The Restaurant Market in China

One would think that China having four times the population as the U.S. would have the biggest global restaurant (F&B) industry…  That’s not quite true.  In 2018, total sales in U.S. restaurant industry tops out at $825 billion while China came in at $637 billion; they are among the first and second place globally, respectively.

 

So why is China lagging behind the U.S.?  Again, with four times the population, shouldn’t China have the biggest restaurant industry in the world?  As it turns out, population does not immediately equate to industry growth.  For instance, India, having the second highest population in the world, only has $52 billion in total sales in its restaurant industry in 2017, according to the National Restaurant Association of India.  The myth that higher population should automatically equal to bigger restaurant industry is hereby debunked.

 

Culturally and traditionally, the Chinese people are frugal and do not eat out much.  While it is very true that the Chinese have embraced Western consumerism and eating out is becoming well accepted, there are still a vast amount of the population who cooks at home to save money. 

 

In more developed cities in China, eating out is a norm.  However, much of these eateries only take cash, or digital equivalent to their own personal account, and hold back on reporting actual sales to the government.  So it is safe to assume that a great portion of the industry strength has been under-reported.

 

In comparing the U.S. restaurant industry of $825 billion to the $637 billion from China, one might assume that there’s still a big gap between the two.  However, in understanding the difference, one must also understand that cost of living in China is lower than that of the U.S.  In other words, cost of the food ingredients, rent, and labor are all cheaper than the U.S., hence, the final sales amount will proportionally be lower as well.

 

How much of a difference is there in cost of living?  And once the values are equalized, does China still lag behind the U.S.?  Let’s use the Big Mac Index to get an idea of how much $637 billion in China is really worth.  Big Mac Index is developed by the Economist Magazine and published every year.  One can easily search it up on the web and see how each country is ranked.

 

In 2018, a Big Mac costs about $5.28 in the U.S; the same Big Mac costs $3.17 in China.  This implies that, instead of $637 billion in total sales, the equalized amount is going to be a bit over $1 trillion ($1061 billion).  In other words, China does have the world’s biggest restaurant (F&B) industry after cost of living has been factored in.

 

And most of all, restaurant industry in China is still growing at a rapid pace.  Chinese government is projecting the industry to at least sustain the same growth of 9.5% from the previous year for the coming year; projected growth for 2019 in the U.S. is about 4.6%.  For the average growth of 9.5%, the fast-food sector has a 10.4% growth, beverage sector has a 15.8% growth, and the take-out/delivery sector has a 18.8% growth!

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