The founder of the fast-growing Chinese online retailer Pinduoduo, Colin Huang, is little known in Russia, unlike his rival Jack Ma. But on June 21, Forbes’ real-time billionaire rankings showed Huang overtook Jack Ma to become the second richest person in China with a fortune of $ 45.4 billion after Pony Ma, the head of Tencent. True, not for long. Now both Ma is again habitually fighting for the leading position in the list, and Huang has even dropped out of the top three. On September 14, Forbes estimated his fortune at $ 30 billion, Pony Ma at $ 58.7 billion, Jack Ma at $ 50.3 billion, and the head of the largest Chinese pharmaceutical company Jiangsu Hengrui Sun Piaoyan – at $ 35 billion
Pinduoduo is one of the bitterest competitors of Alibaba and another Chinese e-commerce giant, JD.com. Its market capitalization on the NASDAQ is higher than that of 98% of companies traded in the US – more than $ 100 billion.
How Pinduoduo developed
Pinduoduo means Buy Together. But at the time of its founding in 2015, Huang called the startup something else – Pinhaohuo, or “put together good products.” He managed to attract $ 8 million from investors and writes the online edition of Asia Times. At first, the company specialized in fruit trading, purchasing them directly from farmers. The fresh fruit trade grew rapidly, but less than 3% were sold online in those years.
In April 2015, Huang and a team he brought from previous startups posted an advertisement on WeChat about the sale of a batch of fruit and asked employees, their relatives, and acquaintances to share the post. So word of mouth was launched, and by the end of the month, the company had completed about 5,000 orders. Juan’s startup has drastically reduced the chain of middlemen to one – himself. Farmers were able to sell their crops at a higher price, but for the end buyer, it was still cheaper, sometimes by 80%. In addition, the delivery time from the garden to the client was reduced and less fruit was spoiled along the way.
By September 2015, Pinhaohuo was processing over 100,000 orders per day. The bottleneck was that the logistics were provided by SF Express, owned by an acquaintance of Huang who had invested in Pinhaohuo. Its logistics center was designed to handle 70,000 orders per day. In one day, demand jumped sharply – the number of orders almost doubled. There was a collapse, which was aggravated by the breakdown of the printer for printing consignment notes. Many clients did not receive the goods; a lot of fruits simply rotted in the warehouse. Daily orders quickly dropped to 20,000.
Huang promised that all orders will be fulfilled or customers will receive a refund. He hired new employees and opened six of his warehouses, where he automated the processes of receiving, sorting, packing, and sending goods to the maximum. Fruit spent only a few hours in the warehouse, and the journey from farmer to buyer often did not exceed two or three days. We managed to regain customer confidence. By the end of 2015, 10 million registered users were placing 1 million orders per day. In just a few months, Pinhaohuo started shipping more fruit than JD.com and Alibaba. This exceeded the logistics capabilities of SF Express and had to hire other carriers in addition to it, including those working for JD.com and Alibaba.
Change model
In 2016, Huang merged the fruit business and online games startup Xunmeng, which had about 70 million users and 30 social media games. A merged company called Pinduoduo has begun rolling out the game element to sales. At the same time, experiments began with collective purchases and trade not only in fruits. The first was meat and seafood, and now Pinduoduo sells almost everything, including cars. Interestingly, the most popular product is paper napkins.
The sale of fruits and other agricultural products remains a key element of the business: they help to attract a new audience and retain the old one because people buy electronics or tableware much less often than food. In 2019, Pinduoduo had about 240 million buyers of agricultural products from 12 million farmers. In total, Pinduoduo had 585 million active buyers. This is less than Alibaba with 710 million, but more than JD.com with 360 million, compared to the online publication about technologically advanced businesses KrASIA.
In total, goods worth 1 trillion yuan ($ 144.6 billion) were sold on the site in 2019, which is 113% more than a year earlier (data published in the company’s dossier on the CIW portal – China Internet Watch).
So many buyers and sellers of a variety of goods are difficult to serve with their warehouses. Back in 2017, when the number of active buyers exceeded 200 million, Pinduoduo changed its business model. He began to take money for advertising goods and make settlements with buyers, and the seller himself was engaged in delivery.
In 2017, the goods turnover (GMV) on Huang’s marketplace exceeded 100 billion yuan – to reach this figure, Taobao spent five years, JD.com – 10.
In July 2018, Pinduoduo, 34 months old, became the youngest Chinese startup to IPO in the United States (though this record only held for a few months and was beaten by news aggregator Qutoutiao). Huang became China’s youngest billionaire with a fortune of $ 9.89 billion (according to Bloomberg calculations). Pinduoduo raised $ 1.63 billion on NASDAQ for an IPO in the United States, $ 19 was given for one ad (now about $ 85).
Traditionally, the head of the IPO company rings a special bell on NASDAQ. Juan refused to come to the United States, citing a sore ear. Huang told the Chinese media that he would like to invite many investors and clients to the ceremony: “But it is difficult to get them all American visas. Isn’t it better for everyone, including me, to be here in China at this moment? ” (quoted from Business Insider).
