What’s up with…? - Part 1: Temu
An in-depth look at the developments of Pinduoduo's cross-border platform in 2023
Source: Temu commercial
Contents
Things that caught our attention
In recent weeks, we kept seeing news items and social media posts about how China supposedly has become the ‘coffee empire of the world’, primarily based on the number of stores. We think some essential context is missing: Cotti Coffee has opened over 6,000 stores since it started a little over a year ago. Luckin Coffee has been speeding up to stay ahead. But especially with those Cotti stores, it is questionable how well they are doing (our research indicates ... not so well). Proclaiming China the ‘coffee empire of the world’ also fails to acknowledge that the average Chinese really doesn’t drink all that much coffee. To get beyond the hype, check out our September article on Cotti and stay tuned for an update in January.
A few weeks ago, Rui shared her insights on super apps during an online seminar of Oxford University. We have created a short 8-minute video of her contribution, which can we watched here.
Introduction
Our most popular deep-dive on one of the most important topics this year was our June report on Temu. Pinduoduo’s cross-border platform has been making waves worldwide and has surprised competitors and analysts alike with its fast rise.
A lot has happened since we last wrote about Temu, so we decided to do an update. This will be the first in a series of newsletters in the coming weeks in which we look back at some of the topics we wrote about in 2023 and trace the developments since.
The general statistics section of this Temu update is available to all readers, further analysis from Chinese tech media and expert interviews from the Six Degrees Intelligence database is accessible to paying members only.
We want to thank all of you for your trust and for staying with us in 2023 while we implemented this new iteration of Tech Buzz China. While writing the articles is more a labour of love than a true source of income for us, all of you who sponsor us with a paid membership have helped keep at least a few lights on and continue this service. If you’re not a paying subscriber, why not give yourself a subscription for Christmas? ;-)
Have a wonderful holiday season, and stay safe!
Freya Zhang, Ed Sander & Rui Ma
(click on the images above for information on the Tech Buzz China team)
What’s up with … Temu
Follow-up to: Temu: from $0 to $3 billion in 10 months - June 23 2023
First, let’s start with some updated statistics.
Note: some of the statistics in this newsletter might conflict because they are from different sources. Since Pinduoduo does not publish official data on Temu, it’s hard to determine any specific figures' accuracy.
Statistics
In October, Latepost [1] and 36Kr [2] published updated figures on Temu, Pinduoduo's (PDD) cross-border e-commerce webshop:
Sales
In the first half of 2023, Temu had $3 billion in GMV. Sales in Q3 2023 exceeded $5 billion. In September, single-day GMV had reached $80 million.
Temu aims for a 2023 GMV of $16 billion, equal to SHEIN's 2022 GMV in the US market. This target was later adjusted to $14 million, but some experts think it could actually be as high as $20 billion.
Temu’s monthly order volume grew between 100,000 and 200,000 in August and September.
In July, Temu’s 7-day and 30-day retention rates had reached 18.5% and 13.5%, surpassing eBay, Wish and Shein and approaching Amazon.
Shein mainly sells clothing with an AOV (average order value) of $80. Temu sells department store products with an AOV of $30-50. Temu’s AOV in the US has increased from $35 to $50.[36Kr claimed it was $37, corresponding to 5-6 items].
With the launch in more countries, the share of the US in Temu's sales had dropped from 60% to 40-50%.
Coverage
In September, Temu launched in 10 new countries, bringing the total to 47. [The total at the time of writing is 48]
In September, one year after its launch, Temu had 120 million users (half of which were outside the US). According to Data.ai, Temu had 61 million MAUs that month. [3]
60% of Temu’s sales originate in the US. 9% of Americans have shopped on Temu. [According to LatePost, this percentage had grown to 15% by December. [4] ]
Temu's app has been downloaded 200 million times in 47 countries, partially driven by the ‘price cut’ gamification. This user-get-user gamification creates part of Temu's growth, as it did with PDD 5 years ago; this is reducing customer acquisition costs. But as we’ll see in this newsletter, that strategy has not been sufficient.
Promotion
Temu’s budget was increased from RMB 20 billion (set at the start of the year) to RMB 23 billion to cope with the expansion to new markets.
Temu's 2023 marketing budget is $2-3 billion.
Before the Super Bowl commercial in February, Temu was spending $100 - $150 million on marketing each month.
In August alone, Temu spent more than $300 million on advertising.
Since July, daily advertising costs on Facebook and Google have reached tens of millions of dollars, forcing Shein to increase its daily budget to $8 million.
