Through the Eyes of a Restaurant Equipment “Broker”

Xiaoli and his coworkers are loading a truck with used kitchen equipment.

BEIJING, January 27 (TMTPOST) --“Things will get better after the Chinese New Year. Once there is the demand for restaurant food, businessmen would smell it,” said a broker of second-hand restaurant equipment, who preferred to be identified as “Xiaoli.”

“Prior to the Chinese New Year, some restaurants were closed down. A new crop of restaurants will emerge after the holidays,” said Xiaoli, who is familiar with the cycle of the catering service business.

He made frequent trips to malls and food courts in Beijing, purchasing cooking equipment, electrical appliances and furniture in a shutdown restaurant and reselling it to a businessman who hoped to open a restaurant. He witnessed the closure of struggling restaurants and the opening of new ones.

Last December，Xiaoli got a dozen of calls almost every day from hotpot restaurants, Sichuan Food restaurants, dumplings restaurants and milk tea shops. In Shunyi, the suburb of China’s capital Beijing, he had an 800-square meter leased warehouse, where used kitchen equipment overflew. “There were just too many restaurants out of business. It was beyond my capacity,” said Xiaoli.

Xiaoli saw a surge in the business after the holidays. “In weeks after the lifting of the pandemic restrictions on December 8, demand will go up. People would smell the opportunity,”he commented.

In mid-December 2022, Xiaoli and his coworkers entered an underground food court in an office building in downtown Beijing. The owner of a spicy food restaurant had decided to close her restaurant and sell the equipment at a discount to him.

It was the lunch time on a weekday but none of the stores in the food court was open. In some restaurants, refrigerators, microwaves and cooking equipment were all gone and only a sign remained.

The food court in downtown Beijing is empty on a weekday last December.

Xiaoli wanted to find a restaurant to eat but was stopped by his co-worker. “Even if they have food, it was prepared a month ago,” she said.

“There was always a lineup for lunch in the past,” said Ms. Li, the owner of the spicy food, told TMTPost. In March 2022, she bought a second-hand spicy food counter and started her business in the building with busy traffic.

One day in November, she realized the number of customers declined. Then there were fewer and fewer patrons. By early December, there was zero client to the food court.

“No rent was waived or reduced even with zero business in two months,” said Ms. Li. Under the weight of rent payment, Ms. Li was forced to shutter the small business. Xiaoli has seen many store owners like Ms. Li.

One client of Xiaoli, with many years of experience in providing catering services, had joined seven food chain companies as a franchised store in the past decade.

Used milk tea making equipment is collecting dust in Xiali's warehouse.

His strategy had been not to put all the eggs in one basket. When he closed his first store in 2021, he did not sell his kitchen equipment, hoping to put them back in use some day until he shut down his tenth restaurant. “At last, his equipment added to three truckloads. He has a debt of 1 million yuan now, “ said Xiaoli.

Busters and Boomers

Although the pandemic hit restaurants badly, most of the closed restaurants were new entrants in the market, according to Xiaoli.“They made and sold vogue food or beverage. They joined the most crowded market and they were squeezed out quickly,” Xiaoli told TMTPost.

One of Xiaoli’s clients was a young guy. He spent over 600,000 yuan to open a milk tea store in a premium shopping mall. After three consecutive months of losing money, he had no choice but to close the store.

In the view of Xiaoli, the reason for the closure was fierce competition. “When there were three milk tea stores, every store was making money. However, when there were 13, the contest was about who lost less money,” Xiaoli commented.

Some equipment ended up in the warehouse for a second time. A set of milk tea equipment entered his warehouse for a third time.

“For those experienced restaurant owners, they may not make as much money during the pandemic as they did but it is still profitable. You cannot say they are all losing money since many restaurants are still operating,” said Xiaoli.

He noticed that big companies were harder to cope with pandemic restrictions. “Their costs were high. Once there was a problem, such as a ban on indoor eating, one or two months of operating losses would exceed a normal year’s profits,” said Xiaoli.

However, LaCesar, a country-wide pizza restaurant chain company founded in 2009, managed to expand its business. By the end of 2022, LaCesar, headquartered in Shenzhen, had about 180 stores across China, up from 140 in early 2020.

Yu Mao, the assistant to the president of the company, pointed out what factors contributed to its atypical growth.“Not all established restaurants did well. Unlike Haidilao and Xibei that posted falling revenues and profits, LaCesar had about the same income during the pandemic compared with its pre-pandemic years,”said Mao.

LeCesar’s share of labor costs in total expenses was about 10% while the figure for Haidilao and Xibei was about 20% to 30%. Skill levels required at a Western fast-food restaurant are not as high as those in a Chinese restaurant.“We can hire part-time workers while Xibei has to recruit experienced cooks,” Mao remarked.

The take-out pizza orders increased by 30% to 50% at LaCesar, offsetting a decline in indoor orders when indoor eating was prohibited in some cities against the backdrop of surging coronavirus infections.

The number of take-out orders at LeCesar surged during the pandemic.

Besides, a month of rent was waived for LaCesar stores in Shanghai, Shenzhen and Guangzhou in accordance with the municipal government’s policy to alleviate the financial burden on businesses. The rent cut helped LaCesar significantly because rent expenses were a big portion of its total expenses. In comparison, store rents accounted for a smaller percentage of Haidilao’s total expenses.

Seasonal Cycle of the Brokerage Business

During the pandemic, Xiaoli felt the market was shrinking, particularly in 2022. “I felt that the market contracted by 30% to 40% in 2022,” he said.

He recalled that in some shopping malls where he had supplied used equipment frequently, closed stores were hard to get a new renter in the near term.

“In the past, once a restaurant was out of business, a new one would come to rent it. But now, even a store in an excellent location has difficulties in getting a new tenant,” said Xiaoli.

Prior to the Chinese New Year every year, it was a peak season for buying second-hand restaurant equipment.

A corner of the warehouse leased by Xiaoli in the suburb of Beijing.

“In the past three years, there were ups and downs. Many restaurants went out of business. Thus the purchase price has been falling,” he said. “For example, a four-door refrigerator after six months of use was sold for 1,000 yuan, only half of the original price. Now it is sold for only 500 yuan.”

“Our trade is pretty stable. I have never seen a restaurant equipment broker losing money,”said Xiaoli. In 2019, he started up his business by recruiting a dozen of salespersons. However, with the onslaught of the pandemic in 2020, the revenues remained low and his business was struggling. He laid off salespersons, started short-video marketing and eventually survived the hard times.

Xiaoli still believed that the brokerage was a good business. “Unlike the restaurant business, a large sum of upfront fees, including renovation fees, rents and franchise fees, have to be spent. Once the business does not take off, all early investments go up in flames and ashes,” he remarked.

On December 17, he visited three restaurants and got three truckloads of second-hand equipment.

In the past, the used equipment could not stay in his warehouse for over two weeks. But in the past winter, much equipment remained idle for over four weeks. Xiaoli is not worried though. “It is a matter of time. They will be sold sooner or later.“

“Even before the pandemic, many stores were out of business before the Chinese New Year. After the new year, new stores will emerge,” he said.

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