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Booming demand for catering services in China

Catering services saw double-digit growth in China in the past decade, with total retail sales receipts reaching Rmb2,344.8 billion in 2012. Apart from the growing demand for business entertaining, more and more people are going to restaurants, pubs, teahouses and other eateries for everyday meals and gatherings with friends. This has spurred the vigorous development of catering services. As the spending power of households of middle-income and above increases, the frequency of eating out also rises. People now consider eating out as an important leisure activity on weekends or holidays. On the other hand, in the process of rapid urbanisation, good catering services and restaurants of unique character have become one of the major selling points of commercial districts and shopping centres in attracting consumers.

The mainland market for catering services holds great potential. Some Hong Kong catering service operators, including fast food chains, Chinese restaurants, dessert shops and Hong Kong-style tea cafés, have already ventured into the mainland. In order to find out the habits and preferences of middle-class consumers in eating out, HKTDC Research conducted "consumer focus groups" in the cities of Guangzhou, Shenzhen and Shanghai in April 2013. The following are some of the findings:

  • Middle-class consumers go after quality of life and like eating out. They also like to patronise different types of restaurants. Online platforms such as the mobile web and smartphone apps are their major sources of restaurant information.

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  • Consumer taste varies in the three cities. Guangdong cuisine is popular in Guangzhou. In Shenzhen, Guangdong cuisine and local cuisines of other provinces are equally popular. Shanghai consumers prefer local dishes that are slightly sweet in flavour. Although local cuisine dominates the local scenes, people still like to patronise new restaurants and try new tastes and dishes. This gives foreign investors room to venture into the mainland market.

  •  

  • The reasons why consumers in different cities regularly patronise a particular eatery are more or less the same. These include suitable taste/dishes, environment/services, and word-of-mouth/popularity. Special offers and discounts are major reasons attracting first-time patrons, but these are of less importance in keeping customers. Problems of food safety tend to easily leave a negative image in the minds of consumers.

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  • Consumers have quite a high opinion of Hong Kong-style catering services, especially in terms of environment, service standard, food quality and management. Hong Kong brands have a leading edge in some areas and are considered good value for money although they may be slightly higher in price. However consumers do not see much difference between different brands for the same type of Hong Kong-style eateries, with a lack of distinctive characteristics among different brands.

In spite of intense competition, it is still possible to secure a place in this market as long as the food provided is unique and tasty, the environment and services are good, the charges are reasonable and the food is great value for money. Personal dining expenses on the mainland have been rising from year to year and the demand for specialty and quality is keen. There is still room for growth in the market. In particular, the spending power of middle-class consumers on catering is in no way inferior to that of their Hong Kong counterparts. Mainland consumers have a good impression of Hong Kong catering services. With the convenience provided by CEPA, Hong Kong catering service operators may choose to register as legal persons or set up individually-owned businesses to provide their service.

1.  Development of catering services industry on the mainland

Urbanisation is developing apace on the mainland. Chinese cities, big or small, are drawing up new plans for their central business districts and actively developing new commercial districts, commercial/residential areas and development zones on the outskirts. Efforts are made to develop the consumer market in the direction of modern retailing, that is, changing the old mode of fragmented markets into a retail mode with department stores and modern shopping malls forming the mainstay. Catering service operators are also moving into various retail hotspots with a brand-new look.

What merits attention is that leading commercial districts and shopping centres are all targeting eateries and restaurants of high quality and with distinctive characteristics. Large department stores also have a food court or restaurant floor to attract shoppers.

The catering service industry saw double-digit growth in the past decade, which roughly corresponded to the growth of the consumer market as a whole. In 2012, the total retail sales receipts of the catering industry amounted to Rmb2,344.8 billion, up 13.6% from the previous year, accounting for 11.1% of total retail sales of consumer goods.1

Chart: Increases in total retail sales of consumer goods and catering sales receipts
 

However, market competition is intense. On the one hand, many of the restaurants and eateries are operated as individually-owned businesses. There were 22,496 large catering businesses registered as legal persons in 2011, including chain-operated enterprises with many branches. The business of these catering service operators may expand rapidly within a short time if their services are accepted by the market. Otherwise, they may be shunned by consumers and go out of business in no time.

In spite of this, the overall turnover of large catering establishments (enterprise legal persons) almost doubled between 2007 and 2011. The market continued its rapid growth even though competition is intense. Taking income of their main business as base value by simple calculation, the after-tax profit margins of these legal persons  were as high as 43% in 2011.Thus, even though the market is very competitive and poorly-managed operations will easily be forced out of business, many newcomers still wish to have a go and hope to clinch a share of this fast-growing market. 

