Xibei’s decision to close 102 outlets—roughly 30% of its network and a blow to more than 4,000 employees—has drawn outsized attention because the chain’s boss publicly blamed a social-media spat for the trouble. The public quarrel between Xibei’s Jia Guolong and internet celebrity Luo Yonghao made for a dramatic headline, but it risks obscuring a less sensational truth: the sector’s troubles are broad, structural and deepening.
Xibei’s own financials make that plain. The chain’s revenue slipped to about RMB 5.8 billion in 2024 from RMB 6.2 billion in 2023, even as the company added 18 net new stores. A 25% gross margin yielding only a 5% net margin shows weak single-store profitability; by contrast, peers such as Haidilao managed double‑digit net margins in the same period.
Cost pressures are central. Xibei faces annual labour bills exceeding RMB 1 billion and pays high rents for very large dining rooms that can run several hundred square metres. Many of the closed outlets were in China’s four first-tier cities—Beijing, Shanghai, Guangzhou and Shenzhen—where management explicitly cited failed negotiations to reduce rent.
Those company-level strains sit atop an unforgiving macro picture. In 2025 pork and vegetable prices spiked by roughly 28% and 30% respectively, while new social‑insurance rules raised employment costs by an estimated 20–30%. Household spending points to consumer retrenchment: per‑capita dining spend fell to RMB 36.6 in 2025, down 7.7%, and 65% of meals were priced under RMB 30.
Capital markets are reflecting the malaise. An anticipated IPO boom for restaurant groups fizzled: tea brands managed to list, but several restaurant chains saw failed or weak flotations. Meet Noodles’ Hong Kong debut plunged 27.8% on day one and continued lower, a poor reception for a chain that reported only about RMB 60.7 million in net profit on RMB 1.154 billion of sales in 2024.
Profitability in some ostensibly successful chains also looks fragile once employment practices are examined. Ba Nu’s healthier margins were built alongside high shares of part‑time and outsourced staff and a record of underpaid social insurance of roughly RMB 4 million. Lao Xiang Ji’s shortfall in employee social contributions exceeded RMB 100 million, leaving both compliance and reputational risks as potential future costs.
The industry’s scale makes this more than a corporate problem. Restaurants account for about 11% of China’s retail sales of consumer goods and directly support some 30 million jobs. Broad erosion of margins, shrinking consumer spend and rising statutory labour costs point to likely consolidation, margin compression across the board and significant pressure on smaller and mid‑sized operators.
The skirmish between Jia and Luo is a convenient headline, but it is not the story. What matters for policymakers, investors and consumers alike is whether chains can redesign cost structures, rebuild pricing power, and survive a likely period of consolidation without further job losses. The next year will test whether the sector can adapt to higher labour standards and leaner consumer demand, or whether more high-profile closures and failed listings are in store.