[Big read] China’s struggling F&B finds value in affordable buffets

(Photos by Daryl Lim unless otherwise stated.)

Over the past six months, Song Baobo’s phone has been ringing off the hook at the end of every month: he’s off to “collect the remains” of yet another restaurant that has gone bankrupt.

Song, a second-hand kitchenware dealer in Shenzhen, told Lianhe Zaobao that in the first half of this year, with increasingly more food and beverage (F&B) businesses facing survival pressures, there has been a jump in restaurant closures. His company’s kitchen equipment recovery volume has increased by 15% year-on-year.

“At the end of each month, many restaurant owners would tally their accounts and cut losses if they can’t break even. That’s when we second-hand kitchenware collectors become their last trading partners,” he shared.

According to data from China’s National Bureau of Statistics (NBS), in the first quarter of this year, nearly 460,000 F&B businesses were deregistered or closed, an increase of over 230% year-on-year. In March alone, 180,000 F&B businesses shut down.

Data from enterprise query platform Tianyancha show that in the first half of this year, 1.35 million new F&B businesses opened while 1.06 million went bankrupt in China. The number of bankruptcies was nearing last year’s total of 1.36 million, sparking widespread concern.

Huang Zhishan, 50, is a former renovation contractor who switched careers in August due to the sluggish property market. He borrowed hundreds of thousands of RMB to open a noodle shop in Shenzhen’s Nanshan district. Due to the difficulties in attracting customers to a poor location, the business was bleeding money, and he was forced to shutter in less than two months.

When interviewed, Huang lamented that this was his first entrepreneurial venture, investing a total of 130,000 RMB (US$18,500), including agency fees, registration fees, as well as two deposits and rent for the shop. Now, all that money has gone towards “paying for the lesson”.

Huang said, “Many of the kitchen utensils are new, and the induction cooker was only used to cook seven bowls of noodles. I regretted it after just three days. Daily costs were nearly 1,000 RMB, but I would rake in less than 500 RMB. Good ingredients were wasted, so I had no choice but to close down and cut my losses.”

Song Baobo said that small and medium-sized eateries like Huang’s account for about 90% of the equipment he recovers. He pointed out that many eateries in this wave of closures were businesses that offered takeout and delivery.

To attract more users, food delivery platforms encourage merchants to participate in various promotions to gain traffic. However, merchants usually bear most of the costs. In the long run, these promotions squeeze their profit margins and create expectations of low prices among consumers, making it difficult for merchants to return to normal pricing levels, putting pressure on their bottom line.

As China’s economic growth slows and people’s incomes decrease, cost-effectiveness has become a crucial factor for consumers in their spending decisions. This has led to the growth in cheaper businesses on food delivery platforms.

For example, Meituan’s Pin Hao Fan replicates Pinduoduo’s group buying model, allowing consumers to purchase cheaper meals by combining individual orders.

Pin Hao Fan’s meal prices vary by day and time. During weekday lunch hours, a 16-RMB pork trotter rice meal costs only 11.10 RMB, including delivery fees, when grouped. If two new users join the order, the price drops to 5.90 RMB per meal.

The service reduces cost for all three parties by centralising customer orders, increasing restaurant efficiency and optimising delivery routes. Launched in 2020 as a pilot programme targeting lower-tier markets, Pin Hao Fan expanded rapidly after its official launch in 2022 and now covers 60 Chinese cities.

Meituan first mentioned Pin Hao Fan in its Q1 earnings report, announcing plans to expand the service to more cities. In its report for the first half of the year, the company revealed Pin Hao Fan’s strong Q2 performance, with up to 8 million daily orders, an increase of 3 million compared with Q1.

Ideally, the Pin Hao Fan model helps newly established small and medium-sized businesses quickly attract customers and boost orders, while well-known businesses would gain higher traffic, reduce costs through economies of scale, and exchange high sales and thin profits for a stable revenue and customer base.

However, for small businesses with weak cost control, one misstep can lead to operational difficulties.

A noodle shop owner surnamed Zhuang said when interviewed that under heavy persuasion by Meituan, he joined Pin Hao Fan and his daily orders increased by 20 to 30 units. However, as profits went down, he had to extend business hours to break even and return to previous profit levels.

He said, “Employees’ overtime pay far exceeded the additional income from Pin Hao Fan. After careful calculation, we actually lose more in the long run. I only lasted two weeks before giving up.”

Some analysts believe that the operational model of delivery platforms is overly accommodating to customer demands and might not be sustainable in the long run. It could even result in a case of “bad money drives out good money”. 

