Opening a restaurant in China? Seven do’s and don’ts
Over the years, Club China has presented numerous stories about entrepreneurs that were determined to take the F&B market by storm. We told you stories about coffee and sandwich stores, cocktail bars, cheese and wine tasting bars and recently even about the smallest French fries store in Shanghai. Some of the places are still thriving, some had to close down. It seems that the hospitality industry is hard to master. Is it? Club China asked Maxxelli, an expert in getting international businesses started in China.
For many expats based in China, the idea of owning a restaurant, café or bar is an attractive one. China truly is the largest food market in the world and its many big cities offer a huge potential buyer group for great food, cool drinks or a combination of that, with a great atmosphere. “To many, the country offers a tempting environment and an exciting opportunity”, Ronnie Kuppens, Managing Partner of Maxxelli. “A challenge, for two main reasons. Firstly, foreign food is increasingly growing in popularity. As people’s opinion of food and restaurants is diversifying. Secondly, there has been a huge growth in the average Chinese disposable income. Meaning the Chinese are more willing to spend on foreign cuisine.”
Determined to open a bar or restaurant in China? Stick to Maxxelli’s do’s and don’ts.
1 Do your research. Get out there and find out how much of a demand there is for your product or service. Ronnie: “For example, if you want to open a bakery, it would be wise to find out how many bakeries there are in the city. Then, it would be useful to also find out what types of bakeries (both Western and Chinese) and also to garner a better idea of the current market situation. As long as you have a plan of what to provide, stick to it.” Meaning? “There’s nothing wrong with wanting to offer a little bit of everything, but if you are trying to open a place that offers authentic Thai food with great beer on draft, an intimate café atmosphere and an expansive dance floor, then you are probably taking on too much. It will be very wise to take a simple original idea and stick with it.”
2 Location, location, location - Be picky where you set up your business. Know the clientele and demographics of the area, along with their demands and whether your shop will stand out. Try to think beyond the first tier cities like Shanghai, Ronnie Kuppens suggests. “Second tier cities in China have developed fast with the average citizens’ living standard raising up to a new stage. In these cities, one can benefit from not only decreased competition, but also from preferential government policies regarding taxes.”
Found your spot? Now it becomes tricky. The investor – you, or the person or company that gets you started financially – must lease the restaurant premises before starting the registration process for the food and beverage business. “In order to avoid renting out a location that will be denied business registration, investors are suggested to ask for consultations from the Environmental Protection Bureau, Hygiene Bureau, local department of the Ministry of Commerce and the Administration of Industry and Commerce (AIC) to verify certain requirements.”
3 The looks of your place – and the approvals. It is advisable to hire architects/designers to choose the layout and create a detailed plan of how the shop will look upon completion. Also, pay attention to the environmental standard of your restaurant, as before any catering service can began operation, it must get approval from the local Environmental Protection Bureau. This will include an evaluation of the indoor and outdoor surroundings of the site in order to ensure that the location complies with standards listed in the Directory for the Management and Classification for Construction Items and Environmental Influence.
4 The legal side of setting up a business – In Ronnie Kuppens’ words: “I cannot stress this enough: it is vital to choose an entity status and register with the government. “In China, foreigners are not allowed to be the personal owners of the restaurant or food business, but they are able to open it as a limited-liability Wholly Foreign Owned Enterprise (WFOE) or through a Joint Venture (JV) with a Chinese citizen as a business partner. The business project will need to be approved by the Ministry of Commerce, who will issue an approval letter and an approval certificate that can be taken to the AIC to register the company business license.”
You will need a business license as well as food and beverage licenses. Some businesses may require more than one license depending on the scope of their business operation. You will need a Catering License, a Food Production License and a Food Distribution License. For food and beverage operations that will be serving alcohol, an alcohol permit is also required.
5 Once the product or service is in place – it is very important to create a brand that will showcase what you offer in an effective and appealing manner. To attract both local Chinese consumers and foreign consumers in China, it is a good idea to highlight your uniqueness as a foreign restaurant, as well as the localization part of your place. Also get your marketing straight – or hire somebody to do it for you.
6 Your machinery – If you intend to bring it from outside China, it needs to meet China’s standards. Ronnie has seen some trouble in this area in the past. “If the machinery does not meet local regulations, it can take six months to get approval. So take enough time to cover this issue or source your machinery on the local market.” Also: please note that when importing goods from abroad, there is a strict procedure your business must follow to ensure that the quality of your product is not compromised. “The rate of tax can be massive, even to exceed 30% and reach 40%. Therefore, it is vital to ensure that you know what to expect when handling costs of specific products not found in China.”
7 Start recruiting your staff early – Pick your employees weeks before the restaurant opening, to leave time for training. Make sure that every single member of staff has a heath certificate as required. Ronnie: “This is vital. Ask applicants to show the certificate.”
Are you still interested in opening a restaurant? Success may be around the corner, but it will be hard work. Ronnie Kuppens: “With the right motivation and assistance, it can be an amazing opportunity. If you need help, we can support you in kick starting your business.”