China’s Regulator Finds 35,000 Illegal Restaurants on Platforms of Online Food Delivery Providers

Yingzhi Yang wrote . . . . . . . . .

Chinese on-demand delivery services operators, including Meituan Dianping and Alibaba Group Holding-owned Ele.me, are tightening inspection of restaurants (ghost kitchens) on their online platforms, after a government regulator found up to 35,000 such establishments were operating illegally.

The Beijing Market Supervision Administration, which has initiated more than 2,100 cases against those illegal food merchants, announced on Wednesday that it has met with these platform operators to “ensure the safety of online-ordered food”. It did not identify the offending merchants.

Many of the restaurants listed with the online delivery platforms operators either did not have a licence or carried a fake licence, according to the regulator. It said the platforms failed to set up a strict inspection system to review the quality of food vendors they do business with.

The country’s major food delivery platform players were on board with the regulator’s direction, according to separate statements they made on Wednesday.

“We will use our Sky Net system to strengthen our inspection mechanism,” said Lu Weijia, chief food security officer at Meituan Dianping. In addition, Lu said the company plans to set up food safety insurance for its users.

Sky Net, which provides a digital archive of all the merchants on Meituan Dianping’s platforms, is also being integrated by the company with local regulatory databases to help speed up its merchant verification and inspection processes.

“We’ll carry out what the Market Supervision Administration has asked us to do,” said an Ele.me spokesman. Ele.me has already established a credit system for food vendors, which will take unqualified suppliers offline permanently, the spokesman said.

The regulator’s action has come as more Chinese consumers choose to order food online and receive delivery offline. It is a market segment in which on-demand delivery app operator Meituan Waimai, a unit of Hong Kong-listed Meituan Dianping, is the country’s largest player.

Meituan Dianping and Ele.me account for a combined 98 per cent of the food delivery services market in China, according to recent industry estimates.

Last year, there were more than 36 million users of online food delivery services on the mainland, a report by Data Centre of China Internet has estimated. That amounted to 445 billion yuan (US$66.3 billion) in total transactions, according to Chinese market research firm Analysys.

Tencent Holdings-backed Meituan Dianping reported a wider net loss of 3.4 billion yuan in the December quarter amid intense competition for market share with Ele.me in on-demand deliveries and with Ctrip, Qunar and Alibaba’s Fliggy in the online travel segment.

Source: SCMP

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Large Food Delivery Company Piloting Ghost Kitchens

Jennifer Marston wrote . . . . . . . . .

A Bloomberg article from yesterday reported that Uber has a pilot program underway in Paris where it rents out commercial-grade kitchen space to restaurants selling food through the company’s Uber Eats app.

An anonymous source who spoke to Blooomberg said Uber has been leasing space in Paris on the down low since 2018 and stocking it with kitchen equipment. Uber then rents those spaces out to “restauranteurs planning eateries that cater exclusively to delivery customers.” According to the source, Uber has not publicly announced this pilot program.

Setting aside the potential conflict this could ignite with Uber co-founder and ex-CEO Travis Kalanick — who operates his own ghost kitchen concept in Los Angeles — a heavyweight company like Uber/Uber Eats getting involved in ghost kitchens could majorly impact the rest of the food delivery space.

As more software, apps, sales channels, and companies enter the restaurant food delivery space, fulfilling the influx of orders remains an operational headache for most restaurants. One food industry player, ClusterTruck CEO Chris Baggot, noted ealier this year, part of the problem is that restaurants treat delivery as an add-on business rather than the business. But delivery is projected to grow 12 percent per year for the next five years, and does create financial and operational issues for restaurants as they try and accommodate this growth. And lately, both established brands wanting to try new concepts and independent operators who lack the capital for a full-service restaurant are turning to ghost kitchens as a solution.

If Uber were to operate its own ghost kitchens on a widespread basis, it could save many a restaurant some of the hassles listed above. To be clear: we don’t yet know a whole lot about Uber’s kitchens in Paris right now, and the company isn’t publicly discussing the pilot program yet.

At the same time, it’s not hard to imagine a third-party delivery service taking over more of the operations up and down the operational stack. Uber suggested that much last year when it acquired Ando, David Chang’s delivery-only ghost kitchen restaurant. As Allan Weiner wrote at the time, the acquisition suggested food delivery companies like Uber Eats were on their way to becoming suppliers of “vertical consolidation.”

There’s another phrase for that: “walled garden.” It’s a controversial business concept, chiefly because of the amount of power it gives to the company, who controls the information or product available to a consumer (think Facebook Messenger not chatting with Apple Messages). Translated to the restaurant world, that would mean Uber controlling the choices that pop up when you search “Mexican Food” on their app, thereby limiting the restaurants you see to the ones who work directly with Uber.

But if we go by the Bloomberg article, Uber’s Paris kitchens are aimed at restaurant operators planning delivery-only concepts, which means those “restaurants” aren’t yet on the market. There’s no consumer choice to limit (which is the main objection to walled gardens), because these new restaurants wouldn’t be available without Uber.

For consumers, then, a vertically integrated Uber delivery stack could actually mean more choice, as they would get a chance to discover new restaurant choices they wouldn’t have otherwise had access to.

The other side of that coin is that it could “uberize” the restaurant industry. It might make financial sense for an independent restaurant to team with Uber and in the process save on costs, but doing so triggers the question of how much control Uber would then get over the restaurant brand. Would the Uber logo have to appear on all promotional materials? On packaging? Would Uber demand a say in the menu? Would it be the one to decide when to pull the plug if business wasn’t up to snuff?

We can’t get the exact the answers based on one lone article. But there’s no denying the presence of third-party delivery services with ghost kitchens. Both DoorDash and Postmates have dabbled in renting out kitchen space to restaurants. Grubhub invested $1 million in 2018 in Green Summit Group, one of the old guard of ghost kitchens. And Deliveroo operates not just its own kitchens in Europe but also a food hall.

If Uber’s really serious about this walled-garden approach to delivery, we can expect to see the other major players trying out their own vertically integrated restaurants, starting with the ghost kitchen.

Source: The Spoon