These are excerpts from an article published in Chinese by Chao Wang of Leiphone, translated and republished with permission.
You can also refer to Momentum Works’ “Who is Temu” report for structured analysis and insights about this company. You can also read our book “Seeing the unseen: behind Chinese tech giants’ global venturing” for more case studies, analyses, and reflections.
After a year of hard work, Pinduoduo’s cross-border business, Temu, is on the right track. Analysts who are bullish on Pinduoduo said that Temu’s GMV today is equivalent to Pinduoduo’s domestic GMV in the year of its IPO in 2018.
The internal assessments within Pinduoduo are even more optimistic about this achievement.
Many insiders at Pinduoduo have repeatedly mentioned a phrase: “Duoduomaicai (Pinduoduo’s grocery business) and Temu should have started together in 2020. The development dividends brought by favourable circumstances are truly rare.” In other words, if they had started earlier, they would have reaped even greater rewards.
The topic is worth debating.
Firstly, Temu and Duoduomaicai had synergies in their business. In the early stages, Pinduoduo’s management directly mobilised core personnel from Duoduomaicai to run Temu. At that time, when dealing with this new cross-border business initiative, only the team from Duoduomaicai had hands-on experience with warehouses and knew how to set up and manage them. “A group of people from a grocery shopping background now manage the warehouses and logistics for Temu” – this approach was criticised by peers at the time.
Temu’s overseas business expansion also inherited most of the results achieved by Duoduomaicai back then.
Secondly, and more importantly than business synergies, the war waged by Duoduomaicai allowed Pinduoduo to undergo organisational evolution.
Unlike the model used by Pinduoduo’s main ecommerce platform where goods are distributed from centralised warehouses nationwide and staff performance evaluation follows the “271 model” (refer to our “Who is Temu” report where we explain the 271 model), Duoduomaicai’s operations are more like the Amoeba management model. This made Duoduomaicai more agile and flexible, allowing it to utilise its formidable execution capabilities fully. As a result, it created a formidable group of young guards (working within the team).
“What is most awe-inspiring about Pinduoduo is the execution and combat capabilities of its team,” Zhang Yiming (founder of Bytedance) said before.
Instead of focusing on the analytical commercial aspects of Pinduoduo / Duoduomaicai, this article will focus more on how Pinduoduo forms its core team and how it reviewed its approach when starting a new business. It offers a glimpse into Pinduoduo’s rapid leap and evolution over the past five years.
1. The start of the business
“Incredible growth everywhere except in Hunan. The company was baffled. In 2020, Pinduoduo’s management was deeply concerned,” recalled Li Ping, a former Pinduoduo employee.
At the time, during the COVID-19 pandemic lockdowns, the performance of Pinduoduo’s primary platform was skyrocketing, but Hunan’s growth was lacklustre. This anomaly piqued the curiosity and concern of Pinduoduo’s management. (Note: Hunan is the third-largest provincial economy in Central China and has a population size of around 66 million)
After a series of data analyses and internal discussions, Pinduoduo’s leadership concluded that Xingsheng Youxuan 兴盛优选 (a major grocery community group-buy player with strong local footing in Hunan Capital Changsha & surrounding cities) had taken a significant market share from Pinduoduo in the province.
Soon after, Pinduoduo’s senior executive, Yu Jinghao / nicknamed “Grape” (葡萄), travelled overnight to Changsha, where Xingsheng Youxuan was headquartered, and stayed at a hotel nearby to conduct market research.
During his stay in Changsha, “Grape” immersed himself in market research, observing Xingsheng Youxuan’s warehouse, and conversing with warehouse staff, Xingsheng Youxuan employees, and suppliers. He also placed orders on both Pinduoduo and Xingsheng Youxuan platforms to compare product differences.
In the nearby city of Nanchang, another Pinduoduo senior executive, JiaZhen Zhao / nicknamed “Winter Jujube” (冬枣), also got to work and began exploring business models.
Simultaneously, Pinduoduo began poaching talent by offering salaries 2-3 times higher than the market average.
Wang Fang, who was involved in the development of both Xingsheng Youxuan and Duoduomaicai’s businesses shared: “Pinduoduo’s HR and headhunters individually called almost all Xingsheng Youxuan’s management-level employees they could reach. During the interviews, Pinduoduo would ask very detailed operational questions.” While it seemed like regular interviews, it was, in fact, Pinduoduo’s way of learning about the grocery business.