Table: Development of China’s catering service industry
 
Chart: Development of China’s catering service industry
 

During the past six to seven years, the number and turnover of chain-operated catering outlets continued to increase. Of this, 60% of the turnover came from fast-food operations, a sector which is however dominated by foreign-invested and Hong Kong-, Macau- and Taiwan-funded enterprises.

Chart: China's chain-operated catering service market
 
Chart: China's chain-operated catering service market
 

2.  Catering service consumption: increasingly sophisticated

For the majority of consumers, having a better quality of life means more than just shopping, travelling and watching movies. Having a meal with the family at a specialty restaurant and joining friends for a chat at a cozy restaurant or café are now important aspects of life and socialising.

On the other hand, urbanites typically have a fast tempo of work and life. Salaried workers have gradually changed their habit of eating breakfast or lunch at home or taking lunchboxes to work in favour of eating in restaurants. Dinner becomes a chance for them to meet their families, friends, colleagues and business partners/clients.

Consumers' eating out expenses are increasing from year to year, especially in the more affluent regions and cities. In 2011, the average eating out expenses per person of urban residents in Shanghai, Guangdong, Zhejiang and Beijing reached Rmb2,275, Rmb1,871, Rmb1,842 and Rmb1,832 respectively, obviously higher than the mainland average of Rmb1,183. 

Chart: Annual eating out expenses per person of urban residents
 

According to a report released by mainland lifestyle and restaurant listings website Dianping (www.dianping.com) on personal consumption in the 23 cities3 that led in personal consumption in China in 2012, the average spending on a single meal ranged between Rmb54 and Rmb90.Shanghai, Beijing and Shenzhen were the three cities where the average spending on a single meal (excluding snacks and fast food) was highest at Rmb90, Rmb87 and Rmb81 respectively. The report also pointed out that with the growing popularity of the Internet and mobile communications, using mobile phones to make inquiries, take part in group buys, browse and download restaurant coupons, etc, has become part of people's everyday consumption behaviours.

Chart: Average spending on a single meal in 23 cities (Rmb)
 

The above survey shows that the vast mainland market for catering services holds great potential and offers relevant service operators great opportunities. However, competition between local and foreign caterers is keen. Since consumers in different places and at different levels have different demands for services, companies interested in venturing into the market must first understand the demands of consumers in their target cities and their pattern of spending.
 
3.  Characteristics of middle-class consumers’ spending on food and drink: Guangzhou, Shenzhen and Shanghai

In April 2013, HKTDC Research conducted “consumer focus groups” in Guangzhou, Shenzhen and Shanghai. The study aimed at understanding the habits and preferences of consumers of middle-income and above in eating out, as well as their comments on different types of catering services, including the types of their resident city,  the other provinces, and Hong Kong and foreign countries. Below are the major findings of the qualitative study of these focus groups4.

Higher frequency of eating out

  • Breakfast and lunch: eating out the weekday norm

    This is particularly the case with people who work. Apart from saving time, the main reasons for eating breakfast and lunch outside are work related, including having working lunch/breakfast with colleagues and official lunch/breakfast with clients/seniors/ colleagues from out of town.

    “I do not have enough time in the morning to prepare breakfast, so I tend to eat breakfast outside almost every day.”
    “I seldom cook lunch at home. My husband’s work unit has a canteen. I am too lazy to cook for myself and so I eat out.”
    “I usually eat lunch outside, either ordering take-away or going with a group to shopping centres to eat because it is quicker and I can save more time to take a rest.”
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  • Dinner: eating out half of the time (2-4 times a week)

    Apart from having business dinners with clients/seniors/colleagues from out of town, the focus group participants would also eat out with friends and family having good food while going out/enjoying themselves. However, married people tend to eat out less often.

    “I have dinner outside because after a day’s work I’m too tired to cook.”
    “We have children, so have to cook at home. After all, it is unhealthy to eat out all the time.”
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  • Weekends: half-and-half eating out and eating in

    People mainly enjoy good food while having family gatherings or going out for entertainment with relatives and close friends.

    “I cook dinner during the weekends as I am free on Saturdays and Sundays.”
    “Even during the weekends I don’t eat at home every time as usually there is one day when I would go out and have fun.”

