China’s megacities are losing their appeal as some young workers abandon them to settle in smaller cities. Large chains like KFC and Luckin Coffee are following them.
Shanghai and Shenzhen both saw a net exodus of people in 2023, according to data cited Tuesday by Bloomberg from MetroDataTech, a Shanghai-based consultancy. MetroDataTech did not immediately respond to Business Insider’s request for data.
High-stress work environments and higher costs of living are pushing people to return to their hometowns, Bloomberg reported. They are struggling to succeed in big cities as the world’s second-largest economy suffers from a struggling real estate market and a slow recovery in post-pandemic consumption.
The lower cost of living in small towns gives reverse migrants higher disposable income. Chinese and international fast food companies are eager to help them spend the money.
It’s a potentially lucrative move for businesses: When brands like Starbucks open in small towns, people are willing to wait in line for hours and pay more than double the usual amount for specialty coffee, according to local media.
Aim big in small towns
China’s small towns aren’t exactly an untapped market.
About a third of Starbucks’ 6,800 outlets in China are already located in small markets, a local media outlet reported last year, citing Canyandata, a Beijing-based food and beverage data platform.
Yum China, operator of KFC and Pizza Hut, which plans to open 6,000 stores in China by 2026, also bet big on small towns. Chinese cities are unofficially classified into “tiers” based on gross domestic product, population and political administration. The four tier one cities – the largest city type – each have more than 15 million residents.
“More than half of our new stores have been in smaller cities in recent years,” said Joey Wat, the CEO of Yum China, wrote in a letter to shareholders earlier this month. “Much of our future growth is expected to come from the growing base of consumers in these markets.”
Domino’s operator DPC Dash, which operates in 30 cities, said this month that more than half of its 835 restaurants in China are outside Beijing and Shanghai.
Local restaurants are also benefiting.
About half of the total stores operated by some of the country’s largest fast-food chains, such as burger restaurant Fuzhou Tastien and bubble tea chain Mixue Bingcheng, are located in third-tier or lower cities, according to Bloomberg , who cites Canyandata. Third-tier cities have between 150,000 and 3 million inhabitants.
The cost of living crisis that is pushing young people to leave big Chinese cities is a trend that has repercussions on all continents. Some young people in countries like the US, UK and Korea are finding they can no longer afford to leave home. Others abandon hubs like New York and London because they feel alone, stressed or unsafe there.
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