China’s growing food delivery market has hit a snag after the country’s state broadcaster aired a scathing report against the industry’s biggest player.
Ele.me, the Shanghai-based online food delivery service backed by Alibaba, Tencent and JD.com, was singled out in CCTV's annual "3.15" investigative TV program on Tuesday for allowing unqualified workers to deliver potentially unsanitary food to its customers.
"You think you ordered food as pretty as in the pictures, but they were in reality made in unlicensed and filthy shacks that will cause you to vomit," the program said.
The exposé was soon followed by an announcement from the food and drug regulators in Shanghai and Chengdu on Wednesday to conduct investigations on Ele.me.
Ele.me, which delivers to more than 300 cities across China, quickly issued an apology to the public and vowed to take the necessary measures to avoid such incidents in the future.
"It is with a heavy heart that I find that the company we are so proud of has triggered such food safety concerns," Ele.me CEO Zhang Xuhao said in a statement on Wednesday.
Zhang said the company will implement tougher food safety checks, remove the offending restaurants from its platform, and launch an internal investigation to rectify the situation.
"Ele.me is always dedicated to promoting digitization in China's catering industry. Online food delivery service is a new industry," Guo Guangdong, vice president of Ele.me, said in a separate statement.
"We sincerely accept supervision from the media and the public, and apologize to consumers for what is reported by CCTV. We will have a stricter rule to provide consumers a safe and ensured experience," Guo added.
China is no stranger to food safety controversies, although industry observers see the latest scandal as a wake-up call for the players in the highly competitive Chinese online food delivery sector to rethink how they operate.
"The market as whole is still experiencing rapid development due to strong demand from China's estimated 200-300 million white-collar workers," said Lu Zhenwang, chief executive of the Shanghai-based Wanqing Consultancy. "So Ele.me's loss is going to be its competitors' gain."
According to data from Analysys International, China's online food ordering and delivery transactions reached 45.78 billion yuan ($7.03 billion) in 2015, three times than the year before. Ele.me takes the lion's share with 33.7 percent of the market, followed by Meituan Takeout with a 33.1 percent, and Baidu Takeout with 19 percent.
"These three online food ordering and delivery apps are backed by China's largest Internet players: Alibaba, Tencent Holdings Ltd. and Baidu Inc. I'd say this cash-burning competition to win customers will last another two years," Lu said.
Zhang Jing, an analyst with China E-Commerce Research Center, said the business of processing online food orders and delivering them offline is a tricky model to get right.
"To ensure food safety requires cooperation between government authorities and the online ordering platforms," she said.
In a survey released by Internet think thank and Tencent affiliate Penguin Intelligence, approximately 80 percent of respondents claimed to have experienced false advertising when ordering food online, with most complaints centered on how the eventual food looked nothing like what was shown online.