Average spending per person on eating out: Rmb500-1,500/week

  • Students/fresh graduate office workers: Rmb700-800/week

  • People with five to six years of working experience/at or above supervisor level: Rmb1,000-1,500/week

  • Married women with children, some married men: Rmb500-600/week (due to lower frequency of eating out in the evening)

    With colleagues

    “Normally, every time after we have completed a technical project successfully or solved a technical problem, we would go out together to eat and drink.”
    “Sometimes I would go out with my subordinates, on average two Friday evenings a month.”
    “I work in the commercial sector. Normally I am quite busy and I always go out for lunch with my colleagues.”
    “I like to go online and purchase group-buy restaurant coupons with my colleagues, then we would go and eat and shop.”

    With clients

    “I am a salesperson and I often have to treat my clients, so my frequency of eating out is rather high.”
    “I like going to KTV and eating out with suppliers.”

    With family

    “Usually I would go out with my child/children and husband for dinner every weekend because during the week I have to cook dinner at night.”
    “I would save my long weekends for my family and would mainly spend time with them, eating at home or going out for dinner with my parents.”
    “Starting from last year, my mother has been hooked on group buying, and since then we hardly ate dinner at home.”
    “I like to have morning tea or afternoon tea with my family during the weekends.”

    With friends/school mates

    “When I have time I would go and have afternoon tea with my friends. I think women should pamper themselves and enjoy life a bit more.”
    “I am a second-year university student. When there is no lesson I would go out with my school friends to sing, window-shop and have dinner.”
    “When I find on dianping.com good food that I want to try, I would try it with my school friends.”
    “I would go out and have fun with friends after work, I usually do gym until quite late and so I always eat out.”

Penchant for trying different restaurants

Middle-class consumers mostly like to try or patronise different types of restaurants at different times and on different occasions in order to enjoy life.

  • Breakfast/working lunch: fast food restaurants, casual restaurants
  • Dinner/formal dinner: Chinese restaurants, foreign restaurants, self-service restaurants
  • Afternoon tea/late-night snack: casual restaurants, leisure stations

Types of favourite / frequented eateries

Time, occasionType of eatery
Weekday breakfast- Chinese-style fast food restaurant  
- Western-style fast food restaurant
- Snack shop
Weekday lunch
(with colleagues, friends)
- Chinese-style fast food restaurant   
- Western-style fast food restaurant   
- Tea cafés
- Chinese restaurant (including Cantonese, Hunan. Sichuan, Shanghai/Jiangsu-Zhejiang styles)
Weekday dinner
(small groups of friends, school mates, core family members)
- Chinese restaurant (including Cantonese, Hunan, Sichuan, Shanghai/Jiangsu-Zhejiang styles)
- Japanese/Korean restaurant (including self-service sushi, Japanese ramen, Korean BBQ)
- Tea cafés
Weekend and holiday eating-out
(small groups of friends, school mates, core family members)
- Chinese restaurant (including Cantonese, Hunan, Sichuan, Shanghai/Jiangsu-Zhejiang styles)
- Japanese/Korean restaurant (including self-service sushi, Japanese ramen, Korean BBQ)
- Tea cafés
- Other cuisines (including various Chinese local delicacies, foreign restaurants, buffets)
Big group dinner
(gatherings of large family, friends and school friends as well as business dinners)
- Chinese restaurant (including Cantonese, Hunan, Sichuan, Shanghai/Jiangsu-Zhejiang styles)
Casual gathering/light snack/chitchat
(small groups of friends, school mates and core family members)
- Tea cafés
- Coffee shop
- Dessert shop    
- Ice-cream shop
- Western restaurant


Eateries patronised in the past month

Type of eatery Reasons for patronisingAverage spending per person
Fast food restaurant- Chinese-style fast food restaurant
- Western-style fast food restaurant
- Local snack/BBQ shop
- Mainly to fill one’s stomach- Rmb15-30
Casual restaurant- Tea café, self-service sushi
- Japanese ramen shop*
- Fast food style Western restaurant**
- Chinese-Western fusion restaurant***
- Coffee shop serving set meals
- Rest, leisure
- Kill time
- Tea café: Rmb30-80
- Chinese-Western fusion restaurant: Rmb30-80
- Others: Rmb50-100
Chinese restaurant- Cantonese, Chaozhou and Hakka cuisines
- Shunde, Shanghai/ Shanghai local cuisines
- Jiangsu-Zhejiang, Jiangnan, and Sichuan cuisines
- Hunan cuisine, hot pot, seafood
- BBQ meat, roasted lamb
- Business dinner
- Festival/holiday dinner
- Gathering with family/   relatives and friends
- Gathering with school friends
- Weekday lunch/dinner with colleagues
- Rmb100-150
Foreign restaurant- Authentic Western restaurant#
- Japanese and Korean restaurants, Korean-style BBQ
- Southeast Asian and Indian restaurants
- Mediterranean, Spanish and Latin American cuisines
- Try different food and new tastes
- Special days
- Go on impulse
- Mostly for dinner
- Korean-style BBQ: about Rmb80
- Japanese restaurant/high-class Western restaurant: Rmb150-300
- Others: Rmb80-300
Leisure station- Leisure coffee shop @
- Dessert shop, ice-cream shop
- Weekday, weekend, afternoon tea, rest/chitchat while going out- Rmb30-60
Self-service restaurant- Chinese-style, Western-style
- Seafood, hot pot
- Self-service BBQ
- Buffet
- Right mood and fun with a group of people
- Mostly for dinner
-Western-style: Rmb120
- Chinese-style: Rmb70-80
- Seafood: Rmb120-200
- BBQ: Rmb50-80
- Buffet: Rmb200-300

