Tang Guozhen plans to return to Beijing to open a restaurant this June, even though higher labor costs and rents are making it harder to run a catering business these days.

The 50-year-old woman started a restaurant in Beijing with her husband and daughter in 2010. But they returned to their hometown, Lichuan in East China's Jiangxi Province, to look for an easier business in January 2012, because they had become exhausted after working 12 hours every day for two years in Beijing, without even a break at the weekend.

However, Tang found that it was not as easy as she had imagined to run a restaurant in her hometown because there were fewer customers, so she decided to return to Beijing.

The prices still came as a nasty surprise. "The average rents in Beijing outside the Fourth Ring Road rose by at least 15 percent (within just one year)," Tang told the Global Times Tuesday.

What Tang finds even more frustrating is the higher labor costs.

"I have to pay around 3,000 yuan ($488) for a waitress or waiter each month, a 20 percent increase (year-on-year), as well as paying for their accommodation and three meals every day," Tang said.

It's not only small restaurant owners like Tang who are feeling the pressure. Larger restaurants are also facing the same challenges.

For large restaurants in Beijing - or ones that have annual sales of over 2 million yuan - 15 percent of them went bankrupt each month last year, the Beijing Municipal Bureau of Statistics said in a report last week.

Various costs rise

A shortage of labor has become a common problem for the capital's restaurants.

Walking along Guijie street in Beijing, which is renowned for its many Chinese restaurants, it is common to see recruitment notices for wait staff and chefs on the doors and windows of the restaurants.

"(The salary of) 2,500 yuan per month is not high," a woman of around 30 years old who was reading one of the advertisements, told the Global Times Monday.

The woman, surnamed Wang, is from Xianyang, Northwest China's Shaanxi Province. She said some of her friends and relatives who came to Beijing two years ago to look for jobs had gone back to their hometowns due to the rising prices of consumer goods and the working pressure in Beijing.

Wang said she will probably also leave Beijing in a few months, as her hometown has seen fast development in recent years and there are more job opportunities than before.

Normally, rent and labor costs account for around 60 to 70 percent of the total gross profits of large restaurant companies that are listed on stock exchanges, Zhao Jingqiao, a catering expert with the Chinese Academy of Social Sciences (CASS), told the Global Times Tuesday.

"Labor costs will increase nationwide in the future, not only in Beijing," Zhao noted.

 Restaurants also face rising prices of food ingredients and high taxes such as turnover tax, Bian Jiang, spokesman for the China Cuisine Association (CCA), told the Global Times Tuesday.

A report from the CCA last Month showed that sales revenues at restaurants nationwide increased by 8.4 percent in the first two months year-on-year, 4.9 percentage points less than in the same period of last year. And the sales revenue of large restaurants - with annual sales of over 2 million yuan - dropped 3.3 percent in the same period year-on-year.

Poor management

China has a history of catering spanning thousands of years, with numerous distinctive cuisines and dishes. However, restaurants with a large scale and modern management have only emerged over the last few decades.

"Many Chinese restaurants lack management skills and are still in their initial development period," Bian said.

Wang, the job seeker, said that many restaurants in Beijing "don't pay insurance for the employees, which is another concern for me."

Facing soaring costs of rent and labor, some restaurants have realized that improving their management is the only way to survive.

"We set up a comprehensive mechanism for evaluation and encouragement of employees to avoid fast employee turnover," Chen Liuwen, marketing manager at Mystic South Yunnan Ethnic Cuisine, a restaurant chain in Beijing, told the Global Times Tuesday.

Most of the wait staff at Mystic South Yunnan are from Southwest China's Yunnan Province, and as well as paying for their accommodation, three daily meals and insurance, the firm also promises them promotion opportunities if they work hard. "So far our team is stable," Chen said.

Transformation needed

Mystic South Yunnan was launched in 2009 by four young men, and developed into seven chain restaurants within only four years.

They plan to expand further "as it is one of the best ways to reduce the company's total operation costs," Chen said.

Some other restaurant owners are also developing a new business style.

Beijing No.8 School Hotpot is decorated like a classroom in the 1980s, and it only serves people who were born between 1980 and 1989 by checking their ID cards.

Even though challenges are growing, Zhao said the transformation of China's catering industry offers a good opportunity.

"Mergers and acquisitions and fast expansion of chain restaurants will be the trend," he noted.

Yum! Brands Inc, one of the world's largest restaurant companies, announced in February 2012 that it had completed the acquisition of the country's hot pot giant Inner Mongolia Little Sheep Catering Chain Co.

It's a win-win deal, said Zhao, because Yum can be more rooted in China and Little Sheep can gain an advantage in expanding into overseas markets by becoming a unit of an international food chain.

Lu Wenbing, former president of Little Sheep, told the Global Times Tuesday that selling the firm doesn't mean that he is disappointed in the Chinese catering market. On the contrary, he is seeking other investments in the sector.

"The Chinese catering market is huge and has great growth potential," Lu said.

But Lu noted that transformation of the industry is needed.

"Fast-food chains and dining with special themes and characteristics will become a trend because of the fast development of urbanization," he said.

He also said upscale restaurants should shift their focus to the mass market in the future in the wake of a central government crackdown on extravagant dining by officials with public money.

For the owners of small-sized restaurants like Tang, they also need to consider innovations in their management and dishes, and dealing with rent and labor costs.