China’s Restaurant Industry Faces Collapse Amid Economic Deflation
China’s restaurant industry is facing severe challenges amid economic deflation, with 3 million establishments closing in 2024. Consumer inflation has fallen significantly, prompting aggressive price wars. Many new restaurants are struggling to survive, with average lifespans dropping due to fierce competition, particularly in major cities.
In the face of a challenging economic landscape, China’s restaurant industry is experiencing significant turmoil, with a record 3 million establishments shuttering in 2024. The situation has been exacerbated by a swift decline in consumer inflation, particularly highlighted in February 2024, prompting a fierce price war among food providers. This economic downturn has compelled restaurants to offer remarkably low prices for menu items, such as coffees for 9.9 yuan and set meals at 99 yuan, making it difficult to maintain profitability.
Businessman An Dawei, who sells used kitchen equipment, observed that entering the restaurant business has become increasingly risky, with a high likelihood of failure for new entrepreneurs. Many restaurant owners invested their life savings on the assumption of an economic recovery post-COVID-19, only to be confronted with a contracting market. An noted that restaurant closing rates in major cities exceeding 10% monthly illustrates the gravity of the situation.
The reality of the restaurant industry is such that its average lifespan is now around 500 days, and in major urban centers like Beijing, profits have plummeted by 88% in the first half of 2024. Analysts, such as Zhu Danpeng, have identified mid-range restaurants as particularly vulnerable due to their lack of cost-effectiveness, which has compelled many to reduce their menu prices significantly.
As competition heightens, even establishments with previously stable customer bases find themselves in precarious positions. Amidst claims of strategic efforts by Chinese officials to address destructive competitive practices, the restaurant sector remains a prominent example of these dynamics at play. Conversely, while overall revenue in the food and beverage industry increased slightly to 5.3% in 2024, this is a stark decline from the prior year’s figure of 20.4%.
The current state of China’s restaurant industry reflects the broader challenges posed by an unstable economy characterized by deflation and high closure rates. With millions of closures and fiercely competitive pricing strategies, the future of the sector appears bleak. As establishments vie for survival, the quality of offerings may decline, leading to an adverse cycle benefiting neither consumers nor restaurants in the long term.
Original Source: www.tradingview.com
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