China’s F&B Sector Faces Historic Shakeout with 3 Million Closures

China’s food and beverage sector, once considered among the most dynamic in the world, is facing its toughest period in decades. Despite its role as a vital driver of domestic consumption and employment for millions, the industry has been shaken by an unprecedented wave of closures. Data from Qichacha, cited by Reuters, shows that nearly three million restaurants, cafes, and catering outlets shut down in the year leading up to March 2025 — the largest contraction the sector has ever experienced.

The closures reflect more than just numbers; they represent broken investments, shuttered family businesses, and millions of jobs lost. In major hubs like Beijing, Shanghai, and Guangzhou, monthly closure rates have exceeded 10–15%, while industry profits plunged by 88% in the first half of 2024.

Much of the turmoil can be traced back to the aftermath of the COVID-19 pandemic, when demand failed to recover fully. With limited opportunities in struggling sectors such as real estate, technology, and education, many unemployed workers turned to the F&B business, fueling a rapid expansion of new outlets. Oversupply quickly saturated the market, triggering cutthroat competition. Large chains like Mixue, Luckin Coffee, and Starbucks continued aggressive expansions, leaving smaller operators squeezed.

Restaurants have been dragged into relentless price wars, with online platforms such as Meituan and Ele.me becoming battlegrounds of deep discounts and promotions. In many cases, food was sold at prices barely covering costs — coffee for 9.9 yuan ($1.40) or full meals for four at 99 yuan ($14). These tactics eroded margins, lowered quality, and locked businesses in a cycle of unsustainable losses.

On top of this, sluggish economic growth and rising youth unemployment have weakened consumer demand. Dining out, once a lifestyle trend, is increasingly replaced by home cooking or cheaper takeout. Even budget eateries are reporting declines, while high-end establishments are struggling to fill seats. This shift highlights a fundamental change in consumer psychology — from spending freely to prioritizing savings.

The cost burden has further worsened the crisis. Rents in first-tier cities remain exceptionally high, while labor and ingredient costs weigh heavily on small operators with no economies of scale. For many, even a few consecutive months of reduced income is enough to force closure. As one restaurant owner explained, competition often comes down to who can charge less, regardless of quality, because “ordinary people simply don’t have the money, or if they do, they are reluctant to spend it as before.”

Altogether, the upheaval in China’s F&B industry underscores the challenges of operating in a crowded, high-cost environment amid shifting consumer behavior and broader economic uncertainty.