This is an English adaptation of a FoodBud historical article originally published on June 30, 2022.
This 2022 report by Qing Yong of Tomato Capital argues that China's foodservice chain market was still moving toward chainization, capitalization and supply-chain modernization, even as COVID-era operating shocks exposed a key risk: for some complex regional full-service cuisines, growth can reduce rather than increase enterprise value.
Qing calls this the negative scale effect in foodservice: when niche, complex regional full-service categories expand too far or across regions, management costs rise, store loss rates increase, supply-chain quality falls, guest experience and ratings decline, product consistency weakens, and payback periods lengthen.
By May 2022, more than 80 county-level cities in China were under normalized lockdown conditions with no dine-in service, pushing many restaurants close to zero revenue while fixed costs remained.
Key examples from 2021-2022:
The author's category scan found continued growth in barbecue and skewers, Hunan stir-fry, Cantonese cha chaan teng formats, rice noodles and noodles, dumplings and wontons, fried chicken and burgers, dining pubs, meal-accompanying and snack-style braised foods, new Chinese bakery, snack chains, and community fresh-food chains. By contrast, many regional full-service cuisines had stalled; Jiangsu-Zhejiang cuisine posted sustained negative growth, while tea drinks, snacks, malatang, Japanese ramen, Western food and hot pot looked weak.
Tomato Capital's earlier reports had argued that China's foodservice market would become more capitalized, supply-chain-led and chain-driven. The 2021 data appeared to validate that thesis: Narrow Door Foodservice Eye recorded nearly 400 observable foodservice financing events in 2021, with disclosed financing above RMB 50 billion, plus nearly 100 undisclosed deals.
At the national store level:
Foodservice revenue in January-February 2022 exceeded the 2019 level, but March and April were hit by renewed outbreaks. March revenue was RMB 293.53 billion, down 16.4% year on year; April revenue was RMB 260.89 billion, down 22.7%.
Hot pot was China's largest foodservice category by revenue, with a 2021 market size of RMB 550 billion. Its scale comes from reduced chef dependence, easier supply-chain standardization, broad appeal and addictive flavor profiles.
As of May 2022, hot pot had 517,455 operating stores, 269,080 openings and 265,424 closures since 2021. Haidilao led scale with 1,315 stores, followed by Wang Po Da Xia with 918 and Xiabu Xiabu with 828. Banu Maodu Hot Pot led user reputation with an index of 950.4 across 81 stores, followed by Laowang and Zuo Ting You Yuan.
Net growth leaders were Nan Hot Pot, up 226 stores to 250; Liuji Guangda Hot Pot Chicken, up 170 to 192; and Qiqi Ditan Hot Pot, up 165 to 165. Haidilao ranked first in closures with 314.
The report's operator takeaway: in full-service hot pot, product quality and guest reputation matter more than speed, celebrity traffic or franchise momentum.
Skewer barbecue had 363,014 operating stores, 218,748 openings, 185,019 closures and 33,729 net new units. Chuan Yi Shi Zu led scale with 622 stores; Fengmao Skewers and Henjiuyiqian combined scale with strong ratings.
Grilled meat had 115,849 operating stores, 69,515 openings, 55,663 closures and 13,852 net new units. Jiutianjia led scale with 1,086 stores, followed by Jiushi Barbecue and Little Pig Charlie. Little Pig Charlie added 362 net stores; Jiushi added 221; Bei Mu Nan added 220.
Regional cuisines showed the sharpest evidence of negative scale effects.
Sichuan cuisine had 173,672 operating stores, 71,496 openings, 90,976 closures and negative net growth of 19,480. Zhou Mapo led with 196 stores; Meizhou Dongpo had 67 stores and remained the largest Sichuan regional-cuisine brand above RMB 100 per capita.
Hunan cuisine had 91,015 stores, 46,997 openings, 42,598 closures and 4,399 net new stores. Peng Chu led with 268 stores, down from 458 the previous year. Fei Da Chu led reputation with 916.8 points across 60 stores.
Cantonese cuisine had 132,139 stores, 64,031 openings, 52,879 closures and 11,152 net new stores, driven mainly by cha chaan teng-style formats. Tai Heng Ice Room led with 97 stores.
Jiangsu-Zhejiang cuisine, including Shanghainese, Hangzhou and Huaiyang styles, had 134,868 stores, 35,114 openings, 49,384 closures and negative net growth of 14,270. Green Tea Restaurant led with 240 stores; Grandma's Home had 100; Nanjing Impressions had 86. Xin Rong Ji remained the reputation leader with 961 points across 16 stores.
