CNBC AI News, August 10 – China’s intense food delivery wars, fueled by massive subsidies, might be boosting order volumes, but they’re also squeezing restaurants, making profitability a relentless battle.
According to a CCTV report, since April, major food delivery platforms in China have engaged in aggressive subsidy battles, rolling out substantial discount coupons to entice consumers. This has led to repeated record-breaking order volumes for these platforms.
On the surface, this appears to be a win-win: consumers enjoy lower prices, and restaurants theoretically sell more meals. However, many restaurant owners are reporting that the subsidy war has actually worsened their financial situation.
Take, for example, a tea shop in the core business district of Yichang, Hubei province. On a takeout order priced at 19.4 yuan, deductions for various fees leave them with barely enough revenue to cover the cost of goods.
Another Cantonese restaurant reported receiving 4,158 delivery orders in June, generating 162,215.8 yuan in revenue. However, after deducting merchant subsidies, platform commissions, delivery fees, rent, labor, utilities, and ingredient costs, their profit margin for the month was a negative 10,340.47 yuan.
Specifically, in June, the restaurant received 4,158 Meituan delivery orders with a total product value of 157,548.8 yuan, plus 4,667 yuan in packaging fees, bringing the gross revenue to 162,215.8 yuan. After subtracting 30,452.2 yuan in merchant-funded discounts for customers, 8,409.81 yuan in platform commissions, and 20,919.86 yuan in delivery fees, the remaining revenue was 102,433.93 yuan. This figure doesn’t account for fixed expenses like rent and the cost of ingredients, which determine the true profit.
The 200-square-meter restaurant employs 11 people, resulting in fixed monthly expenses of 90,000 yuan, with roughly 34,000 yuan allocated to the delivery business. With ingredient costs estimated at 50% of the product value (78,774.4 yuan), the restaurant’s actual profit from online sales in June was a negative 10,340.47 yuan.
After utilities and labor costs are factored in, the Meituan delivery orders resulted in a loss of over 10,000 yuan for the month, effectively paying to gain visibility.
A breakfast shop in Changsha County, Hunan province, processes nearly 1,000 delivery orders a day, but the profit margins are razor-thin, or nonexistent altogether. The owner explained: “With traditional dining, one shop could generate tens of thousands in revenue. But now, we have no choice. If we don’t do delivery, others will take all the business.”
Platforms have reportedly poured nearly 100 billion yuan into subsidies over the past six months, flooding the market with coupons.
JD.com officially launched JD Takeout on February 11.
JD Takeout initiated a “10 Billion Yuan Subsidy” program on April 11.
Ele.me launched a “Super 10 Billion Yuan” subsidy campaign on April 30, with Taobao Flash Deals joining the fray.
Taobao Flash Deals announced an investment of 50 billion yuan to subsidize users and merchants on July 2.
Taobao Flash Deals and Meituan released a large number of high-value takeout coupons on July 5.
JD.com launched a “Double 100 Plan” on July 7, allocating 10 billion yuan to subsidize merchants.
Experts argue that the food delivery war is essentially a capital-driven, “involutionary” game characterized by “burning money for market share,” a strategy that is inherently unsustainable.
From the consumer’s perspective, the price wars provide short-term benefits through lower costs and a feeling of “getting a good deal.” However, in the long run, businesses may cut corners: reducing ingredient quality, minimizing packaging costs, or even relying on “ghost kitchens” to provide substandard food, which could lead to increased food safety risks.
Moreover, the “low-price dependency” created by subsidies makes consumers more price-sensitive. When subsidies eventually decline and prices rise, consumer spending habits and perceptions will likely be affected.
On August 1, Taobao Tmall, Ele.me, Meituan, and JD.com issued statements committing to avoid unfair competition, resist harmful subsidies, and jointly promote orderly competition within the industry. This marks a potential turning point in the food delivery subsidy war.
On August 5, the Beijing Cuisine Association issued a call to action, urging businesses to firmly resist “involutionary” competition, adhere to compliance standards, return to the fundamentals of value creation, and safeguard the healthy development of the industry.
Original article, Author: Tobias. If you wish to reprint this article, please indicate the source:https://aicnbc.com/6827.html
