The food delivery war between Meituan, Taobao flash sales and JD.com continues to stalemate, and some catering businesses are already "suffering terribly". Many catering merchants reported that the subsidy war between platforms has further reduced store profits, and the surge in order volume has put operational pressure on personnel and stocking. Faced with the plight of merchants, many associations such as the China Cuisine Association and the China Chain Store and Franchise Association have spoken out, calling on platforms to regulate low-price subsidy competition, maintain fair market order, and ensure reasonable profit margins for merchants.
Platform fights, merchants “injured”
"For the red envelopes with full discounts issued by the platform during the war, the merchant has to bear 8 yuan, or even up to 12 yuan, which does not include additional delivery fees, platform commissions, etc. paid to the platform." A Wen, the owner of a small restaurant in the food court on the first floor of the shopping mall in Jiangsu, told a reporter from the Associated Press of Finance. His shop specializes in various fried skewers and snacks, with per capita consumption of about 25 yuan.
Awen did some calculations: Under normal circumstances, a takeout order of 25 yuan, after deducting the reduction of customer delivery fees, rider delivery fees, platform commissions and regular red envelope reductions, the actual amount is about 8 yuan. However, during the platform subsidy war, merchants had to bear additional red envelope subsidies, and actual income further shrank to about 6 yuan.
Taking a takeout order of 35.88 yuan on July 13 as an example, after deducting the merchant subsidy of 18 yuan, the platform commission of 0.96 yuan, and the delivery service fee of 3.45 yuan, Awen’s actual income was only 14.47 yuan, and the actual revenue rate was 40%.
Image source: Provided by interviewee
"Profits from takeaways are already lower than those from dine-in orders. Since the subsidy war, order profits have shrunk further," Awen said. His experience is not unique. Since the takeout platform war, many catering owners have spoken out on social platforms, pointing out that the large subsidies issued by takeout platforms are mainly borne by merchants. Although the order volume has increased, profits have declined. One shop owner posted a blunt statement, "Earning two yuan per order is not enough to endure the hardship."
Some catering merchants posted their bills for the first half of July on social platforms: the store's turnover in the first half of the month was 80,000 yuan, and actual revenue was 40,000 yuan. After deducting the cost of ingredients, platform promotion fees, packaging fees, and half a month's labor, water, electricity, rent and other expenses, the surplus was only 3,500 yuan.
While profits are being cut, small and medium-sized catering businesses are under operational pressure amid fluctuations in orders. Awen told a reporter from Cailian News that in order to cope with the peak order volume caused by the weekend platform war, the store hired two additional employees, which increased labor costs. What's even more troublesome is that unpredictable activities have disrupted the normal stocking rhythm. "Normally, Friday to Sunday is the peak of business, and the stocking volume is also large. But now the activities are difficult to predict. As a result, in the last two weeks, there were not enough goods sold on Saturdays, and more stockings were made on Fridays and Sundays. Last Sunday, 10 kilograms of ribs were wasted."
With the surge in takeout orders, dine-in orders have dropped significantly. For small restaurant owners, closing the takeout platform means the loss of a large number of customers. Awen told a reporter from the Financial Associated Press that after the takeout war, the proportion of dine-in orders in the store has dropped from 40% last year to 10%. "Many customers come to the store and order takeout or pick it up through the takeout platform. We paid the rent, but we became a takeout shop."
Wang Hongdong, president of the Food Baodian Research Institute, told a reporter from the Associated Press that small catering owners have a weak say in this war and it is difficult to effectively respond on their own. "Platforms need to explore a healthier subsidy mechanism. On the one hand, they must avoid food waste. On the other hand, they must also avoid excessive impact on physical merchants."
Several industry associations have called for an end to “involutionary” competition
Faced with the plight of catering businesses, more and more industry associations have spoken out, calling on food delivery platforms to stop "roll-in" subsidies.
On July 15, the China Cuisine Association issued a document stating that high subsidies on the platform have resulted in takeout prices being lower than dine-in prices. A large number of consumers have turned online, squeezing the dine-in space. Catering companies have fallen into the dilemma of "no profit with orders" or even "losing money and making money", and operating pressure continues to increase. The association calls for standardizing platform subsidy behavior, clarifying the legal boundaries of platform subsidy behavior, optimizing the mechanism for reasonably sharing subsidy costs between platforms and merchants, setting an upper limit for merchant subsidy proportions, preventing merchants from bearing excessive subsidy sharing ratios, effectively reducing merchants' operating burdens, and ensuring their reasonable profit margins.
On the same day, the China Chain Store and Franchise Association also issued a "Letter of Initiative" advocating for the standardization of the order of the real-time retail market. It called on all platform companies to stop taking advantage of their market advantages to implement coercive behaviors. It is strictly prohibited to use "traffic tilt", "search power reduction" and other means to force merchants to participate in price subsidy activities in disguise; it is strictly prohibited to force merchants to bear more than a reasonable proportion of subsidy shares through format clauses and algorithm rules; it is strictly prohibited to implement "choose one from two", "exclusive cooperation" and other monopolistic behaviors that exclude and restrict competition.
"Instant retail is the best practice for the deep integration of online and offline development. Its vitality lies in convenience, quality and efficiency, rather than capital-driven price carnival." China Chain Store and Franchise Association stated in the proposal.