WHILE FOOD DELIVERY COMPANIES PASS THE PEACE PIPE ...

We’ve seen several months of distorted prices, market disruption and burning of billions of yuan in consumer subsidies, especially July’s chaotic battle between Meituan and Alibaba. Now, the three food delivery players, Meituan, Alibaba/Eleme, and JD have all published documents that basically say they will follow the instructions the Chinese government gave about two weeks ago (see lnkd.in/eqYCZjGK).

They promised not to sell goods and services at prices significantly below cost, which seriously distorted price signals, disrupted market competition order, and caused waste. Or force merchants to do so. They would resist vicious competition and promote mutual benefit and win-win results for all parties.

Linkshop wrote: “Platforms have also gradually realised that in ‘involutionary' competition, there are only losers, no winners, and disorderly competition ‘hurts the enemy a thousand and hurts oneself eight hundred’, which is not conducive to the healthy development of the industry.

While the three are smoking the peace pipe, the battlefield is strewn with merchants licking their wounds. The three internet companies have been burning billions of dollars in cash reserves to offer consumers extremely low-cost, sometimes even free products, to maintain a high order volume. This especially applies to Meituan and Alibaba’s battle in July. But merchants were often forced to pay part of these subsidies and have lost significant amounts of money despite seeing their order volumes explode.

It's a typical case of the Chinese ‘don’t ask for permission beforehand, ask for forgiveness afterwards’, and it’s very worrisome because it’s not the first time that competition between Chinese internet companies has had a disastrous effect on brick-and-mortar businesses. Chinese retail think tanks have been quite critical about this, as have some government voices.

So, now the three are promising to behave (but according to some, the subsidies continue). The question remains: who will compensate merchants for lost profits, repair damaged consumer trust in pricing, and support couriers and store staff who will lose work after this sudden surge in activity? Who will alleviate the stress of those forced to participate in this pointless endeavour?

In China, a new Anti-Unfair Competition Law comes into effect in October. Will this prevent such madness in the future?

-Ed