“Every time Pinduoduo enters a new field, it mobilises most of its core team members to concentrate on exploring the new business,” added former Pinduoduo employee Zhong Ping. This has always been Pinduoduo’s approach.
In the eyes of Pinduoduo’s management, in the early stages of a market, the low-hanging fruit can be easily picked; all that’s needed is effort.
When a business is unclear, the strategy is to gather core talents, complemented by some more junior-level employees, to explore the business model. Once a successful model is found, scale it up and replicate it.
Currently, Duoduomaicai and Meituan Select (Meituan’s grocery business) hold the top positions in the Chinese market. Duoduomaicai has entered the phase of fine-tuned operations, with the grocery business divided into 81 business units, all reporting to Abu (阿布). Early core members of Duoduomaicai, such as “Winter Jujube” and “Grape”, have also been actively involved in the development of Pinduoduo’s new business, Temu.
2. The rising core team represented by “Grape” and “Winter Jujube”
“Grape” and “Winter Jujube” were among the few city leaders during the early days of Duoduomaicai who could manage operations in three provinces simultaneously.
While both are key figures at Pinduoduo and possess strong work abilities, their work and management styles are quite different. One is more gentle, while the other is more daring.
The difference in management styles was particularly evident in warehouse management and merchant verification. “Winter Jujube” tends to have some redundancy in warehouse management, leaving space for new products and certain categories. In contrast, with the aim of boosting GMV, “Grape” lowers merchant verification thresholds, bringing in the merchants first, and then filtering out the ones which couldn’t qualify.
“Winter Jujube” and “Grape” often find themselves in a tightly bound competition. This was part of Pinduoduo’s KPI and competitive mechanism design.
Wang Fei, who had worked closely with both “Winter Jujube” and “Grape”, shared that: “At first glance, “Winter Jujube” might not stand out, but he’s humble, thinks deeply about issues, and rarely engages in unnecessary chatter. He treats his subordinates well.”
“Grape”, on the other hand, is strict with his subordinates and sometimes even scolds them.
Their contrasting personalities also led to vastly different approaches to understanding warehouses and products. While there are slight differences in their abilities, they are not significant.
“Grape” was once the youngest regional spokesperson/representative for Wahaha (the largest F&B manufacturer in China), ambitious, capable, and skilled in managing relationships. However, in the grocery business, “Grape” always seemed to be slightly behind “Winter Jujube”.”
“Winter Jujube” and “Grape” constantly competed against each other; one would never accept defeat, while the other was always at the top.
“Promotions and demotions” was a management strategy applied at both Pinduoduo’s main platform and in the grocery business. Before leading the grocery business, “Grape” had served as a senior executive. Later, due to a mistake, he was demoted. However, “Grape” was eventually promoted again due to outstanding performance.
Regarding his demotion, reliable sources claimed that “Grape” had artificially inflated the performance of the advertising platform, Duoduo Jin Bao (多多进宝), by using methods like phone credit top-ups. Some mid-level Pinduoduo employees familiar with “Grape” defended him, stating that for businesses like Duoduo Jin Bao, using such methods to inflate performance was necessary to meet targets.
Performance had to be summarised and reported to Abu every quarter, and it almost never met the standards, necessitating the redefinition of goals. If neither met the targets, then it came down to who performed slightly better, and that person would be ranked higher. Abu consistently maintained very high expectations for the team.
“Promotions and demotions” also meant there were no limits. Pinduoduo’s primary principle was never to cause losses to the company. However, if you were to ask where the line was drawn, there was none; it was not clearly defined. Essentially, you could do anything, as long as you didn’t cause losses to the company, as emphasised by Li Yang, a former Pinduoduo tech employee.
In addition to “Grape” and “Winter Jujube”, “Yingjun” (英骏) was also one of Pinduoduo’s rare “warlords”.
Using Hunan and Jiangxi provinces as the boundaries, “Grape”, “Winter Jujube”, and “Yingjun” each oversaw the expansion of their respective areas in the northern and southern regions.
“Winter Jujube” maintained stability in Jiangxi and Henan, while “Grape” aggressively controlled the headquarters in Shanghai and Shaanxi. Meanwhile, “Yingjun” managed Hubei independently and was also responsible for half of the Hunan market and half of the Guangxi market. In Hunan, “Yingjun” competed with “Winter Jujube”, while in Guangdong, he had to face off against “Grape”.
