Opinion

Many factors take bite out of foreign eateries

By Daniel Garst (China Daily)
Updated: 2011-01-17 16:35

If the new restaurant listings in expatriate magazines are anything to go by, these are the best of times for the foreign restaurant business in Beijing. Not a day passes by now without the opening of yet another chic new non-Chinese dining establishment, and some of them boast internationally known foreign celebrity chefs.

However, many of these restaurants are very short-lived.

My Beijing home, Sanlitun, which is the capital's biggest foreign dining hot spot, has recently seen numerous closures and departures. Juliette's, Belle Italia, Double Coffee, the Pullman Steakhouse, and a very recently-opened Moroccan restaurant have all closed, while the Purple Haze Thai bistro has relocated to a Dongcheng district hutong.

Of course, starting a restaurant has always been a high-stakes gamble akin to pouring money into some untried dot.com startup.

One problem that comes immediately to mind is the impact of the recent spike in food prices, which jumped 10 percent in October, in raising restaurant operating costs.

But I got differing opinions about this from two acquaintances in the restaurant business, Peter Kende, who runs the Hungarian Budapest restaurant, and the proprietor of the Wudaoying Hutong's Argos Greek restaurant, Vangelis Giannakaros.

Kende told me over a Hungarian goulash lunch that, save for Chinese-produced cheese, his food overhead "has remained the same or even declined during the past year".

But as we sipped Greek coffee at Argos, Giannakaros said: "Of course, my food overhead has been rising; Chinese suppliers are ruthless in passing on price increases and never give you a break when costs go down."

However, both agreed that foreign restaurants are facing a big rent squeeze. Kende told me he was hit with a double-digit increase when his lease expired, while Giannakaros said rents in the Wudaoying Hutong are rapidly approaching Nanluoguxiang levels.

The Wudaoying hutong had been a lower cost alternative to the Nanluoguxiang. The latter's soaring rents have forced out Mirch Marsala and Empire Nation Fish and Chips, even though they were a draw for foreign residents and affluent Chinese.

Unfortunately, for such establishments, location, or being near customers, matters as much as food and service. And since the core clientele of foreign restaurants, affluent expatriates and "Chuppies" (Chinese Young Urban Professionals), live and hang out in high-rent districts, they must operate in these places or lose business.

For example, I often went to the Ethiopian restaurant, Raz, when it was located on Sanlitun North Street, but ceased dining there after it moved to the Fourth Ring Road.

According to Kende, foreign restaurants also face rising labor costs: "You can't hire a waiter with English here for less than 2,300 yuan a month; two years ago, they made 800 to 1,200."

Related readings:

And given their large foreign clientele, foreign restaurants have little choice but to hire waiting staff able to command the English language wage premium.

As if this cost squeeze weren't enough, foreign customers are now seeing their pockets pinched, as overseas firms cut back on fat expatriate packages in the face of hard economic times. Most non-Chinese Beijing residents also face rising housing costs, leaving them with less discretionary income to spend on expensive dinners out. This problem will get worse if the yuan ever appreciates against the dollar and other currencies.

Indeed, Kende informs me that now nearly half of his customers are "Chuppies". For these newly affluent Chinese, dining out in a foreign restaurant, especially an expensive one, is a status symbol and way of flaunting wealth.

But this new clientele also poses challenges for foreign restaurants. Thanks to cross-cultural differences, the expectations of Chinese diners regarding food can, in Kende's words, make them "picky" customers. "For example, they think my sponge cake should be served hot, when it's always served cold in the West."

Kende adds that Chinese patrons expect dishes, even those that cannot be prepared in advance and require 20 to 30 minutes of cooking, to be served quickly. These cross-cultural problems will surely ease over time, while rising affluence will also boost China's appetite for foreign dining. Thanks to its population, the market here is potentially huge, even if most Chinese stick mainly to local fare. But in the short run, foreign restaurants are in for a bumpy ride.