Image source @ Visual China
Wen | Zhijin Finance, author l Dazhao
In mid-March, the official website of the Hong Kong Stock Exchange disclosed the latest listing application materials of the Cantonese-style hot pot brand Laowang Holdings Limited (hereinafter referred to as "Laowang"), with CICC and Huatai International as its lead underwriters.
As early as September 2021, Laowang had submitted a listing application material to the Hong Kong Stock Exchange, but it was subsequently invalidated due to expiration.
According to the data, Laowang opened the first "Laowang" hot pot restaurant in Shanghai in 2010, and as of now, the company has opened 149 chain self-operated restaurants in 30 cities. Different from the common red oil hot pot, "Laowang" belongs to the typical Cantonese hot pot, the main "white soup" pot bottom, the taste is relatively light, the per capita consumption is 130-150 yuan, of which pepper pork belly chicken, wax flavor pot rice, Cantonese pork bone pot, etc. are the main dishes of the restaurant.
Coincidentally, the veteran hot pot company Qixintian also officially submitted the form in January this year, planning to raise about US$200 million and list it in Hong Kong, with CMB International and Guotai Junan International as its co-sponsors.
It is worth noting that since last year, the entire hot pot industry seems to be not welcomed by capital, and the stock prices of the head companies Haidilao and Sipping have suffered a sharp decline, and news such as store closures and layoffs has also come out from time to time. Can Laowang choose to list at this point in time, can it be favored by investors?
Hotpot market disputes
Chinese love for hot pot has been around for a long time. The actual hot pot has been found in the cultural relics of the Tomb of the Western Han Dynasty, which shows that the hot pot has a history of more than 2,000 years in China. The Qianlong Emperor was even more of a "hot pot maniac", and historical records record that he ate 27 kinds of hot pot between August 16 and September 16 of the 44th year of Qianlong, a total of more than 60 times.
In modern times, hot pot is still very popular. In China, hot pot is the most popular category in the Chinese food market, and in 2020, the hot pot market accounted for 14.1% of the overall Chinese cuisine market in Chinese mainland, ranking first, which can be said to have conquered the stomach of everyone in the north and south of the river.
The data shows that the compound annual growth rate of the hot pot market in the past five years is 9.5%, and it is expected that the total revenue of the hot pot market will increase to 850.1 billion yuan in 2025 with a compound annual growth rate of 14.2%, which is higher than the compound annual growth rate of the entire Chinese food market in the same period of 13.3%, becoming one of the fastest growing segments in the Chinese food market.
Image source @ prospectus
According to the hot pot style, the common hot pot can be divided into four categories: Sichuan hot pot, Cantonese hot pot, Beijing hot pot and other hot pots. Spicy Sichuan-style hot pot is the most popular, accounting for 64.9% of Sichuan-style hot pot in the hot pot restaurant market in 2020, followed by Cantonese hot pot, Beijing hot pot and other hot pot accounting for 14.4%, 14.2% and 6.6% respectively.
Laowang is the representative enterprise in the field of Cantonese hot pot, according to Frost & Sullivan's report:
In 2020, Laowang's revenue and number of restaurants ranked first in the Cantonese hot pot industry, occupying 1.7% of the market share;
In terms of revenue, Laowang ranks fourth in the entire Chinese hot pot restaurant market.
However, due to the highly fragmented market for hot pot restaurants in China, more than 400,000 hot pot restaurants will open in 2020. According to the 2020 revenue, CR5 in the Chinese hot pot restaurant market accounts for only 7.9% of the total market share, of which the proportion of Laowang is as low as 0.3%.
At present, the more well-known hot pot enterprises listed in Hong Kong stocks include Haidilao and Sipping, coupled with Laowang and Qixintian, who are struggling to go public, and the future Hong Kong hot pot enterprises are expected to show a trend of a hundred flowers.
And unlisted hot pot companies have also appeared many leaders:
For example, Master Zhou and Banu hot pot are considered to be one kind of "one trick to eat all over the sky";
The star hot pot represented by Chen He's "Xianhezhuang" and Zheng Kai's "Fire Dragon Xiang" is considered to be a kind;
The self-deprecating pot and Mo Xiaoxian that are stained with the light of the home economy are also counted as one.
