The economic slowdown in China is hitting more sectors. The latest is food and beverages, restaurant operators, etc.
Food & beverage businesses in China have been, like other parts of the economy, facing the problems of increasing wage and other costs. And now, with the economic slowdown, revenues are down across different parts of the country. First Financial Daily reports that 15% of restaurants closed their doors every month according go figures from China Cuisine Association. According to First Financial Daily, this sector is facing the most difficult time since 2000, with the exception of 2003 when the industry was heavily affected by SARS.
According to First Financial Daily, revenue growth in Shanghai’s food and beverages industry has fallen into single-digit territory for the first time in many years, with profit margin less than 7%. In other places, the environment is even tougher. In Hunan province, for example, 75% of the businesses are close to loss making, and about 30% of restaurants are on the verge of closing down, citing figures from industry group in Hunan. Meanwhile, in Xiamen, only 30% of companies currently have profits.
Listed restaurant operators are reporting weaker numbers, predictably. Ajisen (0538.HK) recorded –24.5% same store sales growth in China according to Goldman Sachs (and probably has never been able to recover from the scandal of using powders to make soup). Yum! (YUM.N), which operates KFC and Pizza Hut in China same store sales growth in China is also slowing with margins falling to “the lowest level in several years” according to a recent note from Goldman Sachs. Meanwhile, we noted earlier that even McDonald’s are offering discounts in Beijing as sales slow.
The difficulties many restaurants operators face are not unique to the industry. The increase of wages as well as rents in the past few years have predictably lowered the profit margins of many of these businesses, not to mention food inflation, which is a recurring theme in China every once in a while (and it could be returning again very soon). Together with the slowing economy which, we speculate, will probably reduce some people’s interest in dining out, restaurant operators are, like many other sectors in China these days, feeling the pain.