Market and Trade Data
China’s Food Service Sector Continues Sustained
By Yang, Mei
also . . .
FAS Report CH6402
“Beijing, Shanghai, and Guangzhou: Profiling Three of
China’s Biggest HRI Markets”
of the earliest sectors opened to foreign investment, in
the 1980s, China’s HRI (hotel, restaurant, and
institutional) sector developed slowly before taking off
in the early 1990s. Supported by rapid, steady economic
growth across several industries, and rising per capita
incomes among urbanites in traditional and emerging city
markets, China’s HRI sector has shown double-digit
expansion in each of the last 15 years. HRI revenues
totaled $109.53 billion in calendar 2005, 16.8 percent
over the previous year, accounting for 13.9 percent of
China’s total consumption sales revenue; HRI revenues
are projected to reach a new high of $127.86 billion in
Imported foods typically cost much more than domestic
items, and only a small percentage of China’s 1.3
billion people can afford to eat in restaurants that use
imports. Per capita income for China’s 800 million rural
residents was only $308 in 2003. Urban income was $1,027
per capita, but that still leaves little for high-end
Consumers with the highest disposable incomes tend to be
concentrated in Shanghai and Beijing, and in cities of
the Pearl River delta. In 2004, Shanghai’s per capita
spending on dining out was three times the national
average; levels in Tianjin, Beijing, and Guangdong
Province were two times the average. However, Guangzhou,
the capital of Guangdong, was the undisputed leader at
seven times the national average, $515.30 per capita
spent on dining out.
Prosperity is spreading as the economy develops,
bringing new tastes and higher-end dining to a much
larger segment of the population. Cities all across the
country such as Qingdao, Dalian, Xiamen, Wuhan, and
Changsha are taking part in China’s economic expansion.
The top tier of China’s urban population now earns a per
capita income of $5,000 per year. These consumers,
having the desire and the means to eat out regularly in
good restaurants, tend to embrace opportunities to be
educated about sophisticated tastes and foreign culinary
experiences. The top 15 percent of city dwellers in
China can now afford imported foods, a market of more
than 150 million people at present, and one that is
growing exponentially as incomes rise.
The Importance of Dining Out
Social, business, and family occasions are celebrated
with meals at which preparation, quality, and
ingredients are often topics of passionate discussion.
Chinese families like to celebrate holidays and personal
milestones by going out to eat at restaurants; most
urban Chinese live in small apartments with limited
kitchens. Government and business meals comprise a huge
and growing market. With the importance of appearances,
hosts spare little expense, often providing high-end
imported or domestic products.
Western-style fast-food restaurants often run birthday
promotions for children, while hotel restaurants target
families. Restaurateurs are paying more attention to
atmosphere, venue, and décor to attract high-end
There has been a large influx of people from Taiwan,
Hong Kong, Australia, Europe, Japan, South Korea, and
the United States. In some cities, expatriates are
numerous enough to create markets for foreign foods, and
often introduce Chinese friends and associates to new
tastes and preparations. Western cuisines increasingly
figure prominently in the HRI mix. Market insiders also
cite curiosity and a growing taste for Western food as
key drivers for imports.
China’s growing middle class has become more aware of
health and hygiene issues. Episodes involving SARS,
avian influenza, and problems with adulterated and
unsanitary foods have indirectly helped imported foods,
because they have spurred consumers to patronize larger,
cleaner restaurants serving higher-quality, more
hygienic, healthier foods, many of which are imports.
The Big Picture
Currently only slightly more than 20 percent of hotels
in China are profitable. Most of them are joint ventures
or internationally branded and managed; two-thirds of
China’s 200 five-star hotels are foreign. But with
continuing economic development, a rapidly growing
tourism industry, the 2008 Summer Olympics, and the 2010
Shanghai World Expo, China’s hotel industry is embracing
new market opportunities.
The market mantra: the Chinese market needs
to be educated from A to Z on most imports.
China has more than 10,000 star-rated hotels, with
business hotels currently experiencing a boom.
Vocational training is being strengthened to meet
hotels’ growing demand for food service workers. Most
multinational hotel groups are looking into the use of
value-added products, although executive chefs and
managers continue to be driven mostly by price in
purchasing decisions. Imports traditionally make up
30-50 percent in value of foods purchased by
internationally managed five-star hotels, but this can
vary greatly from city to city.
