China’s delivery marketplace has entered a strange squeeze: platforms are pouring money into subsidy wars to win users while many restaurants are quietly hiking prices or refusing to participate — and still losing money. A recent investigation by China News Service’s Minsheng Investigation Bureau shows that the subsidy arms race has ratcheted up operating costs for merchants, while platform-level practices and new delivery charges are eroding their margins.
Major chains have already signalled the stress. Several food and beverage groups have raised list prices or curtailed promotions: Kudi Coffee ended a “9.9 yuan unlimited” offer early, KFC adjusted some delivery prices, and others such as McDonald’s and Nayuki have raised retail prices. Luckin Coffee has explicitly blamed rising third‑party delivery fees for a projected 38% year‑on‑year decline in fourth‑quarter 2025 net profit, underscoring that higher logistics costs are material even for big brands.
The mechanism for the squeeze is twofold. Platforms are increasing what they ask merchants to shoulder — higher commission-like technical fees, contributions to platform red envelopes and discounts, and sometimes direct participation in cover-the-delivery promotions — while platform sales managers alter shop settings to meet internal performance targets. Sales managers on platforms such as Taobao Flash (a shop owner pseudonym cited in the investigation) said they sometimes raise a non-participating merchant’s minimum delivery threshold or packaging fees so that the merchant’s orders fall, excluding the shop from metrics tied to “activity coverage.”
A concrete order-level example captures the arithmetic. For a 20‑yuan delivery sale in Beijing, a merchant might pay a roughly 6% commission, shoulder baseline delivery costs for short distances, underwrite a buyer-facing 7‑yuan red envelope, and pay platform promotion fees tied to “order conversion.” After layers of deductions, the shop’s actual take can fall to under 4 yuan, and in tougher cases become negative. Small storefronts and franchisees — where food costs are fixed by head offices — feel this most acutely.
The result is a perverse incentive loop. To win visibility, merchants feel compelled to enter discount campaigns that increase volume but compress per‑order profit. If they refuse, they risk having their stores de‑prioritised or even penalised for pricing higher than competitors. Platforms such as JD have formal rules that allow “price benchmarking” penalties when a merchant’s price exceeds platform targets, and sales managers sometimes intervene directly in merchant accounts to adjust activities or pricing.
These operational frictions are occurring against a backdrop of saturated user growth. China’s internet population and online consumption have largely matured: the China Internet Network Information Center reports roughly 1.125 billion internet users, 937 million online shoppers and 630 million online food-delivery users as of its 57th report. Academics note that with new users scarce, firms are competing for share of a fixed pie, treating delivery as a strategic, high‑frequency traffic channel that feeds broader e‑commerce, payments and financial services ecosystems.
Regulators have noticed. Since early 2025, market authorities have repeatedly summoned the platforms and issued basic service management requirements to curb abusive promotional mechanics and protect merchants’ right to set prices. Analysts say these interventions strengthen platform accountability, but long‑term remedies will hinge on whether platforms can find new growth sources or choose to sustain loss-leading subsidies that ultimately redistribute costs onto restaurants and riders.
For consumers the near-term impact is mixed: headline subsidies and coupons may keep nominal app prices attractive, but menu prices, minimum order thresholds and new packaging or delivery surcharges are rising, and many merchants are increasingly reluctant to invest in the platform economy. The longer-term stakes extend beyond meal prices: continued subsidised competition could hollow out small eateries, reinforce the market position of the largest platform players, and prompt further regulatory scrutiny over platform practices and unfair bargaining power.