With all the news out there right now, you may have missed this – two of China’s most recognisable restaurant chains have apologized for price hikes after re-opening restaurants after China’s quarantine measures eased. It is worth diving into what happened with these price hikes in post-covid China.
Haidilao, a hotpot chain, and Xibei, a chain specialising in north-western China fare, had increased prices of dine-in and takeaway dishes. The price increases weren’t necessarily steep — Haidilao increased its prices 6% and Xibei’s adjustment was much less than that.
Price increases following natural and man-made disasters are pretty normal. COVID-19 has affected supply chains and consumer demand. This puts pressure on businesses of all shapes and sizes. Some companies – especially in the hard-hit hospitality sector – have tried to ease that pressure by passing the cost onto consumers.
Reasonable, right?
So what got consumers’ noses so out of joint about this price adjustment from two beloved restaurant brands?
There are a couple of things to unpack here.
1. It wasn’t just about the post-Covid price hike
Haidilao and Xibei were charging more for smaller portions. This feeling of paying more for less — and getting ‘ripped off’ in the process — is what triggered consumers’ anger.
“A price increase of 6%? I can’t believe I ate 400RMB of hot pot!”
This isn’t the first time China’s consumers have expressed anger at getting ‘ripped off’. Each year, netizens turn anger toward companies that are ‘named and shamed’ in China’s Consumer Protection Day (hosted on March 15 each year). Volkswagen, Nike, Esprit and Apple are among the companies previously caught up in this event.
Indeed, one of the defining features in China’s consumer landscape over the past few years has been the harmonization of prices between China and overseas markets. In luxury alone, Chanel was the first brand to harmonize their prices on three key handbag models, followed later by Cartier, Burberry, and Patek Philippe.
Against that backdrop, consumers aren’t going to take kindly to price hikes or price gouging at the best of times, let alone after a global pandemic.
This is a clear wake-up call for foreign brands who are charging at price premium well above what they charge in their home market. Review pricing to ensure you’re not going to get caught out.
2. Consumers are re-prioritising discretionary spending post-Covid
As you can imagine, the pandemic has placed pressure on discretionary spending, particularly clothing and entertainment budgets. The end of strict quarantine measures did see an uptick in social gatherings, but it will be a while before spending on travel and hospitality returns to pre-pandemic levels. By upping their prices just as folks were coming out and seeing their friends and family again, Haidilao and Xibei triggered an adverse knee-jerk reaction. Clearly the consumers are not ready for price hikes in post-Covid China.
But it’s not all bad news
China’s central government is pushing local governments to find ways to encourage consumer spending in the wake of the coronavirus pandemic, so not all is lost. We think the most exciting consumer sectors right now are:
1️⃣ Health and wellness
2️⃣ Goods and services that help escape or break the monotony of quarantine at home
3️⃣ Home-related expenditure to support the home’s multi-purpose role as a kitchen, living space, a gym, a home office and a sanctuary from uncertainty
Contact us to find out where your opportunities in are in the post-pandemic economy.