Being separated by a river, the same province was split into two markets, with each person managing one. The management styles of these leaders were also quite different. After overseeing grocery businesses in two provinces, both “Grape” and “Winter Jujube” are more mature in their operational abilities and methodologies, while “Yingjun”, positioned between “Grape” and “Winter Jujube”, was ambitious, aggressive, and aimed to secure more territories.
Furthermore, in July 2021, Sun Qin (孙沁), nicknamed “Dada” (达达), who had been transferred to the northwest region, also achieved remarkable performance. Within Pinduoduo, “Dada” was respected due to his seniority and experience, and was even affectionately called “Uncle Dada.”
Regions in the western parts of China, such as Gansu and Qinghai, have always had sparse populations and relatively lower consumer spending power, so they haven’t been the primary focus for most community group-buy companies. However, Duoduomaicai’s strategic foresight allowed it to secure the northwest market early.
By the first quarter of 2022, with the withdrawal of competitors like JD Daojia, Meituan Select, and Didi’s Chengxin Youxuan, Duoduomaicai took the opportunity to take over many grid warehouses and central warehouses in the region. As a result, Duoduomaicai quickly dominated the northwest region.
Currently, “Dada” has also been transferred to Temu and is responsible for acquiring traffic. In a recent discussion, cross-border entrepreneur Zhang Chao shared, “Temu’s strategies for acquiring users overseas, such as price cuts and pop-up messages, are no longer effective. “Dada” is working tirelessly and is quite anxious.” According to “Dada” himself, Temu’s mass messaging in the United States led to local carriers intercepting the messages.
In the Duoduomaicai business, provincial leaders like “Kakashi” (卡卡西) in Guizhou, “Tianpeng” (天蓬) in Heilongjiang, and “Dajiang” (大将) in Shanxi were all managers who have grown alongside the development of the grocery shopping business.
The first batch of Abu’s management trainees, including 90s-born “Sakuragi” (樱木), has now moved to Temu to oversee advertising and growth. “Cherry Tomato” (圣女果) and “Cinnamon” (肉桂) are in operational roles. “Kakashi” and “Dajiang” are also actively contributing to Temu’s rise.
To some extent, Pinduoduo’s high standards and the design of its competitive mechanism indeed motivated employees. Even today, there are many employees at Pinduoduo who were born around 1985, and they continue to work at the forefront of the business with high combat effectiveness.
“The reason Pinduoduo can maintain its combat effectiveness is because the middle management can quickly lead teams and act decisively. That’s because the stock options haven’t vested yet! At Pinduoduo, it’s hard to receive all your stock options if you haven’t worked for at least seven years,” said Li Ya, a current Pinduoduo employee.
The middle management is combat-ready and can engage in battles at any time, and this holds true for senior management as well.
Abu is a quintessential example. Within Pinduoduo, Abu is hailed as “half Colin Huang (Pinduoduo’s founder) and half herself.”
Li Yang and several employees have described: “Abu is at her desk by seven or eight in the morning. At night, around eleven or twelve, or even into midnight, Abu is still at her desk making calls or working. Every day, Abu arrives at the office at around six in the morning, clocks in, and then heads to the company’s gym downstairs.”
The culture of horse racing, high expectations, a rigorous incentive system, and recruiting employees who align with Pinduoduo’s culture have been key to the success of both old and new Pinduoduo businesses.
Unlike other companies where HR asks questions related to one’s profession and past experiences, Pinduoduo’s HR asks extremely detailed, privacy-related questions, such as, “How many family members do you have? What do your parents do for a living? Do you have a mortgage or car loan? Are you a local resident?”
These questions are asked because through data analysis Pinduoduo realised that local residents in cities like Beijing and Shanghai, particularly those with family financial support, tend to resist working overtime. On the other hand, individuals from rural areas or those burdened with mortgage or car loans, with strong financial needs, often display greater drive and efficiency, and hence are more likely to produce results.
The “PK (Player vs. Player) mechanism + a mix of experienced and new employees exploring the business together” combination is a strategy well-suited for the grocery business which is often demanding and laborious. In the long run, after multiple rounds of competition, a well-established, rapidly replicable model can be developed. In theory, Pinduoduo only needs to excel in personnel selection and design effective competitive incentives, and once the mechanism starts rolling, it becomes an almost perpetual efficiency machine.
3. Battling it out in Changsha
Nanchang was the first city where Duoduomaicai officially expanded its operations. There were two main reasons for this. First, it’s close to Xingsheng Youxuan’s headquarters in Changsha. Second, Nanchang is a typical third-tier city with a broad urban-rural integration zone. When “Winter Jujube” went to Changsha to establish the operations, Colin Huang promptly followed and personally supervised the operations for three weeks.
