Recently, Laowang went public in Hong Kong, attracting the attention of the market, in the context of the epidemic is still repeated, the catering industry is under pressure, the company sprinted to the capital market at this time, bringing some warmth to the industry.
Just as the so-called "people take food as the sky", the catering industry is a sustainable operation industry, which has existed since ancient times, and it is also a relatively low threshold industry, which is simple to enter and has huge market potential, which fully meets the definition of the "long slope thick snow" track in the investment field. But even so, only a few brands in this industry can become industry leaders, and even fewer can successfully emerge in the capital market.
So, what are the characteristics of the king of this sprint to the Hong Kong Stock Exchange that is not afraid of the pressure of the industry and the shock of the market to go against the trend? Will capital markets be willing to pay?
1, the most burning track, why is capital scrambling to enter the game?
As China's no.1 Cantonese-style hot pot chain restaurant, the catering service market focused by Laowang has undergone several twists and turns in recent years due to the impact of the epidemic, but from the perspective of market size, this industry has always been a big fish track that cannot be ignored. As the world's second largest food service market, China's annual food and beverage revenue increased significantly from 3.6 trillion yuan in 2016 to 4.7 trillion yuan in 2019, with a compound annual growth rate of 9.3%. Although it shrank under the influence of the epidemic in early 2020, the revenue scale of the entire market in 2020 still reached 4 trillion yuan.
There are many categories of the catering industry, covering Chinese food, Western food and other catering, Chinese food is undoubtedly in the leading position in China, its market size increased from 2.9 trillion yuan in 2016 to 3.7 trillion yuan in 2019, with a compound annual growth rate of 8.5%, and with the fading of the impact of the epidemic and the growth resilience of the industry itself, the market expects that the revenue of China's Chinese food market is expected to further increase to 5.8 trillion yuan in 2025, and the compound annual growth rate from 2020 to 2025 will reach 13.3%.
Further subdivided into Chinese cuisine, hot pot occupies the largest market share and is the most popular dish in China. In 2020, hot pot accounted for 14.1% of the Chinese food market share of all cuisines in the Chinese mainland. At the same time, hot pot is also one of the fastest growing segments in the Chinese food market, and it is expected that the scale will grow to 850.1 billion yuan in 2025, with a compound annual growth rate of 14.2% from 2020 to 2025, higher than the compound growth rate of the entire Chinese food market.
There are also three major categories of hot pot in the mainland market, including spicy Sichuan style, healthy Cantonese style and succulent Beijing style, of which The Cantonese hot pot to which Laowang belongs is the fastest growing among several categories. According to the data, the revenue of the Cantonese hot pot restaurant industry increased from 54.6 billion yuan in 2016 to 73.9 billion yuan in 2019, with a compound annual growth rate of 10.6%, and it is expected that by 2025, the scale of the Cantonese hot pot restaurant industry will reach 128.5 billion yuan, accounting for 15.1% of China's overall hot pot catering market, and the compound annual growth rate from 2020 to 2025 will be as high as 15.3%.
(Source: Frost & Sullivan)
It is not difficult to see from the industry background that Laowang is in the core area of the entire catering track, and the market development speed is the fastest.
We know that the catering industry due to the relatively low threshold, the market pattern is also relatively scattered, a large number of catering enterprises are more husband and wife in-laws stores, and with the upgrading of consumption, especially under the epidemic, people's demand for catering quality, health and safety has increased, and they are more willing to pay for high-quality products and services, and the market potential of chain catering has been continuously amplified. Under this trend, the chain restaurant Laowang, which focuses on the concept of "health", has become a significant beneficiary - the company has achieved rapid growth and occupied the top position in the entire Cantonese hot pot market. But even so, according to the revenue of 2020, the top five participants of Cantonese hot pot only account for about 5.0% of the total market share, which shows that the future integration potential of the industry is also very huge, and this is also the opportunity of Laowang as a head echelon catering enterprise.
Paying attention to the trend of the entire catering industry in recent years, the frequent entry of capital has continuously pushed this track to the cusp of the storm. In particular, some sub-categories in offline catering have gradually become the direction of investment institutions' favorite layout, and some catering brands have begun to emerge.
A big logic behind this is also that in this huge capacity track, standardization as the core of the development of catering brands has been paid more and more attention, and it has also brought opportunities for the continuous operation and expansion of the brand. In the past, the catering industry was often trapped in the lack of unified standards, and it was difficult to form a sustained word-of-mouth effect in the expansion, while the supply chain faced a series of pain points, resulting in few catering companies being able to continue to grow bigger and stronger. As capital enters some subdivisions that are easy to standardize, its replication ability and chain potential continue to open, and the industry has also ushered in an explosive period.
There is no doubt that hot pot, as a catering subdivision category with natural standardized advantages, has the potential to become bigger and stronger with the help of capital. And this is not difficult to understand, the intention of the listing of Laowang lies.
