Anti-Monopoly Crackdown Comes to Group Grocery-Buying

Regulators are tightening scrutiny over internet giants’ group grocery-buying platforms, as below-cost prices and fierce competition squeeze traditional retailers.

The State Administration of Market Regulation (SAMR) and the Ministry of Commerce on Tuesday met with internet firms — including Alibaba, Tencent, JD.com, Meituan, Pinduoduo and Didi — and issued a list of group-buying business restrictions, according to a Tuesday statement (link in Chinese).

The regulators said that the platforms should not sell below cost for the purpose of monopolizing the market, adding that a price war has “put pressure on employment.” The regulators also warned the companies about illegally collecting customers’ personal data.

Community group-buying (CGB) has exploded in popularity this year. The bulk grocery orders are often coordinated by community leaders who collect neighbors’ shopping orders through group chats or mini-programs on the WeChat platform.

Alibaba, which operates grocery unit Freshippo; Meituan Dianping, which runs grocery platform Meituan Youxuan; and Tencent-backed startup Xingsheng Youxuan have all dived headfirst into the sector to tap the growing demand for door-to-door fresh food deliveries for people stuck at home during the domestic coronavirus outbreak this year.

The group e-commerce platform Pinduoduo doubled down on grocery CGB by launching Duo Duo Maicai in August. Uber-like ride-hailing giant Didi Technology Co. Ltd. trialed grocery buying app Chengxin Youxuan in May in Chengdu, capital of Southwest China’s Sichuan province, and has since made it available in 14 provinces.

To gain market share, these platforms typically offer prices much lower than those provided by brick-and-mortar stores, while in response suppliers and offline retailers have tried to prevent wholesalers from supplying the platforms. Some food manufacturers have prohibited their partner wholesalers from supplying CGB platforms without authorization.

The market regulator’s new rules are not dissimilar from draft regulations released last month that are aimed at rooting out anti-competitive practices in the internet industry more generally. The draft rules seek to establish a framework for curbing behavior such as colluding on sharing sensitive consumer data, alliances that squeeze out rivals and subsidizing services at below cost to eliminate competitors.

The Communist Party’s top decision-making body this month vowed to strengthen anti-monopoly efforts next year as it seeks to rein in what the Politburo called “disorderly capital expansion.”

Local authorities are tasked by the SAMR to carry out supervision over CGB entities, but some experts are concerned about how effective it will be. Liu Xu, a researcher at Tsinghua University’s National Strategy Institute, said that the SAMR did not specify the concrete measures it would carry out to regulate CGB entities and local authorities will have to make their own decisions on the matter.

A private equity investor in the retail industry told Caixin that internet giants have invested billions of yuan in CGB businesses in the past six months and it’s unrealistic for them to stop now.

The grocery retail market remains the holy grail of e-commerce giants, even as they struggle to nail the business model. It is expected to grow 8% at best from 5.2 trillion yuan ($794.4 billion) last year to over 6.7 trillion yuan in the next two years, according to the McKinsey China Consumer Report for 2021.

The online segment is expected to reach 1.2 trillion yuan by 2022, accounting for 18% of the whole grocery retail market, and widening from 10% growth last year, the report said.

Anniek Bao contributed to this report.

Contact reporter Timmy Shen (hongmingshen@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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