Foodservice profile – China

Consumer profile and trend

During China's zero-COVID policy, which ended in 2022, foodservice outlets were forced to either close or open only for delivery and takeaway. Many consumers therefore reduced dining out and spent more time cooking at home. As a result, in order to survive the prolonged period of lockdown and the sharp reduction in mobility outside of the home, many players pivoted to home delivery and takeaway.

Faced with declining sales, many players also lowered prices and introduced promotional deals via e-commerce platforms. Restaurant formats that depend heavily on dine-in customers, such as full-service restaurants and self-service cafeterias, suffered far greater losses than limited-service restaurants.

Bulk ordering was common, as many foodservice players in China suffered from delivery shortages and were unprepared to accommodate the surge in demand for delivery. With the help of digital apps, consumers ordered food in large quantities, which was often organised at the community level, as bulk ordering generally has a minimum order quantity. After receiving the order, it was up to the community to distribute the food from door to door. It is expected that bulk ordering will remain popular after the lifting of pandemic related restrictions, given the strong consumer bargaining power and priority delivery.

Following the government's lifting of all pandemic-related restrictions on foodservice operations in 2022, consumer foodservice in China is expected to recover swiftly, by 6.0% annually over 2023 to 2027. However, the recovery of foodservice in China is expected to trail most Western markets, where restrictions were lifted sooner and dine-in activity came back almost immediately.

China's consumer foodservice market

The Chinese foodservice industry was valued at US$679.3 billion in 2022, falling by 1.1% annually since 2018. Growth is expected to surge by 8.3% annually over 2023 to 2027, with sales reaching US$1.1 trillion in 2027. All foodservice subsectors' retail sales, except cafes/bars and street stalls/kiosks, declined over 2018 to 2022 mainly due to the impact of COVID-19 restrictions, however, all are expected to grow strongly over 2023 to 2027, ranging from 5.1% to 10.8% annual growth. Full-service restaurants is the dominant subsector and combined with limited service restaurants, commanding an 89.6% market share in China. The recovery in foodservice by location is expected to be lead by travel, lodging, and leisure with all increasing by over 12% annually.

Consumer foodservice by type

Full-service restaurants

Full-service restaurants is China's largest foodservice subsector with retail sales of US$477.5 billion in 2022 representing a 71.1% market share. Sales declined 1.8% annually over 2018 to 2022. 7.3% annual growth is forecast over 2023 to 2027 as sales are expected to reach US$720.2 billion by 2027.

Full-service restaurants, largely comprised of independent, family-owned businesses, serves almost exclusively Asian cuisine with hotpot being the most popular. The spread of Omicron variants in 2022 saw a resurgence of pandemic related restrictions, leading consumers to eat out less, especially when it came to non-Asian restaurants. This drove consumers to choose affordable full-service restaurants. Therefore, while European and north American full-service restaurants saw declining sales, pizza and Asian restaurants saw minimal sales decline. Hai Di Lao Hot Pot is the largest brand within full-service restaurants in China, representing 1.0% of total sales value in this subsector, followed by Pizza Hut at 0.4%.

According to Euromonitor, over 2023 to 2027, as demand for home delivery increases, some full-service restaurants are improving their delivery services by providing consumers with an immersive dining experience at home, such as upgrading the delivery packaging to ensure the meals do not leak, providing heating equipment for reheating food, and using the same meal containers for delivery (for example, casserole-related dishes). In addition, barbecue bento with various meat choices and barbecue tools, including charcoal basin, matches, and tongs made of bamboo, let consumers grill at home.

Limited-service restaurants

Limited-service restaurants is China's second largest foodservice subsector with retail sales of US$136.9 billion in 2022. Retail sales of restaurant types over 2018 to 2022 were mixed as a result of COVID-19 measures, which forced outlets to pivot to ecommerce and delivery in order to survive. Some types were more successful than others, such as pizza, Latin American restaurants, and convenience store sales surging compared to ice cream, bakery, and Asian restaurants falling.

Except for burger restaurants, future annual sales is expected to grow strongly for all subsectors with latin American restaurants leading the way with 17.5% over 2023 to 2027, followed by pizza restaurants and convenience stores. Pizza limited-service restaurants saw solid growth thanks to delivery and sales of family meals. While people in China were forced to stay and work at home during the COVID-19 pandemic, demand for large and group buying orders soared. Limited-service players accommodated the trend by introducing family meal combos with steep discounts amidst ongoing lockdowns. Moreover, pizza restaurants are traditionally more capable of catering to large family and community orders.

As many players in limited-service restaurants were forced to shut down during the pandemic, convenience stores saw the best performance in 2022, as they were considered an "essential service" and were thus allowed to continue operating. Convenience stores are expected to see strong growth over 2023 to 2027, stemming from favourable government policies supporting "15-minute community life circle" and the good value for money they offer. Bento boxes are commonly sold in convenience stores and are affordably priced. Outlets are prioritising diversifying their fresh food offering, such as freshly ground coffee and to-go meals.

The top brand within limited service restaurants is KFC, representing 5.5% of the total subsector, followed by McDonald's with 3.2%.

Cafés / bars

The cafés/bars subsector saw mixed sales growth over 2018 to 2022 with specialize coffee and tea shops surging by 18% annually to US$13.1 billion in 2022 and bar/pub and cate sales falling. Bars/pubs was the type most negatively affected by the pandemic because these are not essential and experienced longer lockdown periods. Sales growth over 2023 to 2027 is expected to be strong in all types, lead by coffee and tea shops (23.8%) and bars/pubs (12.4%) reaching sales of US$55.6 billion.

Top cafés/bars brands in China are Starbucks with a market share of 13.6% in 2022, followed by Luckin Coffee (9.1%), and HEYTEA (6.7%). Consumers' consumption and dining behaviours changed due to the pandemic, as the demand for social networking and working space decreased due to the implementation of the zero-COVID policy during most of 2022. Economic uncertainty also has shifted consumers purchasing behaviour from premium to affordable products. As a result, some leading specialist coffee and tea shops positioned in the premium segment announced they were reducing prices of some of their featured products. Starbucks, which is positioned in the premium coffee segment, has offered steep discounts, coupons, and deals to consumers in 2022 - for example, 40% off coffee and buy-one-get-one-free offered through app-based promotions.

Foodservice options

Prior to the pandemic, 'eat-in' was the predominant option for Chinese consumer foodservice. However, pandemic related restrictions on foodservice resulted in a 7.1% annual decline. Home delivery was the second largest foodservice option in 2022 and surged 28.3% over 2018 to 2022 to US$164.7 billion in 2022 in large part due to full and limited-service restaurants' pivot to home delivery during the pandemic. Although China eased its zero-COVID policy in early December 2022, the habit of using online ordering, delivery, and takeaway services has developed; therefore, delivery services and to-go sales are expected to continue growing over 2023 to 2027. All options are expected to increase 6.0% annually as sales increase to US$943.8 billion by 2027.

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For additional information on Food & Hotel (FHC) China, please contact:

Ben Berry, Deputy Director
Trade Show Strategy and Delivery
Agriculture and agri-food Canada
ben.berry@agr.gc.ca

Resources

• Euromonitor International:
  • Consumer foodservice in China (February 2023)
  • Full-service restaurants in China (February 2023)
  • Limited-service restaurants in China (February 2023)
  • Cafes bars in China (February 2023)

Foodservice profile – China
Global Analysis Report

Prepared by: Kris Clipsham, Market Analyst

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