 "Why are China's restaurants struggling to recover from the slowdown?")
Small restaurants across mainland China are coming under growing financial strain as consumers cut back on discretionary spending amid economic uncertainty and pressure on household incomes, according to a report by the South China Morning Post (SCMP).
Many independent eateries are operating on thin margins, with some reporting losses for several consecutive months. Restaurant owners are saying the downturn that began in the middle of 2025 has shown little sign of easing, even though winter typically marks a slower period for the sector, the report said.
Why are China’s customers not dining out?
Restaurant operators cited by SCMP said that cautious spending behaviour has become more common as households worry about income stability and falling asset values. Several businesses are now facing closure after failing to recover from months of subdued footfall and lower ticket sizes.
According to the country’s Ministry of Commerce, China’s catering industry employs more than 20 million people. Industry participants said that continuing deflationary pressures have made it increasingly difficult to sustain operations, especially for small, family-run outlets.
Restaurant revenue growth lags broader retail sales
Official data cited by SCMP point to a deceleration in the sector’s recovery. Figures from the National Bureau of Statistics show restaurant revenue rose 3.3 per cent year-on-year (Y-o-Y) in the first 11 months of 2025 to 5.2 trillion yuan ($744 billion), compared with retail sales growth of 4.1 per cent over the same period.
In 2024, spending at restaurants nationwide had increased 5.7 per cent from a year earlier to 5.57 trillion yuan, indicating a sharper slowdown in momentum in 2025.
Data from industry tracker Canyin88.com show per-capita spending per meal had fallen 23.6 per cent since 2023 to 33 yuan as of September. The firm said restaurant closures had become widespread in major cities.
Property price slump dampening household spending
Economists and business owners said weak consumer confidence has been exacerbated by falling home prices, discouraging spending among mainland China’s estimated 400 million middle-income residents.
Spending restraint has extended beyond dining, with the average selling price of fast-moving consumer goods, including daily necessities such as toothpaste, bottled water and snacks, declining 2.4 per cent Y-o-Y in the first three quarters of 2025, according to data from consultancy Bain & Co and market research firm Kantar Worldpanel as cited by the newspaper.
And the challenges facing China’s catering sector are not new. The initial downturn can be traced to 2013, when authorities moved to curb lavish official banquets as part of President Xi Jinping’s anti-corruption campaign.
More recently, millions of restaurants were affected by stringent Covid-19 controls between 2020 and 2022. While restrictions were lifted in early 2023, business activity failed to return to pre-pandemic levels as the property downturn weighed on consumer sentiment.
How are large restaurant chains adapting in China?
Large operators are adjusting their strategies in response to the prolonged slowdown. In November, Yum China Holdings, which operates KFC and Pizza Hut outlets across the mainland and Hong Kong, said it would accelerate expansion into lower-tier cities.
The company said it was relying on flexible store formats and lower pricing to sustain growth. Capital expenditure for a KFC outlet in smaller cities now ranges between 500,000 yuan and 700,000 yuan, compared with about 1.7 million yuan for a store in major urban centres, the report said.