Most Chinese hotel chains are still state-owned, but
many are being forced to modernize management and
develop efficient and profitable food service. Hotels in
predominantly tourist destinations, such as Beijing,
Suzhou, Hangzhou, and Xian, are more likely to have
larger imported food budgets than typically business
destinations like Dalian and Qingdao. Japanese and
Korean cuisine in northern cities often exerts
significant influence on local tastes and food imports.
The high-end restaurant segment is growing
exponentially, albeit from a very small base.
Restaurants specializing in non-Chinese foods have
tripled since 2000 in Shanghai, from 130 to 380, and
nearly doubled in Beijing, from 95 to 179. The
restaurant segment is more difficult to define and serve
than the five-star hotel segment, given lower import
volumes and expenditures ranging anywhere from $7,500 to
$30,000 per month per restaurant.
Perhaps the most encouraging development is that more
Chinese-style restaurants are using imports. Fusion and
modern Chinese cuisines are helping to create a new
up-market tier, with higher sales and profit margins
that justify import use.
Fast Food Coming on Fast
Fast-food chains have also experienced rapid growth. Yum
Brands and McDonald’s are by far the largest fast-food
chains in China. Yum has almost tripled its outlets over
the past four years, from 650 to 1,908. McDonald’s has
boosted its presence to over 666 outlets and plans to
open up to 100 new outlets annually, beginning in 2006.
There are also 1,758 KFCs, 150 Pizza Huts, and several
Taco Bells and A&Ws.
After 15 years of successful business by rivals KFC and
McDonald’s, Burger King opened its first directly
managed outlet in Shanghai in June 2005; the company
plans to develop the East China market, then expand
north to Beijing. Starbucks operates 165 shops in 18
cities through franchisees, although it plans to shift
to direct management of what the company predicts will
be its largest market. Taiwan’s Dicos is another large
and important player. Yonho, a traditional Chinese
fast-food chain that recently acquired Taiwan brand 98
Pizza, plans to expand outlets in the Yangtze River
delta beginning in 2006.
These companies import 5-10 percent of their foods.
Often their suppliers are multinational manufacturers
that have established their own standalone supply
Difficulty in the standardization of ingredients and
preparation, without losing the flavor and taste of
higher-calorie ingredients, is a serious impediment to
Chinese fast-food development. The ambiance of Western
outlets is what Chinese fast-food restaurants lack, and
customers want most.
Many ethnic fast-food chains offer Mongolian hot pot,
dim sum, Beijing- or Shanghai-style dumplings, and
Cantonese and Sichuan foods in new locations. Successful
chains are quickly imitated.
Institutional Segment Heating Up
2004, as much as 40 percent of HRI expenditures in China
came from institutional food service. Institutional
clients include cafeterias at schools, government
bureaus, hospitals, and businesses, and transportation
outlets like airlines. Individual meal budgets are
usually low, so imported ingredients seldom make it into
In the past, most institutions were state-owned and ran
their own cafeterias, but now services are outsourced.
Meal services for office and factory workers, travelers,
and students are contributing to HRI growth. Successful
players such Shanghai’s Fu Ji Food and Catering Service
doubled revenues in 2004. International companies like
Eurest, Sodexho, and Gate Gourmet have joined the
market, and others are reportedly on the way.
China’s catering industry is in its infancy, yet over
the last decade momentum has been building, first in the
major urban areas of Beijing, Shanghai, and Guangzhou,
and more recently in other cities with high business and
tourist traffic. A rough estimate puts the number of
Chinese catering businesses near 1 million; in Shanghai,
catering companies with more than $10 million in annual
revenues continue to emerge. For airline catering, which
generates more than $240 million annually, imported food
content ranges up to 50 percent on international
flights, but is much lower on domestic flights.
Limitations of existing regulations, standards, and
transparency hinder development and entry of foreign
brands into this segment. However, recent catering
guidelines that attempt to streamline procedures and
tighten sanitary and health standards may help to
surmount these difficulties.
Caveat Vendor: Trade Advantages and Pitfalls
in any country, U.S. products enjoy some advantages and
face some challenges in China’s HRI market.
On the plus side, the popularity of U.S. culture extends
to foods, and U.S. fast food leads in introducing
Western products in China. Strong U.S. brands stand out
in an environment low in brands. The United States is
recognized as a leader in food service techniques,
technology, and management. Tariff cuts mandated by the
WTO (World Trade Organization) specifically benefit
major U.S. products such as meats, corn, soybeans,
grains, and cooking oil. China’s climbing demand for
prepared foods caters to a U.S. strong point.
