Business-starved high-end restaurants seek new profit staples

A waitress with Wangshunge, a high-end restaurant chain, explains to customers the menus during a service competition. [Photo provided to China Daily]

The world was stunned when Chinese luxury-restaurant chain Cloud Live Technology Group Co said it was short of 240.6 million yuan ($38.8 million) needed to pay back the 400 million yuan of debt it incurred three years ago.

The company, previously known as Xiang'eqing, became the first to default on domestic debt in China's stock market history.

But some insiders contend this does not portend hard times.

"This incident doesn't represent China's catering industry," China Cuisine Association vice-chair Feng Enyuan said.

"The industry is healthy and prospering. High-end restaurants' negative growth stopped in 2014. That's worth noticing."

China's catering industry revenue rose 9.7 percent year-on-year in 2014 to 2.786 trillion yuan. The association forecasts it will exceed 3 trillion yuan this year.

While the government's crackdown on lavish spending continues to influence high-end restaurants - defined as eateries that charge at least 200 yuan per head - many have adapted their business models to seek broader customer bases, Feng explained.

Xiang'eqing developed from a family startup founded in 1995 into a goliath luxury-restaurant chain specializing in Hunan and Hubei cuisines. It became the first Chinese restaurant company to be listed on the Shenzhen Stock Exchange in 2009.

It took a hit when the government banned public servants from misusing public funds in eight areas, including meals, in late 2012. The company lost 564 million yuan in 2013 and had to close or downsize many outlets.

Xiang'eqing was struck especially hard, while the entire industry suffered that year during the anti-corruption campaign and economic slowdown.

The industry's 2013 growth was the slowest in 20 years. Revenue totaled 2.56 trillion yuan, and a year-on-year growth was 9 percent, an April 2014 China Cuisine Association report said.

High-end eateries took their first hit in a decade, the report said. Most high-end and mid-range restaurants reported severe losses. The industry's top 100 businesses grew by 5.7 percent in 2013, 10.8 percentage points down from 2012.

Chao Yang, a civil servant in a small city in Northwest China, said nobody in his department dared attend lavish banquets.

"We dare not eat at luxurious places even if we pay ourselves, let alone join dinners others host," Chao said.

The city's costly restaurants and KTVs have far fewer customers, he added.

A Beijing-based food critic, who asked to identified as Liu, said it makes sense high-end restaurants lost money following the measures.

"Nobody would spend tens of thousands of yuan on a meal out of their own pockets," Liu said.

"But it's different if they're using public money."

Liu applauded the government's determined action to counter corruption and said it is high time top-notch restaurants act rationally to target ordinary people rather than rely on customers wasting public funds for personal gain. Medium-and high-end dining has quickly developed due to demand from people pursuing higher life quality and the Chinese custom of doing business over meals.

Many restaurants are experiencing difficulties in shifting from models that depend on public-funds spending, Liu said. Yet the industry has no choice but to adapt.

Yang Lin, a salesman with a leading Chinese group-purchasing company, told China Daily high-end restaurants had long remained reluctant to offer group-purchase programs for fear of damaging their elitist branding. Now, many approach him in hopes of offering such deals.

Many, such as roast duck chain Dadong and Shanghai cuisine chain Xiao-nanguo are lowering prices and establishing cheaper junior brands.

Beijinger Cao Zhong said he ate at Xiao Dadong, a lower-end restaurant Dadong opened in mid-2014, as soon as he heard about it.

He could not afford to spend the 400-500 yuan a head to eat at the chain's flagship restaurants but enjoyed comparable duck for about 150 yuan a person.

Many diners share similar stories on Dianping.com, a leading food review website.

Rather than create junior-brand restaurants, Xiang'eqing expanded its investments to include environmental protection, film and data, and changed its name in mid-2013 - to no avail.

The Liulaogen Guild Hall, a high-end club owned by famous Chinese comedian Zhao Benshan once famous for its expensive stage performances and dinners, closed its outlet in downtown Beijing earlier this year. It recently re-opened as a mid-range restaurant serving Northeast Chinese food.

Wenyuelou Restaurant, a luxury club in Beijing's Zizhu Park, or Purple Bamboo Park, has also transformed into a Cantonese restaurant targeted at attracting a high turnover of customers.

Wangshunge, a Beijing-based restaurant chain celebrated for seafood and Cantonese restaurants serving fish head, is among the success stories of those that have adapted.

The company focused on medium-range to high-end eateries from its establishment in the late 1990s until the release of the new rules in December 2012.

It had just opened its second seafood restaurant, a 6,000-square-meter eatery, with a 60 million yuan investment.

Founder and CEO Zhang Yaqing decided to switch its offerings from seafood menus that cost at least 400 yuan a head to Cantonese meals priced around 120 yuan a person.

Zhang lowered the seafood price to about 300 yuan per customer and nixed pricey seafood offerings from its Cantonese restaurants, and enriched the choices of their most famous offering, fish head with pies.

"It wasn't an easy decision because the other executives opposed it," Zhang said.

The seafood restaurant contributed nearly half of the group's profit.

"But it was obvious to me even before the eight points were released that the anti-corruption campaign would be long-lasting," she said.

While others struggled to keep existing restaurants open, Wangshunge has been expanding since 2014. It opened another six Cantonese outlets that year.

Zhang credits the company's recent rapid development despite an unfavorable environment to its quick response to government policy.

"People welcome the anti-corruption campaign," Zhang said.

Feng, of the CCA, speaks highly of chains that have succeeded by entering the market's lower end over the past two years.

"It's unwise to divide demand into high-end and low-end because even ordinary people occasionally need to enjoy fine dining," Feng said.

"High-end eateries that have declined in the past years are those who still cling to the model propped up by public spending and ignore ordinary consumers.