Food Delivery Subsidy Wars: The Entire Dining Industry Loses

Why do food delivery platforms fall into a vicious cycle of increasing subsidies that lead to greater losses?

After a year, all parties have paid a heavy price. The platform’s extended, large-scale, and intense subsidies often require investing over 2 yuan to generate just 1 yuan of revenue growth, significantly reducing profits and becoming a financial burden. The pressure of “price competition” is transmitted upstream and downstream, negatively impacting the entire restaurant industry. It can be said that this is a zero-sum game with no winners.

Last year, China experienced many historic events, such as the collective surge of AI and the rise of domestic brands. Of course, the price wars in food delivery were also among them.

This March marked the one-year anniversary of the delivery price war. Despite repeated government consultations with various parties, signs of de-escalation remain absent. Over the past year, how has this war affected the platforms themselves and the broader economy? Given the importance of this economic issue, it’s necessary to review and summarize.

(1) Platform companies face sharp profit declines or losses due to price subsidy wars

First, consider JD.com, which initiated the delivery price war. According to JD Group’s recent 2025 financial report, the company’s net profit attributable to shareholders halved to 19.6 billion yuan. New businesses like JD Delivery, Jixi, and overseas operations lost 46.641 billion yuan, with JD Delivery accounting for most of these losses.

(Delivery war caused JD’s new business segments to lose money sharply, with profits shrinking significantly. Source: Dingjiao ONE)

Regarding market share, Morgan Stanley’s November 2024 survey indicated a share of 7.8%, while UBS’s February 2025 data showed 6.9%. Clearly, JD has not achieved the initial goals set when launching the price war last year, despite hundreds of billions in promotional costs.

Following JD, Alibaba also suffered. Due to massive subsidies, its net profit in Q3 2025 dropped from 43.5 billion yuan to 20.6 billion yuan—a 53% year-on-year decline and a 51% quarter-on-quarter decrease. According to forecasts from Citigroup, UBS, and Guoxin Securities, Alibaba’s Q4 profit is expected to be around 29 billion yuan, down over 40% year-on-year, mainly due to losses in delivery flash sales, with HSBC Global Research estimating a loss of about 19 billion yuan in Q3 and 15 billion in Q4.

Meituan, which was passively drawn into the war, is projected to have a net loss of approximately 23.3 to 24.3 billion yuan in 2025, compared to a net profit of 35.8 billion yuan last year. The profit decline is mainly due to increased marketing costs driven by subsidy battles, with marketing expenses rising 51.8% and 90.9% in Q2 and Q3 2025, respectively. The financial reports reveal that to counter irrational industry competition, platforms had to increase subsidies for their food delivery services.

While Meituan’s subsidy intensity (subsidy amount relative to sales revenue) is the lowest among these, it has no other business to offset losses and is hit hardest.

(2) From the perspective of platform investment, revenue, and market share growth, it’s a costly “over-competition” behavior

Looking at the actual input-output ratio in this brutal business competition, does it create real value? JD’s new business revenue in 2025 reached 49.28 billion yuan, up 30.1 billion yuan year-on-year, but operating costs soared from 20.2 billion to 96.3 billion yuan—an increase of 76.1 billion yuan. This means it takes 2.53 yuan of investment to generate 1 yuan of revenue.

Similarly, Alibaba: from Q4 2024 to Q3 2025, instant retail revenue increased by about 8.2 billion yuan (from 14.7 billion to 22.9 billion), but the group’s sales costs rose by 24.3 billion yuan (from 42.7 billion to 66.5 billion). The main reason cited is increased spending on flash sale promotions. This indicates Alibaba needs to invest at least 2 yuan to generate 1 yuan of flash sale revenue.

Sociologists coined “involution” to describe situations where spending 1 yuan yields less than 1 yuan in return. Domestic companies spending over 2 yuan to achieve less than 1 yuan growth can be considered “excessive involution.”

Moreover, the ongoing “low-price involution” over the past year has mainly resulted in low-priced orders for milk tea and coffee under massive subsidies, creating a huge imbalance between marketing input and revenue growth.

Estimates from Morgan Stanley and Morningstar suggest that acquiring 1% of the food delivery market costs about 8 to 9 billion yuan. Once subsidies stop, maintaining market share becomes very difficult.

Therefore, although many businesses analyze the long-term significance of delivery price subsidies, these are vague and uncertain. In reality, the delivery price war is essentially an irrational attempt by companies to break out of a sluggish market.

(3) The delivery war damages not only platforms but also the entire restaurant industry and the broader consumption ecosystem

This unprecedented price war has severely hurt not only the platform companies but also millions of partner restaurants. They are forced to share the huge subsidy costs.

According to a report by China Youth Daily on July 30, 2025, the China Chain Store & Franchise Association visited 33 restaurants participating in delivery subsidy programs. They found that these restaurants bore 30%–70% of the subsidy costs. For example, a pork knuckle restaurant in Shenyang received a 45-yuan delivery order with a 20-yuan subsidy—only 7 yuan was covered by the platform, while the restaurant paid 13 yuan out of pocket.

This has further squeezed profit margins for small, family-run, and individual restaurants, which already operate on thin margins.

A February 27 report by Lixin Consulting titled “From Traffic Frenzy to Profit Decline: The Real Situation of Restaurant Merchants in the Subsidy War” surveyed nearly 3,000 merchants. Nearly 70% reported revenue declines, with 48% experiencing drops over 20%. About 80% saw a decrease in net profit, with 35% experiencing drops over 30%.

