Pinduoduo’s RMB 1.5 billion Shanghai brands program may help profits, reputation

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Heritage Shanghai brands being sold on Pinduoduo: cosmetics company Jahwa (brands include Maxam and Six God), food manufacturer GSY Group of the famed White Rabbit brand candies, and shoe brand Warrior. (Image credit: Pinduoduo)

Social e-commerce firm Pinduoduo announced Tuesday it will invest RMB 1.5 billion to shore up 100 heritage Shanghai brands that have seen sales dwindle in recent years, in response to a municipal government initiative to reinvigorate its consumer goods manufacturing industry.

The Shanghai-based online retailer said it would offer RMB 1.5 billion (around $222 million) as cash incentives to help declining local brands boost sales over the next three years. It will also offer an additional RMB 10 billion-worth of traffic resources, along with support in new product development, refining recommendation algorithms, and training sales staff.

A company representative from Pinduoduo declined to comment further on the program details when contacted by TechNode on Wednesday.

Shanghai’s municipal government is pushing to promote local heritage brands, which have declined in recent years. Shanghai-based Bright Dairy, a former top-selling Chinese dairy brand, recorded a 44.9% year-on-year decrease in net profit to RMB 342 million in 2018, and posted its first quarterly loss in nearly 10 years of RMB 52.05 million in the fourth quarter.

Warrior Shoes, another prominent homegrown brand, has ceded share to global giants Nike and Adidas in the Chinese shoe and sports equipment market, suffering losses totaling RMB 250 million from 2005 to 2008. It was not until 2012 when it opened its first online store on Alibaba’s business-to-consumer marketplace Tmall that the company’s business made a turn for the better. Its sales revenue from the Tmall shop exploded to RMB 200 million in 2018 from RMB 3 million in 2014, reported The Beijing News (in Chinese).

In a document released in April 2018, the Shanghai government announced plans to revitalize 50 time-honored brands with the goals of higher margin and global recognition by 2020 as part of a three-year initiative to establish itself as a hub of commerce and trade.

As a major corporate taxpayer and high-profile Shanghai-based tech firm, Pinduoduo’s plans featuring double the number of brands included in the government initiative is a proactive response. Li Qiang, Shanghai’s Communist Party secretary, visited the company in February and asked Pinduoduo to “fulfill its duty as a social enterprise” in government programs including anti-poverty and brand revitalization, according to Jiefang Daily.

The Shanghai government has been offering assistance to poverty-stricken areas for decades as part of a central government initiative. Since 1995, the municipality has spent RMB 9.87 billion on poverty alleviation in China’s southwestern Yunnan province as of end-2018, reported The Paper.

Pinduoduo and other e-commerce platforms have leveraged rising consumer demand to purchase fresh produce online for delivery by tapping such government initiatives. In April 2018, the company announced it would invest RMB 10 billion in a program aimed to bring produce from 10,000 impoverished Chinese farmers to sell on its platform, reported state-owned media People.cn (in Chinese).

However, the heritage brand program may also be a savvy move to improve the e-commerce company’s tight finances as well as address its reputation as a platform for counterfeit goods.

“As one of the most important consumer markets in China, Shanghai should ride the wave to leverage online and offline distribution channels for the establishment of homemade brands,” (our translation) Chinese media reported citing Sun Yi, a China business consultant with Ernst & Young, as saying.

According to the company, only a few of the 222 officially recognized heritage Shanghai brands have full-fledged e-commerce strategies, thus presenting enormous growth potential, especially in second- and third-tier cities.

Additionally, authenticity is a non-issue with such brands. “There is strong appeal and high confidence from customers when it comes to heritage brands,” (our translation) the company said in the announcement. The rate of return customers for some Shanghai-made brands are actually higher than some globally recognized brands, it said.

Bee & Flower, a shampoo brand established in 1985, has grown its revenue 400% on Pinduoduo since December, the retailer said.

Amid a general slowdown in the Chinese e-commerce sector, Pinduoduo reported operating losses of RMB 3.96 billion in 2018, a more than eight-fold increase from its RMB 469.2 million losses in 2017.