A friend of mine, a renowned Italian chef, recently shared with me his grief about the unfavorable business environment for Hong Kong’s restaurant industry.
He just can’t understand why newer and bigger restaurants are entering the market every day when so many eateries in the city are winding up.
He wonders where the funds invested in the new restaurants are coming from and how the investors can break even in such a poor business environment.
Never mind the answers. He told me he is so fed up with the situation that he has plans to leave for Peru.
The same evening, I had a dinner meeting with the chief executive of a firm that runs several hundred restaurants in mainland China.
The growth in the number of restaurants in Shanghai last year was over 50 percent, she said.
In Guangzhou, the growth rate was even more stunning: 200 percent.
The reason for the mushrooming of eateries is fairly simple: the decline of retail stores in shopping malls.
The ratio of restaurants to retailers in a mall used to be one to 10.
Now, almost two out of every five mall outlets are restaurants.
The excessive supply of restaurants is bad news to operators, as there are not enough diners for all of them to make money.
Since five or six new commercial buildings are coming up in Shanghai, the competition will only become more fierce.
Running restaurants is quite an odd industry.
The worse the economy, the more restaurants spring up. No one knows exactly why.
Some argue that the money being put into new eateries has nowhere else to go, or that it is being laundered.
What is certain is that the market share the average restaurant gains will become thinner, and the operating costs will keep climbing given the limited supply of employees demanding better salaries and benefits.
It is the worst of times, but also the best of times for diners, who can enjoy better quality and value for money in what is increasingly a buyer’s market.
This article appeared in the Hong Kong Economic Journal on May 17.
Translation by Darlie Yiu
[Chinese version 中文版]
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