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In the first half of 2024, the catering industry had a hard time. Relevant data showed that the number of companies leaving the market was almost the same as the number of new entrants.

The average customer spending of leading brands has dropped, and the price war has spread to the entire industry. Reducing costs and increasing efficiency has become a compulsory course for every company. After the price war, the final comparison is still the comprehensive strength of the company.

Increased revenue but no increased profits, price war reshapes the price range

"We are opening and closing stores this year. We had a lot of cash flow in the first half of this year, but it was just talk without action, and profits were declining, so we will adjust some of our past strategies. Due to changes in the environment, we have also adjusted our store opening plans for this year." Talking about the industry situation in the first half of this year, Nanchengxiang founder Wang Guoyu said on the Douyin platform.

Tianyancha data shows that as of June 30, 2024, the number of newly registered domestic catering-related companies has reached 1.346 million, while the number of cancellations and revocations has reached an astonishing 1.056 million (revoked: 10,471, cancelled: 1,045,678).

Data released by the China Cuisine Association show that the national catering market showed signs of recovery in the first half of this year, but at the same time, the catering industry has seen revenue growth but no profit growth. The China Cuisine Association analyzed that price wars, homogeneous competition and increasing cost pressure are the main factors causing the current phenomenon of "increased revenue but not increased profits" in the catering industry.

Of course, many companies have survived this "big wave" screening. Among these surviving companies, price wars and discount activities have become the norm.

The latest operating data for the second quarter of 2024 released by Jiu Mao Jiu showed that the average customer consumption of Tai Er (mainland China stores) and Shuang Hotpot decreased month-on-month, and the average daily sales of the three major brands also fell year-on-year to varying degrees.

Jiu Mao Jiu said that in the second quarter of 2024, the decline in per capita customer spending at Tai Er (mainland China stores) and Shuang Hotpot was due to changes in the external environment, the brand adjusted its development strategy, and thus adjusted the menu structure and dish prices. In addition, the increase in promotional activities and the high proportion of Tai Er restaurants located in lower-tier cities also led to a decline in per capita customer spending at Tai Er in mainland China.

Overall, the prices of dishes under Jiu Mao Jiu's brands have been reduced. In June this year, Shuang Hotpot carried out a new round of adjustments to dishes and prices, and posted a "admitting defeat notice" outside the store, saying: "Soup base starts at 8 yuan, meat dishes start at 9.9 yuan, vegetarian dishes start at 6.6 yuan, and stewed rice is 6 yuan for all you can eat."

The data of Jiu Mao Jiu may be a microcosm of the industry. Since this year, many brands have joined the price war. In June this year, Hefu Lamian announced a price reduction of about 30%, and the price range of mainstream products was adjusted to 16 yuan to 29 yuan. In mid-May, Xiabu Xiabu launched a new menu, and the prices of single and double meals were reduced across the board. Banu Hotpot also adjusted its high customer unit price through member rights feedback in the first half of this year, gradually tearing off the label of "expensive". Haidilao's "Xiao Hai Hotpot" launched a 49 yuan single-person meal, with a pot base starting at 9.9 yuan. Even some Michelin restaurants are placing coupons on local life platforms, further intensifying the cost-effective competition in the catering industry.

Leading catering companies have supply chain advantages, scale advantages, and greater bargaining power in procurement, so they do not have a hard time engaging in price wars. When the industry is generally down, price cuts are an important way to build a moat.

Zhu Danpeng, vice president of the Guangdong Food Safety Promotion Association, believes that the willingness and ability of the industry to consume will continue to decline in 2024. In this context, if brands want to maintain their overall size and core competitiveness, price adjustments are in line with industry development trends and the core demands of consumers for high cost performance. Although the overall profit margins of many leading companies are declining, this is actually a process of industry reshuffle. At least in the long run, the dividends of catering consumption still exist objectively.

After reducing costs, we need to increase efficiency

If you want to "increase profits", reducing costs and increasing efficiency have become compulsory courses for every company.

A reporter from the First Financial Daily learned from relevant persons of Xiabu Group that by relying on measures such as reducing costs in the supply chain and adjusting the menu, its hotpot brand Xiabu Xiabu was able to maintain stable profits even after a 10% price cut.

Xiabu Group's cost reduction work starts from the supply chain, and the price of each product is carefully scrutinized. The group's procurement department has set a cost reduction target for all categories, analyzed which products have room for cost reduction, and negotiated with each supplier on cost reduction for each SKU based on this target. At the same time, procurement personnel have mastered the price trends of meat and vegetables through continuous market surveys and price inquiries, and compared them with the quotations of suppliers on this basis, and negotiated prices when necessary to ensure that the procurement prices are not out of line with the market and always have advantages.

In addition, Xiabu Group has also set up a new supply chain planning department. In the past, ordering and inventory were managed separately by different functional modules. Now the supply chain planning department is equivalent to a "central control tower" that unifies all order functions. After the establishment of the department, the effect of continuously shortening inventory turnover days, releasing inventory funds, and rapidly improving capital turnover efficiency has been achieved.

Regarding how to reduce costs while ensuring quality, the person in charge of Banu's supply chain said that Banu chose to establish cooperative relationships with vegetable production bases to obtain ingredients directly from the source, reduce intermediate links, and reduce costs. In addition, Banu actively participates in agricultural assistance projects to support local agricultural development, which also ensures the stability and cost-effectiveness of food supply.

The reporter from China Business News also learned that cost reduction is not just the job of the supply chain department of catering companies. The development departments of some companies will also negotiate rents with property owners, hoping to reach a longer-term cooperation with property owners in exchange for rent support through redecoration, renewal of leases, etc.

For any industry, price competition is only superficial, and product strength is the key to ultimate success. After reducing costs, how to increase efficiency is also extremely important.

"Price wars are inevitable, especially in the current stock market. If you have a strong supply chain and central kitchen, you will be more resilient. However, if you want to survive a price war,, differentiation is necessary, there is no way out if you are stuck in a dead end," Wang Guoyu said on his Douyin account.

Chen Xiaolong, a food and catering industry operator, told China Business News that almost every food and beverage sub-industry has experienced a price war, which basically lasts for one to two years. If you want to break through, you can't just launch low-priced products.Suggest brands to launch new productsParticipate in price wars, so that you can attract customers through product innovation while maintaining price advantages.

He also believes that price wars may attract customers and increase market share in the short term, but in the long run, it may lead to a decline in the profit margin of the entire industry and affect the healthy development of the industry. Price wars are often accompanied by cost compression, which may sacrifice product quality and service levels, and ultimately damage consumer interests and brand reputation. Therefore, the catering industry should seek more sustainable ways of growth.For example, improving product and service quality, innovating and differentiating, enhancing customer experience, and operating through multiple channels.

After the price war, Zhu Danpeng also believes that the first thing companies compete on is the integrity of the supply chain, the second is quality, the third is product innovation, the fourth is the service system, and the fifth is customer stickiness. In other words, the final comparison is still the comprehensive strength of the brand.