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 percent 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 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 USD 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 percent to 17 percent 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 percent later on, and finally to around 20 percent 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 percent to 21 percent 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 percent of the food-delivery market in the first half of 2018, followed by rivals Ele.me at 36 percent and Baidu Waimai with 3 percent, 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

READ: Multiple Beijing Late-Night Food Delivery Outlets Revealed to Be a Sham

Image courtesy of TechNode

Baidu Waimai, China’s third-largest takeaway service, announced today that it’s rebranded as Star.Ele, more than one year after being acquired by its major rival Ele.me, our sister site TechNode Chinese is reporting.

Retaining a former red color scheme for its new logo, Star.Ele will run as a sub-brand of Ele.me to offer premium food and local services from selected vendors. Wang Jingfeng, vice president of Ele.me, will be appointed as CEO of the new unit.

For over a year after the acquisition, Baidu Waimai has been operating under its old brand. But rumors about its rebranding prevails while Ele.me promised to continue operating the two brands separately during the takeover.

The merger between Baidu Waimai and Ele.me, two of China’s top food delivery platforms, wasn’t a smooth one with the former has seen both internal and external turmoil during the transitional period.

The rebrand comes among a series of structural adjustment of Ele.me, which itself has been taken over by Alibaba which bought the remaining shares in the company in April this year. Following the new retail trend, Alibaba announced that it has merged two of its food delivery services Ele.me and Koubei to a newly consolidated unit of Alibaba Local Service Company. In August, the company announced it has raised USD 3 billion for the unit alongside SoftBank.

Baidu Waimai’s rebranding represents a footnote for the changing landscape of China’s online food delivery industry, which shifts from tripartite confrontation among Tencent-backed Meituan, Alibaba-backed Ele.me and Baidu Waimai to head-on battle between the first two.

In terms of positioning, going after a higher-end market to diversify user base is a wise strategy in China, where food safety is a rising concern. As a leading player in the market, Ele.me has come under scrutiny in 2016 for allowing unqualified works to delivery potentially unsanitary food to customers. Meituan faces similar problems. In May this year, the three online food delivery platforms have launched their own investigation against unqualified food vendors, blacklisting thousands of vendors each.

Read all of our tasty food delivery news and gossip right here.

Photo: China Daily