Under this logic, paying attention to the development potential and expansion advantages of catering brands, we should focus more on the company's brand strength, service capabilities, supply chain capabilities, management systems, etc., so how is the performance of Laowang?
2. Surrounded by fierce enemies, the expansion potential behind the "true fragrance" of the king of fishing
As the most popular choice for Chinese people to eat out, hot pot has its standardized operation and highly scalable nature, which determines the greater growth potential of hot pot chain restaurants. However, this field is surrounded by fierce rivals. From the category point of view, Sichuan-style hot pot occupies 60% of the entire hot pot market. Although Sichuan-style hot pot occupies a large market share, its taste is relatively hot and heavy, while Cantonese hot pot is mainly light and nourishing, and pays more attention to the original taste of ingredients. Combined with the national spicy map and douyin search related data, it is not difficult to find that the geographical expansion of the Cantonese hot pot category where Laowang is located is actually stronger, especially with the current emphasis on health and wellness, it is also more likely to lead the fashion.
(Source: China Weather Network)
As can be seen from the map, the popularity of Cantonese hot pot with "healthy" and "non-spicy" characteristics in the more economically developed coastal areas in the east and south will also be higher, which also lays the foundation for the future expansion momentum of related chain categories in these areas.
(Source: Big Data)
It is worth mentioning that from the perspective of the number of Weibo fans, Laowang also seems to have more potential to absorb fans, with nearly 700,000 more fans than Haidilao, and other competitors are far behind.
(Source: Screenshot of Weibo)
The potential for rapid expansion and the performance of The King of Fishing have been verified by each other.
According to the prospectus, the revenue of Laowang in 2019, 2020 and 2021 was about 1.095 billion yuan, 1.125 billion yuan and 1.300 billion yuan respectively, and the profit during the year was 79.915 million yuan, 67.441 million yuan and 13.960 million yuan, respectively. It can be seen that the company's revenue has achieved rapid and stable growth.
Of course, at the same time, we can also see that the company does not seem to have a good performance in terms of profits. The reason is that in essence, this is not unrelated to the overall environment of the entire industry. Taking Haidilao as an example, its financial report last year showed that Haidilao's loss reached about 3.8 billion yuan, which is equivalent to a daily loss of 10 million yuan. This is the case for industry giants, not to mention more mom-and-pop shops, and the operating dilemma of small and medium-sized catering enterprises.
Further combined with the store closure rate data, Chenzhi catering database data shows that 2019 can be said to be the most prosperous year in China's catering industry in the past 5 years, and the store opening rate is much higher than the closure rate; and by the outbreak of the epidemic in 2020, the entire catering market is showing a state of high opening and high clearance, which also shows that some people with a "bottom-reading" mentality are actively entering this market. However, by 2021, the closure rate of the restaurant industry has reached 60.9%, which also means that most of the new stores opened during the 2020 epidemic have not survived 2021. It can be seen that in recent years, catering enterprises have faced great pressure for development.
(Source: Chenzhi Catering Database)
From this point of view, Laowang still achieves profitability and expansion in such a big environment, which shows its operating strength. According to the prospectus, as of March 4, 2022, Laowang has opened 149 stores in 30 cities Chinese mainland and 1 store in Taipei, China. The number of stores increased from 77 as of January 1, 2019 to 148 by the end of 2021, to 150 today.
In the face of the three highs and one low trend of the catering industry, that is, the cost of raw materials is high, the cost of labor is higher, the cost of rent is higher, and the net interest rate is lower. A very important factor in the steady expansion of Laowang is that under its chain operation model, it has built a stronger advantage in terms of upstream and downstream bargaining power, supply chain layout, digital development, capital and so on. This also allows it to get out of the loop quickly.
Under the operation ability of chaining, it has also brought opportunities to build a catering ecological platform, especially the current trend of retailing, Internetization, digitalization, and asset-lightness facing the catering industry, which will further open up its imagination space for future development.
In fact, Laowang has created a second growth curve in the retail industry.
As a catering enterprise that insists on products as king, Laowang has more opportunities to expand outward with its strong product strength. In 2020, Laowang will strategically launch its retail business to sell ready-to-eat products through cooperation with local and international supermarkets. Under this model, the supermarket partners covering the whole country, combined with the huge traffic and heat brought by Laowang's existing 150 stores, allow them to achieve rapid expansion of the retail market without investing too much marketing, with the help of strong brand and product advantages.
It is worth mentioning that with the increasing number of stores of these large-scale supermarket logistics partners across the country, this has also brought more support for Laowang's retail products to further face the market, open up customer groups and build brand awareness. At the same time, thanks to the advantages of product strength and brand, even under the epidemic situation, the number of members of Laowang has achieved rapid growth, showing the huge development potential of its layout areas. Prospectus data shows that as of the last practicable date, the company's membership system has more than 9.3 million members.