* Example: Ajisen Ramen  ** Examples: Pizza Hut/Burger King  
*** Examples: Haoxianglai, Greenery, Monte Carlo
# Examples: English/French/Italian restaurants serving Western European cuisines
@ Example: Starbucks
Remark: Types of eateries are classified  on the basis of consumer comments

Differences in tastes

Due to differences in cultural and culinary preferences, the restaurants frequented and the cuisines preferred by consumers in the three cities also differ.

  • Guangzhou: Cantonese cuisine is the mainstream

    Cantonese cuisine is most preferred in Guangzhou. However, as migrant population in the city grows in the last 10 years or so, restaurants catering to the palate of outsiders are growing in number. In Guangzhou, the southern gateway through which foreign funds flow into the mainland, young people in particular are under the strong influence of foreign cultures. As such, foreign cuisines such as Japanese, Korean, Southeast Asian and Western (mainly Chinese-Western fusion) foods are popular.

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  • Shenzhen: Cantonese cuisine and several other provincial cuisines are equally popular

    Cantonese cuisine is also the mainstream in Shenzhen. However, since Shenzhen is an immigrant city with a great number of people from other provinces coming here to work, the cuisines of such provinces as Sichuan, Hunan, Shanxi and the Northeast are more popular in Shenzhen than  Guangzhou and Shanghai.

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  • Shanghai: Shanghai local cuisine and Jiangsu-Zhejiang cuisine are popular

    Consumers generally like Shanghai local cuisine which is sweeter in taste. As there are many foreign enterprises in Shanghai and the influence of foreign cultures is strong, foreign food such as Japanese/Korean cuisine, Western cuisine, and Southeast Asian cuisine are more popular than they are in Guangzhou and Shenzhen. Also, since the migrant population in Shanghai is large, there are a great number of ethnic restaurants in the city offering different provincial delicacies.

Favourite cuisine/restaurant for dinner

City

Cuisine/restaurant
Guangzhou- Cantonese cuisine
- Japanese and Korean cuisines (including sushi restaurant, Japanese ramen restaurant)
- Western cuisine (including Western restaurants serving Chinese-Western fusion food)
- Tea cafés
Shenzhen- Cantonese cuisine
- Sichuan, Hunan cuisines
- Western restaurants, tea cafés
Shanghai- Shanghai/Jiangsu-Zhejiang/Jiangnan/Shanghai local cuisines
- Cantonese, Sichuan, Hunan cuisines
- Japanese and Korean cuisines (including sushi restaurant, Japanese ramen restaurant, Korean BBQ restaurant)
- Western restaurants, tea cafés


Online platforms  emerging as important information channels

Traditional catering information channels include recommendation by close relatives and friends, TV commercials/gourmet food programmes, newspapers/magazines, billboards on the sides of buildings, and mobile broadcast on public vehicles. However, nowadays middle-class consumers in the three cities tend to access such information primarily via online platforms,  including the mobile web and smartphone apps.

