On May 16th, LETV held a general meeting of shareholders and voted to approve the proposal of its wholly-owned subsidiary, LETV Lehi, to invest in "Burger King". According to the proposal, LeTV Lehi will raise 100 million yuan in the next three years to fund Burger King to open stores in China.
1 LeTV "funded" Burger King
On April 25th, LETV issued an announcement, disclosing in detail the specific situation of LETV's investment in Burger King.
According to the announcement, LeTV's investment is characterized as a "financial assistance": the funding ceiling is 100 million yuan, and within three years after the agreement takes effect, a maximum of 40 million yuan will be provided in the first year, a cumulative maximum of 70 million yuan will be provided by the second year, and the rest will be provided in the third year.
This investment is interest-bearing: the maximum annual interest rate of the financial assistance shall be calculated based on the five-year loan market quotation rate (LPR) (simple interest) recently announced by the People's Bank of China after the effective date of this agreement, and the interest shall be calculated according to the actual amount of financial assistance, and the maximum period of the financial assistance shall be 5 years, after which Party B shall pay Party A a lump sum of unconverted equity principal and interest.
Financial investment can be converted into equity investment, and the specific proportion of equity conversion varies according to the effective time of the agreement: 1 year after the agreement takes effect, 1 yuan of principal and interest financial assistance can be converted into 1 yuan of registered capital; After 2 years after the agreement comes into effect, 1 yuan of principal and interest financial assistance can be converted into 0.9 yuan of registered capital, and 3 years after the agreement comes into effect, 1 yuan of principal and interest financial assistance can be converted into 0.8 yuan of registered capital. The above-mentioned share transfer matters are subject to the approval procedures of the Burger King brand in advance.
For LeTV, this investment does not constitute a major asset restructuring for the time being, but constitutes a related party transaction. According to the announcement, in the registered capital structure of Beijing Wangdao Burger Co., Ltd., Zhang Wei accounts for 20% of the registered capital of 5 million yuan, and he also works for LeTV Information Technology (Beijing) Co., Ltd.
2 Why did LeTV invest in Burger King?
Regarding the purpose of LETV's investment in Burger King,The announcement says:LETV invests in Burger King franchisees in the form of financial assistance that enjoys the right to increase registered capital,It will be a strategic cross-industry attempt,Combined with Burger King's international brand influence and mature business model in the fast food industry,LETV can quickly enter the fast food market,It is conducive to LETV to broaden its business scope,Diversification,It can not only obtain the expected stable cash flow,Enhance LETV's ability to resist risks,And inject new impetus into the long-term development of the enterprise。
According to media reports, for this investment, the relevant person in charge of LETV believes that it can hedge the risks of its existing business. He said,LETV's existing business is based on intelligent hardware+LETV video film and television content,All belong to high-risk、Heavy research and development、Internet technology industry that requires long-term investment,Especially the long video industry is still in a state of low profit or even loss,The content of the entire industry is updated quickly,The requirements for talent density、The company's research and development capabilities and comprehensive financial strength are very high。
He continued,In this industry background and business state,The chain model of foreign fast food belongs to the basic consumption of the general public,It has a short initial investment time、Talent requirements are relatively low、C-end business cash flow is stable and fast turnover,No risk of bad debts receivable,At the same time, the catering also has a long recovery cycle、Strong replicability and other factors,This is just enough to hedge the existing high Internet business risk of LETV。
In the above large paragraph, the description of catering is filtered, but the analysis of the Internet business is more pertinent. And LeEco's own financial situation does need to be improved. LeTV's 2023 financial report shows that the annual revenue is 245 million, a year-on-year decrease of 37.52%; net profit attributable to shareholders of the company was -2.185 billion yuan, a year-on-year decrease of 338.97%.
There were rumors that LeTV relied on the copyright fee of "The Legend of Zhen Huan" and the rent collection to support 400 employees, and some netizens ridiculed that "LeTV lives more nourishing without a boss", but the rumor was later refuted. On the first working day of 2023, LeEco officially announced the implementation of a four-and-a-half-day work week.
3 Is Burger King Worth the Investment
LeTV decided to spend 100 million yuan to open a store for Burger King and become a super franchisee of the latter. So what are the prospects for this investment? Is Burger King worth the investment?
Burger King was founded in the United States in 1954 and entered China in 2005. Globally, Burger King has about 20,000 stores, but only 1,648 stores in China, 9,000 fewer than KFC (Narrow-Door Dining Eye data). This volume ranks eleventh in the domestic fried chicken burger field, and there are Wallace, Tustin, McDonald's and so on in front of it.
Burger King, a time-honored foreign fast food, has fallen behind in China. In February, its parent company, RBI, did some reflection on its performance in the Chinese market. "It's a money-making business, but it's not growing enough." RBI CEO Josh Kobza said at the company's Q4 and full-year 2023 earnings analysis sessions that he believes this growth rate does not match the growth prospects of the Chinese market.
△ Picture self-dining book
In the past two years, Burger King has opened a total of 377 stores in China; During the same period, KFC opened nearly 3,000 stores and Tustin had more than 6,000.
In August last year, Burger King set a plan to open 200 new restaurants in the Chinese market every year starting in 2023. That means Burger King is starting to pick up speed, but it probably won't change much. Even if KFC remains the same size and Burger King's new store has a 100% survival rate, it will take 45 years to catch up, and KFC has planned to add more than 1,200 stores a year for the next three years.
While developing slowly, Burger King has repeatedly exposed food safety problems, and the most widely spread one was on CCTV 315 and was fined more than 910,000 yuan.
4 Conclusion
Before LeTV, Internet companies such as Tencent, ByteDance, and Meituan had "cross-border" catering and invested in some catering companies. However, LeTV is slightly different from them, and is currently only a financial investment in Burger King, and it is limited to the opening and operation of new stores.
For the cooperation between the two sides, LETV's expectation is to quickly enter the fast food market and expand its business scope, which may not be difficult to achieve; Burger King, on the other hand, has found a super franchisee that can be used to expand its scale. Both sides take what they need, and this cooperation is enough.