6 months before the start of the game Granny Mayor was a part of a group of Cat Demons that moved into Zhaoyang Village and ate the residents. They then got rid of the Black Tortoise God and began to worship the Earth Yamaraja instead.
By the time Yuri and Alice encounter her, she is the Mayor of Zhaoyang Village. She offers them hospitality, but is really planning on eating them.
The idea behind Granny Mayor and the Cat-Demons of Zhaoyang Village may be based on the Japanese “Bakeneko” – evil cat spirits who eat humans.