Restaurants in China will continue seeing solid growth and strong market potential with chains leading the thrust, concludes a new research report by the accounting and consultancy firm Deloitte Touche Tohmatsu. However, the findings indicate the industry still faces challenges concerning food hygiene and safety as well as problems including rising supply costs, inadequate numbers of well-trained staff and improving management practices.

The major growth drivers for the restaurant business lie in the sector's relative resistance to fluctuating economic cycles and the central government's support for the food and beverage trade with the aim of expanding the service sector and domestic consumption as part of the government's ongoing five-year national development program.

Restaurant revenues have maintained a healthy annual growth rate of about 14% since 2007, reaching two trillion Chinese yuan (US$0.319 trillion) in 2011 to account for 11.3% of all revenue in the consumer products category, according to the National Bureau of Statistics (NBS) of China.

Investors have maintained a keen interest in China's restaurant business — one area which has weathered the international financial crisis and weakening world economy well.

The majority of restaurant operators are still small and medium-sized enterprises who face challenges of substandard management and pressures from rising rent, food and labor costs.

Profits have also been squeezed by increased costs associated with maintaining the higher standards of food safety and services demanded by consumers and government supervisory authorities in recent years.

Such factors have forced restaurateurs to raise more operating funds or engage in mergers and acquisitions to sustain competitiveness.

These same factors have also accelerated the development of restaurant chains across the country, according executives and researchers at Deloitte China.

Major factors determining the success (or failure) of restaurants also include correct and clear market positioning of products and services as well as large reservoirs of experienced management talent on which to draw, said the researchers.

There are presently eight Chinese restaurant companies that have either floated A shares —specialized renminbi shares traded on the Shanghai and Shenzhen stock exchanges— or won listing approval in the Hong Kong or the United States' exchanges.

However, there have been no further initial public offerings (IPOs) in the industry since Beijing Xiangeqing joined the Shenzhen Stock Exchange in October 2009.

Xiangeqing, specializing in cuisine mainly from Hunan and Hubei provinces, runs more than 20 restaurants across China, including franchises, and offers catering services.

The South Beauty Restaurant chain, founded in Beijing in 2000, is among the restaurant groups actively preparing to issue IPOs. The company has built a network of restaurants in locations across the country, including Beijing, Shanghai, Shenyang, Tianjin, Chengdu, Qingdao, Suzhou, and Shenzhen plus a new one in Taipei, Taiwan's capital and largest city.

Analysts at Deloitte China say one of the primary risks faced by restaurateurs in China remains food safety as a series of scandals receiving wide media coverage in recent years have undermined consumer and investor confidence in the industry.

References:

Beijing Xiangeqing Co. 湘鄂情餐飲

South Beauty Restaurant 俏江南餐飲