China restaurant revenue up 3.8% YoY despite softer April demand
The sector's price-to-fair-value ratio fell to 0.6 times from 0.8 times in the previous quarter.
China's restaurant sector remained on a stable footing in the first four months of 2026, with industry revenue rising 3.8% year-on-year through April, according to a Morningstar report.
Growth slowed to 2.2% in April from earlier months, partly due to a higher comparison base before China's anti-extravagance campaign was announced in May 2025.
Morningstar said the sector's discount to its estimated fair value widened to 40% from 20% in the first quarter (Q1), as weaker April catering data weighed on restaurant stocks.
The sector's price-to-fair-value ratio declined to 0.6 times from 0.8 times in the previous quarter, reversing gains made earlier in the year despite what the report described as “solid operating performance by Yum China and Haidilao".
Labour costs, which account for around 30% of restaurant operating expenses, remained broadly stable as industry sales growth of 3.8% from January to April was roughly in line with Morningstar's estimated 4% wage growth.
However, the report identified rising delivery expenses as a key margin pressure, with increased subsidies driving more delivery orders, each of which incurs rider costs that dine-in sales do not.
Rental costs also continued to ease. Restaurant rents, which typically make up about 15% of operating costs, have declined in nearly every half-year period since 2020.
In the second half of 2025, average rents across 100 key commercial streets fell 0.47% from the previous six months to CNY24.05 per square metre per day.
According to the China Index Academy, rental pressure is expected to persist into 2026 as landlords continue lowering rates to maintain occupancy.
The report said lower rents have coincided with a shift toward smaller restaurant formats. Yum China's compact Pizza Hut WOW stores expanded to 390 locations in Q1 2026, whilst Haidilao continued to grow its delivery-only format, which recorded 112% revenue growth in 2025 and requires less retail space.
Restaurant expansion has also moderated. China's total number of restaurants exceeded 2019 levels only in 2024, whilst unit growth slowed to around 2%, below the mid-single-digit pace seen before the pandemic.
Morningstar said slower store expansion could help reduce competitive pressure and limit the impact on same-store sales for larger operators through 2027.
