Millions of Chinese Restaurants Close: Why?

Price wars during difficult economic times have forced many Chinese restaurants to close - Photo: REUTERS

According to Reuters, in China, the restaurant industry is facing unprecedented pressure as a series of eateries have had to close due to fierce price competition and increasingly tight-fisted consumers.

In the context of a slowing economy, restaurants are not only under pressure from high operating costs but also forced to reduce prices to attract customers.

This has created a vicious cycle where only those businesses that are able to cut costs aggressively can survive.

Price war

Entrepreneur An Dawei, 38, who sells used kitchen equipment, has seen an unprecedented increase in the number of failed restaurants over the past year.

"For the average person, opening a restaurant is almost certain to be a failure," he said.

According to data from the Qichacha business registration system, the number of food service companies dissolved nationwide in 2024 reached nearly 3 million - a record high. Mr. An's company alone dismantled 200 restaurants per month, up 270% from the previous year.

"In major cities like Beijing, Shanghai, Guangzhou and Shenzhen, the monthly restaurant closure rate exceeds 10%, and at times even reaches 15%," he said.

Many restaurant owners bet their entire savings on a strong economic recovery from the COVID-19 pandemic, only to see consumers tighten their spending as the national economy falters.

This has sparked a price war, where food vendors are selling coffee for as little as 9.9 yuan ($1.62) or a meal for four for just 99 yuan ($13.77).

Businessman An Dawei next to kitchen equipment that his company bought from closed restaurants - Photo: REUTERS

At a deserted shopping mall near Beijing Olympic Park, the manager of a bakery chain said his store failed after 14 months of operation due to high rent (about $6,900 a month) and low customer base.

"Right next to us, there are shops selling similar products, although the quality may not be as good, but they are cheaper. Of course, normal customers will choose the cheaper place," he said. "People don't have money, or if they do, they have to spend more frugally, because it's very difficult to earn money now."

Consumers suffer

According to analysts, the average life cycle of a restaurant in China is only about 500 days, and in Beijing that number drops to just about a year.

City government data shows that restaurant net profits fell 88% in the first half of 2024, leaving many businesses barely able to stay afloat.

This situation is exacerbated by the rise of small business models such as bubble tea shops and bakeries, which require less investment in equipment and premises. Meanwhile, the remaining restaurants are forced to sharply reduce their profit margins to stay afloat.

Among them, restaurants with prices of 100-120 yuan/person (14-17 USD) are the most likely to go bankrupt, caught between the pressure of cheap prices from large chains and the trend of frugal spending of consumers.

Over the past year, Mr. An's business has dismantled 200 restaurants per month, an increase of 270% compared to 2023 - Photo: REUTERS

According to Mr. An, many restaurant owners have had to lower the cost of meals to 70-80 yuan per person to be able to compete.

At a meeting in March, Chinese officials pledged to clamp down on excessive competition that has led to market saturation. But the restaurant industry remains one of the hardest hit.

In 2024, the revenue growth rate of China's food and beverage industry will slow to just 5.3%, much lower than the 20.4% of the previous year.

“This competitive cycle will eventually hurt consumers,” An warned. “When restaurants can no longer afford to lose money, they will look for ways to increase profits, and the only way to do that is to reduce the quality of ingredients.”

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