---
title: "Refusing Pinduoduo?!"
description: "As Taobao and Pinduoduo become embroiled in a 'choose one' battle, this may be the best opportunity for distributors. Pinduoduo's rapid rise offers FMCG brands and distributors a new channel to reach lower-tier markets, but traditional distributors face a choice between transformation and stagnation."
author: "新经销刘少德"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2019-05-12"
language: "en"
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---

# Refusing Pinduoduo?!

> As Taobao and Pinduoduo become embroiled in a 'choose one' battle, this may be the best opportunity for distributors. Pinduoduo's rapid rise offers FMCG brands and distributors a new channel to reach lower-tier markets, but traditional distributors face a choice between transformation and stagnation.

**Taobao and Pinduoduo are caught in a 'choose one' battle, which may be the best opportunity for distributors.**

On the evening of July 26, 2017, Pinduoduo simultaneously rang the bell in Shanghai and New York, officially listing on Nasdaq. On its first day of trading, Pinduoduo closed with a market value of $29.58 billion, while JD.com's opening market value on its first day was only $28.6 billion. Although their stock prices have since alternated, it is undeniable that Pinduoduo has firmly secured its position as China's second-largest e-commerce platform in terms of user numbers, second only to Alibaba.

For FMCG brands and distributors, the rise of new channels inevitably brings new opportunities and challenges, and Pinduoduo is no exception.

Should they actively embrace it or continue to wait and see? Brands and distributors at different stages of development may have different answers at different times, and this is not about right or wrong. But from the perspective of the FMCG industry's development, what opportunities does Pinduoduo's rise bring to brands and distributors?

**The 'Out-of-Control' Pinduoduo**

Since its inception, Pinduoduo has swept the market at an incredible speed.

Image source: Oriental IC

- In September 2015, two weeks after launch, Pinduoduo's followers exceeded 1 million, ranking among the top three in WeChat payment transactions.
- In January 2016, users exceeded 10 million, with monthly GMV exceeding 100 million yuan.
- In September of the same year, users exceeded 100 million; in November, daily orders exceeded 2 million, and on Double Eleven, single-day GMV exceeded 200 million yuan.
- In September 2017, users exceeded 200 million, and GMV surpassed 100 billion yuan.

It took JD.com 10 years, Taobao 5 years, and Pinduoduo only 2 years to achieve the same score as Pinduoduo.

At the same time, ultra-fast development has brought many 'aftereffects' to Pinduoduo, with labels such as 'counterfeit, poor product quality, consumption downgrade' becoming increasingly hard to shake off for China's third-largest e-commerce platform.

Amid the public outcry, Pinduoduo founder Huang Zheng appeared very calm.

At a public conference, Huang Zheng explained to the outside world: **'Pinduoduo is just a 3-year-old child with many obvious problems, and it is surrounded by visible dangers and challenges,'** officially responding to the issues that have arisen during Pinduoduo's development.

At the same time, in response to consumer complaints about counterfeit products, Pinduoduo launched a 'double strike' campaign against merchants in August 2018, penalizing and clearing out merchants selling 'fake' goods.

Another evaluation that accompanies Pinduoduo is 'consumption downgrade.' Huang Zheng once responded publicly: **'Only people inside Beijing's Fifth Ring Road would call this a sinking population.'** Although 'people inside the Fifth Ring Road' is a metaphor, it reveals most people's misunderstanding and prejudice against Pinduoduo.

Image source: Trustdata Mobile Big Data Monitoring Platform

In fact, users from first- and second-tier cities account for as much as 43.1% of Pinduoduo's user base, meaning nearly 200 million users from first- and second-tier cities shop on Pinduoduo. Among the new user city distribution, Beijing ranks first, followed by Chengdu, Tianjin, Shanghai, and Hangzhou.

Furthermore, Pinduoduo actively reshapes consumer perception through various means.

Since July last year, Pinduoduo has officially issued invitations for merchants in categories such as apparel, food, cosmetics, and ready meals, vigorously inviting brands to join. In September of the same year, Pinduoduo officially launched the 'Brand Pavilion,' attracting 497 domestic and international brands including NetEase Yanxuan, Armani, Bose, Gome, and Xiaomi.

Although the branding process is not fast, Pinduoduo's determination to change its image is unquestionable.

**The Rise of 'Town Youth'**

Returning to the FMCG industry, what is Pinduoduo's value to FMCG brands and distributors?

