Summary of Key Points
Zhong Zhaozhao, the owner of Nongfu Mountain Spring, publicly criticized e-commerce platforms during a CCTV program, labeling them as “special intermediaries.” He accused these platforms of using algorithms to control commission rates and traffic, driving down prices and causing destructive competition within the industry. He also expressed concern about the decline of physical retail stores. However, his views are somewhat one-sided: the shrinkage of physical retail is caused by multiple factors, and Nongfu Mountain Spring itself relies on a traditional distribution system, which means e-commerce has impacted its ability to control prices. The core question raised by this incident is: how can we regulate the excessive power of e-commerce platforms?
Detailed Analysis
1. Zhong Zhaozhao’s Three Main Criticisms:
Zhong Zhaozhao’s criticisms can be summarized as follows:
- **E-commerce platforms are “dominant intermediaries”: Traditional intermediaries (such as wholesalers) are scattered, and businesses can switch if they are dissatisfied; but e-commerce platforms control traffic, algorithms, and rules, determining which products are displayed and how much commission is charged. Businesses often don’t even know exactly how much profit they make (for example, platforms may secretly adjust commission rates).
- Low-price competition destroys the industry: He argued that focusing on prices rather than quality undermines productivity. To compete for orders, businesses reduce their profits to as low as 3% or even 2%, cutting costs from materials and labor, which often leads to the production of lower-quality products. E-commerce platforms profit from this situation—the more businesses compete, the more they have to spend on advertising, sometimes costing more than their own profits (for instance, some businesses with monthly sales of 300,000 yuan may spend 60,000 yuan on advertising, six times their profit).
- Physical retail has lost its charm: He misses the spontaneity of shopping in stores and worries that young people are too focused on their phones, leaving city streets empty and reducing real human interactions and creativity.
2. Are His Views Completely Correct? Is the Decline of Physical Retail Entirely Due to E-commerce?
Zhong Zhaozhao blames e-commerce for the decline of physical retail, but this is somewhat misleading:
- The decline of physical retail is due to multiple factors: Rising rents, high labor costs, the impact of the pandemic, and changes in consumer behavior (such as a preference for shopping online) are all contributing factors, not just e-commerce.
- Nongfu Mountain Spring’s own situation: The company relies on a traditional distribution system; it has built channels from cities to towns over 30 years, controlling the price of each bottle of water and how it is displayed in stores. However, e-commerce’s low prices (such as discounts in live streaming sessions) directly affect physical retailers’ pricing models. If consumers buy cheaper products online, physical stores struggle to sell, potentially leading to the collapse of traditional distribution channels. This is why Nongfu Mountain Spring only allows 5% of its sales to come from e-commerce and actively controls this ratio to maintain prices.
- Double Standards?: He criticizes e-commerce platforms as intermediaries, but his own system also involves multiple layers of intermediaries (dealers, wholesalers, and retail stores), which he can control, while e-commerce platforms are beyond his control.
3. E-commerce Is Not Always the “Bad Guy”: Its Advantages Should Be Recognized
E-commerce does have positive aspects; it has addressed many issues associated with traditional retail:
- **Initial “decentralization”: Manufacturers can sell directly to consumers, eliminating extra markups and making products more affordable.
- Convenience and efficiency: Consumers can buy goods from anywhere without leaving home, overcoming geographical and time constraints.
However, the current problem is that e-commerce platforms have become the dominant intermediaries themselves. Searching for products, getting recommendations on the homepage, and accessing live streaming sessions all require payment, increasing businesses’ operational costs, which can be higher than those associated with traditional channels.
4. The Core Question: Who Will Regulate the Excessive Power of E-commerce Platforms?
Zhong Zhaozhao’s call for regulating platform power hits a common concern. But how can this be achieved?
- Global Efforts: The European Union’s Digital Markets Act designates companies like Google and Amazon as “gatekeepers,” prohibiting them from favoring their own products. The United States is also suing Amazon for using algorithms to manipulate prices and squeeze out businesses.
- What Exactly Should Be Regulated?: For example, platform commission rates should not be arbitrarily changed, algorithms should be transparent, and businesses should not be forced to choose only one platform to sell on. Data monopolies should also be prevented. However, how these regulations will be implemented and who will oversee them remains to be determined.
In essence, intermediaries have always existed; they have just evolved from scattered individuals to centralized platforms. The real issue is that these platforms now wield too much power, determining who can make money and how much. This is what we need to address most.
Conclusion
Zhong Zhaozhao’s criticism reflects the conflict of interests between traditional and new types of platforms, but it also highlights the problem of uncontrolled power in e-commerce. While the benefits of e-commerce should be retained, its influence must be limited by clear rules and regulations.