Therefore, although the hot pot market is large, there are many competitors.
Food and beverage arrivals are under pressure
The prospectus shows:
From 2019 to 2021, the revenue of Laowang was 1.095 billion yuan, 1.125 billion yuan and 1.300 billion yuan, and the net profit was 77.949 million yuan, 66.036 million yuan and 13.129 million yuan, respectively.
It is worth noting that in 2021, The proportion of Laowang's revenue from restaurant operations will reach 95.5%, the proportion from takeaway business will reach 3.7%, and the remaining 0.8% will come from retail business. Under the uncertainty brought about by the epidemic, there is still a great risk in the performance of Laowang, whose main income comes from the store.
As mentioned in the prospectus, the social distancing measures taken by Laowang Restaurant due to the impact of the epidemic have led to a rise in the unit price of customers from RMB123.7 in 2019 to RMB128.1 in 2020, and the turnover rate has dropped from 3.0 times per day in 2019 to 2.5 times per day in 2020. With the relaxation of epidemic prevention measures, people began to resume dinners, and the unit price of customers in the first half of 2021 fell to 123.9 yuan, and the turnover rate dropped slightly to 2.4 times a day. On the whole, the epidemic has still had a certain impact on the unit price and turnover rate of Laowang.
Since entering 2022, the national epidemic situation has shown a scattered distribution. In March, the epidemic situation in some areas repeatedly intensified, the pressure on food and beverage arrival consumption increased, and the intensity of takeaway consumption in business stores was still higher than that of the base day, better than that of arrivals.
According to the data of delicious food and beverage, the average daily catering turnover last week (2022/3/12-2022/3/18) still fell by 79.8% compared with the benchmark day, 22.2 percentage points lower than the average daily average in February; the number of in-store and takeaway catering business stores declined, with the average daily decline of 53.6% and 43.7% respectively compared with the benchmark day, 27.5 percentage points lower than February and 6.8 percentage points higher than February.
Therefore, more than 95% of the income of The King of Laowang, whose income comes from the store, is worth further observation under the epidemic.
Image source @ Guojin Securities
In fact, the entire hot pot industry is having a hard time.
Since the epidemic, the unfavorable news of well-known hot pot chains such as Haidilao and Sipping and Breastfeeding has come out one after another. At the stock price level, in the past 2021, the cumulative decline of Haidilao has reached 72.5%, and the decline of sipping and feeding has also reached 67.38%. Since entering 2022, in the past three months, the stock prices of the above two companies have fallen by 22.6% and 34.7%, respectively.
At the operational level, the two companies also fell into an emergency "brake" state.
Haidilao recently announced that it expects to record a net loss of approximately RMB3.8 billion to RMB4.5 billion for the year ended 31 December 2021.
On March 11, the company issued a profit warning, which showed that the company achieved revenue of 6.15 billion yuan in 2021, an increase of 13% year-on-year, but at the same time expected to record a net loss of about 275 million yuan to 295 million yuan in 2021.
In addition, on the evening of November 5, 2021, Haidilao issued an announcement and decided to gradually close about 300 stores by December 31. Similarly, throughout 2021, about 230 restaurants were closed due to improper location and poor management.
In the context of the slowdown of the head enterprise of the hot pot chain, Laowang still intends to continue to expand the store.
According to the prospectus, the funds raised by Laowang's IPO are mainly used for store expansion, improvement of retail channels, and construction of new factories. The company plans to open 44/60/80 new restaurants per year in 22/23/24.
There is a lack of moats under the "inner roll"
Frost & Sullivan data shows:
In 2020, the market share ranking of China's hot pot restaurants is Haidilao, Sipping Feeding, Qixintian and Laowang. In addition, there are hot pot brands such as Banu, Xiaolongkan and Shu Daxia who are also emerging in the competition.
