Players in China's catering industry should explore merger and acquisition opportunities to help them meet rising market challenges, according to financial services firm Deloitte Touche Tohmatsu.

The catering industry faces a host of issues including rising operation costs, poor food safety, labor shortages and a rapidly transforming Chinese economy that is reshaping customer demand, a Deloitte report said.

Escalating customer requirements mean companies could benefit from better brand recognition, fostered through industry integration, the report added.

China's catering industry has traditionally been dominated by small and medium-sized enterprises, but in recent years that picture has begun to change as an increasing number of restaurants seek large-scale and standardized operations.

There have been 33 merger and acquisition cases in China's catering industry over the past five years, with a transaction value of $1 billion.