Northwestern cuisine had 64,644 stores and 6,289 net growth. Xibei led with 362 stores and also ranked second in reputation, making it the category's standout scale-and-quality operator.
Shandong and Beijing roast-duck-related cuisines had 78,421 stores and 4,313 net growth. Shou Chai Lu led with 335 stores, followed by Liu Fuji Beijing Roast Duck with 183 and Quanjude with 86. Quanjude posted negative growth of seven stores.
Yunnan cuisine had 2,838 openings, 6,449 closures and negative net growth of 3,611. Yun Hai Yao led with 119 stores.
Anhui cuisine had 12,379 stores, 4,648 openings, 6,633 closures and negative net growth of 1,985. Xiao Cai Yuan led with 390 stores and added 133 net stores. The author noted that if its store-partnership structure did not create IPO obstacles, it could become another listed Anhui restaurant company.
The report's core conclusion: spicy, relatively simple categories such as Sichuan and Hunan can chain more easily because demand is broad, pricing is accessible and supply chains rely mainly on pork, chicken, beef and fish head. Cantonese and Jiangsu-Zhejiang cuisines use more fragmented ingredients, higher standards and more difficult supply chains, making them better suited to high-end single stores than large chains.
The author defines the negative scale effect as the point at which expansion in niche, complex regional full-service formats causes:
Store partnership models can delay this effect, but the author argues they do not eliminate it and may introduce compliance and governance challenges.
The report sees opportunity where regional cuisine is simplified into single-product formats. These concepts trade menu breadth for easier replication, but must manage product lifecycle risk.
Sour pickled fish had 40,732 stores, 24,558 openings, 23,220 closures and 1,338 net growth. Yu Ni Zai Yi Qi led with 1,474 stores; Tai Er had 367; Xiao Yu Hao had 284. Yu Ni Zai Yi Qi added 470 net stores.
Grilled fish had 62,678 stores, 34,022 openings, 30,928 closures and 3,094 net growth. Ban Tian Yao led with 1,120 stores and added 714, while also ranking second in reputation.
Bullfrog had 7,805 stores, 5,596 openings, 3,244 closures and 2,352 net growth. Walaida led with 250 stores; Wa Xiaoxia had 240; Laofoye Tonglu Waguo had 209. The author links growth to a more mature bullfrog farming supply chain and China's 2020 clarification that bullfrogs could be farmed and eaten.
Crayfish had 53,571 stores, 39,633 openings, 37,269 closures and 2,364 net growth. Duoluo Crayfish led with 668 stores; Da Shang Lobster had 499. The top closure count reached 520 stores, underlining lifecycle and seasonality risks.
Steak had 83,072 stores, 45,085 openings, 50,690 closures and negative net growth of 5,605. Houcaller led with 400 stores; Wang Steak led reputation with 939.6 points.
Japanese and sushi formats had 60,811 stores, 35,122 openings, 30,537 closures and 4,585 net growth. N Duo Sushi still led scale with 2,117 stores, though down from the prior year. The category's top closure count was 711.
Korean cuisine had 68,612 stores, 42,686 openings, 36,266 closures and 6,420 net growth. Jidao King's Bibimbap led with 513 stores and added 198 net stores, while also facing high closures.
Southeast Asian cuisine had 8,159 stores, 6,052 openings, 3,825 closures and 2,227 net growth. Mini Coconut Thai Food Stall led with 83 stores. The author notes that niche cuisines may gain negotiating advantages in shopping centers because of tenant-mix needs, but single-city density should remain restrained because customer base and repeat frequency are limited.
Seafood had 97,541 stores, 42,384 openings, 47,323 closures and negative net growth of 4,939. Xinglunduo Seafood Buffet led with 112 stores. Xuji Seafood, with 56 stores, ranked seventh by unit count but was described as the revenue leader and a potential listing candidate.
Rice-based Chinese fast food had 2,345,142 stores, 1,112,298 openings, 1,153,342 closures and negative net growth of 41,044. Yang Ming Yu Braised Chicken Rice led with 2,609 stores but had nearly 700 fewer than before. Zhang Xiumei/Zhangjie Barbecue Rice had 1,281, down 300. Lao Xiang Ji had 1,102, up about 170, and ranked third in scale and second in reputation.
