Funai Consulting brings over 20 years of specialized expertise in the food service industry and has been providing consulting services to food and beverage companies in China since 2015.
This article examines the growth potential of Japan’s food and beverage sector in China, with a focus on the dining industry. We will explore key success factors and review case studies of Japanese companies successfully entering the Chinese market.
Growth Depends on Inbound Tourism and Overseas Expansion
The Japanese dining industry saw rapid growth from 1970 to 1980, peaking at a market size of 29 trillion yen in 1997. However, further domestic growth has been constrained by two key factors: a shrinking population and a declining rate of dining out. As a result, the industry's future largely hinges on inbound tourism and overseas expansion.
Leading Japanese Dining Companies Look Abroad for Growth
With domestic growth stagnating, many major Japanese food and beverage companies are increasingly looking overseas.
For example, according to the Nikkei newspaper, Sushiro plans to open 50 to 60 international stores in 2023, surpassing its domestic store openings for the first time. This reflects the global recovery from the pandemic and the enduring popularity of Japanese cuisine. By the end of 2022, Sushiro had 100 overseas outlets—around 15% of its 630 domestic stores.
Meanwhile, Zensho Holdings, operator of Sukiya and Hama Sushi, is also aggressively expanding internationally. It plans to open 469 new overseas locations in fiscal year 2023, nearly four times the number of new domestic outlets.
Notably, it’s not just large companies like Zensho and Sushiro seeking growth abroad. Even smaller Japanese dining companies, with fewer than 10 domestic locations, are pursuing international expansion as they face a saturated market at home.
Japanese Companies Expanding into China
China, with its 1.4 billion population and long-standing economic growth, holds significant potential for the Japanese dining industry. Many Japanese companies have already entered this highly attractive market, including Yoshinoya Holdings, Zensho Holdings, and Saizeriya, which have each established hundreds of stores across China.
Rapid Recovery of China's Food and Beverage Market : A Post-COVID Growth Opportunity
According to data from the National Bureau of Statistics, sales revenue in the Chinese food and beverage industry from January to March 2023 reached 1.2136 trillion yuan—a 13.9% increase year-over-year. March alone saw sales of 370.7 billion yuan, up by 26.3%.
For comparison, in the first quarter of 2019 (pre-pandemic), sales in the food and beverage industry were 1.1 trillion yuan, showing a 9.6% increase from the previous year, with March sales hitting 339.3 billion yuan, a 9.5% rise. The data highlights a robust recovery surpassing pre-COVID levels.
Source: National Accounts Bureau, Red Food Industry Research Institute
Recent reports suggest that over 80% of China’s population has contracted COVID-19 following the relaxation of the zero-COVID policy, accelerating the path to herd immunity. This swift recovery is expected to stimulate economic growth and significantly benefit food and beverage companies operating in China. Many of our clients in the dining industry have already seen notable improvements, with some even exceeding pre-pandemic performance. Several achieved their highest sales revenue during the Chinese New Year celebrations (January 17-27, 2023).
While actual infection rates may be higher than reported, the prospect of achieving herd immunity quickly is promising for an earlier-than-expected recovery in the dining sector. However, due to the saturation of shopping malls and increasing rents, new store openings are likely to focus on suburban and lifestyle-oriented commercial areas, reflecting shifting consumer preferences.
Key Success Factors for Japanese food Companies Entering the Chinese Market
Since 2015, Funai Consulting Group, through its subsidiaries Funai Research Institute and Funai Consulting Shanghai Inc. has operated a specialized food and beverage consulting team in Shanghai. Drawing from our extensive experience working with both Japanese and local Chinese food and beverage companies, we have identified five critical factors that contribute to the success of Japanese companies entering the Chinese market.
01. Choosing the Right Market Entry Strategy: Independent, Partnership, or Franchise?
When entering the Chinese market, companies must carefully decide whether to establish their own stores, partner with a local company, or expand through franchising. The best approach depends on the company’s strengths, resources, and long-term goals for expansion. When partnering or franchising, selecting the right local partner is critical. A thorough evaluation of the company, its executives, and the specific person handling the partnership is also essential to avoid potential pitfalls and ensure success.
