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As many as 15% of restaurants in China close down every month as the catering and dining industry heads off to its worst year since 2003, when the SARS pandemic battered the industry, the China Cuisine Association said.
Major restaurant chains reduced new openings to just 20% to 30% of their initial goals in the first half of this year, and homegrown fast food businesses reported a less than 8% profit margin on average during the same period, data from the association show.
Growth in restaurant receipts in Shanghai slid to an average of 8% last year, the first time the rate has dropped into single-digit territory in years, Jin Peihua, deputy secretary of the Shanghai Cuisine Association, told Yicai.com. Industry margins in most first-tier cities have dipped below 7% and are even lower in other cities, Jin noted.
Restaurant receipts in Beijing were up 14.7%, 9.6% and 9.4% respectively in the three months to May, indicating a gradual slowdown and a huge drop-off compared with the corresponding months a year ago, according to the city's statistics bureau.
In comparison, in recent years rents for restaurant operators in China have risen 8% annually, while labor and raw materials costs have shot up 10% or more, leading to widespread closures, the China Cuisine Association said.
Three quarters of restaurants in Hunan province hovered around the breakeven point, and 30% had difficulty making ends meet. Restaurants in Xiamen, Fujian province, reported an average margin one-third that recorded three years ago, while only 30% were operating in the black.
Beijing Xiangeqing Co (SHE: 002306), the first and one of the few listed restaurants in China, delayed openings of high-end restaurants and acquired some Chinese fast food brands earlier this year to "make money by quantity".
Foreign fast food giants were also not immune to the overall downturn. Yum Brands Inc (NYSE: YUM) said its profitability from China slipped four percentage points last year as a result of rampant inflation.
@2011 China Economy @ The China Perspective.
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