Lao Xiang Ji's A-share prospectus disclosed nearly RMB 4.4 billion in 2021 revenue and RMB 139 million in normalized net profit. The report attributes its resilience to upstream farming, processing capability and brand building.
Porridge shops had 69,346 stores, 35,782 openings, 35,063 closures and 719 net growth. Sanmi Porridge led with 1,284 stores; Manling had 1,009; Jiangchuanyou had 788.
Noodle shops had 610,401 stores, 247,060 openings, 273,649 closures and negative net growth of 26,589. Wuye Banmian led with 1,236 stores and added 954 net stores. Chen Xiang Gui Lanzhou Beef Noodles added 194; Ma Jiyong added 172.
Rice noodles and rice vermicelli had 182,469 stores, 95,955 openings, 90,495 closures and 5,460 net growth. Wumingyuan led with 2,588 stores and added 664.
Baozi and steamed-bun formats had 187,640 stores, 77,545 openings, 75,080 closures and 2,465 net growth. Babi Mantou led with 3,915 stores, followed by Lao Taimen Tangbao with 1,816 and Sanjin Tangbao with 1,403.
Dumplings and wontons had 112,214 stores, 53,388 openings, 46,421 closures and 6,967 net growth, with 90% of growth occurring before May 2022. Jixiang Wonton led with 2,221 stores; Yuanji Dumpling had 1,785 and added 1,090 net stores. Xiong Daye grew to 228.
Pancake and flatbread formats had 120,294 stores, 68,411 openings, 54,934 closures and 13,477 net growth.
Malatang and maocai had 162,061 stores, 85,805 openings, 99,750 closures and negative net growth of 13,945. Yang Guo Fu led with 5,190 stores, down from 5,488 in 2020; Zhang Liang had 4,749; Chuanhun Maopaihuo had 1,057. The top closure count reached 1,701.
Western fast food had 313,103 stores, 183,954 openings, 140,635 closures and 43,319 net growth. Wallace led with 20,084 stores and added 5,133. Zhengxin Chicken Cutlet had 13,689. KFC had 8,754 and added 1,347; McDonald's added 748 to 5,339; Pizza Hut added 490 to 2,691; Domino's added 151 to 532; Shake Shack added 10 to 24. The author notes that Yum China's nearly US$10 billion revenue and US$1.39 billion operating profit far exceeded the top two domestic brands combined.
Light food and vegetarian formats had 10,588 stores, 5,596 openings, 4,385 closures and 1,211 net growth. Shaye Light Food led with 446 stores.
Tea drinks had 425,455 stores, 233,093 openings, 248,303 closures and negative net growth of 15,210. Mixue Bingcheng led with 16,225 stores and added 5,126. Shuyi Grass Jelly had 6,497; Gu Ming had 6,346; Chabaidao had 5,535 and added 3,499. Naixue added 416 stores to 906; Heytea added 169 to 865. Ningji opened 404 stores in about one year.
The author argues tea drinks are among the most delivery-friendly categories because delivery time has limited impact on experience, gross margin can support platform costs, and sales are complementary to meal peaks. Product innovation remained central, with brands pushing fruit, tea, dairy and texture combinations.
Coffee had 103,694 stores, 48,905 openings, 39,281 closures and 9,624 net growth. Luckin led with 6,841 stores and added 1,945. Starbucks had 6,518 and added 915. McCafe had 2,145 and added 1,371. Other fast growers included Nowwa Coffee, up 904 to 1,083; Lucky Cup, up 538 to 605; Bumanhai, up 338; Tims, up 313 to 448; Manner, up 292 to 409; and M Stand, up 159 to 173.
The report argues that the latest coffee chain expansion was driven by removing the heavy space model. Starbucks succeeded in China with the third-place format, but the author says space-heavy coffee carries low seat turnover, rent and depreciation burdens, especially in first-tier cities as rent advantages fade.
Bars and pub-style restaurants had 52,951 stores, 33,039 openings, 18,763 closures and 14,276 net growth. Helens led with 890 stores and added 541. Urbrew had 856 and added 309. Taishan Draft Beer had 417. COMMUNE led reputation with 916.8 points across 73 stores. The report highlights the rise of familiar-social, late-night third places and all-day bar-plus-food models.
Braised foods had 276,049 stores, 140,768 openings, 104,825 closures and 35,943 net growth. Juewei Duck Neck led with 13,793 stores and added 1,044. Ziyan Baiwei Chicken had 5,649 and added 989. Huangshanghuang had 3,859. Zhou Hei Ya added 1,373 after opening franchising, reaching 2,773.