Among the challenges, the Chinese cold chain remains
unreliable outside the major urban areas of Beijing,
Shanghai, and Guangzhou. Even in major metropolitan
areas, inconsistent supplies persist. Long lag times
separate product orders and deliveries. U.S. suppliers
also face high trans-Pacific shipping costs.
The Chinese market for imported food is intensely
competitive, with suppliers around the world battling
for market share. Australia, New Zealand, South Africa,
and the European Union supply most products likely to
compete directly with U.S. goods. European- and
Australian-trained chefs, who tend to favor products
from those areas, outnumber U.S.-trained chefs in
high-end establishments. There is a general lack of
knowledge about proper handling and use of imported
products in China’s HRI sector. As China’s food
manufacturing develops, domestic products will offer
increasingly stiff competition to imports.
Poor protection of intellectual property and widespread
imitation of successful brands abound, and fake products
can damage brand image. Ideally, a supplier should take
steps to protect intellectual property rights before
exploring the Chinese market. It’s advisable to register
and protect trademarks in both the English and Chinese
languages. In 2005, China’s State Administration for
Industry and Commerce announced a campaign to improve
enforcement of agricultural-related trademarks beginning
in December 2005.
Protecting Intellectual Property
U.S. Embassy in Beijing has a Web-based toolkit to
help U.S. manufacturers and traders protect
intellectual property rights, and to help China
develop a system more similar to that of the
Even if a
supplier’s goods are not being sold in China, protecting
intellectual property rights can help prevent fake goods
produced there from being exported to other markets.
Chinese customs provides an online recording service
that is usually a prerequisite for customs detention of
outbound goods suspected of infringing property rights.
Protectionist impulses and abrupt policy changes often
raise nontariff barriers. Clearing customs has become
more transparent as standard protocols for individual
products evolve port by port. But arbitrary treatment
and policy changes can still impede or even block
shipments unexpectedly, and importers complain that
inspectors will block shipments even for slight
variations in paperwork.
The Indispensable Good Distributor
single most important requirement for entering China’s
HRI market is to partner with a good distributor.
Chinese business is famously a “relationship culture,”
in large part because the rule of law is weak, and
contracts are difficult to enforce. Face-to-face contact
is essential to beginning and maintaining a relationship
with a distributor.
The single most important requirement for entering
China’s HRI market: partner with a good
Market entry entails so many rules and so much red
tape that few suppliers or end-users try to go it
alone in this market.
distributor should be able to handle customs,
and any licensing procedures. Some distributors do their
own paperwork; others use import agents. Market entails
so many rules and so much red tape that few suppliers or
end-users — even Chinese state-owned companies — try to
do it on their own.
It is crucial that the importer or distributor pay the
U.S. supplier in hard currency, or the supplier will
have trouble collecting payment. The renminbi (or yuan)
is not a fully convertible currency; moreover, companies
must have special licenses to change yuan into dollars.
Yuan-dollar exchange rates fluctuate widely, so it is
important to ensure that payments and costs are stated
and payable in currencies agreed upon by both buyer and
China has been liberalizing its distribution industry
under WTO rules, and a small group of foreign-managed
companies has emerged in ports and free trade zones that
offer customs clearance, foreign exchange conversion,
bonded warehousing, and shipment. But they do not
specialize in the food business, so suppliers and
exporters still need distributors or sales agents to
handle sales, promotion, and bureaucratic hassles, such
as licenses, labels, and payment.
A nascent distribution development is fourth-party
logistics, or logistics information management systems,
which HRI leaders are starting to embrace. Beijing’s
Yoshinoya Fast Food Co. Ltd. is using the system to
streamline purchasing and distribution, and integrate
accounting with front-line outlets. The system
substantially decreases the time to respond to the
market and inventory losses.
All along the value chain, experienced suppliers,
distributors, and buyers stress that penetrating the
Chinese market is rewarding but hard work. Selling and
distributing a product requires face-to-face contact, a
special effort to educate the entire value chain, and
attention to distribution details. Even good
distributors in China often lack marketing experience,
and it can be difficult to get them to focus on
promoting a particular product among hundreds or even
thousands that they may carry. Distributors won’t do all
the work, but more and more are willing to help
suppliers make a product successful.
Yang, Mei is an agricultural marketing specialist in the
FAS Agricultural Trade Office in Beijing, China. E-mail: