Chinese consumers are spending again—but they remain wary of restaurants

December 17, 2020, 10:07 AM UTC

As the first in and the first out of the pandemic, China’s economy has staged a dramatic recovery this year. It surged 3.2% and 4.9% in the second and third quarters, respectively, after plunging 6.8% in the first, compared with the same periods last year. But spending at restaurants has been especially slow to bounce back.

On Wednesday, China’s National Bureau of Statistics (NBS) released economic data for November. While retail sales were up 5.8% year on year overall, sales for catering—which includes dining in restaurants as well as takeaway—shrank 0.6% compared with last year, with consumers spending roughly $76 billion. The slight decline marked a reversal from October, when catering services increased 0.8% over 2019 totals.

“People probably spent more during the weeklong national holiday in October and then tightened their spending again in November, which is one reason why November sales were weak compared to the month before,” says Bo Zhuang, chief China economist at TS Lombard.

But the year-on-year decline points to a pandemic-induced hesitancy to dine out, indicating that, despite China’s success in taming COVID-19, members of the public are still wary of one another.

Subscribe to Eastworld for weekly insight on what’s dominating business in Asia, delivered free to your inbox.

When the coronavirus outbreak began in China, local authorities ordered restaurants to close as part of social distancing measures. Although China’s food delivery services—like and Meituan—helped restaurants retain some of their business as some city lockdowns stretched on for months, to-go orders were never a complete replacement for money earned from in-restaurant dining.

That the pandemic began just before the Chinese New Year was another blow to the industry. Families canceled their reunion dinners in droves as local authorities banned banquets and other large gatherings. According to the NBS, the catering industry made 15.5% of its annual revenue during the Chinese New Year in 2019. But in the first two months of 2020—the period covering the Chinese New Year—revenue across the catering industry plummeted 43.1%.

Rules on group dining are now easing, but consumers remain cautious about returning to restaurants, where contagion can be facilitated by poor air circulation and the necessary act of removing masks to eat.

In July, research from China showed how a single COVID-19 carrier at a restaurant in Guangzhou infected 10 other diners—some seated 10 feet away. The venue’s air conditioner carried saliva from patient zero across the dining tables, spreading the infection to three families.

Imogen Page-Jarrett, a Beijing-based research analyst with the Economist Intelligence Unit (EIU), says there’s been “a shift in consumer behavior, because there was such a long time when people weren’t allowed to eat out.

“Chinese consumers are still cautious about eating out, especially in large groups,” Page-Jarrett says.

To be sure, some people have returned to pre-pandemic lifestyles. Earlier this month, a wedding banquet in China’s southwestern Sichuan province featured 300 guests. But the celebration turned into a cautionary tale after a pilot in attendance tested positive for COVID-19. Now the 300 guests must undergo testing. The hotel that hosted the banquet is temporarily closed, and its staff are quarantined.

Safety concerns aside, people are dining out less because the long lockdowns made them more accustomed to eating at home. Another factor is the pandemic-related slowdown in household income this year, Page-Jarrett says. Household income is growing at roughly 2% this year, compared with 8% in 2019.

The blow to consumer spending power also means restaurants can’t recoup losses by raising prices. In April, famous brands such as hot-pot chain Haidilao faced a backlash on social media for upping its menu prices. The furor beat the restaurateurs into retreat; executives issued public apologies and promptly returned prices to pre-pandemic levels.

But despite the hardships suffered by the catering industry this year, EIU expects dining to lead China’s retail sales growth next year as consumer confidence returns. The Hong Kong–listed Haidilao—China’s leading hot-pot chain by sales—is on track to open 400 additional locations this year, mostly in China. At the beginning of the year, Haidilao had targeted opening just 300.

Haidilao chief strategy officer Zhou Zhaocheng told Reuters the pandemic is “an opportunity for us” as the collapse of other restaurateurs has increased Haidilao’s bargaining power when negotiating rent with new landlords.

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.