Food and beverage vendors feel the bite of tighter consumer spending

Jessie Chen opened her Ele.me food delivery app last Saturday morning and found she could order a Starbucks breakfast set of coffee and bakery for at a much lower price than usual.

"Isn't that too good to be true!" she said of her surprise.

The breakfast cost her about 25 yuan (US$3.50), down from a price ranging between 35-40 yuan.

Starbucks is not alone in addressing the current wave of caution in consumer spending. Many food and beverage chains and takeaway food sites are lowering prices or offering discount coupons to prop up sales.

Starbucks former Chief Executive Officer Laxman Narasimhan told an earnings conference in July that the popular coffee chain continues to face the twin headwinds of intensified competition and tighter consumer pocketbooks.

Other strategies in the food and beverage industry to keep revenue afloat include expanding menus and even reformatting outlets.

In the first half of this year, Starbucks's comparable store sales in China declined 14 percent.

Although January-July revenue in the catering industry in China climbed 7.1 percent to 3.1 trillion yuan, the increase in July fell to 3 percent as customers avoided high-priced food and beverages in favor of more value-for-money menu options.

A price war in the industry erupted a couple of years ago, led by tea vendors such as Naixue and Heytea. The heightened competition shows no sign of abating.

Several leading coffee chains have resorted to deep price discounts. Menu items of 10 yuan or less have gained popularity.

US multinational Burger King has starting offering a 9.9 yuan special discount for selected menu items – about one third cheaper than its normal set menu price.

Pizza Hut's latest response is the new sub-brand Pizza Hut WOW, which features a fast food service more casual than its family-oriented main outlets. With drinks starting at 6 yuan, appetizer at 9 yuan, pasta at 15 yuan and pizza at 19 yuan, the Texas-based chain said the new format is attracting young diners.

By the end of July, the chain had remodeled and rebranded about 100 outlets as Pizza Hut WOW, with the number expected to top about 200 by the end of this year.

Elsie Zhang is among the Shanghai consumers delighted by all the bargains in the industry.

At a Yi Wei mini-hotpot chain outlet in a shopping mall in Changing District, she was able to spend only 9.9 yuan for a small hotpot and her choice of ingredients. Normally, the dishes might cost 3-10 yuan each.

"It cost a little more than the fast-food meals but was cheaper than a normal hotpot restaurant," she said. "I considered it a small treat for myself."

As disposable incomes have risen in cities like Shanghai, more people have shown a preference for eating out. That trend is expected to continue, though price may be a major factor how money is spent on meals away from home.

Wang Puzhong, chief executive officer of the core local commerce business unit at Meituan, which provides meals among its many online services, expects out-of-home dining to comprise about one fourth of family meals by 2030, compared with about 16 percent at present.

To enhance profitability, Wang cited the current trend of some food and beverage operators reducing numbers of menu items and streamlining supply chain operations.

And for those who want to dine at home with less cost and fuss, supermarket chains are also promoting new deals customers.

Germany-based Aldi is touting a "less than 9.9 yuan" tagline to promote value-for-money options along with their home brands. Ready-to-eat meals and bakery items are among the most popular purchases for white collar workers seeking to prepare a quick meal at home.

Aldi now boasts more than 500 products costing less than 9.9 yuan, with more additions promised in the future.

"Price cuts among many food and beverage vendors reflect an industrywide response to shifting consumption habits," said Ye Han, lead partner of Kantar China's advisory business.

Shoppers are more keen to spend wisely, she noted. However, in the long run, pricing must better complement branding and the retail experience to enhance business bottom lines.

Many vendors are seeking to integrate dining services with popular tourism spots and cultural activities, according to a recent review by the China Cuisine Association.

Whether that strategy will be successful in overcoming lackluster spending on dining out remains to be seen.

Industry analysts say that the best way to tantalize food and drink spending by consumers is to focus on the attractiveness and taste of dishes, with emphasis on increasing public demand for healthier food options.