2 min read
Restaurants face higher costs as food-delivery platforms hike fees, again
Some of China’s leading fast-food delivery platforms will hike fees they charge to restaurants by as much as three percentage points, pushing commission rates to more than 20% in some cases.
The latest increases underscore growing pressure on platform operators such as Meituan and Ele.me to improve profitability. The hikes also mark yet another blow to China’s small- and medium-sized enterprises, many of which continue to struggle amid a cooling in the economy.
China’s food-delivery firms have battled for market share through subsidies, resulting in losses for big players including Ele.me and Tencent-backed Meituan-Dianping. Despite a sales revenue of over RMB 19 billion (around $2.8 billion), Hong Kong-listed Meituan Dianping reported a net loss of around RMB 2.5 billion in the third quarter of 2018
Michael Norris, strategy and research manager at AgencyChina, said the increased commissions signal that food-delivery platforms Ele.me and Meituan-Dianping are “getting serious” about improving operating margins.
Norris said that cost increases will likely be passed on to consumers. He added that vendors typically would reduce or modify discounts offered to consumers in the face of increased price pressures. He also noted that the amount of subsidies food-delivery platforms have given merchants in order to offer customer discounts has decreased over the past year.
Business owners report that their commission rates have increased from 16% to 17% since November 2018, sometimes requiring them to pay RMB 5 on orders of RMB 30. “The commission rate has grown from nothing in the beginning, to 10% later on, and finally to around 20% at the moment,” state-owned Xinhua News Agency (in Chinese) cited one merchant as saying.
Some businesses have received new agreements from food-delivery platforms in which commission rates have been increased by up to three percentage points. One Shanghai-based restaurant owner said his new agreement increased rates from 18% to 21% per order, according to Xinhua.
A spokesperson from Ele.me told TechNode that the commission fee has increased over the past year, in part, due to the economic slowdown. However, the company said the increases will not continue and it would work to lower them in 2019.
Chinese food-delivery service Meituan Waimai controlled nearly 60% of the food-delivery market in the first half of 2018, followed by rivals Ele.me at 36% and Baidu Waimai with 3%, according to data from analytics firm Trustdata.
Meanwhile, Alibaba’s Local Services Company, which was formed through the merger of Ele.me and Koubei, announced a national campaign dubbed “Warm Winter” on Jan.6. The Chinese internet giant promised to “continuously” lower the commission it charges merchants on both Ele.me and Koubei.
Additional reporting by Chris Udemans.