TOP-PRICED dishes including oysters and sashimi have long been favourites among discerning diners at upscale Western and Japanese restaurants in Beijing and Shanghai – two of China’s biggest and most cosmopolitan cities.
But an uneven economic recovery, intensified competition from more affordable eateries and supply chain challenges exacerbated by Japan’s controversial discharge of nuclear-contaminated wastewater into the sea mean these restaurants are falling out of favour.
Consequently, more diners are instead opting for cheap eats, like noodles, buns or grab-and-go food as they draw the purse strings tighter.
Since the beginning of this year, several upscale restaurants in Beijing and Shanghai have abruptly shuttered operations, including Refer, a trendy Nordic dining spot, and Opera Bombana, a Michelin-starred Italian restaurant, both in the capital.
Meanwhile, Kor, a high-end bar in the financial hub of Shanghai, was also forced to close in April.
The shutdowns reflect a broader trend of declining popularity for high-end restaurants in China’s big cities.
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From May 10, 2023 and July 21 this year, more than 1,400 restaurants with an average spend of more than 500 yuan (S$91.70) per person in Shanghai were shuttered, driving down the proportion of fine dining restaurants to just 0.59 per cent of the city’s total eateries, according to data from industry tracker Hongcan.
“As consumers become more prudent in their spending, many people are reconsidering what they truly need,” said Lu Ruixun, the director of the China food and beverage research team at Mintel Group.
A February survey by Mintel indicated that the number of Chinese consumers who are “very eager” to enjoy fine dining declined, contrasting with the year before Beijing abandoned its strict “zero-Covid” policy, when demand for fine dining was on the rise.
In order to navigate these leaner times, restaurants are redesigning their business strategies to win back customers as consumer demand weakens.
More budget-friendly openings
The scrapping of the “zero-Covid” policy in late 2022 led to a rebound in dining out, with budget-friendly restaurants attracting much of the resurgent demand.
The food and beverage industry has reported a recovery in growth this year in terms of scale.
Calculated by area, about 39 per cent of new store openings in China’s major shopping malls during the first half of 2024 were restaurants, compared with 35 per cent in 2023, said Sheng Xiuxiu, a research director at real estate consultancy Jones Lang LaSalle, citing industry data.
Of the newly opened restaurants, those with an average order value (AOV) of no more than 100 yuan were flooded with customers, putting pressure on restaurant chains with an AOV of more than 100 yuan, which are worried about a drop in traffic, said Sheng.
AOV refers to the average amount of money spent by a customer per transaction in a retail or service setting.
In Beijing, budget-friendly restaurants are posing a bigger threat to fine dining establishments. In the first half of this year, more than 80 per cent of new openings in the Chinese capital’s major shopping malls were restaurants offering low-cost, ready-to-eat food, as well as shops selling coffee or tea, whose AOV is low, according to JLL data.
Meanwhile, some low-cost restaurant chains have begun relocating some of their stores to high-customer traffic business districts to cater to white-collar workers, reflecting a shift in consumer behavior toward more rational and cost-efficient spending, said Yao Yao, JLL’s head of research in China.
Supply chain woes
And it’s not just thrifty diners that are impacting the fine dining scene. Foreign government policies have also taken a toll.
Japanese and seafood restaurants across the country have been affected by supply chain issues caused by the release of wastewater stored at the Fukushima Daiichi Nuclear Power Station into the sea that started in the summer of 2023.
The 2011 Japan earthquake and resultant tsunami caused damage to three of the plant’s reactors, releasing radioactive material into the environment.
This situation has forced many Japanese restaurants in China to source fishery products from Europe and the US as Beijing has banned imports of all seafood from Japan. Last month, China said it would gradually resume imports of Japanese seafood, after the two countries reached an agreement over the discharge of the wastewater.
An employee of a Japanese restaurant in Shanghai said the quality of mackerel pikes and sardines imported from Spain was inferior to that of those imported from Japan, fueling their concern over customer dissatisfaction.
The manager of a Western restaurant said he was worried about a potential rise in costs if their fish imported from Europe and the US are required to be processed with the more expensive ikejime method, designed to maintain the freshness of their meat.
Sub-brands and cheaper options
In response to these challenges, some restaurants offering top-shelf delicacies have launched sub-brands offering cheaper dishes in a business strategy change aimed at stealing traffic from their more affordable competitors.
For example, during the Covid-19 pandemic, Bao House, a Japanese restaurant in Beijing that boasts an AOV of around 1,000 yuan launched a lower-end sub-brand named Jiubaowu, which has an AOV of about 500 yuan, to attract customers amid an economic downturn.
Italian restaurant Amico has done something similar, launching a sub-brand with an AOV of around 100 yuan.
These sub-brands mainly target young customers who want to share their dining experiences online for the purpose of expanding their brand recognition, the Western restaurant manager told Caixin.
It could also help cultivate the palates of younger diners, eventually turning them into future patrons of dishes served by their higher-end brands, the manager said.
And it’s not just Western and Japanese eateries that have been impacted. Chinese restaurant Howard’s Gourmet, which specialises in Teochew-influenced dishes, has also adopted similar strategies to boost sales amid mounting competition from affordable restaurants.
Meanwhile, some fine dining Chinese restaurants are stepping up their overseas expansion efforts to offset losses in the domestic market.
Yong Fu, a one-star Michelin Chinese restaurant chain that specialises in Ningbo-style dishes such as poached yellow croaker and drunken crab, is one example. The chain opened its first overseas restaurant in Hong Kong in 2019, and then expanded into Singapore in June, targeting local Chinese with a mixed menu of Ningbo, Sichuan, Hunan and Beijing cuisines.
The foray into overseas markets came amid a jump in the number of overseas Chinese with high net value who share a similar cultural heritage with Chinese nationals, creating demand for fine dining there, said the restaurant’s founder Weng Yongjun. CAIXIN GLOBAL
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