In Depth: China’s Restaurant Chains May Be Biting Off More Than They Can Chew Overseas

Chinese restaurateurs are increasingly looking to expand overseas due to declining profits at home. The domestic market is highly competitive, with Beijing’s catering industry reporting a significant drop of 88.8% in profits in the first half of 2024. Restaurateurs see the underdeveloped global Chinese food market, which currently includes 600,000 Chinese restaurants, as a potential area for growth. [para. 1][para. 3][para. 4]

Southeast Asia, with its large Chinese communities and proximity to China, is a favored destination for these expansions. Notable Chinese chains, such as Luckin Coffee and Tai Er Sauerkraut Fish, have begun their overseas ventures in Singapore, while bubble tea brands like Tianlala have expanded into Indonesia. Bubble tea shops have an easier transition overseas due to their lighter asset requirements and leaner supply chains, exemplified by Mixue Ice Cream & Tea, which has successfully opened nearly 4,000 international stores. [para. 5][para. 6]

However, not all expansion efforts have been smooth. For instance, hotpot giant Haidilao struggled to expand in Singapore, having only 20 stores in the country, compared to its significantly larger domestic presence. Coffee and tea chains like Luckin Coffee and Tianlala also faced hurdles, with expansion not meeting expectations. [para. 7][para. 8]

Some industry experts, like Tiger Wu, argue that large-scale chain expansion overseas is illusory. He cites Mixue’s challenges in saturating the Indonesian market as an example. Supply chain complexities add to the difficulties. Many Chinese brands split their supply chains, exporting durable goods from China while sourcing fresh ingredients locally. This approach often encounters complications, such as strict import quotas for tea in Thailand and heavy restrictions on stainless steel in Indonesia. [para. 9][para. 11]

Additionally, costs for ingredients can be significantly higher overseas, as demonstrated by Chabaidao's experience in South Korea, where fruit costs ten times more than in China, forcing them to raise prices. Chinese brands have found creative ways to navigate these hurdles, including leveraging existing retail networks in Indonesia and resorting to informal channels to avoid tariffs and complex customs procedures. [para. 12][para. 13]

To improve efficiency, some restaurants have adopted shared supply chain models. Haidilao, for example, established a central kitchen in Singapore to serve multiple outlets. However, the model requires significant financial resources, and not all businesses can afford it. [para. 14]

There is also a growing concern among entrepreneurs that they may have missed the peak window for overseas expansion, as competition in markets like Indonesia intensifies. This situation has driven some to explore opportunities as far away as Germany, the United States, and Jamaica. However, experts like Fang Zhizhong advise against rushing into overseas ventures without a strategic plan. Fang remains optimistic about the potential of the Chinese domestic market, viewing it as having the best conditions for Chinese cuisine. [para. 17][para. 19]