Chinese Restaurants Lower Prices Competitively Under Deflationary Pressure, Wave of Closures Emerge

In a rundown warehouse on the outskirts of Beijing, businessman An Dawei inspected rows of giant refrigerators, industrial stoves, and commercial bread ovens, waiting to be resold to catering enterprises.

An Dawei, a 38-year-old second-hand kitchen equipment dealer, stated, “For ordinary people, opening a restaurant is almost destined to fail.”

Behind every appliance lies a story of failed Beijing restaurants, whose owners often gamble their life savings on the post-pandemic economic V-shaped recovery, only to find that as the Chinese economy slows down, people in China are cutting back on dining out. This has sparked price wars in the food and restaurant industry, with food suppliers offering coffee for 9.9 yuan and a set meal for four for 99 yuan.

Expanding domestic demand is a conundrum for the Chinese Communist Party, as Beijing also needs to cope with the impact of US tariffs and the long-standing real estate crisis. The slowdown in consumer inflation in February hit its highest level since January 2024, causing concerns about a spiral of deflation.

Last year, An Dawei and his team were in contact with 200 closed restaurants per month, a 270% increase from the previous year. Data from enterprise search platform Qichacha shows that the number of closed catering companies nationwide has reached a historic high, approaching 3 million.

“In first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen, the monthly closure rate of restaurants exceeds 10%, sometimes even exceeding 15%,” said An Dawei.

In closed restaurants across Beijing, An Dawei’s team stacked chairs, ovens, storage cabinets, and baking carts, loading some of the equipment onto trucks with forklifts, while buyers came to purchase tables.

An Dawei noted that with more small-scale, low-overhead stores opening, such as beverage shops and bakeries that spend less on equipment, his company’s revenue decreased by over one-fifth in 2024.

In an empty mall near the Beijing Olympic Park, a bakery closed down after 14 months of operation, with the bakery manager attributing the closure to the high rent of 50,000 yuan (6,900 USD) per month and low foot traffic.

“Next door, there is a similar store (selling bread) with slightly less quality but 10 yuan cheaper. Most people will opt for the cheaper product,” said the manager, who preferred to remain anonymous.

“People just don’t have the money. Or even if they have money, they are not willing to spend as they did before,” the manager said.

Analysts state that the average lifespan of Chinese restaurants is only around 500 days, with the lifespan of Beijing restaurants dwindling to a year. Municipal data shows that in the first half of 2024, net profits of Beijing restaurants plummeted by 88%.

Food industry analyst Zhu Danpeng said, “Mid-range enterprises are more likely to go bankrupt… because they are not cost-effective,” referring to restaurants with an average per capita fee of 100 to 120 yuan (13 to 16 USD).

An Dawei mentioned that intense price competition and constantly changing menus to attract weary customers have led many restaurants to struggle for survival. He added that many restaurants have been forced to reduce costs to around 70 to 80 yuan per customer.

In 2024, many restaurants closed down, and the revenue of the Chinese food industry slowed from 20.4% in 2023 to a negligible 5.3%. The surviving restaurants had to significantly reduce profit margins to sustain operation.

An Dawei traced the price war back to 2023 when the pandemic was lifted. He said that massive layoffs in industries such as real estate, education, finance, and technology led to a flood of newcomers into the food industry.

He added that the vicious cycle of competition will ultimately make consumers pay the price.

“Once they can’t afford to lose money anymore, they will find ways to make money, and they can only do so by lowering the quality of ingredients,” he said.