(Yicai) July 16 -- China’s takeout platforms are still locked in a fierce war of subsidies. While platforms are footing most of the bill, caterers are also affected, with many of them having to accept razor-thin profits, break-even sales and even losses on some orders, Yicai learned from industry insiders.

Lately, food delivery platforms have been issuing huge discounts on new tea drinks, coffees and fast food. Some are even offering free products if the customers pick up their orders themselves. These discounts are split between the platform and the food and beverage firm, with the exact ratio negotiated in advance by the companies’ headquarters. Outlets are then left to implement the deals.

The surge in orders is coinciding with shrinking profits and a lot of businesses are starting to worry about what happens when the subsidies end as customers are now used to rock-bottom prices.

For instance, a drink normally priced at CNY19 (USD2.65) had a CNY6.40 subsidy from the caterer and a CNY9.60 discount from the platform, a franchise store manager told Yicai, showing the screenshot of an order from July 8. The platform’s CNY9.60 subsidy goes to the food provider together with the CNY3 paid by the customer, but after the delivery fee and platform commissions are deducted, the caterer is left with just CNY5.99.

“That’s barely enough to cover the cost of the cup, lid and thermal sleeve, which comes to around CNY1.10 (USD0.15) and CNY1.30 per serving,” the manager said. “After joining the subsidy war, it is clear that the profit per cup is shrinking. We are probably losing some money on around one or two out of every 10 orders.”

Although subsidies can drive up the number of orders, the profit per drink per store has tumbled from previous levels, a coffee chain executive told Yicai. Although customers benefit, some brands are seeing their revenue squeezed. Most consumers are price-driven, so firms worry that once the discounts end, sales will slump.

For most brands, a prolonged price war brings no long-term benefits, said Yang Huaiyu, senior consumer industry analyst. A short-term surge in orders masks the danger of shrinking profits, and smaller businesses will feel the pain first.

Yesterday, the Zunyi Honghuagang District Catering Industry Association in southwestern Guizhou province published an open letter urging platforms to halt “self-destructive” subsidies and unfair competition. However, the article was taken down later that day.

Editor: Kim Taylor