  • Social media websites and lifestyle websites are extremely popular

    Examples include:

    • dianping.com
    • WeChat
    • weibo.com
    • GaoPeng.com
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  • Majority of middle-class have group buy experience

    In recent years, group buying of restaurant coupons via websites/mobile apps has become extremely popular among middle-class consumers in the three cities. The majority of consumers have experience in group buying and reckon that group buying is a very effective means of marketing and promotion. The main reasons include:

    • Consumers get direct benefits, especially price discount
    • In the earlier days, the group buy deals offered by a number of branded restaurants were good both in terms of price discount and quality
    • Since information is disseminated via mobile networks, it is very easy for a huge number of consumers to receive group buy information
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  • Young people are even more keen on group buying

    The frequency of young people patronising restaurants using group buy coupons is about five to six times out of 10, which is higher than that of older and married people (less than three times out of 10). The main reasons include:

    • Young people are more receptive to and more willing to try new things
    • The greater the number of group-buy participants, the lower the average price; young people tend to and also find it easy to gather their friends together to make group buy deals
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  • Group buying losing steam

    Group buying has been going strong in the three cities for quite some time, but in recent months this heat wave has been trending downwards. As a matter of fact, as time goes by, consumers are gradually moving towards rational spending. In particular, in Shanghai, where group buying became popular much earlier, a great number of merchants participate in this business and their service quality varies. Hence, consumers are becoming increasingly negative about those merchants offering poor service.

    “A smaller portion of food is served than that shown in the photos.”
    “The ingredients used are not fresh, not quite the same as those ordered otherwise. The service is also not the same.”
    “After having been fooled once or twice, I don’t trust them anymore.”
    “Cheap does not necessarily mean good value, we also want quality. I’d rather you charge a bit more, but you cannot use low price to fool me.”
    “Group buying has one disadvantage, which is you’ve got to pay upfront online. Once payment is made, even if you have complaints, it is no use.”

In spite of that, as long as quality is assured, group buying is still widely favoured by middle-class consumers in the three cities.

Catering information channels

Traditional channels
-  Recommendation by friends and colleagues
-  TV: lifestyle and gourmet food programmes (e.g. 人氣美食 and 生活時尚 of Shanghai; 美食地圖 and 食客地圖 of Shenzhen)
-  TV, newspaper and magazine ads
-  Ads on mass transit and public transport vehicle bodies
-  Promotional leaflets distributed on the street
-  Video ads at offices/escalators
-  Mobile TV commercials & gourmet programmes displayed on public transport vehicles (e.g. 美食播客 and 全民大廚房 of Shenzhen)
-  Recommendation by celebrities 

New channels
- Internet, mobile websites/software:
  •  dianping.com
  •  weibo, QQ
  •  WeChat
  •  Group buying websites
      »  tuan.360.cn (group buy websites listings)
      »  GaoPeng.com, meituan.com
      »  nuomi.com, ju.taobao.com
  •  kuaicha at dianping.com (周邊快查)
  •  jiepang.com (街旁)
  •  xiaomishu.com (訂餐小秘書)

Penchant for trying new restaurants and new cuisines

Although consumers in Guangzhou, Shenzhen and Shanghai have different eating habits and tastes, they all indicated that they like to try new restaurants and different cuisines.  Regardless of where they are living, a closer look at the reasons why they would try a particular newly opened restaurant or new cuisine shows that the main points mentioned by them are more or less the same. First of all, most of them would come to know about a certain newly opened restaurant or eatery from information obtained through different channels, while promotion offers are one of the major reasons directly attracting them to patronise the restaurant. 

Table: Factors attracting consumers to patronise new restaurants
 

Cuisine, environment and service are reasons for continued visits

It is worth noting that the reasons given by consumers for regularly patronising a particular restaurant or their favourite restaurant are different from the reasons given by them for trying out new restaurants. Most consumers mentioned that the main reasons for continuously/regularly patronising a particular restaurant or their favourite restaurant are the taste/dishes and the environment/services of the restaurant, while special offers and gimmicks offered by the restaurant are less important. 

Table: Reasons for patronising a particular eatery regularly
 

Food safety issue gives negative impression

On the other hand, if food safety is an issue in a restaurant, it would not only leave a negative impression on the consumers, but would also deter them from patronising again. Some consumers even indicated that they may make negative comments about a certain restaurant on different occasions, including at social gatherings and online. Other factors leading to negative impressions include poor quality and environmental hygiene. Relatively speaking, the price factor is not that important. 

Table: Main reasons for not recommending an eatery
 

Positive perception of Hong Kong-style catering services

Generally speaking, the middle-class consumers in the three cities have a good impression of Hong Kong-style catering services. In particular, the ratings on environment, service standard, food quality and management are quite high. On a rating scale of 1 to 10, the rating given by consumers to Hong Kong-style catering services is 8-9 (10 = very satisfied, 1 = very dissatisfied).

