Hurt by the 9.9 yuan set meal, catering people begin to oppose price war

In the highly competitive catering industry, price wars seem to have become the norm, especially during large-scale promotional events such as Singles' Day. However, this strategy, which seems to attract customers, actually brings a heavy burden to catering operators. This article explores in depth how catering operators can survive in price wars and why they have begun to oppose this seemingly beneficial promotion method.

Wu Xiaomin, who has been hoarding dining coupons for nearly two years, gave up the idea of ​​placing an order on Double Eleven after comparing the coupons offered by merchants on various platforms.

"The discounts on several restaurant brands that I frequently buy from are basically the same as usual. After watching for more than half a month, Starbucks raised the price of a set meal that usually costs 38 yuan to 35.9 yuan. Recently, this product was taken off the shelves," said Wu Xiaomin.

The "longest Double Eleven in history" is in full swing, discount wars are in full swing on e-commerce platforms, and even the catering industry cannot avoid the promotion frenzy.

Chain restaurant giants represented by McDonald's, KFC, Burger King, etc. have successively launched various Double Eleven limited coupons in the live broadcast room, hoping to catch the huge traffic of Double Eleven.

However, when the trend of cost-effective consumption swept the industry, promotions have long become the daily operation of most catering businesses. After a year of price wars, catering people have long been exhausted.

"We already have low prices and promotions every day, so we are not considering offering discounts on Double Eleven." Huang Shitou, who runs a pizza shop in Shenzhen, told the Times Weekly reporter.

"The catering industry has reached its limit. If we continue to engage in price wars, we will fall into an unhealthy state where food safety cannot be guaranteed. What's more, consumers are also aesthetically fatigued. Even if we cut prices and promote sales, we may not necessarily have good business," said Colin, who has been in the catering industry for 8 years.

However, for consumers who have developed the habit of hoarding coupons, the attractiveness of the Double Eleven discounts offered by catering brands is gradually waning.

1. With the 9.9 yuan trend, every day is Double Eleven for the catering industry

Colin has never felt that it is as difficult to make money in the catering industry as it is now.

Colin has always focused on the fast food category, but in the past two years, he has found that the payback period of the stores has become longer and longer. Currently, Colin operates a total of 3 small stores of the brand, the first of which opened in early 2022, with an investment cost of about 500,000 yuan per store. So far, Colin's three stores have achieved a state of balanced investment returns and slight profits. In total, the payback period for a single store is one and a half years.

If it were in the past, Colin would simply not be able to accept this payback speed. "Before 2019, when I opened a store, the payback period was at most half a year, and at most one year."

The change in average customer spending is the core reason that affects the payback period. Since the middle of 2023, the average spending of Colin store customers has gradually declined, and this change was particularly obvious at the beginning of this year. "In the past, usually 20-30 customers could contribute 1,000 yuan in sales, but now at least 40 customers are needed to support the same sales."

Cost-effective consumption has become a trend, and people are willing to spend less on dining out. Faced with the current situation in the industry, every catering business must accept and make adjustments.

Since 2023, Starbucks has lowered the average price per cup to less than 20 yuan through various promotional methods; McDonald's, KFC, and Burger King have brought burgers into the 9.9 yuan era by launching the 8.8 Golden Powder Festival, limited-time hamburger coupons, and 12.9 yuan 1+1 combo meals. In the field of Chinese catering, whether it is Haidilao, Jiu Mao Jiu, and Xiabu Xiabu that focus on formal dining scenes, Hefu Lamian and Country Style that focus on fast food categories, or even major freshly brewed tea brands, discounts and profits are one of their selling points.

The promotion trend initiated by leading brands has also passively involved small and medium-sized businesses.

Huang Shitou's pizza shop opened in July 2023, initially mainly selling 12-inch pizzas, with an average per capita consumption of about 60 yuan. After feeling the temperature of the industry, Huang Shitou launched a 9-inch pizza priced at 45 yuan this year. In the second half of the year, he launched a series of discount packages on Dianping.com, including a single-person package of a 9-inch pizza and a snack or drink for only 39 yuan.

The average consumption per person in Colin's fast food restaurant was originally more than 40 yuan. Seeing that the newly opened restaurants in the surrounding area often launch 9.9 yuan set meals, he also launched a series of dishes priced at 9.9 yuan and hot pots priced at more than ten yuan per person this year.

