Boom of Online Take-out Industry in China

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  Online food delivery services bloom in China
  On Beijing’s smoggy days, many try to avoid going outside, but Wang Ji is rushing through the streets to deliver food to the city’s shut-ins.


  Wang is a “Baidu Knight,” the nickname for delivery men from Chinese search giant Baidu’s take-out service. Tens of thousands of them, dressed in red jackets, ride their motorcycles, shuttling from restaurants to offices and homes in more than 100 Chinese cities every day.
  The quantity of food delivered by these “knights”each day amounts to some 480 tonnes of grains, 400 tonnes of vegetables and 640 heads of cattle. Each delivery man travels about 14,000 kilometers per year on average, about the distance from Shanghai to New York.
  Market researcher EnfoDesk said China’s Internetbased restaurant delivery services fulfilled 176 million orders in the first quarter of 2015, up by over 340 percent year on year.
  “It’s a toilsome job. You need to race against time to deliver food as quickly as possible so you can get more orders, and sometimes the work can be very challenging,”said the 21-year-old, who left his hometown in Shandong Province five months ago to become a delivery man in Beijing.
  “Working late at night can be scary at times. Once I received a midnight order,” he said. “While I was walking toward the end of the corridor, a man suddenly appeared by my side, which freaked me out. Later, I realized it was myself in a mirror.”
  “I also have a frequent customer who lives on the 16th floor. He likes ordering late-night snacks, but the elevator in his building stops working at night,” he said. “I have to climb the stairs every time, but he is so considerate that he walks downstairs and meets me half-way.”
  According to Baidu, 11 percent of orders its service received in 2015 were placed after 7 pm, and 3 percent were placed after 9 pm. Most of the late-night orders were in big cities such as Beijing, Shanghai and Guangzhou.
  “Despite the hardships, it can also be fun,” Wang said. A keen observer, Wang has noted some trends.” Hongshaorou (Braised pork) is the most-loved dish. People in the IT industry favor rice noodles with hot and sour bamboo shoots, and workers in advertising firms prefer rice with fat beef slices. Many women hate coriander.”
  It is also a well-paid job, Wang added. He delivers around 1,000 orders and makes more than 9,000 yuan(US$1,386) per month, compared to the average monthly wage of 6,463 yuan for Beijing in 2014.   The efficient service is made possible by Baidu’s smart dispatching system, which can predict the delivery time of each order according to past records and work out the best routes for delivery staff. The system also allocates orders according to the delivery men’s locations and their past performance.
  Founded in May 2014, Baidu’s restaurant delivery service, waimai.baidu.com, has developed into a leading Internet take-out delivery platform with over 30 million registered users.
  Statistics published by the Data Center of China Internet (DCCI) in November showed waimai.baidu.com took 32 percent of China’s white-collar worker market, followed by waimai.meituan.com and Ele.me, accounting for 31.2 and 29.8 percent respectively.
  China has witnessed explosive growth in Internet-based food ordering and delivery services during the past two years. Waimai.meituan. com, launched at the end of 2013, now covers some 250 cities, while ele.me, founded in 2009, has seen its market expand from a dozen cities to about 250 since early 2014.
  Wang Huiwen, vice president of waimai.meituan.com, said the strong momentum of China’s on- line take-out delivery services has overshadowed that of foreign counterparts. He attributed the rapid expansion to China’s high population density, low labor costs and wide variety of restaurant choices.
  In recent years,online meal ordering is growing popular with the boom of internet sharing economy. With a click on cell phone users can get their take-out food waiting outside the door. During meal time, delivery guys with their eye catching brands of each online ordering brand on their delivery car driving in road at lightning speed. This has become scenery in many cities’streets.
  As the data shows, until June this year, online take-out food users have reached 150 million, growing at 31.8% in half a year, which tops the personal internet app ranking list in the first six months this year. The number of users ordering take-out food online on their cell phones grows more obviously. In the past six months this year, it grows at 40.5%, which means a user scale of 146 million.
  However, there are still problems and risks hidden behind the boom. Food sellers bear different levels of quality. Many registered addresses showed online are fake addresses. Some sellers sell food out of their operation limit.Food photos are faked and hygiene status is substandard. There are many reasons behind the mess. The platform surveillance system has its own vulnerability. Under fierce competition, many sellers are money-oriented. Although it seems all food served online are quite fresh and clean, it’s hard to ensure what customers eat is truly clean. The invisible restaurants online shall be under sufficient supervision, which has become a challenge for relevant agencies.   “Black Take-out”: a Big Problem of Online Takeout
  On 26th August, Beijing Food and Drug Administration released the information of 30 online stores on the platform of Baidu, Nuomi, Meituan, Daojia and Ele. These released stores sales cold dishes against the guidelines, without publicity of license information, or their licenses are faked. In some cases, there exposed sellers sale provide food services out of the scope of permission. Today, stores in Beijing on the three major online meal ordering platforms: Baidu, Meituan and Ele’s license publicity rate reaches to 86.5,.
  Despite the achievements made by collectively regulating relevant stores, “black take-out”—selling food without licenses—is a big challenge yet to be resolved of the online meal ordering platforms. After 100 stores registered on the above mentioned three platforms were surveyed by Shanghai Consumer Protection Commission, the agency found out that only 39 restaurants provided their information of business license and food service licenses. Many sellers provide false information or fake licenses. The survey outcome shows the general existence of “black take-out”.
  The 3.15 gala this year exposed a typical “black take- out” store registered on one of the above mentioned meal ordering platforms. The exposed production site is full of dirty water and oil stain. However, when the heat and attention died down, the“black take-out” store went back to the same platform, entering to hundreds of households. Since this year, the investigations targeted on the three major meal ordering platforms are conducted more than once. But the involved sellers are both fast at leaving the shelf and coming back to the platforms. The sufficient and effective surveillance on meal ordering platforms has become a tough challenge faced by the relevant supervision agencies.


