Why China Demanded Food Delivery Services Cut Their Fees

This is part of China's broader crackdown on internet companies which the Chinese government believes have become too powerful, profitable and independent. 

The government is acutely conscious of economic conditions, especially employment. As in the west, food delivery companies often charge restaurants so much that the restaurants lose money on deliveries. Since restaurants are a large employer, the government does not want this to become a source of social unrest, particularly while it continues to pursue its 'zero tolerance' Covid policy which keeps many at home. JL

Anniek Bao and Yifan Wang report in the Wall Street Journal, image, China Daily:

China’s government said authorities would guide delivery-platform operators on lowering the fees charged to restaurant owners to reduce catering businesses’ operating costs. The directive said internet companies should also give periodic preferential discounts to food and beverage vendors in cities that have been affected by coronavirus outbreaks and has hurt the service sector.

Chinese authorities on Friday said the country’s online food-delivery platforms should reduce the fees they charge businesses, sending shares of industry giant Meituan 3690 0.71% plummeting to their lowest level in more than a year.

Meituan, one of China’s most valuable internet-platform companies, operates a mobile app that hundreds of millions of people use to order food. Its shares tumbled 15% in Friday afternoon trading in Hong Kong to their lowest close since July 2020. The drop shaved $26 billion off Meituan’s market capitalization, taking it to the equivalent of about $148 billion, according to FactSet.

Meituan has lost more than half its value over the past year following Beijing’s wide-ranging crackdown on internet-technology companies. On Friday, the Hong Kong-listed shares of e-commerce giant Alibaba Group Holding Ltd., which has a food-delivery business called Ele.me, fell 2.8%, while Tencent Holdings Ltd. —a big Meituan shareholder—dropped 1.9%.

China’s state planner and 13 other Chinese government bodies said in a joint statement that authorities would guide delivery-platform operators on lowering the fees charged to restaurant owners to reduce catering businesses’ operating costs.The directive, which was led by China’s National Development and Reform Commission, said the internet companies should also give periodic preferential discounts to food and beverage vendors in cities that have been affected by coronavirus outbreaks. Outbreaks in China over the past year have led to tighter social-distancing rules and lockdowns in some cities, which has hurt the service sector

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Meituan’s app says the fees it charges merchants vary based on the types of food sold and which cities the restaurants are located in.

In the third quarter of 2021, the Beijing-based company said it handled more than four billion food-delivery transactions. Revenue from this business totaled 26.5 billion yuan, equivalent to $4.2 billion, up 28% from the same period a year earlier. That included commissions from merchants, delivery fees paid by customers, and fees from online marketing services.

 

Meituan’s food-delivery business produced an operating profit of 876 million yuan ($138.2 million) for the period. The company also makes money from facilitating hotel, travel and other bookings.

Meituan, one of China’s fastest-growing companies in recent years, has already been under pressure from regulators to reform its business practices. Last year, it was fined more than $533 million for engaging in anticompetitive practices, after it effectively forced merchants to sell exclusively on its platforms.

The company has also had to fork out more money to improve pay and other benefits for its millions of delivery riders and other gig workers. Last autumn, Meituan was among Chinese internet companies that were summoned by regulators and told to improve conditions for workers.

On Friday, Chinese authorities also introduced other measures to support the service sector, which has been a persistent laggard in China’s post-pandemic recovery. They included tax breaks and additional financial support for struggling businesses, as well as monthslong rent exemptions for small service companies that lease properties from state landlords.