Private equity firms eye mainland catering sector

December 12, 2014 17:21
Fast-food restaurants are becoming popular as the mainland urbanizes. Photo: Internet

Xiabuxiabu Catering Management, a Chinese operator of hotpot restaurants, is scheduled to list in Hong Kong next week, rewarding the efforts of private equity funds behind the scenes.

The fragrance of profits in the mainland catering industry is attracting private equity funds to potentially lucrative projects in the sector, a column in the Hong Kong Economic Journal said Friday.

Earlier this year, CVC Capital Partners acquired Da Niang Dumpling Holdings, a Changzhou, Jiangsu province-based operator of fast-food restaurants.

Hony Capital, a private equity fund sponsored by China’s Legend Holdings Corp., parent of Lenovo Group Ltd. (000992.HK), bought out British restaurant chain Pizza Express several months ago.

The fund hopes to take advantage of China’s rapid urbanization and increasing purchasing power to help western-style restaurants expand their presence in the world’s most populous country.

Under Beijing's 12th five-year plan, 60 percent of the population will live in cities by 2020 from 45 percent at the moment.

Demand for safe and convenient catering is set to explode. The untapped sector has enormous growth potential.

In the first half of this year, revenues in the snack food and dim sum sector rose 13 percent.  There was a 21 percent jump in revenues in the group meals sector in Shanghai.

Western-style eateries have not been hit hard by the ongoing anti-graft campaign, as government officials rarely dine there.

Many luxury restaurants have tried to expand into the mass market after the central government announced its anti-graft crackdown. However, the shift has not been easy.

Some of the eateries have managed to attract more customers after lowering the minimum charge per person, but profit margins have been squeezed by high rent and labor costs.

Meanwhile, mass-market restaurants have been gaining popularity across the mainland in recent years for their convenience and value for money.

China's fast-moving consumer foods industry is expected to maintain an annual growth rate of 24 percent until 2018, market research firm Frost & Sullivan forecasts.

That's why so many private equity funds are placing bets on the sector.

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Freelance journalist