A relatively popular concept recently is 'early Coffee, late Alcohol', meaning that in the morning one needs Coffee to wake up, while in the evening one relies on Alcohol to aid sleep. This is a true reflection of the lives of modern young people.
For young people, going out to a small tavern with friends for a few drinks in the evening has gradually become a widely accepted lifestyle, and the market space for the small tavern industry still has tremendous potential for development.
Introduction to the Chinese Catering Industry
The small tavern industry is a segmented sector within the catering market. In recent years, driven by the stable development of China's overall economy and the influence of dietary culture, China's catering industry has maintained rapid and stable growth. The total catering revenue reached 4672.1 billion yuan in 2019, with an annual compound growth rate of about 9.7%.
Since 2020, affected by the COVID-19 pandemic, the number of people dining out has dropped significantly, resulting in a 3952.7 billion yuan decline in total catering revenue across society in 2020.However, as the epidemic is gradually under control, the revenue of the catering industry rebounded to 4689.5 billion yuan in 2021 and is expected to continue growing in the coming years.
Source: National Bureau of Statistics, Frost & Sullivan
The small tavern is a relatively niche form within the domestic catering industry
A small tavern refers to a dining establishment that primarily serves young people, with alcohol (mainly beer) as its main product. Some stores also offer hot food or pre-prepared meals, while others provide entertainment activities such as live singing, billiards, and darts. In recent years, with the further development of offline consumption and the nightlife economy, the emerging form of small taverns has begun to rise.
With the further updating of young consumers' demand for novelty and unconventional consumption concepts, small taverns have stood out and gained the favor of young consumers. Small taverns focus on the 'drinking + dining model'. Compared to traditional bars, small taverns have moderate pricing, a wide variety of menu options, a relaxed environment, and social and stress-relieving attributes, making them suitable for activities such as friends' gatherings. At the same time, small taverns also market themselves by developing high-tech ordering models, continuously launching their own brands, using new media, and cross-border collaborations, creating a unique gathering space beloved by young people.
Thanks to the improvement in consumption levels, the development of the nightlife economy, and the diversified evolution of the tavern industry, including small taverns and traditional taverns/bars, the overall tavern industry has grown rapidly in recent years, with the current market size exceeding 110 billion. The small tavern industry has grown even more rapidly in recent years, with its share continuously rising. However, the market is currently highly fragmented, with individual small taverns occupying a significant proportion of the market. During the pandemic,Independent pubs lacking capital and replicability have withdrawn from the market in large numbers, while the standardized operation of chain pubs and the construction of catering supply chain infrastructure have continued to improve. In the future, the industry concentration is expected to continue to rise.
Source: Frost & Sullivan
"Nightlife" is increasingly becoming a fashionable lifestyle pursued by citizens. The booming development of China's night economy market is conducive to market participants in small taverns further building the attributes of an offline social platform at night, promoting further industry development. The night economy refers to the collective term for a series of downstream commercial activities and service industries that occur during the night hours (from 6 pm to 6 am the next day), such as night tourism, transportation, accommodation and catering, etc.With the improvement of people's living standards and the gradual enrichment of nightlife, the night economy has gradually become a major focus for expanding domestic demand. Localities have also actively issued relevant policies to promote the development of the night economy.
Source: Compiled by Frost & Sullivan
The consumer group of the small tavern is positioned at young people aged 25-35 who are willing to continuously embrace new things. Such consumers are usually in the early stages of their careers, advocate for freedom, and have begun to set certain standards for quality of life. At the same time, the consumer group aged 25-35 accounts for about 15% of China's total population, totaling approximately 200 million people.Based on an annual per capita consumption expenditure of 20,000 yuan, the total annual consumption expenditure of the young population is about 4 trillion yuan, indicating a huge consumption potential and momentum.
Currently, China's brewing industry is in a stage of structural adjustment. From 2015 to 2019, the CAGR of alcohol beverage consumption in China was -2.4%. The main reasons are, on one hand, the collateral effects brought about by the restriction of 'public entertainment consumption', and on the other hand, the cost increase due to the rise in imported barley prices, which has led to control over liquor production. In 2020, affected by the pandemic, consumption scenarios were lost, and liquor consumption continued to decline. However, in the future, it is expected that with the backdrop of macroeconomic growth, increased disposable income among residents, and consumption upgrading, China's liquor consumption will continue to gradually transform into personalized and diversified high-quality consumption, thereby driving industry growth.