  Why these internet meal ordering platforms are repeatedly exposed for having restaurants without licenses? As is told by one of the operators, the recognition technology and ability is in shortage. Actually, this saying is lack of evidence. After the “black take-out” sellers were exposed by the media, the internet meal ordering platforms were able to let the involved sellers leave the platform over the night, disappearing in the sight of regulators and consumers.


  Li Jiang, supervision division chief of Beijing Food and Drug Administration said, authorities called for relevant companies to publicize the seller information registered on the ordering platforms, the deadline of publicity was before July 15. However, the take-out platforms keep postponing the deadline. Some companies provide different accounts to different subjects. The data provided to the governmental departments and within the companies are inconsistent. In some cases, in their own interests, platforms hide the sellers with inadequate qualifications.


  On the night before Bei- jing Food and Drug Administration called out the involved sellers, the administration’s internet surveillance center spent the whole night searching for relevant information on the platforms. What surprised them was that soon after they gained the evidence, the stores online started to go offline. Li Jiang said, these sellers are very clear of their problems; most of them have the excuses of premature operation due to the emerging industry, or declare they are short of staff. They move when the surveillance reaches them. The sellers go offline if exposed by the media. But they will return when the heat dies down.
  This phenomenon proves that the platforms are able to control the licenses majority of the restaurants. They just choose to turn blind eyes to “black take-out” sellers without licenses. One of the main reasons is the fierce competition faced by this emerging industry of online meal ordering. All platforms are only at their first phase of business growth. Under the pressure of competition, the platform operators lower their review standard on purpose, to occupy more market place. The basic obligation of checking and publicity has not been fulfilled.
  To Open a “Black Store” just Need 300 RMB
  Since Baidu, the price war ranking has put online meal ordering platforms in the center of public opinion. In recent days, Ele and Meituan’s paid service targeted to platform sellers is exposed. Since January 2016, Ele released its“Mars Plan” to provide paid service for sellers. This service helps rise the sellers’ ranks.
  Although Ele declare the service is all about sellers’ voluntary participation, many regions’ sellers said they are forced to pay for the service under the KPI pressure given by the market managers. At the same time, Ele releases its “price war promotion”service, which means the price will be paid according to the hits number of consumers. The standard price is from 0.1 yuan to 2 yuan. The higher the price is, the better the ranking promotion is.
  Same as Ele, Meituan has also secretly released its “golden ranking” service. Through these paid services, the rankings of sellers on these take-out platforms will be lifted. However, since the promotion cost is relatively low, many“black take-out” sellers also rank top in the list.
  One noteworthy fact is that Ele and Meituan takeout platforms don’t mark sellers which have used relevant promotion services. That is to say, those sellers ranking top after paying for promotion services or getting many good comments from consumers are without any relevant marks. Media has published a report of a restaurant without business license ranks among the top five after paying just 226 yuan for promotion service.   In fact, before the price war ranking, Ele and other online meal ordering platforms have been frequently involved in disturbances. 3.15 gala in 2016 targeted to Ele, alleging the latter faked sellers’ address and photos of food, and even turn blind eyes to sellers without business license. Two other online meal ordering platforms Meituan and Baidu are exposed to exist many hidden sanitary troubles of safety.
  Investigations find out that a large numbers of brokers promote their service in QQ groups and Baidu post bars. These brokers help sellers without business licenses or catering service licenses open stores on take-out online platforms such Ele and Meituan. All these sellers need to provide are their ID card and bank account number.


