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Catering industry suffers continuing slump in margins

By Chen Dujuan  (Global Times)

08:15, July 09, 2012

Profit margins in China's catering sector declined further in 2011, and an analyst said Sunday that the situation would continue to deteriorate this year.

The average net profit margin of the top 100 catering companies by revenue in China was 8.04 percent in 2011, down from 9.42 percent in 2010 and 10.43 percent in 2009, according to a report released Saturday by the China Cuisine Association.

The revenue of the top 100 catering firms increased 28.32 percent in 2011 year-on-year, but their operating profits increased only 19.39 percent over 2010, the report said.

This was caused by intense market competition and rising costs in terms of rent, labor and raw materials, Ma Wenfeng, a senior analyst at Beijing Orient Agribusiness Consultants, told the Global Times Sunday.

The operating costs of the top 100 catering firms rose 22 percent in 2011 year-on-year, according to the report. The costs of raw materials increased 30 percent year-on-year and labor costs rose by 46.7 percent.

"The total costs of my restaurant rose about 20 percent in 2011 compared with 2010, and we had to increase the prices of some dishes to offset the expenditure, but price increases have led to a drop in the number of consumers, lowering our income," Li Fu, general manager of Beijing Huatian Yanji Cold Noodles Restaurant, told the Global Times Sunday.

The situation for the catering industry will worsen in 2012, as people's spending power will decrease while companies' costs continue to rise, Ma said.

The revenue of the catering sector saw negative growth year-on-year in most months of the first half of 2012 with inflation factors deducted, he noted.

The slowing growth provides both challenges and opportunities for enterprises, Ma said. "Restaurants that offer safe food, good consumer service and standardized management will get more loyal consumers and therefore will grow and expand faster."

Li said a reduction in taxes is also needed for the survival of many catering enterprises.

China's total catering sector revenue amounted to 2.05 trillion yuan in 2011, up 16.9 percent year-on-year, 0.2 percentage points lower than the increase in the sales of consumer goods, according to data from the National Bureau of Statistics.

US-based Yum! Restaurants Investment Company Limited, the owner of KFC and Pizza Hut, as well as Japanese noodle restaurant Ajisen Holdings Limited and China Quanjude (Group) Co are among the top 100 catering enterprises in China.

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