The report distinguishes snack-style braised foods, mainly poultry by-products, from meal-accompanying braised foods, often beef and pork offal with on-site cutting and mixing. It argues that meal-accompanying formats fit lower-tier, community and wet-market locations better, while scaling requires more factory processing to reduce food-safety risk.
Snack formats had 629,045 stores, 307,483 openings, 311,057 closures and negative net growth of 3,574. Qiaotou Pork Ribs led with 2,004 stores; Xijie Fried Skewers had 1,307 and added 1,040; Kuafu Fried Skewers added 823 to 955.
Bakery had 369,932 stores, 151,430 openings, 151,097 closures and 333 net growth. Milan Cake led with 1,612 stores and added 498; Happiness Cake had 976; Holiland had 941. New Chinese bakery was a 2021 highlight: Luxihe led with 338 stores and added 183; Taixia Pastry had 226 and added 157; Donggengdao added 79 to 80. Momo Dim Sum Bureau and Hutouju raised multiple rounds of financing.
Dessert had 141,085 stores, 76,153 openings, 78,585 closures and negative net growth of 2,432. DQ led with 1,185 stores; Meet Fresh had 721; Bianliang Mr. Xu Fried Yogurt had 523 and added 420.
Lanzhou lamian had 50,118 stores, 17,529 openings, 14,742 closures and 2,787 net growth. Shaxian snacks had 53,261 stores, 22,654 openings, 16,266 closures and 6,388 net growth.
Snack retail chains had 85,867 stores, 36,325 openings, 15,096 closures and 21,229 net growth. Laiyifen led with 3,616 stores and added 540; Bestore had 3,145 and added 364; Three Squirrels had 955. Xueji Nuts added 384. The author frames the category as simultaneous price downgrading and quality upgrading.
Fresh-food chains had 155,921 stores, 17,956 openings, 7,745 closures and 10,211 net growth. Guoquan led with 7,694 stores and added 4,599. Qiandama had 2,711 and added 846. The report warns that fresh retail faces major cross-regional challenges from non-standard agricultural products, sorting standards, waste, short shelf life, regional eating habits and weak fine-grained management.
The author summarizes 2021-2022 capital-market pressure as falling share prices and post-listing breaks. Haidilao's market value fell from HK$500 billion to HK$80 billion in 2021; Xiabu Xiabu fell from HK$20 billion to HK$4 billion; Naixue and Helens also declined after listing. At the same time, 2021 saw about 400 foodservice financing events and RMB 50 billion in disclosed financing. By Q1 2022, financing activity had fallen sharply while founder valuation expectations had not fully adjusted.
The Beijing Stock Exchange, launched in late 2021, created another route for restaurant companies. The report lists four listing standards, including RMB 200 million market value with profit and ROE thresholds, RMB 400 million market value with revenue and growth thresholds, RMB 800 million market value with R&D intensity and revenue thresholds, or RMB 1.5 billion market value with RMB 50 million in two-year R&D investment. The author says restaurant companies may find the first two standards more achievable if they can frame innovation around traceability, food safety systems, standardization, central kitchens, supply chains or smart restaurants.
The report treats carbon neutrality as a long-term foodservice constraint. It cites the Paris Agreement, China's 2020 commitment to peak carbon emissions before 2030 and reach carbon neutrality before 2060, and the target to reduce carbon dioxide emissions per unit of GDP by 60%-65% from 2005 levels by 2030.
The author highlights livestock as a major emissions source, citing FAO data that livestock accounts for 14.5% of human-caused carbon emissions, with beef and dairy as major contributors. The report also notes New Zealand's June 8 proposal to charge farmers for cattle and sheep emissions, in a country with 5 million people, 10 million cattle and 26 million sheep.
Proposed directions include alternative proteins, plant protein, cultivated animal-cell protein, microbial fermentation protein, insect protein for feed, seed and soil biotechnology, smart equipment, data-driven agriculture, low-carbon purchasing, low-carbon restaurant equipment, greener packaging, and better food-waste processing. China's 2022 Two Sessions and the May 10, 2022 14th Five-Year Bioeconomy Plan are cited as policy signals supporting new foods and synthetic biology.
