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Tuesday, Oct 27, 2020

Chinese food delivery apps face a backlash from restaurants – tired of the high commission they charge, some build their own digital platforms for takeaway orders

An open letter by a restaurant association revealed Meituan levies commission of up to 23 per cent, while Ele.me takes up to 20 per cent of each order. More restaurants in China are creating their own online platforms and using all-goods delivery companies to get takeaway orders to customers instead

For Mike Wong, the owner of a restaurant called Hong Kong Grassroots Canteen with two branches in Beijing, takeaway service has long been something of a headache.

In China, the delivery app Meituan Dianping and its rival Ele.me (owned by Alibaba Group, the parent company of the South China Morning Post) dominate meal delivery services. Users log on to the apps and order from the restaurants listed. Wong says Meituan charges a minimum of 20 per cent commission on each order – a significant amount for a small business.

“My profit margin is only 10 to 15 per cent. So for a takeaway order, all my profits have to be given to Meituan.

“In Beijing, many people order takeaways [even if it’s just] a cup of milk tea or a bowl of wonton noodles. The commission amount is across the board and doesn’t differentiate according to meal size or the distance covered by the delivery rider. The app takes the order and the money, and they keep the money for up to a month, which affects my cash flow. It’s a very unfair deal which is enforced upon us.”

Wong has started using FlashEx, an intracity delivery service provider which delivers all kinds of goods, to get his takeaway orders to his customers instead.

“In Australia [where Wong has also lived], clients pay extra for takeaways. In China, if you increase the cost of a takeaway meal, they will go away. So, I pay for the delivery charge using FlashEx, which charges by the distance covered by the driver. It costs around 10 yuan [US$1.41] for distances within 5km (3.1 miles). It’s much cheaper than Meituan.”

Wong is among a growing number of restaurant owners in China rebelling against what they call the “hegemony” of China’s dominant takeaway apps.

A recent report by data analytics platform the Data Centre of China Internet (DCCI) found that almost half of the country’s internet users used online delivery services last year, with 67 per cent being regular users of Meituan.

Criticism has grown more intense because of the Covid-19 pandemic, with restaurants being hit hard by business suspensions, staff exoduses and a tanking economy. In April, the Guangdong Restaurant Association published an open letter to Meituan, urging it to slash commission on deliveries and to drop what it calls unfair terms that require restaurants to sign exclusively with its platform.

In February, restaurant associations in the southwestern city of Chongqing, as well as in Hebei, Yunnan and Shandong provinces, all separately published open letters calling for commission reductions from Meituan and Ele.me. The letter from Shandong revealed that Meituan charges restaurant chains commission of 18 per cent and smaller businesses a 23 per cent commission, while Ele.me’s commission ranges from 15 per cent to 20 per cent of each order.

According to the letter, the commission Meituan charges is higher if restaurants want to work with other platforms.

A restaurateur who owns a sour and spicy noodle shop in Beijing, and who wishes to remain anonymous, has started putting a card inside each takeaway meal bag to increase direct orders. The noodle shop owner says the card includes the shop’s phone number, social media accounts and a 10 per cent discount offer.

“We get our own staff to deliver the meal. During the pandemic, when we were closed for [on-site dining] business, we took pictures of our dishes and set up an online order platform for takeaways. We didn’t have time to digitise in the past. We also put videos of how we cook the noodles onto video apps like Douyin to promote our shop. If we can build up a big enough customer base, we can stop using those [delivery] apps altogether.”

Liu Jingjing, founder of congee chain Porridge Jiahe, which has more than 100 outlets across China, told Chinese media it had upgraded its delivery app, which allows staff to interact directly with customers.

“This saves us the commission charged by delivery platforms, which can be used to benefit the customers. We have signed up more than two million members. We outsource the delivery service to [all-goods delivery firm] Dada,” Liu says.

A spokesman for Meituan said that. in 2019, more than three million merchants received takeaway orders through the app, with more than 80 per cent of restaurants paying commission from 10 to 20 per cent.

“The actual figure [charged] is much lower than rumoured … user experience, value for merchants and riders’ incomes have always come before the profitability of delivery platforms.

“After the launch of Meituan Waimai [which translates as “delivery”], we lost money for five consecutive years. Even in 2019, when we broke even, the average profit per delivery order was less than 0.2 yuan in the fourth quarter, accounting for two per cent of the revenue.

“We invest most of our income on helping merchants develop professional delivery services, acquiring orders and improving digital infrastructure.

“During the pandemic, for merchants affected by the pandemic, we gave back no less than three to five per cent of the commission. More than 600,000 merchants [benefited from this].

“For merchants in Wuhan, the commission was waived from February until the lockdown of the city was lifted … for Guangdong, so far, the amount of rebate we gave back to merchants, and other subsidies, amounts to more than 100 million yuan.” The lockdown of Wuhan, where the first coronavirus infections appeared in December, was lifted in April.

A spokesman for Ele.me said it has reduced or waived commission four times since the pandemic began, and supports restaurants by providing them with free advertising resources, such as on outdoor billboards, hotel TVs and other channels. Its other measures have been aimed at helping the sector ride out the pandemic.

“These include providing free lessons on self-survival for the sector, and the launch of a platform to help restaurant service staff switch to working as delivery riders [should they not find work following pandemic-triggered closures].”

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