Lower prices on offer as public spending curbs continue to bite

China's middle- and high-end restaurants are facing what industry insiders call a "chilly spring", with many taking measures to combat a drop in business.

Xiang E Qing, a national restaurant chain serving a combination of Cantonese, Hunan and Hubei cuisine, has been promoting a "happy family set menu". Dishes cost from 150 yuan to 300 yuan ($24-48) per head in the private rooms, a considerable drop from the original price.

The Shenzhen-listed eatery has also canceled its lowest-spending limit in private rooms, its service charge and corkage fee.

The restaurant group, which used to concentrate on the middle- and high-end markets, also plans to speed up development of its snack restaurant brand Wei Zhi Du, with dishes costing from 3 yuan to 12 yuan.

Xiang E Qing has also started a group catering business, signing contracts with more than 10 large firms to provide group meals.

Zhi Li Hui Guan, a restaurant featuring Hebei cuisine and mainly serving the North China market, now reserves its first floor for dishes where the average price is about 100 yuan per person. Its fifth floor still serves meals for businesspeople, at 500 yuan a head.

On April 26, Shun Feng, a Cantonese restaurant chain specializing in seafood in Beijing, started a Cantonese food festival, featuring 10 of its most popular dishes along with 20 classic Cantonese foods. It is offering a 12 percent discount during the festival.

South Beauty, Dong Lai Shun and Quan Ju De are organizing group purchasing. South Beauty's Shanghai branch is serving smaller portions, with 60-70 percent of the original quantity, but costing 60-70 percent of the original price.

Many people link the decline of the restaurant business with eight rules China's new leadership issued to improve officials' working style, and recent policies to curb use of public funds.

According to the National Bureau of Statistics, in the first two months of 2013, the industry saw overall income of 403 billion yuan, an increase of 8.4 percent, but the growth was 4.9 percentage points down on the same period last year. It is also the first time for 10 years that growth in January and February has been below 10 percent.

Menu: Home-style dishes to attract diners

The situation is much worse for restaurants with an annual turnover of more than 2 million yuan. For them, it is not a question of lower growth, but a drop of 3.3 percent in business in January and February compared with last year.

A survey by the Ministry of Commerce found high-end restaurants in Beijing have seen a 35 percent fall in business, while those in Shanghai have reported a drop of 20 percent, after the government policies were announced.

Bian Jiang, assistant director of the China Cuisine Association, said the major causes of the decline are soaring rents, the rising cost of ingredients and labor, and increasing taxation.

The association submitted a proposal during this year's top legislative meetings to lower taxation for restaurant businesses.

Middle- and high-end restaurants that don't depend so heavily on customers who pay with public funds have not suffered as much.

Zhang Jun, general manager of Xi He Ya Yuan Peking Roast Duck Restaurant, said his business has not been affected as much, because it depends on businesspeople and visitors to shopping malls. Most of his restaurants are in large malls.

He said spending with public funds pushed the cost of meals at restaurants to ridiculously high levels. "A meal could cost 10,000 yuan, with 7,000 spent on liquor," he said. "It just ruined the normal market."

With the newly introduced curbs, he expects high prices to fall soon, including the price of expensive Chinese liquor and seafood.

"We will increase the number of home-style foods that are more familiar and affordable to the common customer," he said. "Most restaurants will become more affordable, therefore we hope people who used to visit lower-priced restaurants will be attracted to us."

Meanwhile, Bian said the situation in high-end restaurants can be viewed as pressure and also as a motive for change.

"In the past, the restaurant business rose so fast nobody paid attention," he said. "But now, market rules will force restaurants to improve food and service quality."