Going hungry

By Chen Yang Source:Global Times Published: 2012-9-5 22:30:03

Tang Jia was disappointed when she prepaid 49 yuan ($7.7) for a meal via 55 tuan.com, a popular group-buying website, and then found the restaurant had been closed down.

"I called the restaurant but no one answered the phone. Then I went there Saturday evening and found the restaurant had been shut down," said the 27-year-old consumer in Leshan, Southwest China's Sichuan Province.

"I contacted the website's customer service department and a staff member told me they would return the money to my account soon," she told the Global Times. "The money is not much, but it did interrupt my weekend plan. I had to find another restaurant and almost missed the film I was going to see."

Tang's experience may have been frustrating, but it's a reflection of the troubled state of the country's catering industry, which is facing its biggest slowdown in nearly a decade.

Restaurant owners' misery

Restaurant owners have complained that their profits have been squeezed by inflation and declining turnover.

Li Mi, who has been running a Yunnan-style restaurant in a hutong (narrow alley) in Beijing for four years, found the situation this year has been particularly challenging.

"My restaurant just started to make a profit last year, but this year I have had to cope with increasing costs and a shortage of labor," she told the Global Times.

Li has just renewed the rental contract for another two years, and the rent has doubled compared with the previous contract. "The house owner now prefers to sign contracts for a shorter period, as the rent has kept rising in Beijing," she noted.

Labor costs are also rising. "I raised my chef's salary to 3,000 yuan per month this year from 2,000 yuan per month last year," she said. "It is also difficult to recruit staff, even if I offer them 2,000 yuan per month, so now I hire hourly workers to help at the peak times."

Costs of other items such as edible oil and gas are rising too, but Li can't raise prices at the restaurant too much, as she's afraid that it would put customers off. "Our customers are mainly young people, who are more sensitive to price rises," she said.

Also, customers are spending less than before. The restaurant can only accommodate around 30 people at one time, but some customers only order a few dishes and then sit there chatting for a long time.

"It's good that customers treat here as a comfortable place for meeting friends, but it is not good for my profits," Li said.

Industry downturn

Li may be suffering, but her business is still in better shape than many small restaurants across the country.

In Hunan Province, one-third of the small and medium-sized catering companies are finding it difficult to survive and many are on the verge of closing down, according to the Hunan Cuisine Industry Association.

In Xiamen, a popular tourist destination in Fujian Province, the monthly shutdown ratio of local catering companies is as high as 15 percent, the China Cuisine Association (CCA) said in a report published in August.

In general, the growth rate in the domestic catering industry has slowed down by 3 percentage points in the first half of 2012 from the same period in 2011, the worst performance in nearly a decade, the report said, noting that the situation will not improve in the second half.

"Small restaurants are struggling with rising costs, while the main challenge for larger companies is decreasing turnover," Tian Guangli, an expert at Beijing-based consultancy Longce Think Tank, told the Global Times.

Tian said that demand for commercial and official banquets has dropped significantly this year due to the country's economic slowdown and stricter control by the government over the use of public funds.

High-end restaurants have also felt the pinch. X.E. Flavor, a Shenzhen-listed company, changed its goal to open three high-end restaurants this year to just two, and it has also expanded into the fast-food sector and group catering services.

Other high-end names like Shunfung Seafood, Changsheng Abalone Restaurant and Wuyutai Restaurant have begun to sell low-priced lunch deals to attract more customers.

The CCA's report also said that the average profit margin at homegrown fast-food chains dropped to 8 percent in the first half.

Ajisen Ramen, a Hong Kong-listed noodle restaurant chain, reported an 82 percent year-on-year decrease in its net profit to 46.9 million yuan in the first six months of 2012. Last year, the food chain was accused of lying about the ingredients in its noodle soups.

Foreign fast-food chains have also been affected by the slowdown. Yum Brands Inc, which owns more than 3,900 KFC branches and almost 700 Pizza Hut restaurants in the mainland, reported strong sales growth but lower-than-expected profit in the second quarter, as higher costs cut into profit margins.

Lobby for support

The CCA has called for a cut in turnover tax rates for restaurants and catering companies to 3 percent from the current 5 percent, as well as lowering bank card transaction fees in the catering industry.

Currently, China UnionPay charges companies in the catering sector a fee of 2 percent of the transaction revenue, higher than in other service sectors such as retail and airlines.

"Some small restaurants tell customers that they only accept cash, because they want to avoid bank card transaction costs," Tian said.

Catering companies are also calling for more policy support. For instance, 25 companies in Haikou, capital of Hainan Province, have called on the local government to cancel the imposition of a new price adjustment levy for the catering industry.

However, some experts have said that lowering taxes or transaction fees will not solve the catering industry's problems.

"The fast growth of the catering industry in recent years has brought problems such as food safety scandals, as well as poor management and low efficiency," said Zhao Jingqiao, an expert specializing in the catering industry with the Chinese Academy of Social Sciences.

"Restaurant chains can lower rental costs by setting up central kitchens, and the government can provide related policy support to encourage the move," he said.

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