For a chain catering enterprise as large as Haidilao International Holding, a major decision-making mistake will bring continuous "labor pains" and even a devastating blow to the enterprise.

Haidilao International Holding, who once expanded crazily, cut off the feet he had already taken.

On November 5, Haidilao International Holding issued a notice on Hong Kong stocks that it would gradually close about 300 stores that did not meet expectations.

Haidilao International Holding Weibo Corp also issued an open letter saying: the current bitter fruit can only be swallowed by ourselves.

Today's bitter fruit is caused by the mistakes of the past. In the future, can Haidilao International Holding save himself by closing the shop? Can competitors take advantage of the opportunity to overtake around the corner? It will take time to prove it.

Swallow the bitter fruit

Haidilao International Holding announced on November 5 that it will gradually close about 300 stores that do not meet expectations by December 31, 2021, and some of them will temporarily rest and reopen, with a maximum rest period of no more than two years.

At the same time, Haidilao International Holding announced the launch of the "woodpecker" plan, continue to pay attention to poor business performance of stores, strengthen internal management and assessment mechanism, shrink business expansion.

Before the overall improvement of the company's operating conditions, the company will timely scale back the group's business expansion plans, with an average turnover rate of less than 4 times per day, and in principle will not open new branches on a large scale.

In fact, the "shop closure" initiative continues the internal structural adjustment practice carried out by Haidilao International Holding since the beginning of this year.

Haidilao International Holding's 2021 interim performance report revealed that the regional overall coaching model has been improved to a regional manager management model, while seven executive directors and two independent non-executive directors have been added to the board of directors. The new executive directors are basically managers who have grown up from front-line employees.

As for the placement of employees in stores, the announcement said that there would be no layoffs in the closure. It is understood that Haidilao International Holding will provide other development opportunities for store management, or carry out intensive training in business, management and other aspects to improve post management and management level; ordinary employees will conduct internal deployment so that employees can choose to work in other stores.

On the same day, Haidilao International Holding official Weibo Corp also issued an open letter acknowledging that the failure of some stores to meet expectations was mainly due to the rapid expansion strategy that began in 2019.

According to public data, Haidilao International Holding added 308 new stores in 2019, 544 new stores in 2020, an average of 1.5 Haidilao International Holding hot pot restaurants per day, and another 299 in the first half of 2021.

As of the first half of 2021, the number of Haidilao International Holding stores has reached 1597. After deducting the impending closure of stores, the total number of Haidilao International Holding stores is still more than 1300.

The letter also mentioned several reasons why the operation fell short of expectations due to rapid expansion, including the unreasonable location of some new stores and a shortage of excellent store managers.

These reasons are also the problems to be solved after the start of the shutdown consolidation campaign. The open letter ends with the words: the current bitter fruit can only be swallowed by ourselves. For example, in June this year, Zhang Yong, founder of Haidilao International Holding, said bluntly about the problem of expanding stores: "I was wrong about the trend. Now it really looks like blind confidence." "

The attendance rate is low.

It is reported that Haidilao International Holding stores have been suspended in many places across the country, but it is not clear whether these stores are included in the "slimming" plan.

November 6 is the weekend, in the lunch peak period, the reporter visited a number of Haidilao International Holding stores. No matter which Haidilao International Holding store it is, the waiting area at the door is empty. Although there may be epidemic factors, according to the shop assistant, business has been relatively quiet since 2021.

In front of a store, there is a display screen connected to the kitchen monitoring. The picture shows that the kitchen is not busy and the number of pots prepared does not even fill the grooves of cooking utensils.

At 1: 00 noon, there were only 5-6 tables in the store, and some of the restaurants didn't even turn on the lights. There were no guests in the box, but the staff said that some guests had booked the box next week. And Haidilao International Holding's most famous queuing experience, free manicure and shoeshine, is only for staff to entertain themselves.

