TikTok Shop and the absurd $1.51 bag of Mexican chips

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Happy Friday. Fortune’s tech correspondent Jason Del Rey here, and I’m a tad bit ashamed.

You see, recently, TikTok somehow discovered one of my greatest vices and then served it up to me on a digital platter: a 4.6-ounce bag of spicy Mexican chips, costing only $1.51 after a discount, shipped for free to my East Coast home all the way from a candy shop in Pasadena, Texas.

Yes, that’s an absurd deal that makes absolutely no financial sense. No, I didn’t feel great about the environmental impact of my online impulse buy after clicking “Buy Now.”

As a reporter who has covered e-commerce for the past decade, I had a lot of questions. So while I awaited the shipment of my guilty pleasure, I contacted the merchant behind the 4.6-ounce bag of Cruijtos “Queso y Chile” chips to try to work through the improbable math. Luckily for me, he was happy to chat.

Manny Barba is the owner of Las Delicias Mexicanas, a small chain of Mexican candy shops with brick-and-mortar stores in Houston and nearby Pasadena. Barba’s wife, Abigail, encouraged them to start selling through TikTok’s commerce platform, TikTok Shop, after it launched to U.S. app users in the fall. And since then, she’s the one who has mostly been responsible for the growth of their presence on the shopping platform under their handle “lasdeliciasmexicanas_2.”

There, they’ve been selling single bags and variety packs of Mexican chips—12 small bags for around $25—as well as Mexican candies, jerky, and Chamoy pickle kits. In early December, a simple live video of a store employee showing off various chip varieties in Spanish went viral, attracting more than 1 million views and helping draw attention to their online storefront. A few deals with affiliates—TikTok users with decent-sized followings who would promote their shop for a cut of sales—also helped.

Soon, the Barbas were overwhelmed, hiring extra staff to help field 300 to 400 TikTok Shop orders a day, and working around the clock just to stay above water. Over a two-month period, their TikTok store generated more than $100,000 in sales. The new sales channel had quickly become for them equal parts blessing and curse. Around the same time, massive issues at Houston area U.S. Postal Service facilities led to a large backlog of orders and delayed shipments. Negative reviews from TikTok customers began pouring in, and the Barbas found themselves on the hook for thousands of dollars in refunds.

Those challenges, Manny Barba said, “have been a nightmare.”

The Barbas then slowed down on posting new videos to the site and pulled back on their affiliate partnerships. They also switched from USPS to FedEx for their shipping. Now, finally feeling dug out from the holiday backlog, they are considering stepping on the gas once again.

“Going viral can change your life,” Abigail Barba said.

TikTok Shop is just one of a few online shopping experiences with roots in China that have taken the U.S. consumer by storm recently. TikTok, which is owned by China-based ByteDance, along with shopping apps Temu and Shein, are selling billions of dollars in goods to U.S. customers each year. While their business models and strategies vary, much of their appeal centers on the same thing: ridiculously low prices. As a result, U.S.-based retailers from Amazon and Walmart to dollar store chains, fast-fashion brands, and department stores, are now on high alert.

So back to my $1.51 bag of chips: Who exactly is losing money on that? It sure isn’t Barba. Both the 30% discount I received, as well as the free shipping offer I was presented with as a first-time customer of their shopping section, came courtesy of TikTok. Even on other orders, TikTok is subsidizing a large portion of the shipping costs too. Last week, for example, Barba said his TikTok store racked up more than $2,100 in shipping fees on $6,000 in sales. That said, TikTok only charged his business $396 for shipping, plus a tiny 2% commission on sales.

If that sounds too good to be true, it’s because it is. Soon, TikTok’s cut will increase from 2% to 6%, and then to 8% by the summer. Manny Barba assumes that TikTok will reduce the shipping subsidies eventually too, but by then many sellers will feel locked in.

“They’re going to get us used to the platform, and then sink their teeth in,” he said. “But by that time, you’ll be so used to it that you’ll just think, ‘It is what it is.’”

Jason Del Rey

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This story was originally featured on Fortune.com