China’s economy continues to struggle, with first-tier cities like Beijing experiencing widespread pressure on consumption in the first half of this year, particularly in the catering industry. In Beijing, the total profit of the catering industry above a certain scale decreased by 88.8% year-on-year, with a profit margin as low as 0.37%, leaving over tens of thousands of business owners grappling in a price war.
On August 26, the Shandong state media, Economic Observer, posted an article titled “Struggling with Micro-Profit in Beijing’s Catering Industry” on its WeChat public account, sparking market attention.
According to the article, veteran in the catering industry, Zhang Yiwen, noticed a sudden change in the Beijing catering market in the second half of 2023. Starting from the fourth quarter last year, the monthly revenue of his Japanese barbecue restaurant dropped from over 1.5 million yuan to around 1 million yuan. This trend worsened this year, with monthly revenue gradually decreasing to around 700,000 yuan. The restaurant’s net profit per month has plummeted by nearly 80% compared to the first half of last year.
Tang Junzhang, Chief Marketing Officer of Burger King China, mentioned that during the pandemic, the catering industry faced cash flow difficulties. At that time, restaurants believed it was a short-term phenomenon. In September and October last year, there were fluctuations in consumer demand. Initially, operators thought that after a quarter, business would slowly return to strong growth, but after waiting for almost half a year, the focus now is no longer on immediate survival, but rather on how to make “quality” changes to their operations in such an economic environment.
According to Beijing’s statistics bureau data cited in the article, in the first half of 2024, the total profit of the catering industry above a certain scale (with annual revenue of over 10 million yuan) in Beijing was 180 million yuan, down by 88.8% year-on-year, with a profit margin as low as 0.37%.
Liu Zheng, Marketing Director of Xiao Diaolitang, stated that in order to maintain daily operations, the net profit margin of catering enterprises needs to be kept at a minimum of 5% to 10%. If restaurants continue to operate below this profit margin, any small wrong decision could lead to the collapse of the financial chain. Even chain restaurants, under such low profit margins, may have to close their more loss-making stores.
The article highlighted the dilemma faced by over tens of thousands of catering business owners in Beijing, whether to stay and continue “internal circulation,” or to exit and survive. Zhang Yiwen’s approach is to adapt to market trends. He said that the initial investment in opening the restaurant has already been recouped. If the restaurant faces a financial crisis in the future, he will immediately stop loss rather than continue to “blood transfuse” to the restaurant. Over the past few years, he has witnessed many friends selling their houses and cars to sustain the operation of upscale restaurants, eventually losing all their assets.
Zhang Jun, who has been running a restaurant for 6 years, said: “To enhance competitiveness, restaurants are forced to engage in price wars. As individual restaurants that operate independently, they cannot eliminate many competitors through this means, but are more likely to become cannon fodder in this price war.”
Zhu Danpeng, a Chinese food industry analyst, stated that since the fourth quarter of 2023, consumers’ extreme pursuit of value for money has become a trend. After 2024, influenced by macroeconomic fluctuations, consumers’ confidence, willingness, and ability to spend further declined, leading to an increased rigid demand for value for money.
Zhang Liqun, a researcher at the Development Research Center of the State Council of the PRC, mentioned that this year, the cumulative growth rate of national consumption has been continuously declining. This indicates that residents have become increasingly cautious in spending money due to the expected decline in employment and income. In first-tier cities, improvement-oriented and fashionable consumption usually dominate, making the consumption growth rate more elastic. Currently, the consumption growth rate in first-tier cities is decreasing, and even showing negative growth, indicating a more obvious trend of shrinking demand driven by the market.