In terms of the proportion of main beverage alcohol consumption, beer has long been the largest category in China's beverage alcohol consumption, accounting for 75.5% of total consumption in 2020. In 2020, the per capita beer consumption in China was only 25.0 liters per person, which not only lagged behind Japan's 38.4 liters per person but also had a significant gap compared to European and American countries such as the Czech Republic, Germany, and the United States. Therefore, there is still great potential for growth in beer consumption in China.With the stable growth of the macroeconomy and the improvement of residents' consumption levels, beer consumption in China will continue to grow in the coming years.
Source: Frost & Sullivan
As of the end of 2019, there were approximately 42,000 restaurants in China, a compound annual growth rate of 5.0% compared to 35,000 at the end of 2015. In particular, the number of restaurants in third-tier and lower-tier cities increased by a compound annual rate of 8.1% from 2015 to 2019, higher than the industry average and the growth levels of restaurants in first- and second-tier cities, proving that the Chinese restaurant industry has significant development potential in third-tier and lower-tier cities.
In 2020, affected by the pandemic, the total number of Chinese restaurants decreased from 42,000 at the end of 2019 to 35,000 by the end of 2020. The main reason was that some small independent restaurants stopped operating due to a lack of cash flow and operating capital due to domestic restrictive epidemic prevention policies. With the relaxation of domestic epidemic prevention policies and the introduction of consumption encouragement policies, the number of Chinese restaurants began to gradually recover in 2021.
Industry-driven factors and development trends
The future of the small tavern industry will be driven by the development of the nightlife economy, young customer groups becoming the main consumer force, and growth in markets in third-tier and lower-tier cities. The industry is expected to show trends such as increased concentration, enhanced brand recognition, and popularity of self-owned brands.
It is expected that the Chinese pub industry will continue to grow at a high rate in the future, mainly driven by the following factors:
1) The rapid development of the night economy
The growth of disposable income and entertainment expenditure among Chinese residents directly drives the demand for China's night economy and related consumption. In addition, as an important measure for developing local economies, the development of China's night economy is also directly promoted and encouraged by local governments. From 2015 to 2020, the total market volume of China's night economy increased from about 1.09 trillion yuan to 1.68 trillion yuan, with a compound annual growth rate of 11.4%. It is expected that the market will continue to grow in the future, with the total market volume expected to further increase to 2.82 trillion yuan by 2025, with a compound annual growth rate of 10.9% from 2020 to 2025. The development of the night economy has directly guided the development of China's restaurant industry, and participants in the restaurant industry can further enhance their market participation.
2) Younger customer base has become the main consumer group
Due to the large population size and high consumer demand, the young customer group has become the main component of the Chinese consumer market. By the end of 2020, the number of people aged 20-34 in China had approached 300 million, accounting for about 21.2% of the total population. Compared with the previous generation, China's young population is more active in social settings, more sensitive to brands, and place greater emphasis on affordable goods and high-quality services.
Bars that can provide a high-quality product portfolio, service, and consumer environment can meet the young group's demand for value-for-money drinks, services, and social atmospheres. Therefore, the Chinese bar industry is expected to continue to be driven by the growing consumption capacity of China's young population in the future. Moreover, due to the high brand sensitivity of the young group, bars operating in a chain format have an obvious competitive advantage in providing consistent drinks and services.
3) Market potential in third-tier and lower-tier cities
Third-tier cities and below in China have a huge consumer base, with a population of about 1.1 billion, accounting for 78% of China's total population. Benefiting from urbanization in these cities, local residents' disposable personal income is also continuously increasing. The huge consumer base and the rapidly growing expectation of disposable personal income will directly drive consumption growth among residents of third-tier cities and below in restaurants.
In the future, it is expected that the development of the pub industry will show the following trends:
(1) Industry concentration continues to rise
As of the end of 2020, the top five participants in China's restaurant industry collectively accounted for less than 3% of the market share, indicating a further trend towards market concentration. The leading players in China's restaurant industry, which possess a cost-effective product portfolio, highly standardized services, a mature supply chain, and sufficient financial support, therefore have strong competitive advantages and market potential.
2) Brand recognition, brand image, and deep influence through social media
Chinese restaurant industry market participants deeply rely on word-of-mouth among consumers and mutual recommendations, and strive to cultivate highly loyal customer bases through online media platforms such as Dianping and Rednote, in order to increase consumer repurchase frequency and user stickiness.
3) The popularity of branded liquor has increased
In recent years, market participants in China's catering and bar industry, who develop, promote, and sell their own branded culture and beverages, have been gaining increasing acceptance in the market. These market participants typically develop their own beverages with the same brand name and entrust qualified producers for production. These branded beverages are priced by bar operators themselves and can help them promote their brand culture and enhance their brand image.
