China moves to curb food delivery price wars

The Chinese government is drafting a new law to regulate fierce competition in the food delivery market, aiming to eliminate aggressive price wars that have destroyed restaurant  profits, and redirect platforms toward competing through quality of service.

The State Administration for Market Regulation (SAMR) unveiled the draft regulations in mid-June, targeting “irrational” discount campaigns. The antitrust regulator has opened the floor for public feedback on the proposal until July 17.

According to SAMR, China’s food delivery platforms are plagued by issues. Chief among them is operators leveraging their massive financial backing to fund aggressive promotional campaigns, offering steep discounts, vouchers and free delivery with the sole purpose of aggressively capturing market share.

This environment has left registered restaurants with little choice but to participate in these campaigns to survive, Failing to do so results in a near-total loss of customers. However, once the campaigns conclude, merchants are left with razor-thin margins due to hefty commissions and advertising fees deducted by the platforms.

– The SAMR draft legislation –

1. Platforms are prohibited from using long-term, large-scale financial subsidies that disrupt market competition.

2. Operators are banned from forcing or pressuring merchants to join promotional campaigns and they cannot shift campaign costs onto the businesses.

3. Companies are barred from using superior capital to monopolise the market, compete unfairly, or price services below cost.

4. Platforms must publicly disclose data before and after each promotional campaign to ensure transparency.

Beijing also wants platforms to shift their focus from “price competition” to “quality competition”. This includes encouraging operators to improve visibility for high-quality establishments and those with transparent, open-kitchen concepts.

The relentless price wars in China’s food delivery sector have increasingly drawn negative consequences. Beyond the financial strain on merchants forced into promotions, delivery riders are also facing mounting pressure, working longer hours to meet the surging volume of orders.  Source: South China Morning Post, Reuters, Global Times, The Straits Times

Source – Bangkok News