According to Wang Yuan, a person closely related to Pinduoduo, “ecommerce and grocery businesses have inherently different models, so the strategies from Pinduoduo’s main platform don’t necessarily apply. That’s why Pinduoduo’s management implemented “small central and large local” (“小中央大地方”) management model, where provincial leaders have a high degree of autonomy and can flexibly mobilise resources from multiple parties.
Under this model, regional leaders are like “local lords,” wielding significant power, while middle and top-level supervisors have the flexibility to mobilise resources as needed. Typically, when Duoduomaicai supervisors take on local roles, the first thing they do is select a warehouse. “Once you’ve made your choice, you have full authority to get things done.”
In a way, the Amoeba management model, which allows for mistakes and flexibility, is better suited for a new business like Duoduomaicai.
Li Liang, who has been closely following and researching community group buying, said: “In terms of entry points, Pinduoduo is more like using chopsticks to poke a watermelon, going straight through it. In contrast, other players in the community group-buy market are more like using chopsticks to slice a watermelon.”
In comparison to Duoduomaicai, Meituan Select is notably less efficient. Before making a decision, Meituan Select’s local managers typically need data support from the group’s business analysis team, and only then can they proceed with execution.
For instance, back when Meituan Select and Duoduomaicai were competing in the Guangdong market, just to decide whether to establish one warehouse in Guangzhou or have separate warehouses with one in Guangxi and one in Guangdong, Meituan would need to hold numerous meetings and discussions internally for such a minor issue. Pinduoduo’s approach was straightforward: one warehouse in Guangxi and one in Guangdong, each managed by “Yingjun” and “Grape” respectively.
A more direct example is the choice of products used to attract customers (引流品). Fresh pork is one of the biggest sources of traffic in the community group buying business (used to channel traffic to other products).
Pinduoduo’s provincial managers directly used pork to drive user traffic, while Meituan had to write reports to prove that pork could bring traffic. The data in the report even had to be detailed down to the type of pork and how the cold chain logistics would be managed. In contrast, Duoduomaicai took a simpler and more straightforward approach, using plastic bags and ice packs.
As a result, most of the time, decisions made by the Meituan Select team, from the group level to the local level, often take a long time to be executed.
Zhang Wei, a former middle manager at Duoduomaicai, stated, “Meituan Select lacks clear performance metrics, and its organisational efficiency is noticeably lower. Pinduoduo’s execution efficiency is highly focused, with just one metric — GMV and growth rate. Take parallel imports as an example; this is not a decision made by the leaders but a result of independent procurement decisions. After all, parallel imports can lower procurement costs and rapidly bring in users and GMV.”
“Pinduoduo has always been anti-entropy* internally, with various PK contests and you can see the backend data at every second. During the peak of such competitions, the data would be checked every four hours and questions would be asked if the data wasn’t increasing,” emphasised Zhang Yiqiang, who was responsible for fresh products on Pinduoduo’s main platform.
(*Note: Entropy is the tendency of systems to become increasingly disordered. Anti-entropy aims to counter this tendency and keep things ordered)
This resulted in a significant difference in unit economics between Duoduomaicai and Meituan Select. The reason why Duoduomaicai is able to break even ahead of time in some regions is because of their stronger control over business costs at every stage.
4. Ultimate cost control and rapid scaling
Cost control has always been at the core of Pinduoduo’s operations.
When it comes to sourcing goods and achieving the lowest product prices, Pinduoduo has employed various means. Several suppliers who have cooperated with Pinduoduo mentioned, “For its grocery business, Pinduoduo gave a significant amount of money directly to merchants involved in the supply chain finance (托盘商) to quickly establish the model.” These merchants sourced low-priced goods from nearby provinces and even nationwide, and these low-priced products can range from vegetables to daily necessities.
Compared to regular supermarket channels, the prices of certain daily necessities on Duoduomaicai can be 20-30% lower (or even more). These high value-for-money products allowed Duoduomaicai to rapidly capture the market in lower-tier cities.
While these merchants(托盘商) engaged in parallel imports (窜货), many brand manufacturers criticised the practice of parallel imports for disrupting the brand manufacturers’ distribution systems. However, Pinduoduo responded directly, saying, “I’m just a platform; the goods all come from the suppliers.”
