Rising rents and labor costs are making it difficult for luxury restaurants in China to make the switch to the mass market, China Business News reported Friday.
Some have started to offer more affordable prices but the new approach has failed to meet their revenue expectations.
As a result, profits have fallen sharply, the report said.
Xiao Nan Guo Restaurants Holdings Ltd. (03666.HK) posted a net profit of 671,000 yuan (US$108,752) in 2013, down 99.4 percent from the previous year. China Quanjude (Group) Co. Ltd. (002186.CN) saw its net profit slump 17 percent year on year in the first quarter alone.
Beijing Xiangeqing Co. Ltd. (002306.CN) recorded a 157 percent profit jump in the first quarter from the previous year but only after giving up some of its catering business and going into other ventures such as environmental protection and film making, the report said.
Qu Yousheng, chairman of the Guangzhou Catering Chamber of Commerce, said more upscale restaurants are expected to exit the market amid higher rents and spiraling labor costs, coupled with surging prices of raw materials.
In first-tier cities such as Beijing, Shanghai, Guangzhou and Shenzhen, revenue in the high-end market fell more than 20 percent in 2013 and bankruptcies hit 15 percent, the report said.
Luxury restaurants have been grappling with declining business since Beijing launched a frugality campaign in 2012 as part of a widening crackdown on official extravagance and corruption.
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