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Understanding Haidilao (HKEX: 6862): The World’s Biggest Hotpot Chain

Delighting palates with exceptional customer service.

China, the world’s most populous country with over 1.4 billion people and the second-largest economy, boasts a rising affluent consumer market. As the nation’s wealth grows, more people are engaging in dining and socialising activities. Alongside the popularity of well-known Western food brands such as McDonald’s and KFC, local brands have also been steadily garnering a devoted following.

Among these local brands is the renowned hotpot chain Haidilao International Holding Ltd (HKEX: 6862). Listed on the Hong Kong Stock Exchange (HKEX), it is also a constituent member of the benchmark Hang Seng Index (HSI). Here’s a closer look at what investors should know about this iconic consumer brand in the Chinese market.

Sichuan Hotpot Sensation

Haidilao was founded in 1994 by entrepreneur and current CEO Zhang Yong, along with three other co-founders, in Sichuan, China. From its beginnings, one of its unique selling points to attract diners was the company’s extremely high level of customer service. For example, Haidilao became well known across China for offering free manicures to its waiting customers as well as providing play areas for children.

As a result of its commitment to putting the customer first, Haidilao’s brand and reputation grew exponentially through word-of-mouth marketing. As of 30 June 2023, given the company’s rapid expansion, it had 1,382 Haidilao restaurants in Greater China, with 1,360 in Mainland China and the remaining 22 in Hong Kong, Macau, and Taiwan. In comparison, Haidilao had just 550 restaurants in Mainland China and a handful of others in Hong Kong, Macau, and Taiwan in June 2019.

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Hong Kong Listing And International Spin-Off

 Haidilao went public in September 2018 by listing its shares on the Hong Kong Stock Exchange and raising nearly US$1 billion from investors with its Initial Public Offering (IPO). The company priced its shares at HK$17.80 for the IPO. After more than 5 years, Haidilao is currently trading at around HK$16.60 – below its IPO price.

Yet this unassuming performance masks the strong run-up in its stock price, which was eventually impacted by Covid-19, hitting its business hard and the stock price plugging steeply.

Haidilao shares traded to a high of HK$82 in early 2021, driven by optimism surrounding its expansion, resilience during the early period of Covid-19, and a broad upswing in the Chinese stock market. However, due to the prolonged Covid-19 measures in China and the slow recovery of the overall market, it affected Haidilao’s businesses, with prices falling to a low of HK$12 in early January 2024.

In December 2022, Haidilao decided to spin off its international business – which houses all its Haidilao restaurants outside of Greater China – in order to focus on its core business. Named Super Hi International Holding Ltd (HKEX: 9658), the spin-off was by way of introduction of shares, which saw 1 Super Hi share for every 10 Haidilao International shares held by investors.

As of 30 June 2023, Super Hi International had 115 Haidilao restaurants globally (ex-Greater China), with 70 in Southeast Asia, 17 in East Asia, 18 in North America and 10 in other regions – such as the UAE, Thailand, and the UK.

Read Also: You May Love Eating At Haidilao, But How About Investing In Its Stock?

Improving Fundamentals And Launch Of A Franchise Model

Haidilao’s business continues to recover from the stringent Covid-19 measures that came to an end in China in late 2022.

For the first six months of 2023, the company saw its revenue increase by 24.6% year-on-year to hit RMB 18.89 billion (S$3.5 billion). Meanwhile, its net profit for 1H2023 also jumped to RMB 2.26 billion. However, it is encountering some challenges, with its average spending per guest falling slightly to RMB 102.90 in 1H2023 from RMB 105 compared to 1H2022.

Not resting on its laurels, Haidilao is looking at new ways, including adopting a franchise model, to improve its financials and grow its business. At the beginning of March 2024, it announced, via a filing with the HSEX, that it would launch a franchise model to support the further expansion of its network.

This would involve setting up a franchise department within the company and providing central and back-office services, including staff training, supply chain management, management experience, and food safety control, among others.

Focusing On Growing Organically

The business of Haidilao has seen extraordinary growth since its founding in 1994. However, its wholly-owned restaurant model could be facing long-term obstacles. As such, the company is pivoting to a franchise model – much like how McDonald’s does worldwide.

By taking a cut in restaurant revenues from Haidilao franchisees, the company does not need to make large capital investments in opening new restaurants. While competition in the food and beverage (F&B) space in China will continue to be intense, Haidilao, as one of the market leaders, stands in a better position to grow its market share alongside the growing affluent Chinese consumer market.

Read Also: Understanding Meituan Dianping – The Food Delivery and Online Travel Chinese Tech Giant

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