First, let's look at a set of data: In 2017, Nongfu Spring's annual sales reached 16.25 billion yuan. If the average order value is 20 yuan, it means that over 800 million people drank Nongfu Spring products in 2017, but in reality, this number is much smaller than 800 million.

On the other hand, this also shows that even a powerful brand like Nongfu Spring, which ranks first in bottled water market share, has not been consumed by nearly half of China's population. This is even more true for global food and beverage giants like Coca-Cola and Nestlé.

"My responsible area includes 135 prefecture-level cities, over 1,700 townships, and over 5,400 villages. The high fragmentation of administrative divisions means a lot of market gaps, but also infinite opportunities. However, **even if we develop at a network coverage growth rate of over 10% per year, there are still over 60% of stores that do not sell our products,"** a regional general manager of Coca-Cola told New Distribution.

Objectively speaking, China has a vast territory with severe imbalances between different regions. In this situation, most brands have to invest a large amount of manpower and resources in first- and second-tier markets to maximize returns, while coverage of third- and fourth-tier markets is extremely limited. This has also become an important reason for the prevalence of products like 'Kangshuai Fu' and 'Red Sheng' in lower-tier markets.

Chart: New Distribution

It is worth noting that nearly 80% of traditional grocery stores in China are still distributed in economically underdeveloped lower-tier markets, but this does not mean that lower-tier markets do not have the ability to consume 'Master Kong' and 'Red Bull.'

At the end of 2017, the movie 'The Ex-File 3: The Return of the Exes' was officially released. Despite a Douban score of 5.7, it earned nearly 2 billion yuan at the box office. Analyzing why 'The Ex-File 3' achieved such tremendous success, 'town youth' played a crucial role.

Data shows that among the audience of 'The Ex-File 3,' viewers from third- and fourth-tier cities accounted for 47.4%, the highest among films in the same period, while first-tier city viewers accounted for only 12.2%, far below the average level of domestic films. On the other hand, young viewers accounted for a relatively high proportion; Taopiaopiao data shows that viewers under 24 accounted for as high as 68.9%.

Thanks to the development of mobile phones and mobile internet, the information gap between third- and fourth-tier markets and first- and second-tier markets is being broken by 'town youth,' and the resulting consumption desire and purchasing power are gradually being unleashed.

Pinduoduo's penetration in lower-tier markets is higher than Taobao's. Image source: Trustdata Mobile Big Data Monitoring Platform

**On one hand, there are brands that cannot complete channel sinking; on the other hand, there are 'town youth' whose consumption desire and purchasing power are continuously being released. The imbalance between supply and demand has made Pinduoduo the best bridge connecting the two ends.**

According to relevant data, the top 5 categories in Pinduoduo sales are: **women's clothing, washing and paper products, food, mother and baby products, and bedding**, among which food and mother and baby products alone have monthly sales of 4 billion and 3.1 billion yuan respectively (data from April 2018). The scale of Pinduoduo's market can be imagined.

**Whose 'Highlight Moment'?**

The above content merely discusses two viewpoints: **First, Pinduoduo's rapidly developing consumer audience is becoming increasingly broad, and its brand image is continuously improving. Second, Pinduoduo has become an important channel for FMCG distribution and is of great significance for brands to reach and cover lower-tier markets.**

So should brands fully embrace Pinduoduo, or continue to wait and see and reject it?

It must be acknowledged that Pinduoduo may still have some problems at its current stage of development, after all, it has only been growing for a little over three years. From a brand's perspective, they naturally have the right to choose whether to cooperate with a platform.

But for more FMCG brands, the slowdown in performance growth is an indisputable fact. How to serve more consumers through effective channel coverage and establish a first-mover advantage before the channel dividend fades? New Distribution believes this is what brands should truly think about and focus on. A brand without a consumer base is like a castle in the air.

**Returning to another main entity on the FMCG supply side, are traditional distributors suitable for Pinduoduo?**

**1. Transformation of distributors is inevitable**

First, from the perspective of the distributor group itself, rising operating costs and the naturally low gross margin of FMCG products have made the survival environment for traditional distributors much worse than before.

Moreover, distributors have been deeply cultivating their regions for many years, and the market stock is nearly saturated, leaving little room for business growth. However, they still face competition from new entrants. The direct consequence is: **Sticking to localized distribution business is a dead end!**

Transform to centralized warehousing and distribution?

