On August 28, Caijing News (reporter Wu Weiling) - After the wave of price reductions swept the dining industry, the profits of many leading catering companies declined in the first half of the year. In the industry's view, price wars are one of the reasons why the dining industry is not increasing its income but not its profits, but price reductions are also a necessary means to attract customer flow. Nowadays, more and more brands are joining the "price reduction" camp, and how to "scientifically" reduce prices is becoming a focus of attention.

Reducing prices to attract customer flow, it is difficult to increase revenue in the catering industry in the first half of the year.

The "boomerang" of actively reducing prices has hit the profits of catering companies.

In the first half,$JIUMAOJIU (09922.HK)$The profit during the period was 67.97 million yuan, a year-on-year decrease of 71.5%. $XIABUXIABU (00520.HK)$ Expected net loss of 2.6 to 0.28 billion yuan in the first half of the year; $AJISEN (CHINA) (00538.HK)$ Similarly, from profit to loss, shareholders' net loss for the first half was 7.157 million yuan. As for the veteran dining sector, $Xi'an Catering (000721.SZ)$The net income attributable to the parent company in the first half of the year was a loss of 59.6463 million yuan, with a widened year-on-year loss; $Guangzhou Restaurant Group (603043.SH)$The net income attributable to the parent company in the first half of the year was 55.7396 million yuan, a year-on-year decrease of 30.37%.

It is worth mentioning that some brands still achieved increased profits.$YUM CHINA (09987.HK)$After continuous promotional activities by brands such as KFC and Pizza Hut, the second quarter achieved the highest profit since its spin-off, with a year-on-year growth of 11% in delivery sales, maintaining double-digit growth over the past decade. Operating profit for the first half of the year decreased by 5% year-on-year, which is basically flat compared to last year, excluding the impact of foreign exchange conversion. The reduction in management expenses offset the impact of the restaurant's profit margin falling to 16.6%, and the core operating profit increased by 5%, reaching $667.1 million.$HAIDILAO (06862.HK)$The average customer spending in the first half of the year has dropped below 100 yuan, but the group's core operating profit (measured by non-international financial reporting standards) increased by 13% year-on-year.

The China Cuisine Association analysis stated that the continuous intensification of price wars, homogeneous competition, and cost pressures are the major factors leading to the phenomenon of "increasing revenue but not increasing profit" in the catering industry.

"The price reduction is driven by customer traffic competition. Although there is not much money to be made from promotions, there won't be any losses. As long as there are customers coming in, it can generate income that offsets some of the daily rent and labor costs," said a catering practitioner to Cailian Press reporter.

$XIABUXIABU (00520.HK)$ In the financial report, it is also mentioned that in the first half of the year, the company provided consumers with more high-quality and cost-effective consumption choices, and increased customer traffic by actively reducing prices and launching set meals.

Trading price for volume hurts profits. $JIUMAOJIU (09922.HK)$ According to the financial report, after adjusting the menu structure and menu prices in the first half of the year, both the average customer consumption and the store-level operating profit margin of Taier and Tsong Hot Pot have declined. Among them, the store-level operating profit margin of Taier is 13.8%, a year-on-year decrease of 7.5 percentage points; the store-level operating profit margin of Tsong Hot Pot is 8.6%, a year-on-year decrease of 5.1 percentage points.

"It's also a game, if the price is too high, no one will come, now we need to give up some profits and give feedback to consumers." A person with many years of experience in the catering industry investment told Cailian Press.

At the same time, with the price war, the industry is accelerating consolidation. Data shows that as of June 30 this year, the number of domestic catering related enterprises that have been deregistered or revoked reached 1.056 million, close to the 1.359 million for the entire previous year.

Some chain brands are expanding cautiously. In the first half of the year, Haidilao opened 11 new restaurants and closed 43.$AJISEN (CHINA) (00538.HK)$ Only 6 new stores were added. Haidilao stated that in order to ensure the overall operational effectiveness of the restaurants, it maintained a cautious expansion policy in the first half of the year. With further improvement in operational management capabilities, it is expected that the number of new stores in the second half of the year will increase significantly compared to the first half.

The trend of price reduction continues, and "scientific" price reduction becomes a driving force.

Currently, the industry's trend of price reduction is still ongoing. In June, Haidilao released a new menu, with prices of some products reduced by 32%; in July, the Chaozhou hot pot chain brand Baheli Beef Hot Pot reduced prices of multiple meat products, claiming that the prices are back to 10 years ago; at the beginning of this month, the 9.9 yuan trend of tea drinks is now moving towards fast food, with Burger King following the footsteps of KFC and McDonald's by launching the "Signature Burger, 9.9 yuan per week" promotion.

"At present, it is hard to say how long it will continue, but price reduction is indeed a method adopted by many restaurants." The aforementioned catering investor told Cailian News that compared to whether or not to reduce prices, he is now more concerned about whether the price reduction method is "scientific".

"For example, the cost of ingredients cannot be reduced, and the quality cannot be reduced. The price reduction is achieved by reducing other costs." The catering investor added in response to the Cailian News reporter.

One noteworthy phenomenon is that some brands are becoming more "frugal". KFC has introduced the "Sauce Limit Order", and only French fries and chicken nuggets come with tomato sauce, with a quantity limit; Haidilao has also upgraded the condiment area of some stores. Some netizens on social media said that after the new ice powder and spicy strips were added to the condiment area, beef cubes can only be selected on the iPad and are limited according to the number of people.

Supply chain construction and operational efficiency improvement are also becoming industry's focus. Ajisen (China) stated that it will continue to optimize the supply chain, search for high-quality suppliers around the world to provide stable prices of raw materials, and strengthen the guidance and training of restaurant managers and regional supervisors. By continuously improving the grassroots management level, the operation efficiency of each restaurant will be improved.

$YUM CHINA (09987.HK)$ CEO Qu Cuirong stated that the group continuously improves operational efficiency through simplifying menus and operational processes, and combining automation and artificial intelligence technology. These measures give flexibility to investments in food and competitive cost-effectiveness.

On the other hand, in the face of intense market competition, some brands have become more cautious in their pace of store openings. For example, the annual store opening target for Tai'er in the mainland market has been reduced from 80 to 100 to 80, and the annual store opening target for Songhuo Hotpot has been lowered from 35 to 40 to 25.

Editor / rocky