When promotions become the norm, "coupon hoarders" are happy to see it happen. Wu Xiaomin, who is keen on eating out, has found that limited-time coupons from various restaurant brands have appeared more and more frequently on social media in the past two years. The price of the coupons is cheaper than usual, and you can return them at any time after buying them. With the idea that you won't lose money if you buy them, Wu Xiaomin searches for coupons everywhere. At most, she holds group purchases or discount coupons from more than a dozen restaurant brands at the same time, with a total amount of coupons of up to several thousand yuan. "It's very affordable! I always feel that I'll lose money if I don't stock up," said Wu Xiaomin.

Meituan data shows that in 2023, Meituan and Dianping's in-store group purchase orders for catering brands with a history of ten years or more increased by 90% year-on-year. "In the past, customers would sit down in the store before checking if there were any group purchase packages. Now, everyone comes with pre-purchased group purchase coupons." Colin told the Times Weekly reporter that in the past two years, the proportion of group purchase orders in his stores accounted for less than 30% of the total orders, but now it has exceeded 50%.

2. Promotions hurt their business, so bosses started to oppose price wars

Small profits but quick turnover and trading price for volume are the original intentions of catering businesses to reduce prices. However, after struggling in the price war, more people have found that this is more like a zero-sum game.

The operating pressure brought by price cuts has put too much pressure on small and medium-sized businesses.

Huang Shitou calculated that to publish a group-buying package on Dianping, one must first pay an annual fee of 6,800 yuan. The packages listed must be 70% off the regular price of the product or even lower; each group-buying order placed through the platform must give the platform a 5% commission. In addition, in order to ensure that the store can be displayed at the top of the search results, it is necessary to pay a traffic fee of 100 to 200 yuan per day. "These operations are eroding the profits of the store, which is equivalent to doing business at a 'bleeding' cost."

Low-price group buying brought a surge in orders in the short term, but Colin soon discovered that this was not a good deal. "As long as there are lower-priced products, customers will not have more consumption desire, and the average customer spending of stores will fall even more. Adding in the profit sharing, platform commissions and promotion costs, the comprehensive gross profit margin of the store is now about 30%, a 25% drop from the previous two years. This is only after deducting the raw materials, water, electricity and labor costs. We are just barely breaking even now. According to common sense, the gross profit margin of the catering business in the past two years should be at least 50% to 60%."

Even for larger chain restaurant brands, frequent promotions have caused internal damage.

McDonald's recently released its third-quarter financial report, showing that the company's consolidated revenue for the quarter was close to US$6.9 billion (approximately RMB 49.238 billion). Among them, the International Franchise Market Division (IDL) in China fell by 3.5%, and the weakening of consumer sentiment and spending was an important reason for the decline in performance in the Chinese market.

In the first three quarters of this year, the average daily sales of the three major brands of Jiu Mao Jiu Catering Group, Tai Er, Shuang Hotpot and Jiu Mao Jiu, fell by 18.3%, 32.5% and 10.3% year-on-year respectively; Starbucks' latest financial report also showed that in the fourth quarter of fiscal year 2024 (the first three months ending September 29, 2024), Starbucks China's same-store sales fell by 14%. In addition, in fiscal year 2024, Starbucks China's same-store sales fell by 8% year-on-year.

The inward-looking price cuts have not brought about any improvement in performance, and more and more catering brands have begun to oppose price wars.

At a recent industry forum, Xiabu Xiabu founder He Guangqi openly complained: "The catering industry has entered a very competitive era. I don't really support price wars."

Yang Guofu, the founder of Yang Guofu Malatang, also said frankly that he does not approve of winning the market through low-price strategies. He believes that catering companies are still facing the "three highs" of food ingredients, rent and labor. Under such circumstances, if they continue to offer low prices, the company will not be able to survive.

In September, Heytea stated in an internal letter to its business partners that in the face of homogeneous competition in the industry, Heytea will reject the inertial homogeneous thinking in the future and will not simply engage in low-price internal competition. At the same time, it will pay more attention to the quality of store opening and store operation quality.

Recently, Colin has begun to gradually cancel the 9.9 yuan products it previously launched, and the price of the original small hot pot has also been increased by a few yuan.

"Consumers have become numb to discounts. Even if we offer special prices now, the effect is not obvious. What's more, the stores are on the verge of breaking even every month, which is really tiring. The price war in the industry should be coming to an end. When most people start to work hard but not make money, I think everyone will start to think about change."

Author | Li Xinting Editor | Li Qian