The catering industry has seen stirrings of recovery after struggling through the government's austerity campaign, but further innovations in services are necessary, the China Cuisine Association said on Wednesday in its annual report.

In the first 10 months of the year, revenue was up 9.7 percent to 2.26 trillion yuan ($368 billion), which the CCA said was "a slight increase" from the comparable period's growth rate.

Growth peaked in May and touched bottom in August, before rebounding during the national holidays in September and October.

Employment conditions in the sector weakened in both the second and third quarters, reflecting the industry's tough times.

The austerity campaign, which curbed the use of public funds for luxury meals, caused a sharp decline in the high-end catering segment.

And even though luxury restaurants have scaled down their menus to attract mass consumers, it will take a long time for those restaurants to get a firm hold in their new market, said Bian Jiang, deputy director of the CCA.

Rising rents and wages have worsened the situation, he said.

As for restaurants targeting the mass market, they can enjoy "steady and sustainable demand", the report said. Such catering businesses have become the force driving the sector's recovery.

For example, smaller food outlets and group catering revenue in Shanghai increased 12.7 percent and 21 percent, respectively, in the first half of the year.

Now that the "bubbles" have been squeezed out of the sector, it is drawing more attention from international investors.

One such transaction was in April, when CVC Capital Partners Sicav-FIS SA became the majority shareholder of South Beauty Investment Co Ltd, a medium- to high-end restaurant chain.

The report also noted that many catering groups have found food processing and manufacturing to be a new growth point.