Zhang Xiaoduan, deputy dean of the Cushman and Wakefield Research Institute and head of research for South and Central China, pointed out when interviewed that just as with other industries, China’s F&B platform industry has also been hit with involution. As the core value for delivery platforms is centred on user traffic, users are deemed as the most important resource, and thus these platforms would lean towards catering to their preferences.

Zhang warned that if platforms fully accommodate consumer demands and continue to use price wars to attract users but neglect businesses and the interests of other relevant parties, it could lead to problems on the supply end, or even result in a disruption of market fairness. 

She added, “This is a huge problem for the development of the F&B industry in China. It would be very difficult for any F&B business owner with aspirations to survive in such an environment”. 

According to Song Baobo’s observations, many F&B operators are caught in a bind. Although they are aware that the profit margins are slim for delivery orders, they nevertheless have to bite the bullet to attract customers. “Without the support from these platforms, the restaurants would barely have any orders and can only face elimination,” he said. 

He is pessimistic about the future of the industry, as he feels that the survival space for restaurateurs would be further restricted given the increase in platform monopolisation and rising costs. However, he pointed out that despite the bleak outlook, many entrepreneurs continue to try their hand due to the low barriers to entry and small investment required.

Song said, “Many who failed in their F&B investments go back to working jobs, earning money before trying once more to run a restaurant. This is perhaps the shortcut to their dreams of becoming a boss, but what they need to understand is that this is a very complex industry — success doesn’t come easy.” 

In this wave of restaurant closures, mid-to-high-end restaurants likewise are unable to escape this fate, with those in first-tier cities especially impacted.

Statistics from the NBS showed that in the first six months of 2024, F&B revenue increased 7.9% year-on-year to reach 2.6 trillion RMB. However, the situation in first-tier cities was not quite as rosy; Beijing and Shanghai experienced negative growth in F&B revenue, down 3.5% and 3.6% respectively. Additionally, the growth in Guangzhou and Shenzhen were also below the national average, at 3% and 1.3% respectively. 

Beijing’s Hengtai Feng Catering announced in late August that it would shutter 14 of its stores under the “Din Tai Fung” brand by 31 October, in Beijing, Tianjin, Qingdao, Xi’an and Xiamen. The decision was due to the board’s failure to reach a consensus on the renewal of the store’s expiring business licence. 

Sources indicated that the main reason for the closure of Din Tai Fung stores in northern China was because of poor performance. Some shareholders wanted to sell their stakes, but the high asking price led to a breakdown in negotiations and ultimately a negative outcome. 

The Paper reported that several fine dining restaurants in Shanghai were mired in financial difficulties over the past half year, with places such as French restaurant L’Atelier 18, renowned lounge restaurant KOR Shanghai and one-Michelin star restaurant Yu Zhi Lan Shanghai announcing closures. 

Data from Canyin88.com showed that in the past five years, there were roughly more than 2,700 restaurants in Shanghai with a per capita consumption of more than 500 RMB. As of July 2024, the figure declined by more than 1,400 restaurants, with nearly half of them shuttering. 

The financial reports for the first half of 2024 for Chinese restaurant chains such as Haidilao, Xiabu Xiabu and Jiumaojiu showed a clear decline in customers due to weak consumption and intense competition. These businesses recorded losses, leading to the closure of many of their restaurants. Haidilao closed around 40 outlets in the first half of 2024, while Xiabu Xiabu closed nearly 80 outlets.  

Tai Er is a F&B brand under Jiumaojiu, and its revenue accounts for 70% of the group. The sauerkraut fish restaurant, which was once wildly popular among netizens, saw its average customer spend for the first half of this year drop to 69 RMB. This figure is down 8% from 75 RMB in 2023, pushing it back down to its performance seven years ago. Jiumaojiu’s profits for the first half of 2024 fell 70%, with its share price down more than 60% since early this year.

The owner of a lounge restaurant in Shenzhen where the average spend is 400 RMB said when interviewed that recently, customers were more mindful about their consumption, resulting in a 40% decline in the performance for the establishment. The person added, “There are still customers who come for food but hardly any of them order alcohol.”

Jia Guolong, chair of Xibei, a leading company in China’s F&B industry, recently posted a video on his WeChat that touched on the industry’s dilemma this year, stating, “The market does not need so much supply, so the closure and elimination of some restaurants is necessary.”

