In Depth: Fine Dining Hits a Rough Patch in China

Upscale Western and Japanese restaurants, traditionally favorites in cities like Beijing and Shanghai, are experiencing a decline. This downturn is attributed to an uneven economic recovery, increased competition from affordable eateries, and supply chain issues exacerbated by Japan's discharge of nuclear-contaminated wastewater. Consequently, diners are opting for cheaper food options like noodles and grab-and-go meals instead of high-priced dishes [para. 1][para. 2][para. 3].

Several high-end restaurants in Beijing and Shanghai have closed this year, including Refer, a trendy Nordic dining spot, and Opera Bombana, a Michelin-starred Italian restaurant. Similarly, Kor, a high-end bar in Shanghai, shut down in April. From May 2023 to July 2024, over 1,400 restaurants in Shanghai with an average spend of more than 500 yuan ($70) per person shut their doors, reducing the proportion of fine dining establishments to 0.59% of the city's total eateries [para. 4][para. 5][para. 6].

According to Lu Ruixun, director of the China food and beverage research team at Mintel Group Ltd., consumers are now more prudent with their spending and are re-evaluating their needs. A February survey by Mintel revealed a decrease in Chinese consumers eager to enjoy fine dining, a stark contrast to the previous year when demand was on the rise before Beijing's abandonment of its strict "zero-Covid" policy [para. 7-9].

The repeal of the "zero-Covid" policy in late 2022 led to a surge in dining out, particularly at budget-friendly restaurants. In the first half of 2024, about 39% of new store openings in China's major shopping malls were restaurants, up from 35% in 2023. Restaurants with an average order value (AOV) of no more than 100 yuan have been particularly popular [para. 10-12]. In Beijing, more than 80% of new restaurant openings in major shopping malls offered low-cost, ready-to-eat food. Some low-cost restaurant chains have also started relocating to high-traffic business districts to cater to white-collar workers [para. 13][para. 14].

Supply chain issues due to the release of wastewater from the Fukushima Daiichi Nuclear Power Station have further complicated matters for fine dining. Japanese and seafood restaurants in China have had to source fishery products from Europe and the US after Beijing banned imports of all seafood from Japan. However, the quality of fish sourced from Europe is perceived to be lower, leading to concerns over customer satisfaction [para. 16-18].

In response to these challenges, some upscale restaurants are launching sub-brands offering cheaper dishes to attract budget-conscious diners. For instance, Bao House, a Japanese restaurant in Beijing, launched a lower-end sub-brand during the pandemic. This strategy aims to bring in young customers who enjoy sharing their dining experiences online, potentially turning them into future patrons of their higher-end brands [para. 21-23].

Not just Western and Japanese eateries, but also high-end Chinese restaurants like Howard's Gourmet are adopting similar strategies to boost sales amid rising competition from affordable restaurants [para. 25]. Some fine dining Chinese restaurants are also expanding overseas to compensate for domestic losses. Yong Fu, a Michelin-starred Chinese restaurant chain, has extended its reach to Hong Kong and Singapore, targeting overseas Chinese populations with high net worth [para. 26][para. 27].

Overall, China's high-end restaurant industry is undergoing significant changes as it navigates economic pressures and evolving consumer preferences [para. 28].