Overall ratings of Hong Kong-style eateries

Merits
√ 
 Clean, high-end environment
  Unique decoration style
  Good food presentation, good taste, fresh ingredients
  Quality assured, attention to details
  Hong Kong-style signature dishes/snacks have special characteristics
√  High efficiency, good quality service staff

Deficiencies
× 
Price a bit more expensive (but value-for-money)
×  Differences between different Hong Kong-style restaurants are not distinct, individual restaurants lack characteristics
×  Variety of dishes is less than expected (choice of dishes seems wider at local restaurants in Hong Kong, e.g. tea cafés)

Where price is concerned, consumers reckoned that the price of Hong Kong-style eateries is slightly higher than that of eateries of the same kind, but it is good value-for-money. Where signature dish is concerned, when compared with other eateries, they found that Hong Kong-style eateries (e.g. tea cafés and dessert shops) are vastly different from others. However, most of them found that among the same type of Hong Kong-style eateries, the differences between different brands are not distinct. In other words, individual brands lack characteristics.

Comparison with eateries of other styles

Hong Kong-styleOther style
(for comparison)
Price/market positioningCharacteristics/ noveltyManagement
Hong Kong-style Chinese restaurantsOther Chinese-style restaurants/hot pot restaurants- Price: 10-15% higher
- Positioning: medium to high end, business
- Have more characteristics- Better
Japanese/Korean/
Western restaurants
- Price: more or less the same
- Positioning: medium to high end, business
- About the same- Not as good as Western restaurants
- Better than Japanese and Korean restaurants
Hong Kong-style tea cafésOther casual restaurants/fast food shops/snack shops- Price: higher
- Positioning: medium to high end (environment more comfortable, cleaner, more hygienic)
- Have more characteristics- Better
Hong Kong-style dessert shopsOther coffee shops/dessert shops- Price: slightly lower than other coffee shops
- Price: higher than other dessert shops
- Positioning: medium to high end
- Have more characteristics- About the same as other coffer shops
- Better than other dessert shops


With regard to recognition of the brand or name of individual eateries, the first thing that comes to the mind of consumers in the three cities is Hong Kong-style tea cafés and dessert shops. They can also name many Hong Kong-style tea cafés, such as Tsui Wah, Kwong Yuen, Tai Hing, New World, Cousin Cousin and Uncle. Meanwhile, Honeymoon and Hui Lau Shan are well-known dessert shops. (However, it should be noted that some of the brands/names of Hong Kong-style eateries mentioned by the consumers are not necessarily invested by Hong Kong funds or operated by Hong Kong people.) Moreover, consumers generally know that Café de Coral and Fairwood are Hong Kong-style fast food shops, but they do not know much about Chinese restaurants. While they can mention some names, they are generally not sure whether these are Hong Kong-style or Cantonese-style restaurants.

4.  Considerations for venturing into  China’s catering market

On the mainland market, there is a strong demand for quality catering services with distinctive characteristics. In particular, more middle-class consumers now opt to eat out, not only in local catering outlets but also eateries serving different types of cuisines. Generally, mainland consumers have positive impressions towards Hong Kong-style catering services, and Hong Kong catering brands have gained a clear advantage in some market segments. As such, the mainland market spells good opportunities for Hong Kong caterers.

  • Hong Kong-style tea cafés

    Hong Kong-style tea cafés are faring well in Guangzhou, Shenzhen and Shanghai, and middle-class consumers have a particular penchant for high-end Hong Kong-style tea cafés offering a comfortable ambience and diversified menu. Overall, however, competition in this sector is intense as many well-known tea café brands operate in the three cities while some locally-run restaurants also position themselves as Hong Kong-style tea cafés to lure customers. In Guangzhou in particular, consumers like comparing prices of Hong Kong-style tea café brands with those of the many local café brands operating in the market. Hong Kong investors are advised to stay away from low-price competition, and aim instead to secure the higher end of the market and capitalise on Hong Kong caterers’ advantages in food variety and value-for-money services.

  •  

  • Hong Kong-style fast food shops

    Chinese-style fast food shops operate in great numbers on the mainland and are attracting a high patronage. However, not many Hong Kong-style fast food shops have gained a foothold here and rivalry is hence relatively less heated. In Guangzhou, Shenzhen and other parts of southern China, Hong Kong fast food brands are quite well-known, creating a promising market for interested Hong Kong investors. In Shanghai, however, consumers are less familiar with Hong Kong-style fast foods. Moreover, middle-class consumers seek more after the branded fast food chain shops, and consider independent outlets to be of an inferior grade serving lower-priced items. Hong Kong companies aiming to set foot in this market should pay attention to their food quality, dining environment and shop décor to draw customers. They can also consider distinguishing themselves from other Chinese-style fast food shops through providing extra services like delivering meals to customers’ tables.

