Meituan’s Take-away from COVID19: Chinese restaurant association asks delivery service to share more commission

May 20, 2020


2 min read

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What's going on here?

Due to COVID-19, the food and business industry in China is currently suffering. Resultantly, a restaurant association in Guangdong wrote an open letter to the Meituan (a food delivery service), asking Meituan to share more of its commission with merchants, and to allow merchants to sell through other delivery platforms.

What does this mean?

According to the FT, Meituan is among the few technology startups worldwide to be profitable through its business model, where it largely derives profits from marketing and delivery commissions.

In the Guangdong restaurants association’s open letter, they asked that the current 26% commission per transaction be reduced by at least 5%, and to remove the exclusivity agreement to not sell on other platforms from their contracts. Asia Times noted that Meituan insisted that restaurants were currently only paying 10-20%. However, Meituan did agree to the removal of exclusivity. Further, Meituan’s “high-quality” merchants received 3-6% of their commission back. The interdependence between Meituan and its merchants ultimately led to Meituan agreeing to these terms. Without merchants, Meituan cannot deliver food, and without Meituan, merchants cannot sell their food directly to customers because of current health regulations in Chinese restaurants.

What's the big picture effect?

Recently, platforms like UberEats and Deliveroo have voluntarily put measures in places, such as the removal of onboarding fees to assist restaurants. However, this has highlighted an issue – the lack of regulations on the split of commission between merchants and the platform they sell their food through. There are suggestions on ways in which this split can occur.

Commission split could be monitored through a regulatory body. The open letter from Guangdong restaurants was sent in recognition of the restaurant industry that is struggling because of COVID-19. Therefore, this regulatory body, through monitoring current market conditions, could decide the appropriate profit share to ensure that both the merchant and platform proportionally profit from the transaction.

 Alternatively, the platform’s market share could determine the percentage of commission a restaurant has to give to the platform. A platform with a larger market share would highly likely be utilised by more restaurants and have a larger customer base. Therefore, lowering their commission would help keep the market “competitive” as the volume of transactions are likely to be higher.

In this situation, a law firm’s Dispute Resolution department would be required to negotiate settlements between merchants and e-commerce platforms. However, if the solicitors cannot settle this disagreement, both parties may move forward with a court case; thus, litigators would be required. In this case on profit-sharing, it is likely that these lawyers will be part of a precedent-setting case.

Overall, it is apparent that these start-ups are “regulating” themselves through voluntary commission cuts. Nevertheless, having a regulatory body would leave less to dispute between both merchants and e-commerce platforms.

Report written by Marselia Ong

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