Chinese hot pot chain Haidilao slows growth as COVID-19 curbs consumer appetite

Xiabuxiabu Catering Management (China) Holdings

20/10/2021 02:00

By Sophie Yu and Brenda Goh
    BEIJING, Oct 20 (Reuters) - China's biggest hot pot chain
Haidilao  6862.HK  is slowing its rollout of new restaurants and
increasing diversification of its fare, tempering its rapid
expansion during the coronavirus pandemic to cope with a
subsequent slump in consumer spending. 
    Haidilao, which became so popular in recent years that it
appeased customers in hours-long queues for its soups by
providing free manicures, snacks and shoe shines, is at the
forefront of a reckoning in China's restaurant industry
post-pandemic.
    The chain has seen falling table turnover rates and profits
as consumers dine out less and new stores cannibalise business
at older locations.
    "We will open stores based on market demand, and compared to
before, will appropriately slow down our opening pace," the
company said in a written response to Reuters' questions about
its strategy.
    China's catering industry shrank 4.5% in August, before
recovering for growth of 3.1% last month. Analysts said it will
likely remain volatile for some time amid the country's broader
patchy economic recovery. 
    "This year, fresh waves of the epidemic happened repeatedly,
and passenger flow in commercial areas is volatile, affecting
the recovery of core business indicators," Tianfeng Securities
wrote in a research note last month. 
    Haidilao was initially undeterred by the pandemic, embarking
on an expansion drive in early 2020 that has doubled its outlets
since then to almost 1,600 currently. It did so by snapping up
sites left behind by vacating weaker players, often helped by
deep discounts offered by landlords. urn:newsml:reuters.com:*:nL4N2I32E5
    But that expansion pushed Haidilao's table turnover rate
down to 3.0 - or three sets of customers per day on average - in
the first half of this year, from 4.8 in 2019.
    Xiabu Xiabu  0520.HK , another Hong Kong-listed Chinese hot
pot chain, has said it plans to shut 200 of its 1,010 stores
after losing 50 million yuan ($7.76 million) in the first half
of 2021. 
    Haidilao's share price has fallen to around HK$30 from a
record high of HK$86 in February. 
    "The company will need to create demand going forward, which
is more challenging than fulfilling demand," China Renaissance
analysts wrote in an August note.
        
    DELIVERY AND DRINKS
    To turn its fortunes around, Haidilao has opened more than
10 outlets specialising in fast food such as noodles and
dumplings, moving beyond the hot pot, the signature dish of
southwestern Sichuan province where the company was founded 27
years ago.
    However, with a maximum of just five stores each and an
average spending per guest of 10 to 20 yuan - versus 107.3 yuan
for the Haidilao restaurants - the sub-brands contributed just
0.5% to first-half revenue.
    Haidilao last month closed a potato noodle restaurant less
than a year after opening it in the central city of Zhengzhou,
without publicly citing a reason.
    In other diversification attempts, the company has opened
bars in three of its Beijing restaurants and is promoting its
delivery service, a unit where revenue initially rose during the
pandemic. 
    However, delivery revenue dropped 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) hot pot has a strong social feature so people are
less likely to order hot pot at home," said Zhu Danpeng, an
independent food industry analyst.
    Haidilao opened a store on Alibaba's marketplace Tmall
several months ago to sell items including lipsticks inspired by
its soup bases with names such as "capsicum rouge" and "summer
tomato".     
    Zhu said Haidilao's multi-brands strategy was the right move
but the company did not have a lot of room for growth: "Haidilao
has reached a certain phase with its development, as a man has
reached his middle age."

($1 = 6.4459 Chinese yuan renminbi)

 (Reporting by Sophie Yu and Brenda Goh; editing by Jane
Wardell)
 ((Sophie.Yu@thomsonreuters.com; 861056692136;))