Some suppliers said ” Through the PK competition method, Duoduomaicai has driven down procurement prices to among the lowest in the community group-buying industry. However, Duoduomaicai has a significant demand and sales volume that other platforms cannot match. Therefore, many suppliers have mixed feelings towards Duoduomaicai, both loving and hating it.”
At its core, retail is a business where every bit of profit needs to be carefully managed. Profit margins need to be squeezed from all aspects: a bit from logistics, a bit from procurement, and a bit more from traffic. And yet when combined, the gross profit is still miniscule.
The excessive concentration of power in various provinces and regions of Duoduomaicai was bound to lead to corruption issues. Pinduoduo foresaw this and introduced the “three-pronged approach” (三板斧) to curb corruption in procurement and other aspects that have the potential to drive up operating costs.
The frugal and simple approach to expenses has existed since the early days of Pinduoduo. At that time, a few colleagues hired a housekeeper to cook for them and wanted the company to reimburse the expenses. However, when the boss found out, they were called to the office for questioning.
Even today, invoices over a hundred yuan at Pinduoduo are still subjected to strict approval. Currently, Abu is the last person to approve expenses in the reimbursement system. In the past, it was Colin Huang.
There are 2 deep reasons behind this approval process: one is to prevent corruption, and the other is to save costs and create a psychological deterrent.
Thanks to the forward-thinking business practices, corruption at Pinduoduo is less severe compared to other giants in the online grocery business.
Duoduomaicai has always focused on the core issues. It continually explores how to provide the best value-for-money products and how to increase platform order volume to quickly establish a successful business model.
Several suppliers have cited examples to illustrate Duoduomaicai’s unique and precise understanding of product quality and user experience. Take cucumbers as an example: when Taocaicai (Alibaba’s community group-buy for groceries and fresh produce) and Meituan Select purchase cucumbers, they have specific size requirements. However, Duoduomaicai doesn’t have such stringent criteria; instead, they focus on whether the cucumbers are edible, regardless of whether they are straight or curved. Similarly, they believe that plastic bags and non-woven fabric bags can both be used to package items, and there’s no need to use the more expensive non-woven fabric bags.
By relying on efficiency and cost control, Duoduomaicai’s transaction volume continues to climb. In the later stages of the market, Duoduomaicai’s sales per unit space entered the top tier. During the period of intense competition between Xingsheng Youxuan and Duoduomaicai, Xingsheng Youxuan had to differentiate itself by operating on tiered consumer groups and offering unique product selections. At that time, Xingsheng Youxuan directly identified a group of high-quality users and focused on selling cooked meat and live fish.
Conclusion
Despite the success of the grocery business, it is clear that this is not a high-margin venture as compared to the main ecommerce platform.
To describe the competition in the community group-buying industry, Wang Jiehua, the founder of a local group-buying business, made an illustrative comparison.
Xingsheng Youxuan is the local warlord, firmly holding its ground. Chengxin Youxuan (the community group-buy unit of Chinese ride-hailing giant Didi) is akin to the Qing Dynasty’s army, highly confident and self-righteous. JD.com is like a pseudo-army, scattered and easily defeated. Alibaba’s Taocaicai resembles the Nationalist Army, organised but lacking combat power. Meituan Select, on the other hand, is like the US military, well-equipped, armed to the teeth, with on-the-ground teams, a supply chain, and is supported by business data.
Duoduomaicai is likened to the Chinese Red Army (the military wing of the Chinese Communist Party from 1928 to 1937), which despite not having many resources, has a team that is resourceful and methodical.
If we estimate the market penetration rate of Xingsheng Youxuan in the Hunan region, it is possible to precisely estimate the market size behind the entire grocery business. Therefore, even though the grocery business has become the overall market leader, Pinduoduo did not emphasise it in its financial reports.
On the day of Pinduoduo’s 6th anniversary in 2021, there were no celebrations at the company’s headquarters in the Jin Hongqiao International Center. Colin Huang did not make any speeches either. The company simply showed a video, featuring provincial area managers sharing their successful experiences, to all the staff in the grocery business.
At the same time, Temu, the higher-level strategic business, began its tests, and the grocery business entered the maintenance phase.
“Every person that comes from this team is worth investing in with your eyes closed; it’s just that they are not willing to come out,” says Wu Xinhua, a veteran investor. In fact, there are indeed big players in this space, but they already have significant wealth accumulated and can fund their own major funding rounds.
(At the request of the interviewees, the names Wang Fei, Zhang Chao, Li Yang, Zhong Ping, Wang Fang, etc., pseudonyms.)