Wine Sales Hit Hard by Struggling Catering Industry in H1

China’s catering industry, a major sales channel for wine, is grappling with severe challenges in the first half of 2024. With restaurants closing at a speed far faster than opening, merchants who reply on on-trade wine sales are feeling the pinch.

During the first six months of the year, the country’s catering and restauarnt business registered a slight increase in overall revenue but intense competition driven by consumption downgrading has shaved off restaurant profits. The number of catering businesses that deregistered or closed reached an alarming number of 1.056 million, nearly equaling the total for the entire year of 2023.

According to recent data from the National Bureau of Statistics, national catering revenue from January to May was RMB 2.1634 trillion, up 8.4% year-on-year. While this growth might seem promising, underlying issues pose significant concerns, warns the China Cuisine Association. Price wars, homogenized competition, and rising cost pressures are major contributing factors, squeenzing profits for restaurants, according to the association.

In the first half of 2024, China’s catering industry saw fierce price competition. Leading coffee brand Luckin Coffee continued to offer coffee at RMB 9.9, and hot pot giant Haidilao launched an affordable sub-brand with per capita spending between RMB 50-60. On Douyin, the Chinese version of TikTok, many formerly high-end mid-to-high-end restaurants are offering low-priced group-buying coupons.

Furthermore, according to data from company database platform Tianyancha, as of June 30, 2024, the number of newly registered catering-related enterprises in China was 1.346 million, while the number of deregistered and revoked enterprises was a staggering 1.056 million (revoked: 10,471; deregistered: 1,045,678). This number is nearly equal to the total closures in 2023. Additionally, the first half of 2024 saw 317,000 fewer new catering businesses compared to the same period in 2023, reflecting poor industry sustainability and low confidence.

The reduction in restaurants can spell trouble for wine sales. In China, wine sales primarily occur in restaurants. Many wines are featured on the menus of high-end Western restaurants, starred hotels, and bistro bars. Additionally, many wines sold off-trade are often consumed in restaurants, where bringing your own wine is common in business banquets.

The decline in restaurant spending, particularly at mid- to high-end establishments, reduces wine consumption opportunities, directly affecting sales. Many traditional wholesale distributors and importers have reported significant impacts.

Zhang Jiarong, General Manager of Rongpu Wine in Guangzhou’s Zengcheng District, noted that most of his wine sales are for banquets. “With the poor real estate market and many companies cutting salaries, business banquets have decreased. Although there were already fewer business banquets last year, this year is even worse. Wine sales have been hit hard,” he said.

Feng Tao, Deputy General Manager of Hengtai Liquor Chain Store in Chengdu, said they no longer rely on business banquet customers to generate growth. “Now, the main customers for wine in our stores are enthusiasts who come to buy wine for solo drinking or gatherings with friends. But the business customer group has significantly decreased, leading to a considerable decline in wine sales,” he told Vino Joy News.

Pan Liu, Marketing Promotion Director of Wintek (Shenzhen) Import & Export Ltd., described the deteriorating business environment: “The ban on public spending in 2013 caused my business to plummet, and in recent years the sluggish exports, stock market crashes, and the collapse of major real estate companies plunged the market. The overall environment has hit rock bottom, and companies dealing in consumer goods cannot escape unscathed.”