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  • Dessert shops/ice-cream shops

    Consumers in Guangzhou and Shanghai have a habit of consuming desserts and sweet soups, hence the great popularity of dessert shops/ice-cream shops in these two cities. In the market, the more well-known brands are Honeymoon/Hui Lau Shan from Hong Kong and Häagen-Dazs, and there are few similar establishments with a sizeable scale (branded chain stores) at the high end catering to middle-class consumers’ needs in terms of food quality and shop ambience. The market hence offers good business prospects. Hong Kong investors should take note that customers are mostly the young and females, and promotion should thus be targeted at these two groups’ characteristics (like free Internet access at shop and enough space for customers to hang out for chit chat, etc.)

  •  

  • Cantonese restaurants

    Cantonese restaurants are much welcomed by middle-class consumers in the three cities. Customers’ patronage remains consistently high throughout the several periods in the day for serving breakfast, lunch, dinner and late-night snacks. While the many Cantonese restaurants in Guangzhou, Shanghai and Shenzhen are battling fiercely against each other, those run by Hong Kong investors are generally better rated by consumers. Despite their more pricey offerings, Hong Kong-operated Cantonese restaurants are favoured by middle-class consumers for their superior environment, class, service and quality. While Hong Kong companies can continue to capitalise on the Hong Kong branding to expand their mainland market, they can also consider tapping into the less-competitive sectors of Chaozhou and Shantou cuisines or other Guangdong cuisines to seek diversified growth.

  •  

  • Western restaurants (Western restaurants serving Chinese-Western fusion food)

    Guangzhou consumers show a high patronage of Western restaurants. In the three cities, consumers especially the young working class and young couples have expressed that they are prepared to patronise more high-class Western restaurants. While several Western restaurants in Guangzhou have successfully built their own brands, Western restaurants offering a comfortable ambience and quality cuisines are lacking in Shanghai and Shenzhen. Despite the robust demand for Western restaurants among the young middle class, such restaurants are not yet very popular in the three cities. To penetrate the market effectively, interested players must first gain more understanding of consumers’ food preferences as well as expectations on food quality and dining environment.

  •  

  • Japanese/Korean restaurants, Sichuan/Hunan restaurants

    These categories of restaurants also enjoy a relatively high patronage among middle-class consumers in the three cities, and are potential sectors for participation by Hong Kong caterers. Some Hong Kong companies may have years of experience in running such restaurants in Hong Kong, but mainland consumers do not have a particular high regard for Hong Kong brands in these sectors. As such, Hong Kong investors venturing into the market should not necessarily highlight the Hong Kong branding in their promotion. They would rather pay more attention to whether their dishes carry authentic flavour , to which consumers pay particular attention. Hong Kong caterers can consider hiring chefs skilled in authentic cuisines and feature them prominently in their promotion. Full play can also be given to Hong Kong brands’ advantages in aspects like the dining environment, class, quality and management.

5.  Legal requirements on catering service providers

Capitalising on CEPA advantages

In addition to registering as a legal person, catering service providers on the mainland can also register with the mainland’s industry and commerce administration authorities as an “individually-owned business” to provide catering services. Hong Kong caterers can opt to register as a Hong Kong-invested legal person on the mainland, while those of a smaller scale or individuals can register as an individually-owned business on the mainland under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) to provide catering services.

Under CEPA, Hong Kong permanent residents with Chinese citizenship can establish individually-owned stores in provinces, autonomous regions and municipalities directly under the central government in the mainland for operating catering services (but they are not allowed to be run as franchised business). Moreover, since 1 January 2013, restrictions under CEPA in areas like the number of persons engaged in the operation and the business area of individually-owned stores established in accordance with the relevant mainland laws, regulations and administrative regulations have been lifted, further facilitating Hong Kong service providers entering the mainland market.5

Securing the catering service permit

In addition, operators must also apply for a “catering service permit” from the relevant departments on the mainland, which are as follows: Market Supervision Administration of Shenzhen Municipality (http://www.szscjg.gov.cn) (or its offices in various localities) in Shenzhen; Guangzhou Food and Drug Administration (http://www.gzfda.gov.cn) in Guangzhou; and Shanghai Food and Drug Administration (http://www.shfda.gov.cn) in Shanghai. Applicants must meet the requirements of the relevant laws and regulations to qualify for a permit. For instance, in Guangzhou, such laws and administrative regulations include the following:

