After more than a month of being summoned by the regulatory authorities of the Chinese Communist Party, the subsidy war among the three major food delivery platforms in China seems to have not ceased. Analysts believe that in the current situation of economic downturn in China, the sluggish real estate and export trade sectors, the restaurant industry has also begun to be severely affected by intense internal competition. This vicious competition is expected to distort the market, leading to a situation where everyone ends up being losers.
According to a recent report by the mainland Securities Times website, following the summoning of Meituan, JD.com, and Ele.me by the regulatory authorities for a month, some platforms were found still offering high subsidies, such as near “zero-cost purchase” promotions like “19 minus 18” and “15 minus 13”.
Significant price discrepancies still exist between online platform prices and offline dining prices. For example, a fast food item that costs over twenty yuan for dining in could be ordered for only 7 to 8 yuan on the food delivery platforms, while bubble tea priced at over ten yuan can be purchased for 4 to 5 yuan on the platforms.
Some restaurant merchants have mentioned that due to the price disparity between online and offline purchases, many loyal customers opt to order online and pick up their food in-store rather than dining in directly.
A report by Puyin International shows that although the promotion intensity of online platforms has significantly decreased, it still remains higher than pre-price war levels. Moreover, once consumers develop a certain online shopping habit, if online prices remain lower than offline prices, consumers are unlikely to quickly return to offline purchases.
Food delivery drivers and merchants in various regions have also reported a noticeable decrease in order volume since the three major platforms announced on August 1 that they would jointly resist “internal competition” and no longer offer irrational high subsidies.
However, a certain platform’s announcement was found to claim that they will not engage in large-scale “zero-cost purchase” promotions, seemingly leaving room for their own operations.
In the first half of this year, the subsidy war among Chinese food delivery platforms intensified. In February, e-commerce platform JD.com officially entered the food industry and in March launched million-level food delivery subsidies, igniting a price war. Entities caught in the frenzy included “Meituan,” “Ele.me,” and Alibaba’s “Taobao Flash Sale,” among others. In July, several platforms introduced “zero-cost purchase” red packet promotions, leading to a surge in order volume.
On July 18, the State Administration for Market Regulation of the Communist Party of China summoned Meituan, JD.com, and Ele.me, urging these three major platforms to make improvements, including a complete suspension of “zero-cost purchase” promotions and a significant reduction in “free orders” marketing activities.
However, after more than a month of summoning and nearly two weeks after the platforms’ announcements, the food delivery subsidy war seems far from a true “ceasefire.” What are the underlying reasons for this, and what consequences might follow?
Economic scholar David Huang, residing in the US, told Epoch Times that the competition among food delivery platforms mainly stems from “pressure from capital and shareholders,” leaving no room for anyone to back down. Despite regulatory calls to halt, no platform is willing to stop, as doing so would mean admitting defeat and rendering all previous investments null and void.
He believes that this ongoing vicious competition underscores the current poor state of both the Chinese economy and market regulation.
Rights lawyer Wu Shaoping, who has handled numerous economic disputes in China, stated that domestic industries are “very depressed” due to the economic downturn. While the real estate and export sectors are failing, only the restaurant industry is still standing because “people need to eat.”
However, Wu Shaoping argued that food delivery platforms, by resorting to low-price strategies and market cannibalization under the guise of subsidies, are engaging in a blatant form of unfair competition. This behavior at least violates the Price Law and the Anti-Unfair Competition Law, and potentially even the Anti-Monopoly Law.
He analyzed that the regulatory authorities of the Communist Party should have been aware that low-price competition is illegal. So why did they not intervene immediately? JD.com initiated the price war in March, and after over four months establishing its position in the food delivery market, the Communist Party’s regulation only made a “showy appearance” to halt the price war, without substantial penalties.
Wu Shaoping believes that large enterprises like JD.com daring to start a price war might have national or central-level support and profit-sharing behind the scenes.
“This is a result of collusion between Communist Party officials and business, where corruption among Communist Party officials allows such vicious competition to continue unfolding in the Chinese market. If it weren’t for the greed and corruption of Communist Party officials, and if actions were genuinely taken to uphold market order, this price war would never have happened,” Wu Shaoping said.
David Huang pointed out that the subsidy war among food delivery platforms is not aimed at providing quality service but rather at market competition. He warned that if this vicious competition continues, the restaurant industry market will ultimately be monopolized by a few players, and market norms and values will be distorted.
He emphasized that while platforms may have experienced some short-term traffic dividends, it is a “false phenomenon” because “most profits will be consumed, making operations even more fragile.”
According to the recent second-quarter financial report released by JD.com, its revenue increased by 22.4% compared to the previous year, marking a three-year growth record. However, its net profit plummeted by 51% year-on-year, reflecting the “burning money” cost of JD.com in this year’s food delivery platform war.
Huang also stressed that such vicious competition will result in “bad money driving out good money,” where entities pursuing product quality and legitimate operations may struggle to survive, while some merchants might resort to cutting corners or even offering counterfeit or toxic food products in the market, which is detrimental to both restaurant merchants and consumers.
“In the end, apart from the ruling class of vested interests and government tax revenues, everyone else ends up losing,” Huang concluded.