The recent crack-down by the Beijing central government on corruption has hit fine dining restaurants in China very hard.  Previously, government officials could quietly meet with business people in private rooms, eating expensive food and drinking fine wines without incident. But the new administration has changed that as well as social media like Weibo who regularly post pictures of officials with expensive watches or driving luxury cars.  Does this mean the death of fine dining in China or is this just a temporary lull until the media storm passes?

First, fine dining is a small market to begin with and is generally associated with business expense accounts, and wealthy people.  It does well when the economy booms and does poorly during recessions.  There is no doubt that government officials were a sizeable customer base that has evaporated for the time being. And the economy has slowed making business people more cautious as well.  My guess is that government officials will return to their old habits in time and fine dining will recover but much depends on how serious the economic slowdown will be as well.

What I have noticed recently is the decline in business for 100+ RMB per person causal dining restaurants and the growth of more economical full service dining in the 50-80 RMB per person range. Commodity, labor and real estate  inflation have driven menu prices higher but there is a limit to what the average middle class customer can accept.  Economical full service dining is a beneficiary of the trade up from fast food as disposable income rises. This is definitely the sweet spot in the market for full service restaurants.

If a full service chain wants to grow in Tier 2/3 cities in China, economical concepts are the preferred pathway!  The evidence in the market confirms it!

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