However, the reshuffle rate of the hot pot industry is higher. As early as 2017, the opening and closing rate of the hot pot industry ranked first in the domestic catering industry.
According to previous data from the Prospective Research Institute, the closure rate of hot pot in 2017 reached 5.9%, higher than the opening rate of 4.3%, ranking first among all sub-categories in the catering industry.
The latest research report of China Merchants Securities also said that nearly half of the hot pot catering enterprises could not survive for more than five years.
Image source @ China Merchants Securities
Many of the once glorious names are now fading:
Xiao Fat Sheep has been reduced from "the first share of Chinese hot pot" to "the first share of Chinese food delisted";
Chongqing Little Swan has experienced storms such as failed listing and hopelessness to sell itself, and has become a faded business card;
Sichuan-Chongqing hot pot "one brother" Tan Yutou went bankrupt in 2020;
The "Huangliang Yimeng" hot pot restaurant jointly opened by actor Huang Lei and host Meng Fei was also cancelled in April 2021...
On the other hand, because the hot pot cooking adjustment body is not very difficult, so eating hot pot at home has also become a new choice for many people. Just choose the bottom of your favorite pot, and then prepare vegetables and meat, you can basically restore a simple hot pot meal.
In order to meet this new demand, some companies have launched semi-finished hot pot bases and spices for the market, and the more well-known in this field at present include Yihai International, Tianwei Food, and Haitian Flavor Industry, which have shown a "three-kingdom killing" situation.
In addition, in order to adapt to the tastes of different diners, there are also obvious regional dragon heads in various regions, such as the Northeast Dragon Head is the Mongolian flavor of "Grassland Red Sun", and the Southwest Dragon Head is the "Bridge Head" of Sichuan-Chongqing Butter Flavor.
The data shows:
In 2020, Yihai International's revenue in third-party hot pot seasoning reached 1.841 billion yuan, which is already the first in the industry. As of the end of last year, Yihai International Hot Pot Seasoning Revenue was 3.607 billion yuan, an increase of 13.1% year-on-year, accounting for 60.7% of the total revenue.
It can be seen that the field of hot pot-related compound seasoning has formed a large market.
Taking the most signature "pork belly chicken hot pot" as an example, searching for "pork belly chicken hot pot base" on the Jingdong APP can get about 222 pages of search results, and the price is generally ranging from 10-50 yuan. Most of these products are sold for their ease of use and authentic taste.
Image source @ Jingdong APP
In addition to the impact of "home hot pot", the operation of hot pot restaurants itself is also facing many challenges.
According to the 2019 China Catering Report, the restaurant chaining rate in the mainland is only 5%, while the restaurant chaining rate in the United States has reached 30% in 2018. The main reason is that foreign catering waiters have higher hourly incomes and low turnover rates, while domestic employee turnover rates are high and store operations are unstable.
According to the "2020 China Catering Report", the average monthly income of front-line employees in catering in fiscal 2019 is only about 3940 yuan, which is at a low level. In fiscal 2019, the average turnover rate of catering employees reached 15%, while the average turnover rate of employees in the hot pot industry was as high as 22%.
In addition, at present, there are many franchised stores in the mainland catering industry, and the headquarters supply chain management capacity is insufficient or the supplier management system is not perfect, which is easy to cause franchisees to reduce costs and use inferior ingredients, damaging the brand image.
On the black cat complaint platform, there are 240 complaints related to "Laowang", and consumers eat hair, steel balls, duck blood tofu deteriorates, and eat fever and gastroenteritis.
Under the epidemic situation, the second half of the hot pot chain industry has arrived.
The traditional hot pot giants are in a "painful period", and the new giants hope to rely on listing and financing to resist risks. However, the path of development after the capitalization of hot pot brands is not large, and while striving for the advantages of scale, we must also see the potential risks brought about by homogeneous competition.
Resources:
"Laowang New Stock Report: Cantonese Hot Pot Faucet, Focusing on Ingredient Quality and Word-of-Mouth", China Merchants Securities
"The king of Fishing once again handed over the table, and the consumption of catering to the store was under pressure", Guojin Securities