China had more than 100,000 urban communities and more than 5,000 medium-to-large shopping centers with over 50 shops. Shopping-center recovery remained uneven: Winshang data showed the average vacancy rate across shopping centers in 20 first- and second-tier cities fell two percentage points to 9.0% in 2021, still above the pre-pandemic low of 6.1%.
New shopping-center openings fell from 533 in 2019 to 338 in 2020 and 379 in 2021, down more than 25% from 2019. Average daily traffic fell from 24,600 in 2019 to 18,500 in 2021, and shopping-center closure rates reached 14% in 2021.
The report argues that community and office districts recovered faster because they serve essential nearby demand. Examples of community-oriented brands include Xiong Daye with 228 stores, Jixiang Wonton with 2,228, Ziguangyuan community stores with 144, Nanchengxiang with 123, Babi Mantou with 3,917 and Yuanji Dumpling with 1,783.
For high-value casual dining and full-service brands, premium malls remained important. For everyday formats, community stores offered lower rent, longer leases and more stable demand.
The author sees opportunity in demographic shifts.
Gen Z, defined as people born from 1995 to 2010, numbered about 233 million in China, with RMB 5 trillion in consumption and about 14% of household spending. They made up 28% of mobile internet users and were active online opinion makers. The report links Gen Z demand to social-media discovery, store and product appearance, guochao culture, convenience, delivery, retail foodservice and health-conscious consumption.
China entered deep aging in 2021 under the international benchmark where people aged 65 and above exceed 14% of the population. The report projects China's 65-plus population at 327 million in 2035, 393 million in 2050 and a peak of 425 million in 2057. It argues this will increase demand for healthy, wellness-oriented, higher-value foodservice.
Single, unmarried, divorced, solo-dining, middle-class and low-income groups are also highlighted. As of 2019, China had about 300 million single people, and unmarried people were about 25% of that group, or 75 million. In 2020, China had 8.68 million divorces and 16.29 million marriages. China had nearly 100 million people living alone, and 65% of post-1990s delivery orders were for one-person meals.
The author argues that operators should increase model flexibility, move from 1,000-3,000 square meter stores toward 300-500 square meters or 100-200 square meters, increase takeout and takeaway models, use more one-, two- and four-person tables, reduce portion sizes, and build pricing around essential demand. KFC China's June 20-22, 2022 35th anniversary campaign is cited for bringing its RMB 12 Original Recipe Chicken back to RMB 2.5, its 1987 price.
The report frames digital capability as essential for acquisition, retention, conversion and frequency.
Private-domain traffic is a core example. Yum China reported more than 330 million combined KFC and Pizza Hut loyalty members by Q2 2021, with member sales about 61% of system sales. McDonald's China had nearly 200 million members by August 2021, mini-program orders at 70% of transactions, and 30,000 communities.
The author says Chinese brands remain weaker in private-domain operations than Yum, McDonald's, Starbucks and Luckin, and should use mini-program ordering, communities, coupons, membership levels, content, reservations, pickup, delivery and review maintenance to build repeat demand.
Livestreaming is another lever. Naixue reportedly sold RMB 190 million in 72 hours through a birthday-season stored-value card livestream, equivalent to nearly one week of sales across about 700 stores. Chabaidao's three livestreams reached a peak of 77,000 concurrent viewers, nearly 10 million cumulative views and more than RMB 52 million in sales. The report cautions against unprofitable ultra-low-price livestreaming that damages brand value.
The author recommends a more resilient mix of dine-in, delivery and takeaway. Platform-only delivery chains without private-domain capability lack traffic ownership and face rising marketing costs. The future model should shift from small kitchen and large dining room to larger kitchen, smaller dining room, heavy takeaway and controlled delivery.
For management, digitalization is positioned as the antidote to negative scale effects. Luckin is cited for a full intelligent management system spanning customer interaction, operations and data analysis, enabling store-site selection, management efficiency, stable expansion and data-driven product launches. In Q1 2022, Luckin launched 34 new products. Naixue is cited for hiring former JD vice president and Luckin CTO He Gang in June 2020, building a nearly 200-person digital team, integrating mini-program ordering, delivery platforms, online mall, livestreaming and Tmall, and deploying smart tea equipment in more than 100 stores.
The report's final digital thesis: chains must move from people managing people and goods to data managing people and goods.
For international chain operators, the most transferable lessons are:
Note: financing, IPO, valuation, stock-price, listing-standard and forward-looking market figures in this article are historical as of the original June 30, 2022 publication.