In Beijing, profits of catering companies with annual sales of over two million yuan (US$280,750) fell to 180 million yuan (US$25 million) in the first half of the year, a year-on-year decline of 88.8 percent.
Profit margins, a measure of the company’s profitability, have also fallen to as low as 0.37 percent, according to Beijing’s municipal statistics bureau.
The price war reflects the general trend of consumer devaluation
The situation is even worse for Shanghai’s catering establishments: companies with annual sales of over two million yuan suffered a loss of 770 million yuan in the first six months of the year, compared with a profit of 1.7 billion yuan in the same period last year.
Catering companies are proactively cutting their prices to attract customers, but analysts are calling on the government and industry associations to intervene to prevent a damaging price war that could hurt small businesses even more.
“The price war reflects the general trend of consumer price downgrading as citizens face lower incomes and uncertain prospects, leading to more constrained spending on food,” said Peng Peng, executive chairman of the Guangdong Society of Reform think tank.
“The price war in the catering industry will continue as long as domestic demand remains low and citizens cannot count on stable economic conditions.”
On Meituan, China’s leading foodservice platform, some caterers in Beijing are offering a burger set for 19.9 yuan ($2.8), a whole grilled chicken for 15.9 yuan and an all-you-can-eat barbecue buffet with beef for 79 yuan.
Starbucks, the world’s leading coffee brand, has also launched a beverage set for 19.9 yuan, almost half the price of its regular offering.
“Many of the restaurants that can handle price cuts are usually part of large restaurant chains because they have more established franchise, warehouse and supply systems. But this competition is damaging the market for independent businesses,” says 33-year-old restaurant owner Eric, who does not want to give his last name because of the sensitivity of the issue.
He opened a small restaurant serving Xinjiang cuisine in Chongqing in April.
“But I will never lower the prices of my food, they are already within a reasonable range and further reductions would only lead to greater losses,” he added.
“This is unfair industry competition, but I will not compromise.”
The best remedy remains the recovery of the domestic economy
Peng of the Guangdong Society of Reform also called on local governments and industry associations to issue regulations to put an end to the ongoing price war.
“The best remedy is still the recovery of the domestic economy,” Peng added.
Against the backdrop of the economic crisis at home, many well-known food and beverage manufacturers have already reported gloomy results.
On Monday, the well-known Taiwanese restaurant chain Din Tai Fung announced that it would close 14 of its restaurants by the end of October, including in Beijing and Tianjin.
According to Linkshop, a Zhejiang-based retail information platform, at least 74 food and beverage brands in China announced the closure of over 400 stores in the first half of the year.
