On Friday, China’s State Administration for Market Regulation (SAMR) called upon three of the country’s leading food delivery platforms: Alibaba Group’s (NYSE:BABA) Ele.me, Meituan (OTC:MPNGY), and JD.com (NASDAQ:JD). The regulator urged these companies to adopt more “rational” competitive practices amidst an escalating price war within the sector.

SAMR’s intervention emphasized the need for these platforms to curb excessive discounting and promotional tactics. The regulator stressed the importance of fostering fair competition and maintaining a healthy market environment that benefits all stakeholders, including consumers, merchants, couriers, and the platforms themselves.

Additionally, SAMR reminded the firms of their broader responsibilities to comply with existing e-commerce, anti-unfair competition, and food safety regulations, as reported by SCMP on Friday.

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These warnings from the regulator come after several months of aggressive discounting by the three companies. In February, JD.com initiated a wave of price cuts by committing 10 billion Chinese yuan (approximately $1.4 billion) to enhance restaurant quality on its food delivery application.

Alibaba responded with its own substantial subsidy campaign, investing 50 billion yuan across its Taobao Shangou platform, which notably included 100 days of “Super Saturdays” sales.

Meituan subsequently joined the intense competition, reducing fees and expanding its rapid delivery services to encompass a wider range of products, such as groceries, electronics, and flowers.

This fierce competition and deep discounting have significantly boosted daily order volumes, which surged from around 100 million earlier this year to over 250 million last weekend.

However, the sustainability of this strategy remains a concern for some industry observers. Wang Puzhong, head of local commerce at Meituan, openly criticized the trend in an interview with LatePost, describing the price war as “irrational” and warning of potential significant losses for the companies involved.

JPMorgan Chase analysts have cautioned that shares of Alibaba, Meituan, and JD.com could remain under pressure for the next three to six months as investors contend with the uncertainty surrounding shrinking profit margins and substantial promotional expenditures.

Bloomberg data further highlights the financial toll on Alibaba, showing a loss of $100 billion in market value with its stock plummeting 27% since March, nearly double the average decline among its tech sector peers. Goldman Sachs analysts project that Alibaba’s food delivery unit alone could incur losses of 41 billion yuan (approximately $5.7 billion) by June 2026.

This regulatory scrutiny and its potential financial repercussions are not unprecedented in China. In 2021, Chinese authorities collected 23.6 billion yuan (approximately $3.53 billion) in antitrust fines, a staggering 52-fold increase from the previous year. This surge was primarily driven by a record 18.2 billion yuan penalty imposed on Alibaba and a 3.4 billion yuan fine levied against Meituan, both for monopolistic practices.

Price Actions: BABA shares are trading lower by 0.07% to $120.15 premarket at last check Monday. JD is down 1.36%.

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