In another store, there are only three tables of guests, two tables in the box and one table in the lobby, and you can't even smell the unique fragrance of hot pot when you go in. The number of front-end staff has also been significantly reduced, in addition to two greeting guests, the front-end waiters in the store are only about 10, and there are no food messengers or food delivery robots.

Three years ago, the reporter also visited Haidilao International Holding's store at about 1: 00 noon. At that time, Haidilao International Holding's lunch was full and the system had stopped playing the number.

At 04:30 in the afternoon, the waiting area was full of queuing customers, with an average waiting time of about 1 hour. Two or three waiters shuttled back and forth to provide customers with a variety of services. A Haidilao International Holding store with 90 tables has a total staff of 130,150.

Employees are not surprised by Haidilao International Holding's "slimming" plan.

Some employees said bluntly that since last year, Haidilao International Holding's business has not been as good as it used to be. "until now, consumers' eating habits have changed, and there is only more passenger flow on holidays. Reservations for holidays need to be made 1-3 days in advance. Meals are available at any time at ordinary times, and meals may not be full at peak times. "

In addition, the continued increase in the number of stores has also affected passenger flow. In some areas, there is only a 5-minute walk between the two Haidilao International Holding stores.

Employees also said that in response to the rise of the epidemic, Haidilao International Holding takeout orders also dropped significantly in 2021.

On the other hand, the decline in salary has also made Haidilao International Holding employees anticipate the plan to close the shop: "in addition to the basic salary, we also have piece pay." While the basic salary and piece price have gone up, the salary this year is less than that of the year before last. "

This time, Haidilao International Holding said that he would not lay off staff. The employees interviewed did not clearly express their concern. "the working status of the employees has not been affected and will serve consumers with greater enthusiasm." "

Misjudgment trend

At the beginning of 2020, the COVID-19 epidemic hit, which dealt a heavy blow to the physical catering industry. During the epidemic in early 2020, 93% of catering enterprises chose to close their stores, according to research data from the China Cuisine Association.

Affected by this, industry revenue also fell sharply. According to iiMedia Research, the market size of China's hot pot industry fell to 423.6 billion yuan in 2020 from 529.5 billion yuan in 2019.

It was in the darkest moment of the catering industry in 2020 that Haidilao International Holding started the road of rapid expansion. Because at this time, Haidilao International Holding is full of confidence in the arrival of the "peak season after the epidemic", and it is also a good time for Haidilao International Holding to grab more market share and eat more recovery dividends.

What kind of self-confidence made Haidilao International Holding choose the store development strategy at this time?

1 income side: high overturning rate

According to the company's financial report, Haidilao International Holding's operating income increased by 59.6% and 56.5% year-on-year in 2018 and 2019, and its annual revenue reached 26.556 billion yuan in 2019. The performance shows a state of rapid growth, while the increase in revenue is mainly driven by the continuous expansion of stores and the continuous improvement of same-store data (including conversion rate, repurchase rate, etc.).

According to the data, every one percentage point increase in conversion rate and repurchase rate can bring ten times the increment of turnover income. In addition, with the increase of consumer conversion rate and repurchase rate, Haidilao International Holding's overturning rate has always been in a leading position in the industry. In 2019, Haidilao International Holding's turnaround rate was 4.8times per day, compared with 2.6times per day in the same year.

According to public information, five times a day is close to the limit of Haidilao International Holding's one-day meal, which is one of the main reasons why Haidilao International Holding chose to open a restaurant on a large scale.

2 cost side: strong supply chain

Since 2006, Haidilao International Holding has set up upstream supply companies to provide its goods, such as Shuhai Group, Yihai International and so on. Benefiting from the cooperation of related enterprises, Haidilao International Holding has not only achieved large-scale, but also improved its operational efficiency.

In addition, after 2017, Haidilao International Holding's procurement proportion in the core related companies gradually moved towards equilibrium, and the total procurement of the five main suppliers accounted for a significant decline in the total procurement. Not relying too much on affiliated companies, looking for partners in the entire upstream supply chain, Haidilao International Holding's bargaining power has been further enhanced.

