China’s eateries have been slashing their prices up to half to woo consumers, but marketing expert Ashley Dudarenok warns that this trend might hurt the businesses, as their costs do not go down, she tells Channel News Asia. Business models and their effects do vary a lot, depending on the age group the industry is focusing on, she adds.
The current trend of affordability is not a passing phase, and is a response to significant shifts in the market, said Ms Ashley Dudarenok, founder of China-focused digital consultancy ChoZan.
At the same time, she noted that consumer preferences in the Chinese F&B market vary significantly depending on the individual and the age group…
In the first quarter of 2024, around 460,000 restaurants were deregistered or had their licences revoked, with around a 230 per cent year-on-year increase in restaurant closures. In March alone, 180,000 establishments shut their doors.
China’s high-end catering sector has been hit the hardest since 2023, noted Ms Dudarenok. She cited the decrease in business banquets, declining foot traffic in shopping malls and reduced discretionary spending as reasons.
Long-term leases are compounding pressures, she added.
“It is difficult to achieve cost reductions from the decrease in commercial real estate rent in the short term. With these pressures, in 2024, news of well-known restaurants closing down became frequent.”
High-end dining casualties this year include several known Western restaurants such as Refer in Beijing and TIAGO. The former closed its doors for good on New Year’s Day, while the latter closed suddenly in April, leaving customers unable to redeem their prepaid balances and some employees with unpaid wages.
Located in Beijing, Michelin-starred Italian restaurant Opera Bombana abruptly shut down in April as well. It was later revealed that the restaurant had defaulted on rent.
Still, China’s F&B industry remained resilient overall, official data suggests. National revenue reached 460.9 billion yuan in June, a 5.4 per cent year-on-year increase. From January to June, the sector generated a total of 2.62 trillion yuan, a 7.9 per cent year-on-year rise.
New endeavours have also been sprouting up. Among the nearly 15.73 million catering enterprises nationwide, more than 4.1 million were newly registered in 2023, with private firms accounting for over 80 per cent, industry data shows.
“New entrants face higher barriers, needing to excel in product, pricing, supply chain and management to succeed. This has led to an accelerated ‘survival of the fittest’ landscape, where strong companies strengthen their positions while weaker ones struggle,” said Ms Dudarenok.
For instance, Shanghai-based fast food retailer Yum China – which operates brands like KFC and Pizza Hut in China – posted record-high Q2 revenue at US$2.68 billion, up by 1 per cent year-on-year, despite “challenging industry dynamics”…
Existing F&B players are finding ways to adapt, noted Ms Dudarenok – such as opening up to franchising, or expanding abroad in the hopes of breaking into new markets.
While there are clear benefits, these come with significant challenges as well, Ms Dudarenok pointed out.
“(Franchising) allows for faster expansion with less financial pressure compared to direct operation. However, it demands higher standards in supply chain management and franchisee oversight,” she said.
Meanwhile, expanding overseas requires adapting to different culinary cultures and preferences, and involves extensive market research and localised product adjustments.
Mr Zipser from McKinsey said exploring new revenue streams and incorporating local flavours in their offerings are among the innovations which can help chains stay competitive, coupled with a strong social media presence.
Ms Dudarenok highlighted the growing domestic consumer appetite for creative dining experiences. She cited examples in cities such as Luoyang, which introduced immersive dining events in the summer such as a beer festival and the “Luohun Whole Fish Feast” cooking competition…
Existing F&B players are finding ways to adapt, noted Ms Dudarenok – such as opening up to franchising, or expanding abroad in the hopes of breaking into new markets.
While there are clear benefits, these come with significant challenges as well, Ms Dudarenok pointed out.
“(Franchising) allows for faster expansion with less financial pressure compared to direct operation. However, it demands higher standards in supply chain management and franchisee oversight,” she said.
Meanwhile, expanding overseas requires adapting to different culinary cultures and preferences, and involves extensive market research and localised product adjustments.
