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The recent subsidy battle within China’s food delivery industry has led to a sharp rise in order volume, yet it has also significantly cut into merchants’ profits, according to research conducted by Fudan University. Data shows that the average daily orders for both takeout and dine-in services grew by 7 percent in July compared to the same period last year, but merchants’ average daily revenue dropped by 4 percent during this period.
Earlier this year, a major Chinese e-commerce company entered the food delivery marketplace to compete against existing giants, sparking a fierce price competition. In late April, one of these companies introduced a new shopping feature, and by early July, announced an investment of 50 billion yuan (roughly 7 billion US dollars) in subsidies aimed at both consumers and merchants.
The university’s study analyzed transaction data from over 40,000 restaurants nationwide, focusing on two key periods: the initial “warming-up phase,” from the launch of the new shopping feature until early July, and the subsequent “intensification phase,” which began in July. The findings revealed that if profit margins on orders stayed constant, merchant profits from delivery and dine-in services declined by an average of 1.7 percent during the first phase and by as much as 8.9 percent during the second. If profit margins shrank, the decline in profits would be even more pronounced.
While the subsidy campaign boosted order numbers, it also prompted high expenses for merchants and caused takeout sales to surpass dine-in, resulting in decreased dine-in revenue. Overall, this meant merchants saw a drop in total earnings and a tightening of profit margins, explained Hu Bo, an associate professor at Fudan’s School of Economics.
The heavy subsidies also created a dilemma: participating meant lower profitability, but opting out risked losing customers to competitors offering similar deals. Consequently, many merchants felt forced to adapt their business strategies to stay competitive and join the subsidy frenzy.
In an effort to curb the escalating subsidy war, the government’s market regulator called a meeting with the major players in mid-July. The goal was to standardize promotional activities, encourage healthy competition, and foster a sustainable ecosystem benefiting consumers, merchants, delivery drivers, and platform companies alike.
Experts suggest that regulatory authorities should establish oversight mechanisms for platform subsidies, define clear boundaries for such incentives, protect the independence of small and medium-sized business owners’ pricing and operations, and prevent them from incurring excessive subsidy costs.
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