Douyin sells fresh food, relying on Pinduoduo to cross the river

After bidding farewell to the absolute low-price strategy, Douyin e-commerce is actively exploring new growth paths, among which the development of fresh food categories is particularly eye-catching. By launching a commission-free campaign for all categories, Douyin e-commerce not only reduces the burden on merchants, but also attempts to activate the transaction frequency and user stickiness of the entire platform through the high-frequency and rigid demand characteristics of fresh food categories, thereby driving the overall prosperity of the e-commerce ecosystem.

After bidding farewell to the absolute low-price strategy, Douyin e-commerce still faces the challenge of how to reactivate growth. Developing fresh food categories and following Pinduoduo's lead are the paths that Douyin e-commerce is trying.

Recently, Douyin e-commerce launched a commission-free activity for all categories in the fresh food industry. After participating merchants complete the low-threshold tasks, the settlement orders generated by the seafood and aquatic products, meat and egg low-temperature products, fruits and vegetables they sell will no longer be charged a 2% commission on transaction orders in the next month, and only a 0.6% technical service fee will be deducted.

Douyin E-commerce said that the introduction of the commission-free policy is to further help small and medium-sized fresh food merchants reduce operating costs and explore new business growth opportunities.

Previously, Douyin has increased its support for the fresh food category, promoting the fresh food industry to reduce burdens and increase efficiency by focusing on multiple dimensions such as opportunity categories, shelf product cards, low-price supply, and origin traceability.

By exempting transaction commissions, Douyin e-commerce is expected to attract more fresh food merchants to join. As low-priced, high-frequency, rigid-demand products, fresh food can increase the transaction frequency on the platform while bringing more demand and traffic to other categories, thus driving the prosperity of the entire e-commerce ecosystem.

Prior to this, Douyin once tried to exchange price for growth, but this approach ultimately proved to be unworkable.

Over the past six months, Douyin e-commerce has been caught up in an industry-wide price war, setting "price power" as the highest priority task this year, and launching a series of low-price-related functions and scenarios such as network-wide price comparison, automatic price change, and price comparison channels.

But due to various constraints, Douyin has not really profited from the price war.

According to a previous report by LatePost, in March this year, Douyin's e-commerce growth rate fell below 40% year-on-year, the first decline since the launch of the business; after the second quarter, it further fell to less than 30%. In contrast, in 2023, Douyin's e-commerce monthly growth rate generally remained above 50%.

According to 36Kr, Douyin's e-commerce GMV (gross merchandise volume) in the second quarter was 760 billion to 770 billion yuan, and it achieved about 1.4 trillion yuan in the first half of this year, which did not reach the 1.5 trillion yuan expected at the beginning of this year. Douyin later said that the news was untrue.

At the same time, Douyin women's clothing brand "Lola Code", which has 5 million fans, closed its store during the 618 e-commerce promotion. This indirectly reflects that the price war on e-commerce platforms has caused merchants' profits to shrink again, and the women's clothing category with a long-term high return rate and high operating costs has been the hardest hit.

The platform and merchants are under tremendous pressure, prompting Douyin e-commerce to adjust its strategy.

At the end of July, Wei Wenwen, president of Douyin e-commerce, revealed at an internal communication meeting that Douyin e-commerce will improve its pricing power in a more refined manner in the second half of the year, "The pricing power of Douyin e-commerce is by no means a simple pursuit of absolute low prices." Almost at the same time, it was revealed that Douyin would no longer put "price power" first, and would focus on pursuing GMV growth in the second half of the year.

But after some corrections, Douyin e-commerce still needs to reactivate its growth engine. Developing fresh food categories is one of the most immediate options.

Although the price of fresh products is not high and the sales volume is far less than that of clothing, 3C and other categories, this type of product is urgently needed by Douyin at this stage. In the low-price competition in the first half of the year, Douyin cut prices on a large scale, but the transaction frequency did not rise against the trend, resulting in a decline in GMV growth; the high-frequency consumption attributes of the fresh category can make up for this shortcoming and drive the transaction frequency of the entire platform to increase.

