A year-long subsidy battle in the food delivery sector is causing deflationary pressures in the catering industry, placing widespread revenue and profit strain on restaurant operators.
Recent statistics indicate that since the onset of the delivery competition, 80% of catering businesses have experienced a decline in net profits, with 35% seeing drops exceeding 30%. Additionally, 74% of merchants reported lower average customer spending per order, of which 53% witnessed reductions of over 10%. Only 5% managed to increase their average order value. Dine-in establishments have been hit particularly hard, with 65% reporting year-on-year decreases in revenue.
On February 27, Lixin Consulting released a research report titled "From Traffic Boom to Profit Decline: The Real Situation of Catering Merchants in the 'Subsidy War'." The study focused on restaurant operators affected by delivery subsidies, collecting 2,298 valid questionnaires and conducting interviews across 31 provincial-level regions in China.
The report further highlighted that the downward trend in catering industry pricing may be irreversible, noting that "it is easier to lower prices than to raise them." Over 71% of merchants attributed profit declines to reduced average spending per order, while rising ingredient costs, decreased foot traffic, and higher labor and rental expenses accounted for 10%, 9%, 3%, and 3% of the challenges, respectively.
Interviews conducted by the research team revealed that 84% of frontline vendors are calling for an end to cutthroat price competition and a return to rational market practices. A grilled fish restaurant in Foshan, Guangdong, shared, "Our business relies heavily on dine-in customers, and we’ve been hit hard. Subsidies are all going to delivery—no one is subsidizing dine-in. We’ve already lowered prices to break even, but customers still complain that it’s more expensive than delivery. It’s becoming difficult to maintain ingredient quality and safety, which should always come first."
These findings align with a nationwide survey conducted by a Fudan University team in November 2025, which covered over 40,000 merchants. That study concluded that subsidy wars led to decreased revenue and profits for catering businesses, with average profit declines widening to 8.9% during periods of intensified competition.
Since last year, several economists have raised concerns about deflationary trends sparked by delivery platform rivalries. In September 2025, Liu Yi, Director of the Service Economy and Internet Development Research Office at the Chinese Academy of Social Sciences, warned that excessive subsidies by platforms were distorting service sector pricing mechanisms, contributing to industry-wide price reductions—a sign of "internal competition" spreading into daily service sectors.
Liu noted that persistent low prices could reinforce "consumer expectations for cheap consumption," a concern supported by the latest survey data.
Wu Jian, President of the China Catering Industry Research Institute, argued that the "delivery wars" have intensified market competition, risking imbalances in pricing systems and industry structure. For instance, one hot pot chain closed 88 outlets in the first half of the year, marking its first-ever contraction in store numbers. Some century-old brands also reported simultaneous declines in revenue and profits.
Efforts are now underway to curb the price wars and shift the industry’s focus from competing on price to competing on quality. The State Administration for Market Regulation has held multiple discussions with relevant platforms, and before the Spring Festival, local market regulators across China issued compliance guidelines for holiday delivery services. Industry associations in regions such as Shaanxi and Gansu also released statements ahead of the holiday, criticizing vicious price wars for undermining small and medium-sized merchants’ pricing autonomy and bargaining power, which in turn affects employment stability and local economic health.