It should be noted that at the current stage, the success rate for distributors doing centralized warehousing and distribution is less than 10%.

"Intensification, sharing, specialization, and networking are major trends in future FMCG city distribution, but this does not mean that all people and all markets are suitable for centralized warehousing and distribution at the current stage. Taking the lower-tier market as an example, many distributors can set up a simple warehouse in their own yard with a shed, and logistics delivery relies on electric tricycles. Apart from personnel expenses, warehousing and distribution costs are almost zero. In this situation, how can third-party warehousing and distribution companies help distributors reduce costs and increase efficiency?" a certain industry expert told New Distribution.

Transform to B2B?

It is undeniable that transforming to B2B is indeed an effective way for distributors to reduce costs and increase efficiency, and distributor-type B2B platforms are also the easiest type of B2B platform to achieve profitability.

However, we need to recognize an objective reality: distributor-type B2B is difficult to achieve cross-regional development due to limitations from their own background and cognition. Within the regional market, most distributor-type B2B platforms simply move existing market stock online, and the possibility of achieving significant performance growth without representing more brands is also not high.

On the other hand, internet giants such as JD New Channel and Alibaba Retail Link have already completed coverage of the national market, and the Matthew effect has become apparent. In the face of huge brand effects, distributors transforming to B2B will inevitably face more challenges.

**Transformation is death, no transformation is waiting for death! It is no exaggeration to describe the current survival status of most distributors as 'boiling a frog in warm water.'**

**2. Opportunities brought by the 'choose one' battle between Taobao and Pinduoduo**

Looking back at Pinduoduo, could it become a transformation direction for distributors and thus a new performance growth point?

**a. The 'choose one' battle between Taobao and Pinduoduo causes large-scale exodus of FMCG brands**

The 'choose one' battle in the e-commerce industry is nothing new. Earlier, the 'choose one' between Tmall and JD.com had already made many brands wary, and now the flames of 'choose one' are gradually spreading to Taobao and Pinduoduo.

"A while ago, we received a call from someone claiming to be Alibaba's Xiaomi, saying that if we didn't remove our products from Pinduoduo, our resources on Tmall and Taobao would be completely removed. Although Pinduoduo is growing fast, it started late, and sales are still not as good as Tmall and Taobao for now. We can't afford to pick up sesame seeds and lose the watermelon!" the e-commerce head of a certain beer brand told New Distribution.

According to New Distribution, not a few FMCG brands have received the 'choose one' call from Alibaba.

**b. Distributors usher in their highlight moment**

Under pressure from Alibaba, most brands have to remove their products from Pinduoduo, which is a huge opportunity for traditional distributors facing increasing performance pressure.

**Instead of fighting to the death in the existing market, why not decisively enter the blank market to 'expand territory'?**

For traditional distributors, actively embracing Pinduoduo not only means expanding their business scope and consumer base, allowing them to directly connect with the national market without leaving home, but also crossing stores to directly serve consumers, which helps increase distributors' profit margins and boost sales revenue.

At the same time, partnering with Pinduoduo also provides another possibility for distributor transformation. Distributors are highly likely to complete the transformation from a traditional trading company to a modern e-commerce company. Through polishing on the Pinduoduo platform, they can gradually cultivate internet thinking and slowly build an e-commerce team proficient in internet operations. This is undoubtedly a huge success and leap for the distributor group.

On the other hand, to attract distributors to join, Pinduoduo will provide support in policies, traffic, marketing, operations, and other aspects, which is undoubtedly a boost for traditional distributors.

New Distribution firmly believes that the emergence of new channels will inevitably bring about the rise of new brands. Based on the emergence and development of new technologies such as the internet, e-commerce, the Internet of Things, and AI, all businesses are worth redesigning.

Just as the emergence of Taobao gave birth to a host of Taobao brands like Three Squirrels and HSTYLE, **the rise of Pinduoduo will inevitably reshape the distribution landscape of China's FMCG industry.**

However, distributor friends, are you ready?

For inquiries about cooperation with Pinduoduo, please add the author's WeChat below.

If a tip is adopted, a reward of 400-2000 yuan will be paid.

**China FMCG + Internet Professional New Media**

**Dedicated to FMCG manufacturer and distributor transformation and upgrading and channel digital solutions**


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