02. Balancing Localization with Brand Identity
Replicating Japanese business formats and menus in China without adaptation often fails, while over-localization risks losing the unique identity that differentiates Japanese brands. Successful companies strike a balance by maintaining the core strengths of their Japanese business model while making targeted adjustments to suit Chinese preferences, lifestyles, and dining habits. It is vital to have local team members who understand the market intimately. Relying solely on second-hand information without local insight can lead to misaligned offerings that don’t resonate with Chinese consumers.
03. Strategic Location Strategy: Navigating China's Shopping Centres
In China, consumer activity is concentrated in shopping centers (SCs), a trend that continues to shape the food and beverage industry. For restaurants to succeed, selecting the right location within these SCs is crucial. However, the pandemic has shifted consumer behavior, making it even more important to identify high-potential SCs for expansion. Successful entry into the right SCs can lead to the scalable growth of multiple store locations.
04. Maintaining Japanese Quality Standards
One of the biggest challenges Japanese food service companies face in China is replicating the same quality standards they maintain in Japan. Factors such as freshness, texture, and made-to-order service, which are often strengths of Japanese dining, are difficult to reproduce overseas. Success hinges on how well companies can source quality materials and train staff to deliver the same level of quality expected in Japan.
05. Human Resources
China’s labor market presents unique challenges, including frequent job-hopping and aggressive poaching by competitors. Senior executives and skilled workers often switch companies in pursuit of career advancement, making talent retention a key issue. For companies expanding independently, it is vital to cultivate a strong corporate culture, train employees effectively, and develop systems that align with China’s labor practices to ensure long-term success.
About Consulting Shanghai Inc.
The food and beverage division of Funai Consulting Shanghai consists of 22 specialized consultants - 5 Japanese and 17 Chinese, who provide dedicated support to Japanese companies expanding into China.
Founded in 2012, Funai Consulting Shanghai initially focused on consulting services for Japanese manufacturers entering China. Since 2015, we have expanded to offer tailored consulting for the food and beverage industry, serving both Japanese and local Chinese companies. Our team is committed to helping clients navigate the complexities of the Chinese market and achieve sustainable growth.
Features of Our Support
- Localized Expertise and Tailored Solutions: Our team of specialists, comprising both Japanese and Chinese food industry experts, is well-versed in local consumer trends, dining preferences, and eating habits. With a proven track record of over 200 successful consulting engagements, We deliver localized business strategies designed to align with the specific needs of the Chinese market. This allows us to provide Japanese companies with customized solutions that resonate with Chinese consumers, ensuring a successful market entry.
- In-depth Knowledge of Chinese Restaurant Location Dynamics: One of our core strengths is our deep understanding of China’s unique dining location dynamics, especially with regard to shopping centers (SCs), which play a pivotal role in consumer activity. We have amassed extensive data and expertise on SC-based restaurant openings in China. Top food and beverage companies in the country often rely on Funai Consulting Shanghai's advanced location analysis to select optimal store locations, maximizing their chances of success.
- Strong Industry Network for Partner Evaluation: With our extensive network within China's food and beverage industry, we offer invaluable advice for companies seeking partnerships with local businesses. Our expertise helps clients thoroughly evaluate potential partners, assessing not just the companies themselves, but also their executives and leadership, ensuring that these partnerships are built on a solid foundation.
- Comprehensive Support for Establishing Local Operations: When Japanese companies look to establish local subsidiaries, recruit executive staff, and train store personnel, Funai Consulting Shanghai provides end-to-end support. We help clients set up local headquarters, develop human resources, and build systems that are aligned with Chinese labor practices. This includes tailored solutions for recruitment, training, and operational management to ensure smooth and efficient market entry and growth.
Customer testimonials | Monogatari Corporation President and CEO Hiroyuki Kato
