Impact of new coronavirus epidemic on catering industry

The rapid growth of the catering industry as a whole is an important driving force for China to expand domestic demand. According to data released by the National Bureau of Statistics, the total retail sales of social consumer goods in China in 2019 was 41.2 trillion, of which the total catering industry was 4.67 trillion, accounting for about 11.3% of total social retail sales. Since 2015, the catering industry has continued to increase its proportion of zero.

I. Status and growth of the catering industry in the national economy

The rapid growth of the catering industry as a whole is an important driving force for China to expand domestic demand. According to data released by the National Bureau of Statistics, the total retail sales of social consumer goods in China in 2019 was 41.2 trillion, of which the total catering industry was 4.67 trillion, accounting for about 11.3% of total social retail sales. Since 2015, the catering industry has continued to increase its share of zero (Figure 1).

In terms of growth momentum, the retail sales of social consumer goods nationwide in 2019 increased by 8.0% year-on-year, and the catering industry increased by 9.4% year-on-year. In 2019, the contribution of consumption to GDP growth was 57.8%, driving GDP by about 3.5 percentage points, and becoming the first engine of macroeconomic growth for six consecutive years. The catering industry accounts for about 11.3% of total social retail sales, driving GDP growth by about 0.4 percentage points (Figure 2).

China's catering industry is dominated by small and medium-sized businesses, with a low degree of chaining and market concentration. According to the China Culinary Association, there were more than 8 million catering merchants across the country in 2018. According to the survey data of the Meituan Research Institute in the first quarter of 2019, 86.5% of the catering merchants were individual stores, 82.5% of the catering merchants had an operating area of less than 100 square meters, and 95.9% of the catering merchants had less than 10 employees. As a result of the large number of small and medium-sized restaurants, the market concentration is not high and the scale effect in the industry is not obvious. With increasing competition in the industry, small and medium-sized enterprises in the catering industry will expose problems such as insufficient customer acquisition capabilities in single stores, low utilization of online platforms, and generally tight operating funds.

Impact of New Crown Pneumonia on the Catering Industry

The new crown pneumonia epidemic caused about 90% of business losses in the catering industry during the Spring Festival holiday and February. We estimate that without the impact of the new crown pneumonia epidemic, the catering revenue of the Spring Festival Golden Week in 2020 will be about 124 billion yuan, but it may actually decrease by about 90%. The catering revenue in February is also expected to decrease by 90% compared to the same period last year, and it is expected to gradually improve after March. The annual catering revenue is expected to be 3.97 trillion yuan, which is about 15% lower than in 2019.

Catering companies are facing ongoing cost pressures. In the face of the epidemic, on the one hand, most of the catering industry was forced to close down, on the other hand, it still needed to pay rent, labor costs, and also faced depreciation of fixed assets. Based on market research data and financial data of listed catering companies, the sum of the three costs of raw materials, labor and rent accounts for about 70% of the total cost (Figure 5). Secondly, the cost of purchasing materials for epidemic prevention and control has increased significantly. Affected by the epidemic, the catering industry will purchase additional masks, disinfection water, temperature measurement equipment, etc. to meet the safety requirements of epidemic prevention and control, which has greatly increased the expenditure of catering enterprises.

Catering companies are facing huge funding problems. Under the dual impact of increasing spending and reducing revenue, although catering companies have turned to online business and increased sales through take-out platforms or private domain traffic channels to solve the business dilemma brought by the closure, some small and medium catering companies will find it difficult to continue due to cash flow Forced to close or close. Leading companies in the industry are also facing greater cash flow pressures. Under the circumstances of obtaining bank credit or external capital injection, they may still be forced to take measures such as salary reductions, store closures, and layoffs.

The catering industry supply chain has been hit. From the perspective of the industrial chain, the upstream of the catering industry is a food supplier, the midstream is a supply chain enterprise (self-built supply chain system or by means of a platform-based supply chain enterprise), and the downstream is a store of various catering enterprises. Due to the current delay in resuming work in the upper and middle reaches, the production capacity of related companies after the Spring Festival has not been fully restored, and the farmer's market channels have not been fully connected. Feed transportation, food production and product transportation have been affected to varying degrees. The upstream and downstream supply chains are blocked, the consumer demand is reduced, and the industry is delayed to resume work, which means that the catering industry supply chain has been hit.

Three trends for the future development of the catering industry

1. The shift from offline dining to online promotes the rapid and diversified development of the takeaway industry. The new crown pneumonia epidemic caused great losses to the catering industry at the end of January and February. Although catering is an important service consumption mode in the long-term trend, eating out will have a weak growth in the short to medium term. After the epidemic, the restaurant industry will be reshuffled, and the industry concentration will increase. At the same time, the market for online food ordering will see explosive growth (Figure 6). In terms of takeaway food, in addition to manufactured products, the demand for semi-manufactured products will also increase, driving the rapid and diversified development of the takeaway industry.

2. The proportion of unmanned catering services will further increase. In view of the increase in the risk of new coronary pneumonia due to human contact, some unmanned and non-contact catering services will be accelerated, including the unmanned (no waiter) restaurant concept: customers enter the restaurant, scan the order with their mobile phones to pay for meals, After finishing the catering, the robot will deliver the meal. The customer does not contact the waiter during the whole process.

3． Meals are reduced in density, higher requirements are placed on venues, sanitation and ventilation systems, and catering costs increase. Considering that the probability of the new crown pneumonia epidemic spreading in confined spaces is greater, the catering business of catering companies will face higher requirements, including lowering customer density, upgrading sanitation and disinfection, and strengthening ventilation measures. These will increase the cost of catering operations to a certain extent. For those catering companies that have made adaptive adjustments in advance, the catering market will be able to obtain relatively obvious competitive advantages after the epidemic has subsided.

4． Restrictions on wild food products have increased, and the standardization and supervision of the food industry will be significantly strengthened. Due to the large variety of wildlife in China, many wild animals were not included before the "National People's Congress Standing Committee's Decision on the Comprehensive Ban on Illegal Wildlife Trade, Elimination of Wild Animal Habits, and Effective Protection of People's Health and Safety" The scope of management is a major difficulty in law enforcement. With the release of the "Decision", various departments will adjust and improve the relevant catalogues and supporting regulations to further clarify the scope of fasting. At the same time, law enforcement agencies will carry out special crackdown actions, resolutely ban illegal wildlife markets, and effectively increase crackdown on wildlife-related crimes. Under the guidance and supervision of the government, the standardization of the food industry will further increase.