At present, Laowang is actively investing resources in the development of retail business, and the revenue distributed by the business is also directly reflected in the company's statements, and shows a strong growth trend, which is expected to become an important performance engine for the company in the future.
3. Catering leap forward to create a long-term doctrine that belongs to hot pot
Focusing on the company's core strengths, it can be discussed from the following levels.
First of all, the sustainable operation of catering is inseparable from the continuous blessing of brand influence. As mentioned at the beginning, the biggest difference from the traditional spicy hot pot is that Laowang is a characteristic brand that pays attention to health, quality upgrading and extracts essence from cooking soup emerging in the hot pot track, and it is one of the few Cantonese hot pot brands in the same category that can be called pure and natural and healthy. The company has created a highly recognizable image that caters to the needs of the market.
At present, Laowang operates and manages three self-created brands with different characteristics, namely Laowang Pot Material Theory, which mainly provides business and atmospheric meals, the pot season, which focuses on the concept of one-person food, and the fast casual restaurant Laowang Soul Belly Chicken Soup, which provides a fast and convenient dining experience for young people to eat together and caters to the preferences of young consumers.
With a differentiated hot pot flavor that is more in line with the future healthy eating trend, Laowang has successfully spread the delicious taste quickly, and with its iconic rich soup, it stands out among the traditional hot pots, becoming the fastest growing participant in the Cantonese hot pot chain restaurants and quickly occupying market share.
At the same time, these outstanding achievements are also inseparable from the highly standardized business model that the experienced management team behind Laowang has established, which can accurately control the supply chain system, which is also the second most important business model in the catering field.
You know, the most important thing in catering and can permanently grasp the flow of customers is quality and taste, so the freshness and quality control of ingredients need to be absolutely accurate and reliable. Supply chain management has greatly raised the entry threshold of large chain restaurants, and this business link will have a great influence on The future cost control and sustainable operation of Laowang.
Under the quality-first business model, Laowang has established a supply chain system that can grow rapidly and on a large scale. Its ability to scale benefits from centralized food procurement and automated production facilities, strong supply chain management, and systematic human resource management.
According to the prospectus information, the company adheres to strict standards in food safety and quality, and successfully establishes a central factory in the integrated facility for the research and development and production of some ingredients served by the restaurant, which is also the core business model link. It uses a unified procurement system to centrally process all purchase orders, and adopts a rigorous evaluation and accountability mechanism to incorporate food safety into the performance appraisal of store managers and chefs. As of the last practicable date, more than 85% of Laowang's stores had achieved A ratings in the field inspections of the local food safety department, well above the industry average of only 10%.
It is worth mentioning that Laowang also has more say in the control of suppliers, and under the construction of a system with consistent interests, it also ensures the centripetal force of suppliers, and all parties jointly contribute to the development of brand ecology. At the same time, the long-term and stable cooperative relationship with suppliers also ensures that the company has a more advantageous price in receiving goods and can maintain a relatively stable gross profit margin.
In addition, Laowang has also rapidly diversified its revenue sources through systematic management of stores and employees. This long-term sustainable business model has enabled the company to reach a diverse customer base, enable standardized food processing, standardized operating instructions and capacity expansion, and promote large-scale growth.
The third top priority of the core competitive barrier is Laowang's digital construction system, through the integration of new technologies, can better reduce costs, streamline operations, achieve economies of scale, and this will also be a new growth curve for the company's future performance.
Benefiting from the construction of the digital platform, Laowang has successfully penetrated the market of the younger generation and has developed a series of marketing strategies oriented by core values and beliefs, such as cooperation with marketing agencies, co-branding with various brands in multiple fields, and continuous enhancement of interaction with members of the membership system. Through the creation of online private domain traffic, Laowang has quickly enhanced the brand's popularity among young people and created today's business opportunities.
At the same time, Laowang has also successfully used digital system technology in supply chain management, formulated strict supplier selection standards, and closely monitored transportation and logistics operations through the digital system, so as to achieve efficient operation and management for the company.
It can be said that Laowang has built the underlying cornerstone of continuous upward growth in the catering industry by creating a differentiated brand, deeply cultivating the supply chain, establishing an efficient management system, and continuously promoting digital transformation, and has achieved continuous expansion in the industry.
4. Conclusion
It can be believed that such a unique hot pot brand that conforms to the current trend of diversification and health will be able to break through the fierce hot pot track, and is even expected to reshape the pattern of the hot pot market by leveraging capital to open a new cycle of the Red Sea hot pot market. On the other hand, although the current catering industry has suffered a major impact brought about by the epidemic, the author believes that With its deep competitive barriers in the industry, Laowang will be able to promote its large-scale growth, achieve steady improvement in performance, and compose a new hot pot legend.