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  • Nov 29, 2014
  • Updated: 4:49am
BusinessChina Business

Businesses bid farewell to era of luxury spending

Many high-end vendors are turning to ordinary folk as Beijing cracks down on extravagance

PUBLISHED : Wednesday, 26 June, 2013, 12:00am
UPDATED : Wednesday, 26 June, 2013, 4:20am

From fine dining to top-shelf liquor and jewellery, businesses that once prospered on satisfying a taste for luxury on the mainland have had to lower their sights - and prices - to more ordinary folk with an eye for a bargain.

The high-end businesses are courting the mass market as the impact of Beijing's crackdown on graft and extravagant spending by government officials cuts deeper into revenues.

"The golden days are over," said Hu Haiquan, a manager of Shun Fung Seafood Restaurant in Beijing. The traditional Cantonese-style restaurant chain, known for its palatial dinning halls and high-priced dishes, is a popular haunt for local business elite and government officials.

After enjoying steady revenue growth and fast expansion for years, the operator of 30 restaurants across the nation was preparing to go public on the mainland. However, the listing plan has been shelved, as the company becomes one of the many casualties of a heightened anti-corruption campaign launched by the country's new leadership last December.

Hu says sales at the nine Shun Fung restaurants he manages in Beijing have fallen 30 per cent for the past seven to eight months, while average spending has shrunk from 500 yuan (HK$625) a person to less than 200 yuan.

The situation is similar for most high-end restaurants in the country. XE Flavour, a Shenzhen-listed restaurant chain, says its revenue slid a third in the first quarter of this year, causing the company to record a loss of 60 million yuan for the period. At least two of its restaurants have closed down this year.

A spokesman of the country's statistics bureau says there's "a significant drop" in the revenue of high-end restaurants in the first quarter, showing that curbs on spending with public money have had a significant effect.

"I once rang a regular customer who works for the government and invited him for dinner. He simply said he didn't want to lose his job just for a dinner," Hu says.

For the restaurant manager, the plunge in business brings back memories of the 2003 Sars outbreak. "It's even worse than the Sars period. The epidemic only lingered for half a year and the business rebounded quickly. But this time, I have to say, we would never be able to go back to the days like before."

Having seen business decline, the operator made a painful decision: offering discounts of up to 70 per cent through online group buying to attract less well-heeled customers.

A set dinner for 10 people in Shun Fung now costs 998 yuan, much lower than the original 3,012 yuan. A dinner for two is 198 yuan, against 500 yuan before. It is also offering special-priced dishes such as roast pigeon for 9.80 yuan; customers used to pay 58 yuan. Customers enjoying morning or afternoon tea are rewarded with a 20-yuan coupon for spending 100 yuan.

The measures have boosted customer numbers in recent months, with more people coming in for gatherings of family and friends. "With these prices, we are hard pressed to make any profit. But we'd like to show people that our restaurants are affordable, not too high to reach," the manager says.

Also eyeing the mass market is the elite national liquor brand Moutai. On June 5, Kweichow Moutai chairman Yuan Renguo said in a media briefing the company was adjusting its market positioning to adapt to the changes in the business environment.

The company would "no longer target high-end buyers only", but was expected to have a wider customer base, where food would be served for family gatherings, business banquets or just daily consumption, said Yuan.

Moutai's change of strategy came after local authorities in a number of provinces tightened the limit on government banquets in response to Beijing's anti-corruption drive.

From January to April, Moutai sales fell 23 per cent, and the retail price almost halved from the peak of more than 1,400 yuan a bottle to around 800 yuan.

The company earlier said sales generated from government spending accounted for less than 8 per cent of total sales, although many analysts and experts were sceptical of that figure. Yuan said that in future the liquor that was meant to be kept for a number of years would retain its high-end status, while cheaper product releases would be pitched to ordinary consumers.

Another industry that is suffering from the government's stern measures on public spending is high-end jewellery.

Since last year, most of the leading jewellers in Hong Kong - including Chow Tai Fook, Chow Sang Sang and Luk Fook - have been complaining about the same thing: mainland shoppers are not as generous as before.

Sales for big-ticket jewellery items, of more than HK$10,000, have been shrinking largely from uncertain economic conditions across the border as well as Beijing's ban on gift-giving among civil servants.

Winston Chow, deputy general manager of Chow Sang Sang, says the trend is continuing this year as revenue from expensive necklaces and rings has fallen by a quarter year on year since January.

"In a challenging market, a good way to attract people's attention is to make your products special enough," says Chow, citing its latest collection as an example. The collection, named "Diamond in Motion", features a series of necklaces, earrings and rings with diamonds that swirl or move.

"We have no plan to cut our spending on advertisements this year. You should be able to draw more attention when the market is relatively quieter. But first of all, you must have something that is really good," he says.

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