Online food delivery service ele.me is facing fines and an investigation by Shanghai's food and drug watchdog following a state media expose on Tuesday showing unlicensed vendors have been selling food through its mobile app.
The Shanghai-based online food delivery start-up was among a group of companies named and shamed on state broadcaster CCTV's annual World Consumer Rights Day program.
The Shanghai Municipal Food and Drug Administration said on Wednesday that it launched a probe into the start-up in November over suspicions that it allowed unqualified food vendors to operate via the app.
The watchdog issued a fine of 120,000 yuan (around 18,408 U.S. dollars) and announced a new investigation into the problems revealed in Tuesday's expose.
The report revealed ele.me's lax efforts in screening vendors seeking to sell food via the app. Ele.me's failure to ensure sellers have proper certifications and licenses has created potential health hazards for consumers.
China's new food safety law, effective since October, requires online food sales and delivery platforms to register vendors under their real names and review their qualifications.
Some vendors on ele.me that advertise themselves as clean, modern restaurants are in fact nothing more than small, dingy kitchens without proper food licenses.
Although e-commerce is one of the few bright spots in China's slowing economy, online services are coming under increasing scrutiny from media and regulators as existing regulatory frameworks have proved less than effective in supervising new business activities.
Regulators have urged online retail services to exercise due diligence in reviewing vendor eligibility and operating standards.
Online sales accounted for more than 12 percent of total retail sales in China last year and are expected to grab an even bigger slice as e-commerce grows.
Ele.me counts major Chinese Internet firms among its backers. In December, Chinese e-commerce giant Alibaba invested 1.25 billion U.S. dollars into ele.me for a 27.7-percent stake, making it the start-up's biggest shareholder.
In addition to exposing sloppy kitchens, CCTV also revealed that ele.me's market specialist in north China's Hebei Province knowingly assisted an undercover reporter, posing as an unlicensed food vendor, in setting up shop on the platform.
Following the expose, local watchdogs raided some of the unlicensed restaurants operating on ele.me, according to local media reports.
Ele.me also said on Tuesday night that it has removed all unlicensed food businesses involved in the expose and will review the qualifications of all vendors on its platform.
Nearly 500,000 restaurants and vendors have signed up on ele.me's online platform to offer food delivery to 40 million users in more than 300 Chinese cities.
A survey conducted by the Shanghai Consumer Council late last year found that substandard service is a shared problem among leading online food delivery services.