Talk of Chinese state-owned enterprises usually centers on banks and big industrial groups. But Beijing and local governments control much more than just factories and shipyards; they oversee a vast portfolio of companies that spread right into the heart of the country’s middle class consumer revolution.
One of the largest is Shanghai Jin Jiang International Hotels, a huge group that owns some of the most popular hospitality properties in China. Zhou Zhi Qiang, vice president of Jin Jiang International Catering Investment and previously general manager of Jin Jiang Hotels, talked to China Economic Review about the evolution of the domestic catering industry and how the company is adapting to the slowdown in spending by officials and state-owned enterprises.
Zhou speaks of the “popularization” of the industry, highlighting how a company under the direction of the Communist Party is transitioning from an elite, deep-pocketed clientele to one more dominated by the masses.
The catering industry in China is changing rapidly. Can you please tell me what the major changes are in this particular industry?
The catering industry will definitely start moving towards popularization. As the standard of living is improving for the Chinese people, they tend to choose a better dining environment. There are two main aspects of the catering industry that operators need to concentrate on: Dining environment and supply chain safety. As long as these two aspects are under control, the catering industry will gradually improve.
The catering industry is facing a time of making improvements [to cost performance] and transitions. Restaurants want to create a high-class dining environment for people to enjoy at a reasonable price. In general, we have to improve our cost performance [to enable this].
In the past, public [state] consumption accounted for a large part of Jin Jiang’s revenue and Jin Jiang was mostly involved in government affairs. However, Jin Jiang is now going to return back to [focus] on [wider] society in order to restructure this aspect of the hotel. Jin Jiang will let more middle class people into the hotels by opening up afternoon teas and buffets.
In the past year, luxury consumption, including restaurants and hotels, has started to slow. Corporate expenditures, particularly at state-owned companies, are also being reduced. How have Jin Jiang Group’s restaurants been affected by this?
Jin Jiang is currently going through a transformation period. It is a painful period of time since our revenue has suddenly dropped. Jin Jiang used to have more conferences and large meetings than it could organize at the end of every year. However, Jin Jiang now needs to fill the empty spaces that were used for those large meetings. This year, we are making progressive preparations to target the mass market, especially for the Chinese New Year’s eve dinner. A lot of large-sized hotels are going through the same transformation as well.
Is this transitions caused by the slowdown in luxury consumption?
Definitely. As high-end hotels, we have to respond to the changing market and make some popularized designs and products. We try to not make customers feel tense in our restaurants. Jin Jiang is opening its door to the entire market, not just high-class consumers.
Many restaurant operators complain of high staff turnover. How is your company affected by this?
Yes, there are some labor-related problems at this stage. It has become more difficult for our restaurants to recruit waitresses since Chinese teenagers are not too familiar with this industry. But employees are still happy to work in high-end restaurants. But it will become more difficult for all restaurants and hotels to recruit employees.
What can you do about these labor-related problems?
Jin Jiang is currently working on a vital project called ‘the central factory.’ We now own several factories that do [food] deliveries because it is also difficult to recruit chefs. Thus, we deliver semi-finished products from these factories, which are also our central kitchens, to the restaurants. We also invested in a production line that produces semi-finished food products in order to deliver to our other restaurant chains. We are able to reduce labor costs and eliminate nearly 90% of the [labor-related] troubles through these factories.
Some chefs at high-end Western hotels complain that affluent Chinese consumers often order plates of expensive food but never finish it. Is this your experience?
Jin Jiang has always promoted the reduction of food waste, and we also contributed in the ‘empty plate’ action and ‘one serve per person’ activity. But it is hard to change this Chinese habit. We are only able to allow the customers to eat separately by dishes in high-end Chinese restaurants because it is more complicated for chefs to make them. In other restaurants of ours, we encourage the employees to communicate with the customers and remind them when they order too much.
Do you think this culture of wasting food will change in the future?
It will definitely change in the future, especially in the next generation. The post-1980s and 90s generation have adopted the cultures of ‘going Dutch’ and takeaways. They have become more westernized. However, elder customers might still feel embarrassed to pack leftover food home.
Following all these changes, how much potential do you think this industry still has?
Chinese cuisine is one of the most popular cuisines in the world. However, restaurants on the mainland have to upgrade due to the intense competition. Marketing strategy is just on the surface; what really matters are the underlying details. Factors such as food safety and brand reputation need adjustments. They still have a lot of spaces for us to explore and study. Therefore, the market for this industry is still massive. Also, since food is always a key part of the Chinese culture and the living standard of Chinese is booming, the catering industry still has a lot of potential.
What do you think the trend of this industry will be like in the coming years?
Many large-sized companies are starting up franchise food chains, and it will be the most prosperous sector of the Chinese catering industry. Western and East Asian brands are entering the Chinese market, therefore the development of franchise restaurants will be rapid.
Due to the changing age structure of China, an increasing amount of young people tend to dine out instead of making food at home. Thus the market for catering services within the neighborhood is also growing.
It will become more difficult to establish high-end restaurants in the future. This market is going to shrink. Expensive rents, low wages and inflation are all imposing threats upon the catering industry. The sizes of restaurants will decline in city centers. The industry tends to become more professional, as there will be fewer large-sized restaurants and more franchises. Restaurants will also set up more diversified services within one store.
Have you any plans to open hotels overseas? If so, where, and what is the driver for this overseas expansion?
We started co-branding with a French company called Hotel du Louvre. This company owns an economy hotel brand called Campanile. Each company offered 15 hotels for co-branding. We also have entered the hotel market in the Philippines, South Korea and Indonesia. We are responding to the changing market.
China has seen
a massive build up of overseas hotel brands in recent years. What is your view on all this?
Many overseas hotel brands have entered the Chinese market in recent years. However, since most of customers in the limited service market are local Chinese, therefore hotel brands such as Ibis are not as competitive as Chinese budget hotel brands. In contrast, luxury hotels are mostly dominated by overseas customers. Ibis is the popular foreign brand in China, however, it is developing at a slow rate due to the competitiveness of local hotel brands.
Marketplace services in the US such as Airbnb that match rooms in private homes with travelers are challenging established hotels. Do you see something similar happening in China?
There are some online businesses that are similar with Airbnb in China. In the long term, it challenges established hotels. However, Chinese people haven’t got used to marketplace services. The price of marketplace services is still higher in comparison to budget hotels. Their management systems are not as standardized as established hotels and their safety is still questionable. These homes are usually for long-term [stays] while economy hotels are for short stays. Thus, the target markets for economy hotels and marketplace services are quite different. These services currently don’t impact upon established hotels in China, but Jin Jiang Inn has been paying more attention to this sector.