How has the Beijing F&B sector performed since 2021?
Among all the other industries, the retail market was the most affected by Covid-19. But benefitting from strong market fundamentals, retail showed a robust recovery in 2021, with overall sales surpassing the 2019 figure by 21.2%. However, the recovery of the F&B sector was slower than the overall retail market. Total sales from the F&B industry in 2021 did not reach pre-Covid levels but were down 5.9% compared to 2019. As the omicron outbreak spread in Beijing since late April of 2022, Beijing has been further enhancing the Covid-19 measures to contain the outbreak. It is likely to bring further challenges to the recovery of the F&B sector but would not affect the fundamentals.
Besides slower sales growth, F&B retailers continued to suffer from high rental costs in the Beijing market. The rent-to-sales (RTS) ratio, which measures the impact of rental costs on business operations, should be in the range of 10-15% for F&B retailers to have healthy operations. But in the Beijing market, RTS increased to around 12%-20%. Higher rental costs have reduced the overall profitability of F&B retailers, adding to the challenges of operating in the Beijing market.
What are the current trends in the F&B sector?
According to our survey, in 2021, of all the newly opened F&B stores, 84% accounted for spaces under 200 sqm, making this size the most in-demand. Stores under 100 sqm accounted for 40%, driven by coffee and tea brands expansion, whereas the remaining 44%, between 100 and 200 sqm, were mostly restaurant chains.
Large F&B with more than 400 sqm area accounted for only 7% of all F&B stores. Sales (per sqm) of large F&B stores remained lower than smaller ones. Meanwhile, the drop in traffic flow, increase in labour costs, and pressure of rental costs, all amplified their operating pressure.
Figure 1: Size Distribution of 2021 F&B Store Openings (by number)
Source: JLL Research, 1Q22
What types of F&B brands are expanding in the challenging market?
With active expansion led by venture capital investment, coffee, tea and bakery brands recovered the fastest. Bakery brands tend to have a similar operating model to coffee and tea brands. They often have high revenue income and typically require a small space. A smaller store size effectively saves on rental expenses, helping to maintain high profitability.
In addition, casual dining segments such as bing sutts and noodle bars drove demand for restaurant-type F&B stores. Casual dining operators lowered operating costs by setting up a central kitchen depot, reducing the store size. They achieved a higher table turnover rate by reducing menu items and food preparation times. Through cost reduction and sales increase measures, casual dining brands improved profitability, which enabled them to expand at shopping malls.
Moreover, as landlords manage to fill up large F&B spaces, gastropubs are expanding to shopping malls. Commonly requiring an area of more than 400 sqm, gastropubs contribute to the demand for sizeable F&B space. Landlords have shown strong interest in introducing gastropubs as they can increase sales by extending operating hours and attracting customers with higher purchasing power.
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