Xiabuxiabu Catering Management China: Chinese fondue chain Haidilao slows growth as COVID-19 dampens consumer appetite

Haidilao, which has become so popular in recent years that it has appeased customers in hour-long queues for its soups by offering free manicures, snacks and shoe polishes, is at the forefront. of a toll in the Chinese restaurant industry after the pandemic.

The chain has seen lower table turnover rates and lower profits as consumers eat less in restaurants and new stores cannibalize business in old locations.

“We will open stores based on market demand and, compared to before, appropriately slow our pace of opening,” the company said in a written response to Reuters questions about its strategy.

China’s restaurant industry fell 4.5% in August, before rebounding to 3.1% growth last month. Analysts said it would likely remain volatile for some time amid the country’s broader economic recovery.

“This year, new waves of epidemics have occurred repeatedly and the flow of passengers in commercial areas is volatile, affecting the recovery of basic business indicators,” Tianfeng Securities wrote in a research note last month. .

Haidilao was not deterred by the pandemic at first, embarking on an expansion drive in early 2020 that has doubled its outlets since then to nearly 1,600 currently. He did this by taking over sites left behind by freeing up weaker players, often aided by large discounts offered by owners.

But that expansion pushed Haidilao’s table turnover rate down to 3.0 – or three customer groups per day on average – in the first half of this year, from 4.8 in 2019.

Xiabu Xiabu, another Chinese hot pot chain listed in Hong Kong, has announced plans to close 200 of its 1,010 stores after losing 50 million yuan ($ 7.76 million) in the first half of 2021.

Haidilao’s share price fell to around HK $ 30, from a record HK $ 86 in February.

“The company will have to create demand in the future, which is more difficult than meeting the demand,” China Renaissance analysts wrote in an August note.

DELIVERY AND DRINKS

To turn things around, Haidilao has opened more than 10 outlets specializing in fast food such as noodles and dumplings, going beyond the hot pot, the iconic dish of southwest Sichuan province where the company was founded 27 years ago.

However, with a maximum of five stores each and an average spend per customer of 10-20 yuan – compared to 107.3 yuan for Haidilao restaurants – the sub-brands only contributed 0.5% to the figure. first half business.

Haidilao closed a potato noodle restaurant less than a year after opening it in downtown Zhengzhou last month, without publicly citing a reason.

In other attempts to diversify, the company has opened bars at three of its Beijing restaurants and promoted its delivery service, a unit whose revenues initially increased during the pandemic.

However, delivery revenue increased from 409.6 million yuan, or 4.2% of total revenue, in the first half of 2020 to 345.7 yuan, or 1.7% of total revenue, in the first half of 2021.

“(Eating) a fondue has a strong social characteristic, so people are less likely to order fondue at home,” said Zhu Danpeng, independent food industry analyst.

Haidilao opened a store in Alibaba’s Tmall Market several months ago to sell items, including lipsticks inspired by its soup bases with names such as “red capsicum” and “summer tomato”.

Zhu said that Haidilao’s multi-brand strategy was the right move, but the company did not have much room for growth: “Haidilao has reached a certain stage in its development because a man has reached middle age.

($ 1 = 6.4459 Chinese renminbi yuan)

(Reporting by Sophie Yu and Brenda Goh; editing by Jane Wardell)

By Sophie Yu and Brenda Goh

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