  Li Yong is one of these brokers. He introduces that he is a regional manager of Ele. One only needs to provide ID card, bank card and pay 300 yuan to open online store in one day. In Li Yong’s QQ zone, new successful cases keep updating every day.
  Li Yong said, actually in the past with good connections regional managers won’t make trouble for sellers. These managers turn blind to many irregular stores. However, with too many problems exposed frequently, the platform surveillance is getting stricter.
  As is told by Li Yong, as the tie between take-out platforms and sellers, managers hold great power offline. In order to occupy more market place, each major take-out platform lowers their standards to attract many regional managers. The surveillance procedures of the platform is not that smooth in operation. This is largely related to the mixed up qualities of managers.


  Surveillance Agencies Feeling Powerless
  Faced with the heated status of online meal ordering, the current supervision methods seem powerless. Hu Qingai, person in charge of Shanxi Food and Drug Administration catering service supervision department said, most responsible officers of companies providing third-party platforms when required to meet relevant supervision department officers are not that responsible. Hu Gaiqin said, to strengthen the supervision of third-party platforms, efforts made by multiple departments are required. For example, meal ordering third party platforms within supervision scope of Shanxi but registered in Beijing are hard to be supervised by the local department.   In the city of Beijing where online meal ordering platform registration addresses centered the situation is not that positive too. Beiing Sankuai Technology Inc., founder of Meituan, and Beijing Baidu Wangxun Technology Inc., founder of Baidu take-out and Baidu Nuomi, have been investigated by the relevant departments due to their lack of checking of licenses of online registered food sellers. Nearly 1,000 irreglar sellers have gone offline from Baidu take-out platform, among which 286 are sellers in Beijing. On the other hand, over 9, 000 irregular sellers have gone offline from Meitun take-out platform, among which over 2000 sellers are in Beijng. After the 3.15 this year, nearly 2200 sellers have gone offline from Ele take-out platform.
  Some online meal ordering platforms even respond to the law enforcement officers, “The penalty is already prepared, come on!” According to the Law of Food Safety, without real name registration of online food sellers, without checking licnses, or without carry out obligations of reporting, stopping providing online transaction platform services, third party platform providers for online food transaction shall be ordered to make rectification by food and drug administration departments of the people’s government above the county level. The illegal income shall be confiscated. The penalty shall be from 50,000 yuan to 200,000 yuan.


  As is estimated by Iresearch, the O2O market scale in China was 9.51 billion yuan in 2014, growing up to 44.24 billion yuan in 2015, and is expected to reach 71.58 billion yuan in 2016. The responsible person of Beijing Food and Drug Administration said, the maximum penalty of 200,000 yuan is nothing compared with the large profits made by these sellers for the online meal ordering platforms.
  Supervise the Internet by Forces Online
  Zhang Bo, an employee worked for a state-owned enterprise in Xian said, modern life is so fast, online takeout service is necessary; we hope relevant departments will strengthen the surveillance on these platforms. As is surveyed, when choosing take-out platforms, what users care the most is the food safety.
  Dong Wenyong, assistant researcher of law institute at Chinese Academy of Social Studies, said the surveillance on the internet shall be adjusted according to the characters. Zhao Zhanling, contributing researcher of China Ebusiness Research Center, said supervision is crucial to end this uncultivated growth in the industry. The good days of take-out food without delivery fee, washing cars for 1 yuan and do nails for 9.9 yuan will be far gone. Dong believed that the supervision on the internet meal ordering platform shall be dominated by the internet itself.


