The Meituan resistance: why some small restaurants are breaking ties with the app

“You have my number, you should just call me like you did before Meituan existed, that saves us money.”

But as Meituan has gained market share and turned a profit, the small restaurants that rely on the e-commerce platform have found it hard to do the same. 

High commission fees are the first issue. Meituan has said that its commission rates are in the 10%-20% range. But restaurant owners in Xi’an told me they are usually charged 20% for every order delivered through Meituan. 

In April, the Association of Catering Industry in Guangdong Province issued an open letter (in Chinese) to Meituan, saying that many restaurants cannot bear its commissions—and claiming that these can run up to 26%.

Besides a commission for every order placed through the platform, Meituan also charges restaurant owners to advertise their shops on the app. Restaurants can also offer customers discounts to get a more prominent listing on the app. 

Doing business on Meituan has proved costly for many small businesses. In my neighborhood some have started trying to break free, turning away from deliveries or bringing them in house. It’s clearly a minority, but talking to these rebels showed me how hard it is to earn a profit with deliveries—or without it.

In my neighborhood, not many restaurants use Eleme, so I’ve focused on Meituan. But I suspect that if I spoke to Eleme restauranteurs I’d hear similar stories.

Anatomy of a Meituan order

Below is the receipt for an order I placed through Meituan from a local restaurant. The order was originally priced at RMB 44 ($6.8): RMB 38 for the food (same price as dining in), RMB 3 for packaging, and RMB 3 for delivery.

To stay competitive on the platform, the restaurant waived my delivery fee and offered a discount of RMB 6 for orders over RMB 30. Subtracting the total discount, I paid RMB 35 for this order.

For this order, after Meituan takes its cut, the restaurant will receive around RMB 28, far below their asking price of RMB 44, or the dine-in price of RMB 38. 

Traditionally, a restaurant’s major expenses are rent, raw ingredients, and labor; providing food delivery service doesn’t reduce these costs. If this restaurant is paid less for offering a new service, it has to get creative to cover these costs. 

The owner of a reputed Hunan cuisine restaurant in Xi’an, Dai, told me said he’d rather stay away from food delivery services if he has to lower the quality of his food. “We’re not on Meituan or any other platform. We would rather lose that market share than provide the customers with substandard food.”

“A common practice is to compromise on raw ingredients, because rent and labor costs are inflexible,” Dai added. 

At your doorstep 

Unlike Dai’s fine dining, takeaway services are still important for some smaller restaurants. To avoid Meituan’s high commission and delivery fees, they follow a different strategy: steering customers away from Meituan and toward directly operated deliveries.

Many restaurants nearby my university build connections with the customers directly to skimp on delivery costs. 

Popular food chains like McDonald’s, Starbucks, as well as local bubble tea brands Heytea and Yidiandian have already adopted this  strategy.  Although they have different extents of collaboration with food delivery platforms, they encourage customers to use their own mini-programs or apps. In my experience as a customer, they can be cheaper or more expensive than platforms like Meituan, depending on the day and the discounts available.

Small business owners use WeChat direct messages and old-school telephone numbers. Du, who runs one of my go-to affordable Sichuan cuisine restaurants, asked me to call her directly when she found out that I ordered her food from Meituan. She offers the same prices as on the app and free delivery—plus a larger selection of dishes.

Du did not dump Meituan for good. She still takes orders from the app because it is a major customer acquisition channel, but she always delivers the order on her own: “I need to pay at least another RMB 2 to deliver each order via Meituan. The unit price of our food is low [usually RMB 15-25], and most of my customers are regular customers nearby. I can and I have to save these RMB 2, because small restaurants don’t make a lot of money.”

The restaurateurs I spoke to believed that by cutting down on Meituan costs, they are saving money. But they didn’t seem to consider the time and labor they spent on this activity. 

Most of these restaurants are sacrificing some user experience and convenience to save on Meituan’s delivery fees. For the orders Du takes from Meituan and delivers herself, the average delivery time is often twice that of other restaurants in the area.

