The original article was published in the “United Daily News” on 20th Feburary 2020
Today the epidemic looks slightly stable in areas other than Hubei (located in central China) and many restaurants in Shanghai and Beijing are reopening in late February.
Amid the Chinese New Year vacation the epidemic caused a loss of 500 billion CNY (ie 71 Billion USD) retail sales for restaurants, with more than 6 million of them being affected.
A report published by Meituan Research Institute in early February showed that 78% of restaurants have lost more than 100% of revenues and 95% of them have lost over 70%. In terms of capital shortage 90% of restaurants already have a shortage of funds, 60% of restaurants can only survive for 3 or 4 months and 15.3% of them have a clear plan to close the business. Recently nearly 30% of restaurants have switched their business to takeaway, accelerating online food industry.
Haidilao hotpot | Haidilao US
Haidilao hotpot <6862.HK> – a restaurant tycoon of China – finally announced that branches in Beijing and Shanghai will restart in the middle of the month after shutting down for 20 days with a loss of 1.1 billion CNY (ie: 156 Million USD) as estimated by China Times.
As a domestic restaurant giant, Xibei Group, specializing in Northwestern food, has received a 120 million CNY cash flow loan from Shanghai Pudong Development Bank.
Meanwhile incomplete statistics show that there are already more than a dozen investment institutions with a capital of no less than 30 billion CNY waiting to take over food industry. Big brands exploit new markets and gain new space with mergers and acquisitions.
NAPA, a restaurant featuring French contemporary cuisine on the bund of Shanghai
Many restaurants are required to shut down or delay business facing a still severe situation. However, even if they reopen resturants, guests do not necessarily go to visit. Employees are forced to take unpaid leave, cut salaries or even get unemployment.
Takeaway trade serves as a sheet anchor for restaurants. People used to refuse takeaway gradually become targeted customers. Previously it was only reunion dinner that could be delivered at high prices while now more semi-produced food is in demand with competitive prices.
Zhu Jun – founder of The Hut in Shanghai, featuring Huaiyang food – said that the ongoing epidemic might not end till June, making restaurants which haven’t been used to offer delivery service in. Actually high-end restaurants limited by products and cooking technics, find it difficult to provide takeaway service. In the long run takeaway form will alter China’s food consumption.
The original Xin Rong Ji in Linhai
Pu Shiqiu – the vice president of China’s upmarket restaurant magnate XINRONGJI – told me that a large amount of ingredients originally prepared for guests during Chinese New Year was offered to its members instead at a nearly purchasing price at the beginning of the outbreak. Family banquet, provided in the past, ceased due to the epidemic. Two restaurants in each district were initially operated, but were unable to continue under government regulations. XINRONGJI, as an upmarket restaurant, has no plan to sell online. Unwilling to publicize much, this low-key company terminates all publicity in face of this virus. In February, only the Shanghai Bund Store was open, the most popular Nanjing store offered takeaway. As for Beijing, the three-star Bulgari branch kept operating, while another branch was not necessarily able to restart because number of people dining was restricted max to two. Now in March, almost all branches have reopened. For XINRONGJI capacity and capital is crucially important.
Priscilla Young, co-founder of Brut Eatery – a western food chain in Shanghai – said the restaurant revenue plunged despite the number of delivery orders rose slightly. Honestly takeaway service makes little profits and cannot not make ends meet. Brut Eatery launched group orders for companies in mid-February, providing safer delivery service for different groups in order to help people back to work.
In second half of the year I expect restaurants with better capital flow will survive while companies with too much leverage will run the risk of going out of business. Obviously it will be a big turning point for restaurants. Currently the Restaurant Association advocates online and offline rent reduction, calling on all takeaway platforms to reduce their commissions and all landlords to reduce rents. Compared to employees’ salaries a larger part of the expenditure lies in expensive rents. From my point of view rent reductions or some rent-free will save companies lots of trouble. Currently there are dozens of capital operation with more than 30 billion CNY looking to merge or purchase these high quality enterprises that cannot survive the crisis.
One thing I have to mention is that the Chinese government is giving great support to restaurants. China’s state-owned leased land has reduced a lot or even temporarily cancelled rent for enterprises. In the past many restaurants thought that foreign lease management was more complete but this time the rent reduction pales in comparison with state-owned land. This is also an unexpected but very pleasant situation for tenants !
I’m convinced that many companies that survive through this epidemic will also experience an evolution. Shanghai will be definitely the first revitalized city in Asia.
Jocelyn Chen has received Master degree of SDA Bocconi Business School in Milan, Italy. She is the founder of fine dining media tastytrip.com She also acts as judge for many renown food competitions and awards. She was one of the judges of “Chef Nic”, the popular cooking show in China and the moderator of chef documentary “Banquet Planet”. Columnist of Taiwan Economic Daily News, United Daily News and several lifestyle magazines in China. All articles are published on tastytrip.com.