Contents
Introduction:
In China, there’s a saying, “Among all industries, catering comes first.” This emphasizes the central role of the catering industry in the broader economy. No matter how the economy fluctuates, people will always need food, making the catering industry a cornerstone for other sectors. However, China’s Catering Industry Slump has recently become evident as the industry faces unprecedented challenges. During the first half of 2024, Beijing’s overall profits almost completely evaporated. Although no official figures have been released, it is evident that the catering industries in major cities like Shanghai and Shenzhen have also been cut in half. This dramatic decline is startling, signifying that China’s catering industry is experiencing a sharp downturn. This article will explore the deep-rooted causes behind this slump and analyze its long-term implications.
What Led to China’s Catering Industry Slump?
According to data from the Beijing Municipal Bureau of Statistics, from January to June 2024, more than 2,600 large-scale catering enterprises in Beijing (with annual revenues exceeding 2 million yuan) reported a total profit of just 100 million RMB, an 88.8% year-on-year drop. Among them, core dining establishments, which account for 80%, reported losses totaling 76.51 million RMB. Despite generating 49.2 billion RMB in revenue, a mere 2.9% year-on-year decline, the profit margin shrank to just 0.37%, leaving nearly all businesses facing severe losses. Notably, these enterprises all had annual revenues over 2 million RMB, excluding smaller restaurants and eateries.
Beyond Beijing, although specific official reports are lacking, large-scale catering and hotel businesses in Shanghai saw profit declines of nearly 80% in the first half of 2024, primarily due to worsening economic conditions and reduced consumer spending, putting significant pressure on the entire industry. Shenzhen’s catering industry likely faces similar challenges, with profit margins being squeezed due to economic factors.
From a factual standpoint, many renowned Michelin-starred restaurants in China, such as L’Atelier 18, Opera BOMBANA, and TIAGO HOME KITCHEN, along with famous Chinese restaurants like Beijing’s “鼎泰丰 (English name: Din Tai Fung),” Shanghai’s “玉芝兰 (English Name: Yu Zhi Lan),” and “明路川 (English Name: Ming Lu Chuan),” have closed due to economic pressures. High-end dining, particularly establishments where the average spending exceeds 1,500 RMB per person, has been hit especially hard. In May 2023, Shanghai had about 2,700 restaurants where the average spending was over 500 RMB per person. By July 2024, this number had sharply dropped to around 1,300, a reduction of approximately 50%. The remaining restaurants face significant challenges, resorting to low-cost set meals for survival, like international chains such as Burger King, 海底捞 (English Name: Hai Di Lao), and Pizza Hut.
Photographer: Nuno Alberto
What Are the Causes Behind China’s Catering Industry Slump?
China’s catering industry in major cities is facing severe challenges, particularly in the high-end sector. This is not merely an economic issue but also a result of social behavior and lifestyle changes. I have identified 9 key factors:
- Impact of the Real Estate Market: In recent years, China’s housing prices have seen a significant decline, especially in major cities. Many individuals born in the 1990s and 2000s who purchased property at market peaks now find their property values have returned to levels seen five years ago. This asset depreciation profoundly affects their spending habits. To manage mortgage payments and rising living costs, many young people have chosen to cut expenses, including dining out.
- Impact of Corporate Salary Reductions: As economic pressures have mounted, many mid-to-large companies, including financial institutions like China International Capital Corporation (CICC) and major banks, have implemented salary cuts and demotions. This has directly reduced the disposable income of higher-income groups, affecting their spending power. As a result, high-end dining establishments, including Michelin-starred restaurants, have seen a decline in their customer base. Consumers in these groups are tightening their belts and spending more cautiously, further exacerbating the downturn in the high-end dining sector.
- Oversupply in the Market: Over the past few years, many catering brands rapidly expanded, especially in major cities. This led to intense competition and market oversaturation, making it difficult for some restaurants to survive. As large numbers of migrants returned to their hometowns, the catering market in major cities faced a supply-demand imbalance. Brands that relied on these migrants lost a significant customer base, leading to oversupply, heightened competition, and declining overall profits.
- Job Market Pressures on Young People: With economic growth slowing, young people born in the 2000s face difficulties finding jobs, with stagnant wage growth. Economic uncertainty has led them to manage their expenses more cautiously, further reducing their dining out. Due to economic pressures and rising living costs, individuals born in the 1990s are more inclined to cook at home or choose more economical dining options rather than frequenting restaurants.
- China’s New Wave of Emigration: Many people are opting to emigrate to Europe or other countries in search of better living conditions, reducing the potential customer base for high-end restaurants in China. This trend is particularly evident in major cities, where high-spending customers were previously concentrated.
- Declining Consumer Confidence: As economic uncertainty increases, consumer confidence is waning. Even those with financial means may cut back on spending due to concerns about the future, especially in discretionary areas like dining out.
- Rising Living Costs: Besides falling housing prices, overall living costs have risen significantly. Utilities, fuel, healthcare, and education expenses have increased the financial burden on households, forcing many to cut back on non-essential spending, including dining out.
- Rise of Food Delivery and Fast Food: With the proliferation of food delivery platforms and the growing competition in the fast-food sector, many people are opting for more convenient and affordable dining options. This trend poses a significant challenge to traditional restaurants, particularly high-end establishments.
- Long-Term Effects of the Pandemic: Although the direct impact of the pandemic has waned, it has had a lasting effect on consumer habits and psychology. Many people have grown accustomed to cooking at home and reducing dining out, a behavior change that may continue to affect restaurant revenues.
China’s Catering Industry: Industries Reshuffling
China’s catering industry is currently facing unprecedented challenges, with the entire sector struggling to survive. The trends of automation and digitalization are profoundly altering how every industry operates. With the advent of the Fourth Industrial Revolution, many industries are undergoing a reshuffle. As AI replaces many roles, China, which relies heavily on low-skilled labor, must adjust wage structures. This shift exacerbates social inequality and reduces consumer purchasing power, directly impacting the profitability of the catering industry.
Meanwhile, the real estate market, one of the economy’s cornerstones, is gradually returning to a more rational state from its previous bubble. This shift is akin to the transformation of traditional occupations. Socially, like China’s Robotaxi replacing taxi drivers, the rise of food delivery workers is being closely watched by the next generation of AI robots. For young people born in the 2000s, the uncertainty is even greater. Many are delaying marriage as they see few opportunities to change their life trajectory, making the future seem full of challenges.
Conclusion:
So, my answer this time is that this is an illness, and the only cure is patience. As the Chinese proverb goes: “The people regard food as their heaven; food safety comes first.”