Thanks to a high turnaround rate and a complete supply chain system, Haidilao International Holding's net profit increased from 1.194 billion yuan in 2017 to 2.345 billion yuan in 2019, with a compound growth rate of 47.2 percent.

It is not difficult to see that Haidilao International Holding's financial performance before the epidemic was very excellent, which may also be the main reason why Haidilao International Holding dared to "bottom out" expansion during the epidemic.

The pain of "bottoming out": a dilemma

Based on his overconfidence in his own business ability, Haidilao International Holding opened the way to expand the store crazily.

At the same time, Haidilao International Holding's share price has experienced great ups and downs like a roller coaster.

Haidilao International Holding's share price has soared since August 2020, reaching HK $85.75 in February 2021, but has since fallen off the cliff. As of November 5, 2021, Haidilao International Holding's share price was HK $21.05 per share, with a total market capitalization of HK $114.91 billion, which has lost about HK $350 billion.

On November 4, 2021, the 2021 Forbes Rich list was released, and the Zhang Yong family ranked 35th with a fortune of 90.2 billion yuan. On the 2020 Forbes rich list, Zhang Yong and Shu Ping had a fortune of 174.82 billion yuan. In other words, in this year, the wealth of Zhang Yong and Shu Ping has shrunk by 84.62 billion yuan.

The sharp decline in the company's market capitalization and personal wealth is related to the chain reaction brought about by Haidilao International Holding's massive store opening.

(1) the sudden drop in the turnaround rate affects the income.

Heavy investment to open a store, so that Haidilao International Holding completely fell a big somersault, Haidilao International Holding's turning rate appeared to fall off a cliff. The turnaround rate of Haidilao International Holding was 4.8times / day in 2019, 3.5times / day in 2020 and 3 times / day in 2021, among which 2.3 times / day of new restaurants were opened.

The sharp decline in the overturning rate made Haidilao International Holding quickly in a precarious position. According to Guoxin Securities estimates, if Haidilao International Holding falls below 3 times per day, it means that Haidilao International Holding's single store is in a state of loss or small profit.

As to why the turnaround rate has plummeted, Zhang Yong said in an interview in June this year: "in June 2020, I judged that the epidemic ended in September, but to this day, our Singapore store is still unable to open due to the epidemic." It was January when I realized the problem, and it was March when I responded. "

Secondly, the location of the new store is particularly important. If the store is expanded blindly in a short period of time, the density of the store will increase, and the diversion effect of the new store will also lower the turnover rate of the existing store.

On the other hand, the opening of a large number of stores also increases the cost of the company. After 2020, Haidilao International Holding's property assets and right-to-use assets have increased significantly, and the overall cost has also begun to rise sharply, among which the increase in depreciation and amortization is the most obvious.

According to the financial report, Haidilao International Holding's net interest rate has fallen off a cliff since 2020, from 8.81 per cent in 2019 to 1.08 per cent in 2020.

2 the price increase is not accepted by consumers

In order to make up for the impact of the overturning rate on earnings, Haidilao International Holding chose to raise prices.

In early April 2020, a Beijing diner posted a bill on Weibo Corp: "half of Xuewang rose from 16 yuan to 23 yuan, half of potato chips rose to 13 yuan, resulting in 1.50 yuan for a piece of potatoes; 10 yuan for self-help seasoning; and 7 yuan for a bowl of rice."

However, Haidilao International Holding's price increase during the epidemic made many consumers say that it was "unacceptable." A Haidilao International Holding questionnaire on whether consumers will still choose the price increase launched by Sina Finance on April 7, 2020, has a total of 32000 participants, and nearly 78 per cent of consumers said they would not choose Haidilao International Holding after the price increase.