  Hu Gaiqin introduced, on the one hand, the idea of setting up information sharing system jointly by the authority and third party has been considered. On the other hand, on the base of cooperation among departments including industry and commerce, communications and public security, a effective response system shall be built. Since this year, the Shanxi Food and Drug Administration has issued small catering business licenses to small sellers reaching required standards, which will help raise food safety standard from the source.
  Until now, Beijing Food and Drug Administration have developed the first national food and drug internet surveillance platform. At the same time, the first national food and drug surveillance internet surveillance group is set up. High-tech measures have been used to search and supervise internet illegal behaviors. The supervision departments get a series of illegal clues with the system’s help.
  Zhao Xin, the chief of Beijing Food and Drug Administration internet surveillance center explained, the surveillance searching methods are as below: after checking up the food business license system, irregular sellers will be listed as suspects; compare the store addresses, if many stores are using the same address, it is likely the seller is without business license or operating out of the original address; compare contact phone numbers, stores without publicity of contact phone numbers or many stores using the same numbers are likely to using licenses excessively.
  Tang Yunhua, deputy director of Beijing Food and Drug Administration, said Beijing will release names of unqualified sellers on the three major platforms every week. Under the media and citizens’ supervision, the platforms must seriously carry out their illegal obligations. Consumers are advised to choose relatively well-known brands with clear and definite address. Whenever encountering “black take-out”, consumers shall immediately report.
  O2O’s Future after Price War
  In the heated wave of O2O in 2015, emerging take-out platforms form a industry mainly led by three platforms: Ele, Meituan and Baidu.
  According to research report released by EnfoDesk, the trading scale of the take-out market in the past year reached 45.78 billion yuan. Until December 31, 2015, the whole market trading share of Ele occupies 33.7%, ranking the first, followed by Meituan with a market share of 33.1% and Baidu at 19%.   An internal source disclosed, to defeat Baidu take-out has become a consensus of Ele and Meituan. As is report- ed by Chinese Enterprise, Baidu thinks investing 20 billion yuan on O2O is ridiculous. However, since the establishment of Baidu take-out business department in May, 2014, as a crucial part of O2O, Baidu take-out completed its financing of 250 million dollars in round A in July, 2015. Until July, 2016, Baidu take-out has completed its financing in round B. The major investor is Baidu.
  Behind Ele and Meituan are Alibaba and Tencent. In April, 2016, Ele announced investment of 900 million dollars by Alibaba and 350 million dollars by Ant Financial. The financial report of Alibaba showed, the actual stock share of Alibaba in Ele is about 22%. Early in the time of October, 2015, Meituan and Dianping.com announced their merging.
  Besides, price ranking reflects surviving status of three major take-out platforms. Funds from all sources rush to the industry at its peak, but after winning the market place by pouring money, how to keep gaining money becomes the most urgent affair of the players.
  Chinese citizens, especially those frequently surfing online, reject price ranking after the incident of Wei Zexi occurred, which has not stopped Ele and Meituan to introduce it into the industry. The price ranking seems to become a life-saving straw in the profit seeking procedure. Sellers pay money for a good ranking and users will not see any advertisements or promotion contents on the take-out platform websites. At the same time, without knowing the truth, consumers may order food from restaurants without business licenses which seems normal in the outside.
  Until now, except for value added business such as newly released price ranking, each major take-out platform mainly relies on take commissions from sellers. Take Ele as an example, there are three delivery methods for sellers: Ele Feng Niao delivery service, Zhong Bao delivery and delivery by the seller itself. For Feng Niao delivery service, Ele get 15% to 20% of the fee in each order. Meituan operates in the similar way. If the seller delivers the food by itself, the platform will get 6% to 8% of the fee. If the seller delivers the food by Meituan delivery service, the platform will get 16% to 25% of the fee.
  Apparently, getting commissions can hardly cover the take-out platforms’ payment. There is rumor in the market in August, 2015 saying, Meituan has already used up the 700 million dollars of financing funds given by the investors half a year ago. Ele has reached its round G of financing. An obvious sign is that since the year of 2016, Ele, Meituan and Baidu take-out platforms has reduced its discounts a lot.   After several rounds of money competition, O2O mode in China survives few markets, online meal ordering are among the few left. However, these platforms are struggling in the same policy barrier as online car booking platforms. Experts said, in the winter of the industry, all platforms shall learn from Didi and Kuaidi, 58 nd Ganji, Dianping.com and Meituan to cooperate with each other. Driven by funds and capital, internet money competition will lead to capital will emerge when oligopoly competition shows up. This has become a general rule in the industry.


  A former internal source from take-out platforms said, 2014 and 2015 are years of expansion, while 2016 is the cultivation period of brands. In the early days, take-out platforms competed in money, nowadays the competition has moved to operation level and consuming experience. Similar to car booking platforms, take-out industry will see its day of oligopoly. No investor can bear the burden of occupying the market simply by pouring money.
  There is news saying that Metiuan and Ele are on the way of emerge, which will be a threaten to Baidu take-out platform. This will definitely update the status of O2O structure. Experts said the conclusion is too early to confirm. Considering the antitrust regulation, emerge is not that easy. Even if the emerge occurs, unfair competition is not sure to happen again.
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