Restaurants in key Chinese cities have suffered steep losses in the past few months
The rapidly slowing catering industry in China shows Chinese consumers are not dining out as much as before. This is having a direct impact on MNCs related to the general food and drinks industries. The slow recovery in Shenzhen indicates that they should abandon any hope that their businesses in China could recover soon. Instead, they should revise down revenue projections for this year and plan for a long and bumpy recovery.
Furthermore, the impact goes beyond just the food industry. What’s happening in catering right now offers insight into a broader picture of how zero-COVID policies will continue to cause sporadic, targeted lockdowns in big cities even after reopening. B2C firms, especially those that rely heavily on in-person shopping experiences, should take particular note of this trend, because their offline operations are still subject to unpredictable disruptions, such as shop closures, staff shortages, or limited foot traffic. The normalization of some COVID containment requirements, such as regular testing and health code scanning, will also lead to extra costs. Firms need to be prepared for that.
Chinese consumers are very adept at online shopping, but offline shopping is not going to disappear. The fact that more and more restaurants and bars are moving into shopping malls shows where the potential customers are. It’d be helpful if firms could keep an eye on the customer flows to shopping malls, identifying those with higher and quicker-recovering traffic. It makes sense to follow the customers.
Overview
Stiff lockdowns across China’s largest and most populous cities—Beijing, Shanghai, and Shenzhen—forced almost all their restaurants, bars, and canteens to shut down for various lengths of time, from a few weeks to several months. No in-person dining was allowed during the lockdowns, and very few restaurants were allowed to offer delivery services. Even after reopening, most restaurants in these cities are still not allowed to service customers in-person due to government rules aimed at reducing risks of renewed outbreaks.
Our View
While the catering industry accounts for a small portion of the economy in Beijing, Shanghai, and Shenzhen, its revenue is a useful indicator of broader consumer sentiment. In large cities, Chinese consumers’ evolving habits and preferences have prompted more and more restaurants and bars to move into shopping malls, where consumers can spend time shopping, eating, and drinking in one place. They are also meeting friends and having social gatherings in shopping malls too, as there are abundant choices of restaurants and bars there. The foot traffic brought into the malls by restaurants and bars, therefore, is crucial to retailers vying for consumers’ attention. The loss of this traffic as a result of lockdowns is not only hurting the catering industry itself, but is also detrimental to a wide range of brick-and-mortar retailers. Given that China will continue implementing its zero-COVID approach into next year, the recovery of the catering industry will be slow and bumpy, as demonstrated by what happened in Shenzhen. That will, in turn, slow the recovery of consumption overall. After the lockdowns are lifted, there’s not likely going to be “revenge spending” like what happened in 2020 when the first wave of the coronavirus was successfully contained. The recovery of consumption will not be a V-shaped one—a U-shaped one is more likely.
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