Haidilao International Holding then issued a letter of apology, saying that the price increase was a mistake made by management, and from that day on, all store prices returned to the standards before they were closed on January 26, 2020. However, not long after the "apology incident", a number of media exposed that some of Haidilao International Holding's stores had "secretly raised prices" again.

According to the company's financial report, Haidilao International Holding's per capita consumption increased to 110 yuan in 2020 (116 yuan in first-tier cities). According to the China Food and Beverage report, as of 2019, 93.4% of the customers of hot pot restaurants had a unit price of less than 90 yuan, and only 4.7% were in the price range of 91-120 yuan. Haidilao International Holding, with a unit price of 110 yuan, is still relatively "luxury" for most consumers.

The continuous exposure of "price increase events", so that many price-sensitive users, slowly lost interest in Haidilao International Holding.

In addition, Haidilao International Holding was also exposed to replace beef grains, due to expired beans were punished by the Market Regulatory Administration and many other news. These events further affect the corporate image.

As a result, Haidilao International Holding, who wanted to "gamble" during the epidemic, turned out to be wrong step by step.

"broken arm" to survive

Today, the choice of shop closure is obviously Haidilao International Holding's "self-help" move, but whether the shop closure can really "save" Haidilao International Holding remains to be seen in time.

At present, from the perspective of Haidilao International Holding's revenue structure, Haidilao International Holding's catering income is still the main source, which is a typical "one-leg" walk. Although Haidilao International Holding has been trying to do a sideline in recent years, she has not stirred up too much spray.

In the catering market, the whole market is more biased towards buyers. According to the China Hotel Industry Association, the number of hot pot restaurants in China has approached 400000 in 2018.

On the evening of November 5, 2021, we intercepted the user evaluation data of Haidilao International Holding, cobbled together hotpot and Jiabu, three popular chain hot pot brands. Haidilao International Holding had the highest praise rate, but just looking at the service score and taste score, Haidilao International Holding was not absolutely dominant among the three enterprises.

Judging from the current competitive environment, Jiabu's high-end brands have developed particularly rapidly in recent years.

According to the financial report of the enterprise, the revenue of the hot pot collected together accounted for 32% of the total revenue in 2020, and it is obvious that the hot pot has found the second growth curve of the enterprise. The hotpot, which is more similar to Haidilao International Holding's positioning, is very likely to become a strong competitor to Haidilao International Holding in the future.

In addition, Laowang, who mainly plays the health and health card, has gone to Hong Kong IPO, which is called "the second Haidilao International Holding" by the market. According to its prospectus, part of the money raised by IPO will be used to build the No. 2 central factory to support the expansion of offline stores. Haidilao International Holding's competitive environment is far from the time to rest easy.

From the consumer level, Haidilao International Holding's competitive advantage mainly comes from high-quality service and taste. But Haidilao International Holding is also on the verge of a big exam in these two aspects.

First of all, from the service level, imitating Haidilao International Holding's high-quality service model has become more and more common, service alone may be difficult to support the core competitiveness of enterprises.

In addition, there are also many consumers who post online that they do not like Haidilao International Holding's "over-service" very much, comparing this to the scene of a large-scale "social death", but are more eager for an independent dining environment, which reduces Haidilao International Holding's service advantage to a certain extent.

The second is about the taste of hot pot, which actually has thousands of people and noodles. As Zhang Yong said: "there is a difference between the catering industry and the rocket. The rocket has a standard, but there is no standard for catering." "

As to whether Haidilao International Holding is delicious or not, some media released a questionnaire online in June 2021, showing that among the more than 30, 000 consumers who have eaten Haidilao International Holding, fewer people "rush for taste" than those who "rush for service".

For a chain catering enterprise as large as Haidilao International Holding, a major decision-making mistake will bring continuous "labor pains" and even a devastating blow to the enterprise.

Choosing to close the shop may be the best way for Haidilao International Holding to save himself, but how to improve business efficiency and retain diners after Zhang Yong is the biggest examination question in front of Zhang Yong.