E-commerce giants competing for China’s burgeoning online grocery market have come under attack from the rear. Authorities attacked group purchasing operations on Tuesday [varios consumidores finales se juntan para hacer compras conjuntas] from Alibaba, Tencent, JD.com, Meituan, Pinduoduo and Didi Chuxing supermarkets.
Chinese shoppers love to buy in bulk to get discounts, but state media says tech companies are dumping products and punishing suppliers, costing jobs in the retail sector.
In 2017, a herd of Chinese startups flocked to make grocery deliveries. Bulk group buying, or tuangou, is a long-established purchasing model in the People’s Republic, and many entrepreneurs tried to adapt the model to fresh produce.
The big established players jumped on the bandwagon. JD invested in a community shopping service in December; Alibaba, which invested in a neighborhood group buying service in 2019, launched its own business this year. According to the consulting firm Kantar, the revenue from community purchases is expected to be triple this year than in 2018: 89 billion yuan (11 billion euros) in total.
But as the government began to examine the distorting market behavior of technology companies, this sector, in which internet giants compete with ordinary stores, came into focus. On the 11th, the official People’s Daily published a stern editorial urging internet companies to focus on innovation rather than “a few kilos of fruit.” The State Administration for Market Regulation then called the main actors to task for alleged dumping of prices, abusive commercial quotas and for putting the jobs of smaller operators at risk.
The new nine guidelines released Tuesday require operators not to cut prices below cost and to keep rates “reasonable.” That could involve price controls, but regulators have reason to be concerned about Chinese tech companies’ reflex reliance on discounts to gain market dominance, at which point they can raise prices, as Didi did in the VTC sector.
Subsidized or not, group buying has provided deep discounts to Chinese consumers, who have endured overwhelming food price inflation for years. But authorities may be concerned that the deep pockets of the e-commerce giants and their sophisticated algorithms will put traditional merchants out of business, the way Amazon went into brick-and-mortar stores. It’s unclear what the financial impact could be, but one thing’s for sure: Chinese tech companies have gone even further into Beijing’s regulatory wolf’s mouth.