Large restaurant groups are also affected. For example, Luckin Coffee’s Q4 2025 financials show that excessive subsidies disrupted normal pricing and overdrawn market growth potential, leading to the slowest order growth in history and a profit decline to 518 million yuan, down 39% year-on-year.

The negative effects of subsidy wars and “zero-yuan milk tea” campaigns also hit emerging brands like Bawang Chaji. Despite a 52% increase in total delivery orders in the first three quarters of 2025, individual store monthly revenue fell to 378,500 yuan, down 28.3% year-on-year, with net profit down 38.4%.

Delivery subsidies have also significantly reduced dine-in behaviors, lowering overall restaurant revenue. A report led by Professor Zhang Jun of Fudan University, based on surveys of over 40,000 restaurants, shows that during the price war, daily online and offline revenue per merchant decreased by about 4%, with total profit dropping 1.7%. After intensified competition, the decline widened to 8.9%.

Furthermore, excessive price involution and reduced dine-in traffic have caused offline commercial venues to lose their primary customer sources, adversely affecting the entire consumption ecosystem. According to third-quarter 2025 financial reports of 17 listed restaurant companies, 10 have closed some stores. The average daily foot traffic in shopping malls nationwide dropped to 10,200, less than half of 2018 levels. The “2025 China Commercial Real Estate White Paper” reports that vacancy rates in key cities’ shopping centers have risen to 14.2%, with some third-tier city projects exceeding 22%.

In summary, while delivery platforms initially aimed to empower restaurants by expanding sales channels and market penetration, the subsidy wars have essentially drained the “blood” of merchants through market chaos and disorder. Last year, a platform claimed to create a more friendly environment for merchants, but the reality was quite the opposite—merchants have been complaining all year, and the platform no longer mentions its original “intention.”

(4) Price pressure ultimately leads to lower-quality supply chains and turns restaurants into “food processing factories,” making consumers the ultimate losers

For consumers, some argue that criticizing the subsidy war is out of touch, and that price involution benefits consumers by lowering prices. However, this logic doesn’t hold up.

Massive subsidies driven low-price competition tend to spiral into low quality. First, price involution forces restaurants to adopt low-cost, low-quality offerings, significantly degrading service quality. A survey shows that under the delivery war, 71% of merchants use pre-made dishes, with rice-based meal portions decreasing by an average of 17%, and 48% of small shops reducing protein content.

The Lixin report also indicates that facing price pressure, 39% of merchants began switching to cheaper raw material suppliers, 20% increased the proportion of low-cost dishes, and 30% intensified bargaining with existing suppliers.

Second, the price war disadvantages larger, service-oriented restaurants with higher operating costs, making it difficult for them to survive. It benefits small workshops that lack storefronts and consumer oversight, effectively “crowding out” quality businesses with inferior products. Long-term, the industry risks reverting from an “experience-oriented” sector to a “supply-oriented” one, transforming from a lifestyle industry into a “low-cost food processing” sector.

In conclusion, the delivery subsidy war is a destructive battle that harms platforms, restaurants, consumers, and society at large. Frequent, large-scale price subsidies severely disrupt market order, distort industry ecology, and pose significant long-term risks to the physical restaurant sector.

(5) Strictly curb disorderly price subsidies to prevent “excessive low prices” from distorting market prices; accelerate income doubling plans and break consumption ceilings

At the recent Two Sessions, price involution was a hot topic. The government work report emphasized using price law enforcement and quality supervision to deeply rectify “involution” competition and foster a healthy market environment. Dozens of representatives and CPPCC members, including Bai Zhong’en, Cheng Ping, Zhang Yichen, and Huang Qunhui, submitted proposals calling for an end to the subsidy wars, stopping disorderly competition and the vicious cycle of “low quality and low price,” restoring a clean industry environment.

My view is:

First, for regulators: China’s consumption is undergoing structural upgrades. The market needs affordable, high-quality services, not low-price, low-quality offerings. Food is fundamental to residents’ lives, and the restaurant industry is the most basic and essential service. It’s crucial to prevent disorderly price wars from damaging food quality and safety.

Market regulators should establish and improve mechanisms to oversee platform subsidies, clearly define reasonable subsidy boundaries, and guard against “excessive low prices” that distort market prices. Especially since some platforms are engaging in prolonged, large-scale, and intense subsidies, dragging the industry into an involution spiral—this must be stopped.

Additionally, platforms should be protected in their right to set prices and make business decisions independently, avoiding being forced into destructive price competition.

Second, for platform companies: they should focus on creating a better service ecosystem—improving technology, enhancing service quality—rather than relying on opportunistic price wars. Government supervision of subsidies can help maintain market order and support companies committed to technological innovation and customer experience, fostering a healthy environment. Companies that pursue low-price strategies at the expense of industry health should not be allowed to disrupt the ecosystem.

Third, companies’ resorting to price involution is also a form of helpless self-preservation under China’s consumption scale ceiling. They should reassess whether this strategy offers long-term growth or is just a wasteful drain. The fundamental solution is for the government to expand effective consumer demand—by increasing residents’ income, improving healthcare, education, and pension systems to reduce precautionary savings, and broadening income channels—so that consumers have real purchasing power and confidence to spend. Relying solely on platform subsidies leads to diminishing returns; only by increasing residents’ actual buying power can businesses escape the vicious cycle and restore healthy consumption growth.