China’s seafood restaurants struggle

This is significant given how real estate developers, riding China’s frenzied urbanization, have provided a steady source of customers for China’s high-end seafood restaurants. The signs of real estate-fueled wealth are obvious in the Bohai Bay port city of Yantai, but so too are the effects of the credit curbs. Built by one of China’s largest real estate developers, Shimao, the “Above the Clouds” high-rise luxury apartment development under construction will “rewrite the latitude of wealth in Yantai” according to an advert in the Yantai Daily newspaper. Construction however is only half-complete, a year behind schedule.

However, government’s piecemeal easing of interest rates and banks’ lending allowances this year have loosened up credit for the real estate sector, traditionally the driver of China’s economy. Housing prices and sales numbers have both been inching up again and this will encourage developers to start building again.

Even if an economic pick-up is around the corner, in the meantime China’s restaurants are feeling the pinch. In the prosperous south coastal city of Xiamen, more than 18 percent of restaurants fail and close on a monthly basis, according to the Chinese Cuisine Association (CCA), which described the figure as the worst in a decade.

A key reason may be rents, rising due to government restrictions on home purchases.

“Even as the property sector has cooled, rents went up 20 percent in the past year. This is because people are not buying real estate so there’s more competition for rentals,” according to the maitre d’ at the spacious Shandong Shui Chan restaurant in the Beijing Central Park residential-commercial complex.

Restaurateurs in Beijing point to wages and rents as key factors: The former has risen threefold in the past eight years, said proprietors. Rents since 2008 have risen by a similar amount. Having to pay higher wages and rents is especially difficult for eateries catering to the majority of Beijing residents who earn the city’s average wage of RMB 2,500 a month.

Input costs by contrast may be more negotiable, said one restaurateur who wouldn’t disclose his seafood suppliers. Beijing restaurateurs are incredibly wary about discussing the geographic sources of their seafood — bass and shrimp, for instance, are described as “Asian” on some menus. There’s anecdotal evidence from visits to Beijing fish markets that fish served at premium import prices are in fact produced in China, in effect allowing restaurateurs greater margins.

A stall holder at the Sanyuanli wet market in Beijing, popular with hoteliers and restaurateurs, explained how his key sellers are garoupa, mackerel and bass (RMB 35, RMB 15 and RMB 18 per 500 grams, respectively).

“The bass comes from Fujian or Qingdao, it’s all local…I know these are popular with western- style restaurants but this is Chinese product for sure, not imported.” Likewise, the snapper priced at RMB 30 per 500 grams is locally produced, explained Wang Ge, who buys his fish from wholesalers and distributors as well as carp producers near Beijing.

Others are downgrading prices. The usually upscale Shunfung Seafood Restaurant chain has promised to start offering value lunch sets. A branch of the restaurant in Beijing, popular with government officials and diplomats, offers a selection of grouper (RMB 380 to RMB 480 per fish), Atlantic cod (varies from RMB 120 to RMB 300 according to dish) and South African oysters (RMB 56 a piece). 

Fast-food chains have benefited, to some extent in a slower economy. KFC, with 3,900 outlets across China, has seen revenues rise in the first half of 2012 but the chain has also complained that its profits have fallen due to higher costs (including rent) and wages. Worried about more restaurant closures, the CCA has requested government to cut taxes on restaurants.