23 October 2016
Food demand and consumption has been buoyant in China despite the weaker overall economy. Photo: Xinhua
Food demand and consumption has been buoyant in China despite the weaker overall economy. Photo: Xinhua

Food is heaven

Despite the slowdown of the overall economy in China, food demand in the country has been relatively inelastic.

In the first two months of this year, the nation’s food industry realized income of 565.1 billion yuan, up 11.3 percent over the same period a year ago.

The growth is 1.1 percentage points higher than the 10.2 percent expansion rate of the overall retail and consumer sector.

Empowered by online-to-offline (O2O) services, the food industry’s business model has been changing.

In Beijing, the market affected most by China’s anti-corruption campaign, food consumption saw negative growth earlier this decade, but it recovered to a 3.3 percent pace last year.

Guangdong province’s food consumption, meanwhile, surged 10.7 percent from a year earlier, reaching 326.75 billion yuan in 2015.

The O2O model has brought new potential to the industry. We can detect this from the financial results of related listed companies.

Hop Hing Group (00047.HK), which operates fast-food chain Yoshinoya in mainland China, saw its net profit rise 86 percent last year. Xiabuxiabu Catering Management (China) Holdings, a mainland hot pot restaurant, reported a 86.5 percent surge in net profit.

Hop Hing Group expects revenue from takeaway orders redirected from O2O channels to account for 35 to 40 percent in its total revenue in the future.

The rise of platforms such as has lured a lot of eyeballs and created fierce competition in the industry.

Many players poured in huge amounts of money to subsidize their customers and build the user base. The pie is getting bigger.

It doesn’t matter who wins the competition. What is important is that the penetration of O2O catering services will change people’s consuming behavior in the long term.

Restaurant businesses will be able to cover wider geographies, including frontier areas, offering relief from the high rents in densely populated spots.

This article appeared in the Hong Kong Economic Journal on April 1.

Translation by Myssie You

[Chinese version 中文版]

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