SHANGHAI — Feng Xing, 34, has big plans for the upcoming year of the dragon: A new, bigger warehouse with fresh signage located in Shanghai’s Jiading District awaits, with 50 shiny industrial ovens arranged neatly on the brand new racks and shelves, lit up by newly installed lighting.

To afford the ovens, purchased for 20,000 yuan ($2,793) each, and the rent for the new two-story warehouse — 700,000 yuan a year — Feng has put up both his and his business partner’s homes as collateral. Though risky, Feng is confident that the move will be another successful expansion of his business: a secondhand kitchen equipment dealership.

Dealerships like Feng’s have flourished in recent years as the food and beverage industry struggled. When stores close, their owners call up these dealerships hoping to salvage some of their investment and sell the kitchen equipment for a knockoff price.

According to data from the National Bureau of Statistics, in the first year after the pandemic, revenue in China’s food and beverage market reached 5.289 trillion yuan, a year-on-year increase of 20.4%. However, as of Dec. 21, the number of domestic food and beverage companies that closed down in 2023 exceeded 1.265 million, more than double that in 2022, according to Qichacha Data.

Feng’s business has seen steady growth since launching in 2019, expanding from a small warehouse of a few hundred square meters to what will soon be a warehouse covering over 2,000 square meters. The past year has been especially lucrative, with business volume increasing 50% to 60% year on year, as China’s food and beverage industry returned to normal operating conditions after several years of restrictions.

“In the first half of 2023, the demand for equipment was huge. But since July, lots of equipment started flowing back into the secondhand market,” said Feng. 

Most of the equipment Feng buys are industrial ovens and fridges — the “hard currency” of food and beverage businesses and therefore usually able to maintain their value, he says.

Before purchasing a piece of equipment, Feng and his team test its functionality and evaluate its market demand, brand, and condition to determine a fair purchasing price: usually around 30% to 40% of the market price. The equipment is then cleaned, categorized, and resold with a small markup, though some high-end equipment such as coffee machines may be resold at nearly 90% of their market price.

“Generally, we start work after around 10 p.m., when a restaurant closes for the day, and we often have to work all night. It may take a week to move out all the equipment of larger stores; some even take a month,” said Feng.

In recent years, they have also begun acquiring equipment in bulk from secondhand dealers across the country, which allows them to have a more reliable supply of high-quality equipment.

The success of businesses like Feng’s has attracted serial entrepreneurs like Wang Fei, 32, to also try their luck in the burgeoning industry. Based in Foshan, southern Guangdong province, Wang has seen several of his ventures fail to take off in the last decade, including a restaurant and a self-media company.

In March, Wang launched his secondhand equipment dealership, specializing in equipment for coffee and beverage stores. He has noticed more beverage stores shutter recently; in the past month, there were days when he dismantled three stores in one day.

According to Qichacha, more than 3.13 million food and beverage businesses were established in China last year, compared with 2.57 million in 2022. These included 26,110 new coffee and milk tea businesses, a year-on-year rise of 18.8%.

This growing competition prompted major beverage chains to launch high-profile campaigns in the past year, including Americanos for just six yuan and unexpected brand crossovers to attract new customers.

Top chains such as HeyTea, Luckin Coffee, and Lelecha have undergone rapid expansion through franchising and partnering. Much of the franchising activity was done in the first half of the year, when expectations for business recovery were at their highest.

However, such franchising activity has also been the subject of controversy, with some failing to be profitable or were in fact outright scams. Last year, a catering company based in the central Henan province was fined 313,800 yuan for recruiting franchisees without the required authorization.

Wang recounts a shop he helped dismantle in November, which had been opened just a few months earlier by a woman in her 30s who had come across an online ad looking for milk tea franchisees. The woman invested 300,000 yuan in the store, but lost all the money due to insufficient support from management and faulty equipment.

The problems with franchises have caught the attention of the authorities. In June, the Ministry of Commerce and four other departments released draft rules ramping up supervision of franchising in the food and beverage industry, including a crackdown on illegal franchise operations.

Stories of heavy financial losses are all too familiar to Feng. He recounts the story of an out-of-province client who lost 800,000 yuan after launching a crab restaurant with his friend in Shanghai during the pandemic. Feng shares many of these stories on his channel on Douyin, the Chinese version of TikTok, which has over 102,000 followers.

Some have criticized the industry for profiting from the failures and often tragic circumstances of others. But in Feng’s view, the service he provides helps entrepreneurs claw back some of their investments, as well as offer new businesses a more affordable way to launch.

“Next year should be more normal in terms of business turnover,” said Feng. “The market will eliminate unsuitable businesses, only leaving behind those with capable management.”

In the meantime, with his new warehouse already fully set up and ready to go, Feng will spend much-needed time with his family during the Spring Festival break after a busy year. Once the new year arrives, he will be back at work, operating at the forefront of a never-ending cycle of dashed dreams and new hopes.

Editor: Vincent Chow.

(Header image: Workers move a freezer out of a restaurant in a residential area in Shanghai, Aug. 1, 2022. Zhou Pinglang for Sixth Tone)