This is exactly the path that Pinduoduo has taken. In the early years, Pinduoduo survived the pressure from Taobao and JD.com, largely due to its early occupation of agricultural products, including fresh food. Based on this, it expanded into 3C digital products, daily necessities, clothing and beauty, sports, home furnishings, maternal and child health and other categories, and eventually became one of the three major e-commerce platforms.

Today, Douyin e-commerce has basically completed the layout of all categories and does not need to start from scratch. However, after jumping out of the quagmire of price wars, Douyin can promote the e-commerce growth engine to accelerate again by supporting the fresh food category.

However, Pinduoduo has already established an iron wall in the agricultural product e-commerce field, supplemented by high subsidies. In order to attract merchants to switch positions, Douyin e-commerce needs to offer more real money in addition to commission-free.

01

For Douyin’s fresh food e-commerce business, it doesn’t matter how much GMV it can achieve. The key is how to make full use of the “transaction traffic pool” attribute of this category.

In online and offline consumption, fresh food, including fruits and vegetables, chicken, duck, fish and meat, is the most rigid demand among rigid demands, which can bring a large and stable customer base into the store. Traditional supermarkets have realized this very early: the fresh food area of ​​large and medium-sized supermarkets occupies about 20% of the total area, far exceeding any other category; new supermarkets such as Yonghui that feature fresh food even have fresh food areas that are as high as 50%.

In recent years, the rise of "new retail" has opened up online and offline life consumption scenarios, but the core position of fresh food has not been shaken. Hema directly put the word "fresh food" in its name, and JD.com's Qixian also has the word "fresh".

Supermarkets rooted in offline scenarios all understand that only by capturing consumers' three meals a day can they gain a stable user base and create opportunities for other categories. This is the basic logic of the "transaction traffic pool".

However, for pure online e-commerce companies, the role of fresh food as an e-commerce traffic engine has only been more fully recognized in recent years.

Domestic fresh food e-commerce started in 2005, with the establishment of startups such as Yiguo Fresh and Tiantian Orchard. By around 2016, this market was crowded with more than 4,000 companies of all sizes, including the larger ones such as Daily Fresh, Benlai Life, Qingnian Caijun, and Aixianfeng.

With the help of venture capital, fresh food e-commerce companies tried to gain market share at the expense of losses, and launched a subsidy war around high-priced products such as cherries. According to statistics, among the three to four thousand fresh food e-commerce platforms, only 1% achieved profitability, 4% broke even, and 95% were in the red. This unhealthy industry state eventually led to a major reshuffle in the fresh food e-commerce industry, and almost all entrepreneurs failed.

This industry-wide collapse revealed the natural limitations of the fresh food category.

On the supply side, fresh food sources are scattered, with low standardization and obvious seasonal fluctuations; on the demand side, most fresh food customers have low average prices, and consumers are extremely sensitive to prices. Coupled with high breakage rates and high logistics costs, fresh food alone is not a lucrative business. Xu Zheng, the founder of MissFresh, once said, "Fresh food retail is like picking up pennies with your butt bent."

But in the hands of giants, the "pick up pennies" fresh food e-commerce has a new value dimension.

While fresh food entrepreneurs were struggling with losses, Pinduoduo quickly rose to prominence with its group-buying model, and made a critical leap in expanding product categories and expanding its user base. This process was certainly boosted by model innovation and billions of yuan in subsidies, but the underlying factor was that Pinduoduo realized the traffic value of fresh food and agricultural products, and quickly introduced standard products such as 3C digital products to take over, rather than focusing on how to make money from agricultural products themselves.

Under Pinduoduo's transformation, selling fresh food is no longer the only purpose, but a prelude to a bigger goal. The high-frequency and rigid demand characteristics allow the fresh food category to reach the widest and most active consumers; and the habits and tendencies of consumers in the process of shopping can also help the platform draw a clearer user portrait and output it to other categories in different categories.

E-commerce platforms are generally hungry for traffic. Compared with the comprehensive traffic introduced from pan-Internet scenarios such as search engines and APP advertising, the transaction traffic brought by the fresh food business is based on actual consumption and has clearer and richer user indicators, which has higher value and conversion rate for e-commerce.