Temu has been buying up as much online traffic as possible, especially from Google and Meta, regardless of costs and ROI. It ranked first in the download list of every country it launched in.
Around May, Google and Meta no longer had enough traffic to allocate to Temu, which therefore increased spending on Twitter, Snapchat, Line, etc.
When US order volume growth slowed down, Temu moved marketing expenses to other markets and sped up launching in other countries. With the shopping season in Q4, Temu was expected to increase spending in the US again.
Top 5 downloads in Jan-Nov 2023 by region. Source: SensorTower [5]
Logistics
Temu shipped 1.6 million packages per day, mostly to the US. This volume is close to Shein’s level at the start of 2022. Temu expected a volume of 2.2 million packages per day by the end of 2023.
The first leg of logistics, from merchants to a Temu warehouse, costs $1 and is split between Temu and merchants. The second leg, from a Temu warehouse to an overseas transhipment warehouse, costs $4-$5. Domestic delivery in the destination country costs $3-$4.
After the warehouse capacity problems following Temu’s Super Bowl commercials, Temu expanded to 26 warehouses and tightened logistics processes.
Temu used to ship 50% of its parcels through J&T (Jitu), but with the increase in order volume, Temu expanded to 20 logistical service providers, and J&T’s share has dropped to 10%.
Shipping time to the US has dropped from a max of 15 days to a max of 10 days; the majority is delivered in 7-8 days.
Products
Temu is using 90,000 suppliers to provide over 1 million SKUs. 55% of suppliers also sell on the Pinduoduo and Duoduo Maicai (PDD’s community group buying division).
The overlap in product categories between Temu and Shein is 30%. The overlap in customers is only 5%. Still, Temu is trying to improve its fashion offering and is promising apparel merchants a 20-25% margin.
Prices of products on Temu tend to be 75% of the price on SHEIN. But they are expected to even out over time as Temu gradually ends its subsidies.
Organisation
Temu recruited 2,000 employees (some sources claim 4,000 people are now working at Temu, of which 1,000 work in ICT). Temu also employs 50,000 outsourced sorting workers.
Many employees shifted from Duoduo Maicai to Temu, including 20 of Duoduo Maicai’s 30 provincial and district-level managers. Duoduo Maicai had 2,000 employees and 20,000 outsourced sorting staff.
Profitability
Profits from the Pinduoduo app finance Temu for now. PDD also shifted marketing budgets from the domestic market to international markets.
Temu’s overall loss rate was around 40% but had already improved to 30%-35% in the US. Marketing expenses and logistics form the highest portions of the losses. A Temu order costs about $32, including $8-9 in logistics costs.
The platform is prepared to suffer losses for three years.
Pinduoduo Holding’s Q3 revenue almost doubled (93.9% YoY) compared to last year, while net profit increased 47%. At almost RMB 68 billion, revenue is still only one-third of Alibaba’s. Still, combined with Alibaba’s disappointing quarterly results, PDD overtook its competitor in market value at the end of November. Moreover, the result was almost RMB 14 billion higher than analysts had expected. Temu specifically had performed RMB 4 to 7 better than expected. [6]
PDD has not shared any specific details on Temu, but Goldman Sachs estimated that approximately 28% of the company's revenue in Q3 2023 could be contributed by Temu. That’s a lot compared to the 8% that the Global Digital Commerce Group contributed to Alibaba’s revenue, as reported at the time of the company’s 1-6-N split up. [7]
Temu sales in recent months have been driven by the back-to-school season, Thanksgiving, Black Friday/Cyber Monday and Christmas. [8]
Temu’s GMV in the US increased by 29% MoM in November. The user growth also picked up thanks to the promotional investments around Black Friday. [9] According to data by SimilarWeb, Temu was the fastest-growing multi-category retailer on Black Friday, with traffic up 84% compared with Amazon’s 2%. [10] Note, though, that during 2022’s Black Friday, Temu had only been active for three months.
On Cyber Monday, US consumers were spending $30 on average on Temu, up $9 from the year before, according to Attain Partners. They spent $49 on Shein, the same as in 2022. In comparison, average transactions at Walmart dropped by $4 to $49, those at Target decreased by $3 to $44, and Amazon purchases were $1 lower at $36. [11]
According to Data.ai, Temu surpassed popular apps and ranked second in global downloads during the first three quarters of 2023 while being first in the US, UK, Australia, France and Germany. It ranks second in usage time in the US, ahead of Walmart and eBay. [12]
(Note: the section below is only available to paid Tech Buzz China subscribers)