Hong Kong’s South China Morning Post (SCMP) reported on the 28th that restaurants forced into price competition are struggling to survive as consumers close their wallets amid China’s economic slowdown.
Local catering companies, whose annual sales exceed 2 million yuan, posted a sharp 88.8% year-on-year first-half profit of 180 million yuan, according to Beijing city authorities data this month. Profit margins, a gauge of profitability, also plunged to 0.37%.
The situation in Shanghai is worse. Catering companies with annual sales of more than 2 million yuan in the city posted a deficit of 770 million yuan in the first half of the year, in stark contrast to 1.7 billion yuan in profit a year earlier.
Liaomo, who has run five Sichuan-style restaurants in Shenzhen over the past three years, has closed four of them this year due to continued profit declines.
He told SCMP, “As the entire restaurant industry is in price competition, I am cutting the price of food in the remaining one restaurant.”
“People who run restaurants in major Chinese cities have faced greater challenges to survive, suffering sharp drops in profits and financial losses due to fierce competition amid poor economic prospects,” the SCMP said.
“Restaurant companies are actively lowering prices to attract customers, but analysts have urged the government and industrial agencies to intervene to prevent a price war that could add damage to small businesses,” he added.
“The price war reflects a situation where residents are more restricted in spending on food in the face of falling wages and uncertain prospects,” said Feng Feng, chairman of Guangdong think tank Guangdong’s Guangdong System Reform Research Society. “The restaurant industry price war will continue as long as domestic demand is still low and residents cannot expect a stable economic situation.”
According to Meituan, a Chinese food service platform, some restaurants in Beijing are offering burger sets for 19.9 yuan, grilled chicken for 15.9 yuan (about 3,000 won), and beef barbecue buffet for 79 yuan.
Starbucks also released a 19.9-yuan drink, nearly half the price of the regular menu.
Famous food and beverage chains are also reeling from the slowing domestic economy.
On the 26th, Din Tai Feng, a famous Taiwanese restaurant chain, announced that it would close 14 stores in China, including Beijing and Tianjin, by the end of October.
At least 74 food and beverage brands in China announced the closure of more than 400 stores in the first half of the year, according to the retail information platform Linkshop.
SOPHIA KIM
USASIA JOURNAL