Giants such as Taobao and JD.com quickly saw this and quickly followed suit. After several years of imitation and catching up, although Pinduoduo's competitors failed to grasp its essence, their logic was roughly the same in obtaining transaction traffic through agricultural products, and they also achieved certain successes.

Douyin e-commerce entered the fresh food industry relatively late, but according to official data, it is growing very fast. Since the beginning of this year, the business scale and user scale of Douyin e-commerce's fresh food industry have increased by more than 40%, and GMV has increased by 68% year-on-year. By exempting fresh food from commissions, Douyin e-commerce is expected to add fuel to this category.

02

Before announcing the commission-free policy for fresh food categories, Douyin had been trying to make a difference in the "eating" scenario.

This type of attempt was first implemented in the local life sector. After entering Meituan's hinterland by exploring stores, Douyin tried its food delivery business on a small scale around 2023. At its peak, it once covered 30 cities including Beijing, Shanghai, Guangzhou and Shenzhen, and introduced more than 150 regional agents.

However, due to issues such as average order value and delivery time, Douyin Food Delivery has failed to replicate its success in the local life sector. After 2024, the volume of Douyin Food Delivery has significantly decreased.

In terms of e-commerce, Douyin launched "Hourly Delivery" in August 2022. The model is similar to Meituan's grocery shopping, and fresh food merchants with delivery capabilities are the first targets of introduction, such as Yonghui, Wumart, and Qishen, all of which have been connected to the platform.

Now, by increasing its investment in fresh food, Douyin's e-commerce ambitions for "eating" are highlighted. This series of new actions all point to the greater goal of expanding the source of transaction traffic.

As the largest short video platform in China, Douyin, with 700 million DAU (daily active users), is not short of content traffic. But when it comes to transaction traffic, Douyin does not have an advantage over other e-commerce platforms.

According to a report by Deep Web at the end of last year, people familiar with the matter revealed that the DAU of Douyin Mall was about 150 million at that time. In contrast, according to data from market research firm QuestMobile, as of July 2023, Pinduoduo's DAU was about 307 million.

Of course, most of Douyin's e-commerce GMV is contributed by the content traffic of the live broadcast room; including this part of users, the number of consumers shopping on Douyin may not be less than that of other platforms. However, the size of Douyin's e-commerce is obviously different from that of traditional e-commerce: in 2023, it is rumored that Douyin's e-commerce GMV will be about 2.7 trillion, Kuaishou's e-commerce will be 1.18 trillion; Alibaba will be about 7.2 trillion, and Pinduoduo will be about 4 trillion. This is in contrast to Douyin's huge user base.

The DNA of Douyin is content. People gather on Douyin because of the content, and a funnel model from content to transactions is formed. During the rapid growth period of Douyin, the volume of e-commerce business rose with the surge in users; but when Douyin entered the mature stage and user growth slowed down, the problem of low efficiency in content traffic transaction conversion began to emerge.

Douyin is already working on solving this problem. In 2023, Douyin will spend a lot of energy on developing shelf scenarios, proposing that this part of the business should account for 50% of the e-commerce GMV. Specific measures include increasing the exposure of the mall, launching the Douyin Mall APP, and strengthening the search function.

According to 36Kr, this year Douyin's e-commerce GMV from window display, search, mall, "Guess you like" and other pan-shelf scenarios will reach more than 40% of the entire market. However, these measures focus on shortening the conversion path, that is, allowing users to more conveniently switch from content scenarios such as videos and live broadcasts to transaction scenarios such as product cards and product details pages with one click, thereby improving conversion rates. In this process, Douyin did not create transaction traffic, but rather tapped into existing demand.

If Douyin e-commerce wants to continue to improve, one of the feasible paths is to strengthen users' perception of Douyin's consumption function through high-frequency and rigid-demand services and products such as takeout and fresh food, improve retention and repurchase rates, and make shopping rather than watching videos the first landing point for some users to browse Douyin. This is a gradual "genetic engineering project", and takeout and fresh food are just the first step for Douyin.

03

Developing fresh food categories and attracting transaction traffic are new attempts by Douyin e-commerce after its "model dividend" has faded.