  • Food Safety Law of the People’s Republic of China
  • Administrative Permission Law of the People’s Republic of China
  • Implementation Rules for the Food Safety Law of the People’s Republic of China
  • Administrative Measures for Licensing Catering Services
  • Administrative Measures on Food Safety in Catering Services
  • Specifications for Examining Catering Service Permits
  • Provisions on the Administration of Hygiene Standards in School Canteens and Group Meal Services
  • Specifications on Hygiene Standards in Catering Services and Establishments of Group Meal Delivery Service
  • Code of Design for Buildings in the Catering Industry (JGJ64-89)
  • Guidelines for the Administration of Quantitative and Graded Food Hygiene Supervision
  • Regulations of Guangzhou Municipality on the Investigation and Handling of Illegal Constructions
  • Provisions of Guangzhou Municipality on the Administration of Leasing of Premises
  • Opinions on Several Issues Concerning the Verification of Production and Business Operation Venues (Sui Fu Ban [2012] No.1)
  • Circular on Further Strengthening the Work on Prevention and Control of Pollution in the Catering Service Industry (Sui Fu [2012] No.46)
  • Circular on the Issuance of Specifications on Central Kitchen Licence Examination (CFDA [2011] No.212)

    Remarks: Please visit the website of the Guangzhou Food and Drug Administration for details.

Other requirements

Catering service outlets on the mainland should also meet with the requirements of other related laws, including laws and regulations on fire safety, environmental protection and hygiene. These include:

Fire safety

-  Fire Safety Law of the People’s Republic of China and related laws and regulations
Environmental protection/pollution prevention and control-  Environmental Protection Law of the People’s Republic of China, 
    Law of the People’s Republic of China on Prevention and Control of Water Pollution
Public hygiene-  Regulations on the Administration of Hygiene in Public Places and related implementation rules
Sale of alcohol-  Measures for the Administration of Alcohol Circulation
Employment of labour-  Labour Law of the People’s Republic of China,
    Labour Contract Law of the People’s Republic of China

Appointing an agent

The requirements of the various laws and regulations as stated above are rather complicated, not to mention that different cities and regions may also have their own specific requirements. In addition, an operator planning to establish catering outlets in different locations may have to visit the local government department/authority of the place where the outlet is located to initiate the relevant procedures like permit application or fire safety and hygiene inspections. To many Hong Kong investors, this may be a cumbersome process.

To save trouble, many catering service operators will hire an experienced local law firm or a local catering service consultant/agent well-versed in permit applications to provide consultancy service on matters like taxation, business registration and permit application. In fact, before an outlet is established, the agent may also offer technical advice on the choice of location to ensure that the shop space to be rented can meet all legal requirements. This can help avoid the situation whereby after the shop space is rented, drastic changes in equipment installation or shop decoration are found to be needed for complying with the relevant requirements during the process of permit application.

Appendix: Consumer focus groups

In April 2013, HKTDC conducted two “consumer focus groups”, with eight participants of middle-income or above, in each of the three cities: (1) Guangzhou, (2) Shenzhen, and (3) Shanghai. The participants all met the following conditions:

  • Age: First group, aged 18-30; second group, aged 31-45
  • Have resided in the city for three years or more prior to the focus group
  • Middle-income or above, or a member of middle-income or above family (i.e. monthly household income reaching Rmb11,000 or personal monthly income reaching Rmb7,000 or more)
  • Must eat out at least once a week, including lunch and dinner
  • Have patronised at least three different kinds of restaurant (including: fast food restaurant, tea café, Chinese restaurant, Japanese/Korean/Western restaurant, bar, dessert shop, snack shop, coffee shop, ice-cream shop) in the preceding month

The following is the background information of the participants, including their education level, occupation and income:

Chart: Education level
 
Chart: Occupation
 
Chart: Monthly household income
 
Chart: Personal monthly income
 


Source: Statistical Communiqué on 2012 National Economic and Social Development
Calculated on the basis of figures published in the China Statistical Yearbook.
These 23 cities are: Shanghai, Guangzhou, Tianjin, Hangzhou, Nanjing, Suzhou, Wuhan, Changsha, Chengdu, Chongqing, Xi’an, Shenyang, Beijing, Shenzhen, Ningbo, Wuxi, Zhengzhou, Jinan, Qingdao, Dalian, Harbin, Fuzhou and Xiamen
Please see Appendix at the end of this report on the profile of the focus group participants
For details of and requirements under CEPA, please visit the website of the Trade and Industry Department of the Hong Kong Special Administrative Region
http://www.tid.gov.hk/english/cepa/index.html

Content provided by Picture: Wing Chu
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