New trends and diversified operations key to restaurant chain survival
New trends in various industries have attracted attention of deputies at the ongoing Two Sessions in China. For the restaurant industry, it is important to diversify and innovate, especially against the background of the pandemic.
Market uncertainty and shifting consumer preferences are again underscoring the importance of diversifying business operations for restaurant chains.
Both established and new restaurants are setting trends, but those no longer deemed fashionable are falling by the wayside.
Yum China recently said it would cease operations of East Dawning, a Chinese-style, quick-service restaurant that has been severely affected by the COVID-19 pandemic.
The restaurant chain opened its first store in Shanghai in 2015, and so far there're only five remaining outlets in the country which will close this year.
Food demand in transportation hubs has fallen sharply during the pandemic because of less foot traffic.
While other Yum Chinese cuisine brands such as Little Sheep and Huang Ji Huang have also experienced difficulties during COVID-19, the company decided to focus its resources on the hot pot brand, according to Yum China Chief Executive Officer and Director Joey Wat.
Li Ling, a consultant with local retail news portal Linkshop, said a successful restaurant brand requires a strong operational network and promotional activities as well as a signature and appealing product.
"It's not easy to replicate the success of a quick service brand," she said.
Other established brands are also experiencing challenging times.
Hotpot restaurant chain Haidilao International warned of a 2021 net loss of 3.8 billion (US$600 million) to 4.5 billion yuan, compared with a net profit of 309.5 million yuan in 2020.
Less than satisfactory business performance forced it to close or suspend more than 300 restaurants in 2021, and market watchers said its store expansion plans in previous years were premature.
Last year, total revenue for China's restaurants had not yet returned to pre-pandemic levels despite 18.6 percent year-on-year growth and 4.69 trillion yuan in total revenue, according to a report released by the China Cuisine Association in January.
Meanwhile, more coffee shops and hotpot restaurants have sprung up in recent years, as diners expect a range of options.
Even established brands are taking on new looks, decorative styles and exterior design patterns to cater to diners' preference for relaxing and refreshing dining environments.
KFC's new canteen in Xuhui District that's decorated to resemble a retro 1950s American fast-food joint was a hit with people who like to dine outdoors.
Riverside green spaces have been particularly appealing for those who have pets and enjoy outdoor sports.
Christine Peng, head of China Consumer Sector at UBS Investment Research, remains cautious of the general business performance of restaurant chains as many shoppers shifted toward home dining and food delivery services and foot traffic has not yet fully returned to pre-pandemic levels.
Many dining service providers also made premature expansion moves in 2020 and short-term store closing in the past year has taken a bit toward the overall financial performance.
Shanghai has been home to signature, unique local food and new dining options for many years.
Data Quest China, a local commercial property consultancy, said that as many as 60 percent of the new stores that opened for the first time in the city in the past year are restaurants and food and beverage vendors.
The city has attracted 1,078 new brands and retail stores in the past year, a year-on-year increase of 18 percent.
The city's accommodation, restaurant and catering industries posted a 22.7 percent increase in revenue to 1.46 trillion yuan in 2021.
The latest opening in the city by Hong Kong-listed Jiumaojiu International Holdings was Song Chongqing Hot Pot Factory in mid-2021, as the company diversified its brand portfolio.
In Jiumaojiu's preliminary earnings report last month, it expected 330 million yuan of profit in 2021, more than double 2020's 124 million yuan figure, while revenue increased 51 percent to 4.1 billion yuan.
Tai Er canteen, which serves spicy and sour fish, and Song Chongqing Hot Pot Factory make up the majority of its business portfolio among a total of five canteen brands.