The high-speed growth period of Douyin e-commerce started with the introduction of Luo Yonghao in 2020. With the support of the platform, Luo Yonghao became the first generation of Douyin live streaming sales, which in turn drove the growth of the entire live streaming e-commerce ecosystem.

In 2020, Douyin e-commerce GMV exceeded 500 billion yuan, three times that of 2019. In June 2022, Dongfang Zhenxuan, which sells knowledge live broadcasts, rose to prominence, and Dong Yuhui and others replaced Luo Yonghao as the new C position for bringing goods. Coupled with the efforts of top anchors such as Xiao Yangge and Jia Nailiang, the first wave of Douyin e-commerce model dividends reached its peak.

Dong Yuhui and others have driven the mid-level and long-tail anchors to make the entire live streaming e-commerce ecosystem flourish. In addition to pushing the scale of Douyin's e-commerce to 2.7 trillion, the more far-reaching impact is the creation of a new business model: the anchors come and go, but Douyin remains.

Under this model, anchors rely on traffic to gain fans and popularity, achieve huge sales, and while earning huge returns, they also contribute countless traffic fees and transaction commissions to the platform. Old anchors may be eliminated by newcomers, but Douyin, which controls the traffic valve, always makes a profit.

In the triangle model of "platform-anchor-merchant", the platform is in a strong position. The types of goods, merchants and anchors that the platform opens its doors to have traffic have largely shaped the basic appearance and profit structure of Douyin e-commerce; this ability to "turn stone into gold" based on traffic distribution is also the foundation of Douyin live e-commerce.

But starting from 2024, as the live streaming e-commerce industry entered its mature stage, Douyin's old e-commerce model encountered new challenges.

According to iResearch, the turnover of domestic live e-commerce will reach 4.9 trillion yuan in 2023, up 35.2% from the previous year. This year, it is expected to reach 5.9 trillion yuan, with the growth rate falling to 19.1%. Although it is not stagnant, it is far from the growth rate of more than double in 2019 and 2020.

The big anchors at the top of the food chain are showing signs of fatigue. Third-party data shows that during this year's 618, the sales performance of anchors such as Li Jiaqi, the Guangdong couple, and Luo Wangyu has declined compared with the same period last year, and some have even dropped by 70%.

Carrying too many expectations, Oriental Selection also fell into personnel turmoil, and finally ended with Dong Yuhui's departure. Before Dong Yuhui left, Oriental Selection had gradually diluted the content of knowledge and started "123 link", which aroused the disgust of many old fans.

The bigger problem is that Douyin has produced a lot of celebrities in the past period of time, such as Wang Po, Guo Youcai, etc. Many of them have also taken advantage of the opportunity to start selling goods, but none of them has shown the potential to be the "next Oriental Selection".

It was also during this period that Douyin e-commerce sought breakthroughs beyond pan-content scenarios such as live streaming, and placed shelf scenarios on a par with each other. However, in the past six months, Douyin e-commerce has lost its focus amid the industry-wide price involution, and its operating performance has been unsatisfactory.

Now, after the smoke of price war has faded, Douyin is trying to use fresh food as an entry point to drive growth in all categories.

For fresh food merchants, Douyin is a huge traffic pool with relatively little competition. If merchants cannot gain a foothold on other platforms, it is not a bad idea to try Douyin by taking advantage of the commission-free bonus.

However, the two-point commission exemption is obviously not enough to make Douyin e-commerce the winner in the fresh food category. The non-standard characteristics of fresh food, as well as the emphasis on production, logistics, and after-sales service, are all difficult challenges that Douyin e-commerce needs to overcome next. Before other competitors launch a massive counterattack, Douyin e-commerce needs to put out more funds and resources to complete this small-to-large raid.

References:

Alphabet List, "Zhang Yiming no longer competes with Huang Zheng for the title of King of White Cards"

36Kr, "Douyin e-commerce GMV in the first half of the year did not meet expectations, and the average order value and retention rate of active merchants both declined"

E-commerce News, "Douyin women's clothing giant stops live streaming and sells goods, and no longer wants the account with 5 million followers"

LatePost, "Douyin e-commerce weakens low prices, GMV returns to the top priority"

Blue Shark Consumption, "Douyin e-commerce 618 breaks the big defense"