Wang Xing also announced the next phase focus of Meituan Select, emphasizing more refined operations, such as expanding the warehousing and logistics network scale, optimizing logistics operations, and providing more diverse and cost-effective products to remote areas and rural areas.

-04- Actively Preparing for Summer

The increasingly hot season also brings more challenges to all players in community group buying, especially in the supply chain.

Wang Xing also emphasized at the Q1 earnings call that they must strengthen cold chain capabilities to ensure the quality of frozen food delivery services in summer.

In the industry's view, summer is a critical point and may become a dividing line.

On the one hand, with increasing order volumes and gradually opening markets, platforms are rapidly expanding their categories. Both Meituan and Pinduoduo cannot avoid the issue that their companies and businesses are becoming heavier.

Baobian learned that, taking Tianjin as an example, in December 2020, Duoduo Maicai had about 220-250 categories, with 45 fresh produce categories, accounting for about 20%. By April 30 this year, the categories had expanded to 486, with 200 fresh produce categories, and the proportion of fresh produce as a high-frequency repurchase entry point was nearly 40%, greatly increasing storage difficulty.

A Meituan Select employee told Baobian that it is only a matter of time before SKUs exceed 1,000 in each province.

Among the increasing SKUs, more fresh produce categories that drive traffic have very high requirements for storage and transportation in summer.

Employees from both platforms told Baobian that since Q1, the work focus in all regions nationwide has been on upgrading and optimizing infrastructure such as warehousing, cold chain, and logistics to meet the upcoming high temperatures.

As of the end of April, Pinduoduo had built nearly 100 central warehouses, each actively expanding, while Meituan requires each central warehouse to have no less than 3,000-5,000 square meters of cold chain facilities to cope with summer supply.

Summer will also test the group leaders.

Community group buying has gradually entered a cooling period from its initial heat. The role of group leaders, which everyone was scrambling for, has begun to adjust. Both Duoduo Maicai and Meituan Select have adopted differentiated incentive strategies for group leaders, with commission rates lowered, and improving group efficiency becoming the focus.

Group leaders without cold chain environments may also face a wave of elimination in summer.

Taking Meituan Select in Guangdong as an example, some group leaders who lack cold chain logistics conditions and have insufficient order volumes have already been cleared out. For key areas, platforms are providing material support to group leaders whose order volumes increase within a unit of time, while encouraging them to add more refrigeration and freezing facilities to reduce product loss rates.

After nearly a year of user education, habits and consensus about community group buying are gradually forming.

China Merchants Securities research report predicts that an oligopolistic pattern will form in the future, with eventually 2-3 national community group buying platforms. Currently, the industry is highly competitive with large losses. Considering that most participants do not have sustained financial strength and financing capabilities to bear years of huge losses, it is expected that the oligopolistic industry pattern will basically form in 1-2 years.

Pinduoduo's advantage lies in having established a sufficient user base in lower-tier markets, understanding the consumption habits of low-spending groups, and having products suitable for such users. Meituan is stronger in standardized offline execution and stronger than Pinduoduo in supply chain and logistics, which is crucial for user experience and long-term competitive advantage.

How to win the summer battle is crucial for both to consolidate their leading advantages.

Source: Baobian (ID: baobiannews) Tips will be paid 400-2000 yuan if the tip is adopted.