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Middle of the range eateries gain popularity

By Wang Zhuoqiong  (China Daily)

14:18, July 26, 2013

Crowds waiting patiently as they are served seasonal fruit or given free nail polish bottles have become a regular scene outside mid-range restaurants such as The Grandma's or HaiDiLao Hot Pot.

The former is famous for its low prices on certain dishes while the latter often offers free entertainment including dance shows.

These middle-range caterers, which target the masses for family occasions or gatherings with friends, have been developing so rapidly that many shopping mall developers have made them tempting offers to get them in their malls.

Because these establishments get their profits from repeat visits by clients and the high number of visitors they attract, they are often referred to as "fast-fashion brands" of the catering industry, said Shi Jun, vice-president of Allpku, a management consulting firm based in Beijing.

The criteria for the selection of locations also share a strong resemblance with fast-fashion brands. They prefer to be in leading business districts and shopping malls.

Shi said the emerging trend of "fast-fashion" restaurants answers customers' calls for a more casual and relaxed dining environment and affordable prices.

The Grandma's chain has opened more than 60 eateries in major cities including Hangzhou, Shanghai and Beijing, while Haidilao Hot Pot is in 21 cities with 81 stores.

Their popularity and speed of development is challenging established top-end brands, which have been hit by the government policies to crack down on the use of public funds for luxury spending.

In the first half of the year, XE Flavour - the nation's top high-end restaurant group - closed eight stores in major cities including Beijing, Zhengzhou and Shanghai.

The growth of the catering industry's revenue in the first two months of the year was 8.4 percent, down 4.9 percentage points year-on-year.

In the first five months, the revenue of 15 restaurants that focus on business banquets in Beijing was down 36.4 percent, according to data from the Beijing Commerce Commission.

For instance, XE Flavour's first-quarter revenue dropped 30 percent with a loss of nearly 70 million yuan ($11 million) compared with the same period last year.

The company has also adopted a series of strategies including the cancellation of expensive dishes, new service fees and the introduction of more affordable dishes.

In July, the company issued a statement saying it expects a net loss between 160 million yuan and 240 million yuan for the first half, because of the closure of several stores.

Business banquets have traditionally played a major role in XE Flavour's revenue, because most of its stores are located near government departments or institutions, contributing heavily to its previous growth.

Another top-end restaurant company, the Jingya Group, has seen its revenue, number of customers and per capita consumption drop 50 percent, 33 percent and 27 percent, respectively, in February compared with the previous year.

Catering giants have also slowed down their expansion pace. Xiao Nan Guo Restaurants Holdings Ltd has curbed the number of new openings this year and is considering launching medium and low-end brands.

Its The Dining Room unit, a contemporary brand, which opened its first store in Shanghai in June, targets the mass-market.

Bian Jiang, assistant director of the China Cuisine Association, said the reshuffle in the high-end restaurant sector is more or less like squeezing the air out of the over-inflated industry.

Also, many industry insiders believe it's not the restrictions in public spending that are threatening their earnings but the slower development of the overall economy, which will directly affect business and personal consumption.

In addition to the policy influence, Bian said rising rents, surges in food costs, which are growing at 30 percent a year, and the increase in labor costs and taxes have also forced the Chinese catering industry into a more competitive frame of mind.

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