He thinks that China’s F&B industry has reached an inevitable period of adjustment following years of rapid development. He said, “While amateur players used to be able to survive, it may be that only professional players can enter the field in the future, with the focus being on professional skills.”

Fong Chi Chung, founder of Putien, which has around 50 branches in 19 cities across China, told Lianhe Zaobao that the restaurant chain’s performance has declined by roughly 10% amid the current downturn in the F&B industry.

He thinks that given the current economic climate, cost-effectiveness is the key to customer retention. He said, “Many people are no longer patronising expensive restaurants, instead turning to the more cost-effective ones. While the demand for banquets and gatherings still exists, people are simply more focused on cost-effectiveness.”

Fong observed that Chinese consumers are becoming more diverse in their choices — while some prefer reputable chain restaurants believing that they offer better food safety assurance, a portion of younger consumers actually seek personalised experiences, opting for independent or niche brands.

He said that chain restaurants have to find a balance between personalisation and standardisation — Putien is attempting to offer personalised services based on the needs of different consumer groups at its various locations, rather than using a fully standardised management model.

He said, “Each restaurant has its own positioning, consumer demographics and preferences. We encourage our branches in different regions to develop speciality dishes catered to the local market to enhance customer experience.” 

China’s consumption downgrade is driving a major reshuffle in the F&B industry, with buffets, which were once overlooked by the market, welcoming a “second spring”, particularly those with more affordable prices. Interviewed academics pointed out that the F&B industry has a cyclical nature and must continuously innovate and keep up with trends to maintain their competitiveness.

Buffets, with their diverse options and unlimited servings, are a major marketing model in China’s F&B industry and have seen rapid growth over the past decade. But with rising income levels in China, people’s dining needs have shifted from “eating enough” to “eating well”, causing the traditional buffet model to gradually lose its appeal. 

An F&B report released by Meituan showed that there were over 37,000 buffet businesses in China in 2016, amassing around 1.15 billion RMB in revenue and accounting for 12% of the country’s F&B industry. In 2018, the number of new buffet businesses declined for the first time and continued to fall in 2020 and 2021.

However, following China’s economic slowdown, consumers are increasingly prioritising cost-effectiveness, bringing development opportunities to budget-friendly buffet restaurants.  

The 2024 Buffet Development Report released by Hongcan Industry Research Institute pointed out that the buffet sector is characterised by affordability, lower-tier market penetration, segmentation and diversification in business model. By leveraging this model, businesses have not only effectively reduced operating costs but also successfully attracted a large customer base, enhancing service efficiency and revenue. 

The report noted that nearly 6,000 buffet-related businesses were registered in China last year, up 32.7% year-on-year. In the first seven months of this year, over 2,600 new buffet businesses were registered, bringing the total number of buffet restaurants in the country to over 60,000. 

Many established F&B brands have also incorporated the buffet model into their business. For example, Beijing fast-food chain Nan Cheng Xiang introduced a “3 RMB breakfast buffet” deal; while supermarket Wumart rolled out an unlimited “buffet canteen” priced at either 13 RMB or 19.90 RMB. In addition, various establishments such as snack bars, mala tang restaurants, bakeries and even vegetarian restaurants and noodle shops have also jumped on the bandwagon. 

In downtown Shenzhen, vegetarian buffet restaurant Su Man Xiang is always bustling with customers during lunch and dinner. Some diners are even willing to wait up to 30 minutes just to have a 29 RMB buffet. Most of the diners queueing up are the middle-aged and elderly, but there are also many white-collar professionals in business attire during weekdays. 

Huang, an office employee working nearby, said in an interview that he visits Su Man Xiang once or twice a week. “They offer a plethora of dishes at affordable prices. At this price point, I no longer feel the need to eat until I get my money’s worth,” he noted. 

Zhang Xiaoduan of the Cushman & Wakefield Research Institute pointed out in an interview that China’s F&B industry displays clear cyclical characteristics, where certain types of cuisine may experience rapid popularity for a period, only to quickly decline afterward. 

She said, “The cycle in first-tier cities is even shorter because of intense competition. Once a particular category successfully enters the market, many similar businesses will follow suit and flood the market.”  

Zhang thinks that the survival of the Chinese F&B industry lies in continuous innovation and exploration. This involves adjusting business strategies and even incubating new brands to set trends.

“Essentially, the F&B businesses that were eliminated mainly faced their end due to losses. But the deeper reason is that they couldn’t keep up with the times,” she noted.

This article was first published in Lianhe Zaobao as “经济放缓市场竞争加剧 中国餐饮业冷风中熬出路”.

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