These restaurants near my university have regular customer bases, as well as long-standing reputations with their clients. But can restaurants that are just starting their business avoid Meituan?

Word of mouth 

Meituan is a popular marketing tool for new businesses. But as its marketing fees raises, some business owners are looking for alternatives. Like luxury brands that have grown skeptical of major e-commerce platforms, many are turning to the relatively free-form environment of WeChat stores and selling through direct messages.

Zoe Liu started a bakery shop in September 2020, relying on delivery to sell bread and pastries. But she refuses to use Meituan as a delivery platform or as a marketing vehicle. Instead, she relies on good old-fashioned word-of-mouth for promotion and delivers products on her own.

Liu uses WeChat instead of Meituan to reach customers. She adds potential customers on the messaging app, posts pictures of her products on her Moments, WeChat’s equivalent of a newsfeed, and receives orders through chats. 

“My decision is based on careful cost accounting,” Liu said. “Startups have to save every penny, and I don’t think Meituan services are cost-effective.”

Liu focuses on the taste of her goods: She is very serious about quality management, so she has to buy expensive raw ingredients and equipment that is high maintenance. That doesn’t leave her much to invest in Meituan services.

“My [products’] prices can’t be too high, so I don’t have the budget for Meituan,” Liu said, “but luckily, I don’t need it. My products are so good that all my customers recommend me to their friends, and this is how I expand my business. It’s slow, it’s laborious, but it’s effective.”

She was not making this up: Once I shared her cinnamon rolls with my co-workers, everyone asked me for her WeChat.

Her shop is located in the center of Xi’an and provides delivery for people within 6 km, which covers most of her target customers. For those who are further, Liu relies on UU Paotui, a courier service, to get her products to her customers. The cost of courier delivery starts at RMB 10 in Xi’an and is covered by the customers.  

“Paotui is expensive, but our customers are happy to pay for it because they think it is worth it. They usually order a lot so the cost is flattened out.”

This word-of-mouth strategy has helped Liu win a stable customer base: “Insisting on providing good stuff within a reasonable price pays off. My products are popular among young moms because they love to share, value food safety, and have purchasing power.”

No way back 

It’s hard to say exactly how many restaurants are moving away from Meituan, because they are struggling to break even. But the treatment might prove worse than the cure: Given that Meituan is only swallowing more consumers, going at it alone could be an unsustainable strategy for small restaurants in the longterm.

The pandemic has driven middle-aged and elderly customers to use takeaway more frequently, and dining in is becoming less popular. This trend worries small business owners like Du.

“Compared with dine-in, food delivery service on Meituan is usually less profitable (in Chinese),” the Sichuan restaurant owner said, “so we usually consider it a way to attract people to come to our restaurant [in person].”

Du worries that the proliferation of delivery services is an ominous sign for his dine-in business: “What if takeaway becomes even more mainstream? I can’t compete with those low-cost employee-free takeaway-only restaurants who make fake food by using packaged pre-cooked meals (in Chinese). It is a completely different business that I will not be good at.”

Du doesn’t realise that those people in those “completely different” businesses are also struggling to turn a profit.

Two days ago, I woke up from hunger at 1:46 a.m. With nothing edible handy, I placed an order on Meituan. At 2:09 a.m., 20 minutes earlier than the expected arrival time, a woman called me to go downstairs and pick my food up. 

The diligent packaging and cheaply-made food told me that this is a restaurant focused on the takeaway business. My delivery driver said she was in fact the owner of the restaurant. She said she delivered the food because there are fewer drivers after midnight. 

She still relies on Meituan to promote her restaurant and find customers:  “Besides the high commission, we also spent handsomely on advertising on Meituan (in Chinese) for better listing.”  

Despite all this spending on advertising, her food delivery-focused shop is scrambling to survive: “We are struggling just to break even.” Still, she tries to make things work with the food delivery platform. She doesn’t see any way for her delivery-first restaurant to survive without being on Meituan.