As the subsidy war between delivery platforms in China escalates, voices of introspection are beginning to emerge from within the industry. The core executives of Meituan, the top player in the dining-out platform market, publicly criticized by stating in their first official interview, "This kind of competition destroys the entire industry." With excessive competition pushing the industry into crisis, restaurants affiliated with the platform have begun to appeal for a halt to the competition.
According to Chinese media Wandiann, Wang Fuzhong, the head of Meituan's core operations, noted in a recent interview, "We are not fighting because we want to. However, if we do not participate, we will be defined as losers in the industry," stating that irrational competition must cease. This is the first media interview with Meituan's executives in eight years, and Wang was the individual who directed in a meeting last May to "mobilize all means for victory."
The dining delivery market, which was dominated by Meituan, has triggered price competition as major platforms such as Alibaba and JD.com have entered the fray with subsidies amounting to hundreds of billions of yuan. As trends such as "12 bottles of water for 1 yuan (approximately 190 won)" and "0 yuan milk tea" became popular, the Chinese government held meetings with major platforms last May warning them to refrain from "intra-circle (内圈·self-cannibalization)" competition.
However, the competition did not subside. Platforms launched a total effort to distribute subsidies during the weekends of the 5th and 12th of this month. As a result, Alibaba (Taobao Shanguo) achieved daily order volumes of 80 million, while Meituan surpassed 150 million.
Wang described this as "a bubble." According to reports, the delivery competition has stimulated demand, increasing the industry's average daily order volume from 100 million to over 250 million. However, Wang explained that most of the increased order volume consists of low-priced orders that converge towards 0 yuan, which do not translate into actual gross merchandise value (GMV) growth. Simply put, these are one-time orders that cannot be sustained without giving subsidies to consumers.
However, platforms are mass-producing such orders to inflate short-term figures. Wang stated, "We did not want competition, but since the competitor raised the bar, I wanted to show that we could do whatever it takes," adding, "In reality, it's not just 150 million orders; 200 million is also possible. But it doesn't matter. The 150 million is just a number for show; what's important is not the quantity of orders but the quality."
According to local media, the actual market size of China's dining delivery market is estimated to be about 1.5 trillion yuan in 2024, with an annual net profit margin of only around 3%. This is a structure with very low profit margins compared to transaction value. However, the endless price war between platforms is shaking the entire industry, a concern shared by both the Chinese government and the industry. Reckless competition leads to price distortion, deterioration of revenue for listed companies, overwork for delivery personnel, and a decline in service quality, resulting in a chain of adverse effects.
Merchants are also appealing for a halt to the competition. According to Chinese media Sina.com, a local catering industry association in Guizhou province stated in an appeal on the 14th, "Catering companies that do not participate in subsidy promotions see a decrease in orders, and those that do participate fall into a vicious cycle of incurring losses by selling below cost," adding, "Especially, stores that relied on in-store sales have been severely impacted by this competition."
The quality of delivery services is also declining. According to a report by Phoenix News, as orders surged, JD.com abolished its policy of offering free delivery for orders exceeding 20 minutes and replaced it with a compensation of 4 yuan coupons. Although Meituan has shortened delivery times, customer complaints have increased by 40%.
Wang warned that the current delivery competition could lead to a situation where, in the worst case, everyone collapses and a third party wins. He said, "Historically, the end of a war results in one side being completely destroyed, both sides exhausting themselves to reach an agreement, or a third party intervening from the outside," noting, "Ultimately, one of these scenarios will occur. The worst-case scenario is a war without a winner, with everyone collapsing and a third party laughing."