Restaurant closures keep hitting the headlines. Does this reflect anything but normal evolution? Restaurants are forever opening and closing: opening with enthusiasm and sometimes unfounded optimism; closing when the concept or location fails to inspire, or because of poor management, callously opportunistic landlords, or sometimes just a lacklustre economy. Common sense suggests that, as society becomes more prosperous, people can more easily afford the non-essentials in life, so that eating out is bound to be on the increase, in both frequency and quality. On that argument, it should only be a matter of time before those laid off by one establishment find jobs in another. Observing street scenes at lunchtime or in the evening tends to substantiate the feeling that the restaurant trade is indeed thriving. We seem spoilt for choice. But government statistics tell a different story. The turnover of Hong Kong's restaurant sector, measured in 'real' terms (that is, after adjusting for inflation), is shown to have peaked in 1992, and even last year - generally regarded as having been quite good for the economy - it was still 12 per cent below that peak. The value-added contribution to national income displays a similar decline. And over the same period, although the tally of restaurants increased, the total numbers employed in them fell. Since 1992, consumer spending in real terms has risen by almost 40 per cent. Even if some people at the bottom end of the income scale are less able to afford to eat out, and even if some higher up may enjoy housing conditions that make it easier and nicer to eat at home than in the past, it seems inconceivable that the overall demand for eating out has tailed off. Despite increasing numbers of hotels (eating in a hotel may be captured in 'hotel' rather than 'restaurant' statistics), it seems unlikely that people have shifted their dining allegiances there to any great extent; even hotel guests like to venture out. So why do the figures show such weak restaurant receipts? Here is a possible explanation. The restaurant business is intensely competitive. Competition forces down margins - which in part explains why there seem to be so many casualties in the trade (perhaps even more marked among smaller establishments - international cuisine in the SoHo area, for instance - than among big Chinese restaurants, despite the latter featuring in the headlines). At the same time, much restaurant work is unskilled. Hong Kong has a surplus of low-skilled people, which tends to drive down their wages relative to more skilled occupations. Thus, even though the number and quality of meals served may have risen, the rewards from providing them, in terms of both wages and profits, have been squeezed. That may seem a plausible tale. However, if the restaurant trade was really in such dire straits, one would expect to see meal prices falling relative to other things on which we spend our money. But that has not been the case: in fact, statistics show that prices for meals out have moved ahead slightly faster than average - which would be surprising if the sector was truly in decline. Thus, while economic evolution can explain occasional restaurant closures (as well as new openings), the contrast of the downbeat statistics against the common perception of a thriving sector presents something of a puzzle. Perhaps those statistics are flawed. A restaurateur would presumably wish to report as low a turnover as possible to officialdom; in a trade where suppliers, workers and customers are all dealt with at least partly on a cash basis, it would be no surprise if the official data underestimated activity. Declining employment numbers could also be at least partly explained by the wish to keep workers off the formal payroll. But we may never be sure, since neither restaurateurs nor statisticians would be keen to admit such explanations. Tony Latter is a visiting professor at the University of Hong Kong
