E-COMMERCE: Consumer Show, Fleeing Eateries Bite Ele.me

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Bottom line: Ele.me is unlikely to face long-term fall-out from an attack on CCTV’s annual Consumer Rights Day show, but will still be challenged by a business model that forces it to work with thousands of small, often problematic restaurants.

Ele.me attacked on CCTV Consumer Rights Day show

Online take-out dining pioneer Ele.me is taking a double-hit this week, led by an attack on the company for working with improper licensed restaurant partners during a high-profile TV show broadcast each year on Consumer Rights Day. At the same time, the company is reportedly suffering as droves of those same restaurant partners shun its B2B service due to high fees and slow delivery times.

Both of these stories reflect just how rapidly Ele.me has risen over the last year, and also the usual cut-throat competition that has sprung up in China’s online-to-offline (O2O) take-out dining sector. Ele.me was the earliest major arrival to that space, where online companies offer take-out delivery service for diners from a wide range of local and chain restaurants.

The fact that Ele.me was the main focus on this year’s annual Consumer Rights Day show on CCTV, China’s leading TV broadcaster, testifies just how quickly the company has risen. The annual show has become famous in recent years for its investigative reports on high profile companies like Apple (Nasdaq: AAPL) and Volkswagen (Frankfurt: VOWG). For that reason, March 15 has become a feared day by public relations executives at major domestic and foreign companies.

The multinationals were largely spared in this year’s show, which saved its biggest attack for Ele.me, criticizing the company for working with improperly licensed restaurants. (English article; Chinese article) Companies have learned not to fight after being criticized by the CCTV show, and Ele.me was quick to issue its own contrite response saying it would remove all improperly licensed restaurants from its network.

This kind of problem is actually quite common for Ele.me and rivals services operated by the likes of Baidu (Nasdaq: BIDU) and Alibaba (NYSE: BABA), since new restaurants are constantly opening and old ones are closing. All of the service operators want to offer as many restaurants as possible on their networks, but it’s often difficult to monitor the licenses and other issues like sanitary conditions at these thousands of business partners.

Dissatisfied Partners

Meantime, other reports are pointing out that many of those business partners have recently started quitting Ele.me’s network, due to dissatisfaction about high fees and slow delivery times. (Chinese article) The particular defection in this report involves Ele.me’s B2B platform called Youcai, and is based on a reporter’s own informal survey of restaurant owners who say they were unhappy with the service due to factors like high fees and slow delivery times.

The reporter’s survey of more than 20 restaurants found that more than half had tried out youcai in the past, but none had decided to work with the service long-term. Such a survey isn’t very scientific, and I also wouldn’t be surprised if the impetus for this particular report came from a rival looking to trash-talk Ele.me.

The bigger picture is that China’s O2O take-out dining sector has exploded over the last 2 years, which has created huge growth opportunities but also multiple growing pains. The streets of Shanghai where I live are often crammed with delivery bicycles, and during mealtimes deliverymen can frequently be seen picking up orders from even the smallest restaurants and delivering them to nearby offices and apartments. (previous post)

The latest CCTV show should really have focused on the entire O2O take-out dining sector, since I’m sure that most of Ele.me’s rivals are facing identical issues due to their rapid growth. Ele.me may suffer some short-term negative publicity from the show, but its bigger challenge will be effectively managing a huge network of restaurant partners to placate both them and consumers by providing good service at reasonable prices.

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