China’s restaurants race to the bottom in deflation-hit economy

PACK UP Workers collect used commercial kitchen equipment at a restaurant that has gone out of business in Beijing in December 2024. —PHOTOS BY REUTERS

BEIJING—In a dilapidated warehouse on the outskirts of the Chinese capital, businessman An Dawei inspected rows of giant fridges, industrial hobs and commercial bread ovens waiting to be resold to dining establishments.

“For the average person, opening a restaurant is almost a guaranteed failure,” said the 38-year-old who sells used kitchen equipment.

Behind every appliance is the tale of a failed Beijing restaurant, set up by those who often bet their life savings on a V-shaped economic recovery after the COVID-19 pandemic, only to see consumers skimp on eating out as China’s economy slowed.

GONE COLD A worker gathers pots at a hotpot restaurant that has gone out of business as the team collects used commercial kitchen equipment for resale.

That unleashed a price war in which food providers are offering coffees at 9.9 yuan ($1.40) and four-person set meals at 99 yuan ($14).

Expanding domestic demand is the top priority this year for China’s rulers, looking to offset the impact of U.S. tariffs and a protracted property crisis.

USED FURNITURE Workers load chairs to a truck as they collect used commercial kitchen equipment from a hotpot restaurant that has gone out of business in Beijing.

But consumer inflation fell in February at the quickest pace since January 2024, setting off concerns about a deflationary spiral.

Last year, An and his team dismantled 200 restaurants each month, or 270 percent more than the prior year, as the number of dissolved catering companies touched a historic high of almost 3 million nationwide, data from companies registry Qichacha shows.

A worker removes a water heater at a hotpot restaurant that has gone out of business, as the team collects used commercial kitchen equipment for resale.

Monthly closure rate

“In first-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen, the monthly restaurant closure rate exceeds 10 percent, sometimes even surpassing 15 percent,” said An.

At restaurants closing across the capital, his teams of workers stacked chairs, ovens, storage units and baking trolleys, using forklifts to load some on to vehicles to be taken away, while at one site a purchaser carried away tables.

A worker helps a customer carry purchased items to his car, at a warehouse where used commercial kitchen equipment is stored for resale.

The company’s revenue fell by just over a fifth in 2024, An said, as more smaller, low-overhead stores opened, such as drink shops and bakeries, which need a smaller outlay on equipment.

In a deserted mall near Beijing’s Olympic Park, the manager of a bakery franchise blamed high rents of 50,000 yuan ($6,900) per month and low foot traffic for its failure after 14 months.

Workers move seating furniture at a hotpot restaurant that has gone out of business, as they collect used commercial kitchen equipment for resale.

“There are shops next door with similar products that don’t taste as good, but are 10 yuan cheaper. Normal people will basically buy the cheaper product,” said the manager, who spoke on condition of anonymity.

“People just have no money. Or if they do, they’re unwilling to spend like before, because it’s so hard to come by.”

Workers move a fridge as they collect used commercial kitchen equipment from a hotpot restaurant that has gone out of business.

Vicious cycle

A restaurant in China has an average lifespan of just about 500 days, analysts say, falling to as low as a year in Beijing, where municipal data show net restaurant profits plunged 88 percent in the first half of 2024.

“Mid-range enterprises are more likely to go bankrupt … because they are not cost-effective,” said food industry analyst Zhu Danpeng, referring to restaurants that charge 100 yuan to 120 yuan ($13 to $16) a person.

Workers collect used commercial kitchen equipment at a hotpot restaurant that has gone out of business.

Cut-throat competition on price and ever-changing menus to attract jaded customers have left many establishments struggling for survival, An said, adding that many had been forced to trim costs to about 70 yuan to 80 yuan ($9 to $11) a customer.

At a key legislative session this month Chinese officials vowed greater efforts to crack down on “involution”, or excessive competition, but the restaurant industry is one of the areas in which the problem is most visible.

An Dawei poses for a picture next to a stir-frying machine and other used commercial kitchen equipment that his company collected from restaurants that have gone out of business, at a warehouse in Beijing.

Slowing revenue growth

Many restaurants went out of business in 2024, slowing revenue growth in China’s food and beverage industry to a paltry 5.3 percent from the 2023 figure of 20.4 percent. The survivors had to cut profit margins dramatically to stay in business.

An traced the price war back to 2023, after China lifted pandemic curbs, which he said drove an influx of newcomers into the restaurant industry following mass layoffs in industries such as real estate, education, finance and tech.

A worker moves a fridge collected from a Japanese restaurant that has gone out of business, at a warehouse where used commercial kitchen equipment is stored for resale, in Beijing, China.

The vicious cycle of competition will ultimately cost consumers, An added.

“Once (restaurants) can’t lose money anymore, they will find ways to make a profit, and they can only do that by reducing the quality of ingredients,” he said.

Reuters

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