Chinese authorities ask delivery platforms to lower service fees

The Chinese authority has required food delivery platforms to lower service fees to help restaurants survive, but this could be another blow for big tech companies such as Meituan as it is a major player in the industry. The National Development and Reform Commission (NDRC) said it would guide delivery platforms to take another step to lower service fees charges to restaurants, adding that the latest move is to help lower their operating costs. For example, the NDRC would require delivery platforms to give discounts to restaurants in areas severely impacted by the pandemic.

According to a Financial Times report, Meituan is controls 70% of the country's market making it a dominant player in the space. The latest move was a blow to Meituan's business and its stock price decreased by 15% last Friday. The blow comes amidst the crackdown on tech companies in China. In October 2021, Meituan was fined ¥3.4 billion (US$530) for abusing its market position such as forcing restaurants to exclusively sell food on its app.

The State Administration for Market Regulation (SAMR) said since 2018, Meituan had forced its merchants into exclusivity agreements by charging higher commissions to merchants who resisted and slowing down their approvals to list on its app. SAMR added that Meituan used deposits, algorithms and data to ensure restaurants remained loyal.

A Financial Times report said from 2018 to 2020, Meituan took in RMB 1.3 billion in deposits from 1.6 million merchants to guarantee their compliance with the exclusivity agreements.

Over that period, Meituan grew its share of China’s total food delivery orders from 62.4% in 2018, to 64.3% in 2019 and 68.5% in 2020. According to SAMR, Meituan was ordered to return the deposit money to merchants. However, the fine ¥3.4 billion, or 3% of the company’s revenue generated in China in 2020, was lower than expected and that of fellow tech company Alibaba as it was fined RMB 18.2 billion in April for similar antitrust abuses. SAMR said Meituan had quickly admitted its faults, cooperated with the probe and provided evidence to investigators. All of these were taken into account when deciding the size of the fine. Also, SAMR has ordered Meituan to comprehensively rectify its operations.

In a statement, the company's chairman Wang Xing said, "The company accepts this with sincerity and is determined to ensure compliance. The company will implement a comprehensive and in-depth self-rectification programme according to SAMR's decision and administrative guidance, and prohibit the 'pick-one-from-two' conduct. The company will also take this lesson to heart, operate in accordance with law, consciously maintain orderly fair competition, earnestly fulfill its responsibility to society, better obey and serve the socioeconomic development, and contribute more towards the high-quality development of the national economics."

Related articles
Starbucks China jumps on Meituan to curate individual experiences for customers
Chinese food delivery group Meituan fined ¥3.4 billion for monopolistic behaviour
Kuaishou taps on WeChat for growth, competes with Meituan and Ele.me