There is cautious optimism for the hotel and restaurant sector in the People’s Republic of China (PRC) following the ending of its zero-COVID policy, according to a report by the United States Department of Agriculture (USDA).
“Stakeholders expect a rebound in travel to fuel recovery in hotels, restaurants, and other outlets,” the 17 February report by the USDA’s Foreign Agricultural Service (FAS) said.
“PRC agricultural production, processing, and transportation logistics were resilient during the pandemic, but full economic recovery will be slowed by structural headwinds and cautious consumers.”
PRC food and agricultural imports – critical to the food security balance sheet – remained strong and were expected to grow faster than the rate of GDP, the Global Agricultural Information Network (GAIN) report said.
The PRC remains the largest food and agricultural product export market for the USA with sales reaching a record US$41bn last year, according to the report, although this was supported by higher commodity prices.
The PRC pursued a zero-COVID policy from the start of the pandemic until late last year, which had a dramatic impact on all aspects of the economy, including the food and agricultural sector.
With the end of COVID-related restrictions, there was optimism that economic growth in China would return to around 5% this year, and the return to domestic and international travel would boost the hotel, restaurant and institutional (HRI) sector, the USDA said.
The report noted that hotels and restaurants were particularly impacted over the past three years by the COVID pandemic and Beijing zero-COVID policy response, with many importers - especially of cold chain products - seeing business dry up and costs increase.
Restaurant revenue fell more than 15% in 2020, recovered in 2021 and declined by 4.6% over the first nine months of 2022. At the time of the report, data was not available on the fourth quarter of 2022, but business stopped completely for many restaurants in December.
With the PRC dealing with a wave of infections at the time of the report, contacts across the HRI sector were cautiously optimistic about 2023, with sources expecting a slower return of demand in the first quarter of this year.
The hospitality industry expects three stages of recovery in the next 12-18 months, according to the report. From the end of 2022 to the first quarter of 2023, with rising infection numbers and a slow restart to travel, most hotels were expecting to continue to see fewer customers and suffer losses.
The industry expected a rebound in the early part of this year, with more business travel, trade shows and recreational travel, the report said, while for the second half of 2023, the industry expected occupancy to almost recover, although the wider economic situation could hamper a full recovery.
In the bakery sector, technically part of the retail or HRI sector, bakery owners reported that sales increased over the past three years. However, sales at shopping mall bakery store decreased by at least 20% in the period due to lockdowns and reduced footfall.
Many bakeries did not survive the pandemic and the number of bakeries in China fell by 18.6% to 390,000 in 2020, according to data from www.askci.com and Meituan. Several large national bakery chains were forced to close or enter bankruptcy, while local bakeries suffered from weaker demand and higher costs associated with unpredictable pandemic controls.
Demand for bakery products was strong during the pandemic, but many customers faced reduced incomes.
Demand for imported dairy products, especially butter and cream cheese, was stable and strong. Due to stringent measures on imported cold chain products some bakeries were forced to seek local replacements for imported cheese and butter.
Higher supply chain costs and unreliability led many bakeries to source more ingredients from within China. Cold chain products faced noticeable shortages resulting in higher prices. Other ingredients required quarantine at port for extended periods and segregated storage, increasing overall production costs.
Meanwhile, COVID-related port and business slowdowns and closures disrupted supply chains around the world while the PRC’s domestic transportation and logistics policies aimed at controlling the spread of COVID in China severely affected the logistics industry.
According to estimates by FAS China contacts, logistics costs for packaged products increased by an average of about 10% over the past three years, which resulted in retail prices rising by about 10%. However, they estimated that cold-chain product costs increased by as much as 40%-50%.
Logistics in China throughout the pandemic ranged from almost normal to sometimes gridlocked, although industry experts expected a full recovery this year following the lifting of the zero-COVID policy, the USDA said.
According to a 2022 Deloitte report, logistics labour costs across China increased by more than 10% as of the end of March 2022; China’s coastal bulk freight cost increased by 25% during 2020, and China’s export container prices increased by 166% after 2020. High oil and gas prices contributed to shipping challenges and container shortages as businesses made strategic changes to their usual cargo shipment schedules to avoid unrecoverable expenses.
