Competition among Food Delivery Platforms Causes Distortion and Needs Correction

Jia Kang, Founder of the Research Institute for New Supply Economy, China Academy of Financial Sciences Research Fellow

On August 1st, several food delivery platforms released statements, pledging to resist vicious competition and standardize promotional activities, while proposing multiple measures to restrict subsidies. This is another move after the National Bureau of Market Supervision held talks with food delivery platforms on July 18th, urging them to further standardize promotional activities.

Since February this year, the competition in the food delivery market has presented an "internal" feature, mainly relying on issuing long-term, large-scale, and high-intensity subsidies to occupy the market. These subsidies can reach hundreds of billions of yuan, involving the malfunctioning of market pricing mechanisms, a lack of fair competition, and no viable choice for related workers and merchants under the influence of internal forces. This has led to serious distortion effects in real life, impacting normal market order.

Firstly, prices are severely distorted, and the pricing mechanism is malfunctioning. Looking at these subsidies, they are all aimed at using "money" to attract customers, such as the 10 billion yuan subsidy plan launched by a platform on April 10th, or giving away free 1 billion cups of tea to consumers on May 6th, and so on. Except for these subsidies, there are also daily coupons with large discounts hanging out on platforms. The intention behind this is to participate in the competition, but it has brought about severe price distortion, as a large number of irrational low-priced products are available on the platform, which would not appear under normal competitive conditions.

Secondly, related workers have been affected significantly. According to network statistics data, during the subsidy war, each day's order volume for major platforms has reached levels exceeding the daily average order volume of the entire market in previous years, which will lead to the pressure transmission from this ecosystem to the end-users, including food delivery workers, beverage store staff, and others, causing physical exhaustion, labor potential being over-pressed, and continuous growth in work-related risks.

Thirdly, the phrase "consumption without waste" has become an empty talk in this internal competition situation. Because of these subsidies bringing prices to extremely low levels, or almost free, many consumers, especially young people with emotional characteristics, will rush to buy a refrigerator's worth of tea and coffee at once, which is obviously wasteful.

Fourthly, long-term, large-scale, and high-intensity subsidies have brought about distortion and harm to market subjects. Especially for suppliers, including merchants, they will find themselves helpless under the current or medium- to long-term difficulties. Firstly, according to data from the China Chain Operation Association, chain restaurants occupy less than 30% of the total number of restaurants in China, while platforms' main targets are mainly chain restaurants. Other small-scale, scattered, and single-store businesses have not received or received very little platform subsidies. This will cause most related merchants to rapidly fall into a difficult situation.

The solution to this problem is clearly "treatment from the root," which requires comprehensive optimization of relevant policies and regulations while implementing deepened reforms to build a high-level socialist market economy system, with "treating the root" as the top priority.