Chinese authorities are aiming for a new target in reining in the country’s cutthroat food delivery industry: “ghost kitchens,” or restaurants that don’t actually exist but appear on apps.
“Ghost kitchens” outsource orders to third-party suppliers, who fulfill them at a lower cost, allowing merchants to lower prices and maximize profits.
Authorities have discovered thousands of these “ghost kitchens” across China, raising fears that low prices are coming at the expense of food safety.
Starting this week, apps must verify restaurant licenses and addresses, while merchants must ensure the online listing matches the physical business and clarify whether it offers catering services.
The investigation into “ghost kitchens” began last year, after a Beijing man filed a complaint about an unsatisfactory cake topped with inedible flowers. He had ordered it on a food delivery app, state media reported.
Officials discovered that the cake chain he ordered from listed nearly 380 locations on major e-commerce platforms, but did not have a single physical store. Its online stores also allegedly used fake business licenses.
As the investigation continued, it was revealed that the chain was accepting orders which were then transferred to another platform – and this is where the orders were outsourced to various third-party suppliers, depending on who had the lowest bid.
Authorities discovered a total of 3.6 million cake orders on two order transfer platforms, the official Xinhua news agency reported last month.
They also registered 67,000 “ghost shops” in seven major food delivery apps, which, along with order forwarding sites, “formed an illegal supply chain through mutual collusion,” according to Xinhua.
Food delivery platforms were complicit in these arrangements, he adds. “If we are too strict in our control, merchants will turn to other platforms,” a staff member of a delivery app reportedly told officials.
Online food delivery is an extremely competitive industry in China.
Last year, a price war between major delivery apps led the government to warn of a race to the bottom. Deliverers who are paying for faster and faster deliveries are scrambling to meet tight deadlines for a pittance.
In April, the State Administration for Market Regulation said it had fined seven e-commerce platforms – including Taobao, JD.com, Meituan and Pinduoduo – a total of 3.6 billion yuan ($530 million; £400 million), mainly for deliveries from “ghost kitchens”.
As the campaign against “ghost kitchens” continues, retailers are trying to guarantee food safety to consumers.
According to a Xinhua report, more than 20 takeaway stalls in the eastern city of Hangzhou have installed “transparent kitchens” with live streaming capabilities, allowing consumers to follow meal preparation in real time.
In neighboring Anhui province, authorities announced last week that they had signed a food safety agreement with Meituan, Taobao and JD.com, which includes using AI models to monitor kitchens and rewarding delivery workers who report illegal restaurants.