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Zebra Consumption Xu Ji

In the first half of the year, not only did "more than 1 million restaurants collapse one after another", but even the leading players in the catering industry, such as Xiabu Xiabu, Ajisen, and Nayuki Tea, were deeply in the red.

It is obvious that people's frequency of eating out has not decreased, and major shopping malls and night markets are crowded with people at dinner time. Why is the catering industry still not making money?

There is only one core reason: too much competition. Not only in products, services, ingredients, but also in prices. In the hottest industries in the catering market, coffee, new tea drinks and hot pot, price wars are also one after another.

In this battle royale in the catering market, who will be the first to cross the cycle?

Large-scale losses

Recently, bad news has been coming from the catering market one after another.

On the evening of August 2, Xiabu Xiabu (00520.HK), the "No. 1 hotpot stock", disclosed its 2024 half-year performance forecast: revenue decreased by approximately 15.9%; net loss was between 260 million yuan and 280 million yuan, while the net profit in the same period last year was 2.12 million yuan.

At the same time, the performance forecast of "the first ramen stock" Ajisen (00538.HK) was released, and it is expected that the net loss in the first half of this year will not exceed 20 million yuan, which is a sharp decline from the net profit of 133 million yuan in the same period last year, turning from profit to loss.

In the past few years, these two catering companies have experienced ups and downs. Xiabu Xiabu, the first generation hot pot giant and a long-established listed company, suffered setbacks in its multi-brand strategy, declining performance, and turmoil in the top management. Only after its founder He Guangqi returned to the front line did it stabilize its position; Ajisen, which experienced major setbacks such as "bone soup", "corruption scandal", and investment failures, has only just recovered in recent years.

That night, Nayuki Tea (02150.HK), the "first stock of new tea drinks", disclosed its 2024 semi-annual performance forecast. The company's revenue in the first half of the year was 2.4 billion yuan to 2.7 billion yuan, and its adjusted net loss was 420 million yuan to 490 million yuan.

It is perhaps not surprising that they have fallen into losses again. However, even Jiu Mao Jiu Holdings, which has always been a stable operator in the popular catering category and owns Tai Er, Shuang Hotpot, and Jiu Mao Jiu, has seen a sharp decline in performance.

The previously disclosed performance forecast shows that from January to June 2024, Jiu Mao Jiu (09922.HK) had revenue of 3.064 billion yuan, a year-on-year increase of 6.4%, and net profit attributable to shareholders of no less than 67 million yuan, a decrease of no more than 69.8% from 222 million yuan in the same period last year.

The situation of other listed companies in the catering industry is not optimistic either. Xi'an Catering (000721.SZ) continued to lose money in the first half of this year, with losses increasing to 54.5 million to 65 million yuan; Tongqinglou (605108.SH) saw a 28.01% increase in operating income in the first quarter of 2024, but its performance fell by 8.84%.

Guangzhou Restaurant (603043.SH), a listed company in the catering + food business, continued to see its profitability decline in Q1 2024; during the same period, Wufangzhai (603237.SH) saw its revenue drop by 4.13% year-on-year and its loss slightly increase to 69.7596 million yuan.

Among the mainstream local listed companies that have disclosed their first-half performance, Quanjude (002186.SZ) is almost the only one that has grown. However, its scale and performance have only increased slightly, and a growth crisis is looming.

Now, we can only wait for Haidilao (06862.HK) to hand in its mid-term report card at the end of the month to boost the catering industry.

The leading companies are collectively in trouble, and small and medium-sized restaurants are under greater pressure. In July, industry media reported that in the first half of 2024, more than 1 million restaurants went bankrupt one after another, far exceeding the same period last year.

Industry-wide involution

Since last year, the catering industry has shown a clear trend of recovery. Data shows that in 2023, the national catering revenue will be 5.289 trillion yuan, up 20.4% year-on-year. Chen Xinhua, president of the China Hotel Association, said: "The growth rate of catering leads other types in the total retail sales of social consumer goods."

This year, although the growth rate has declined, it is still rising. From January to June, the national catering revenue was 2624.3 billion yuan, a year-on-year increase of 7.9%.

Why is there such a huge difference between industry data and the perception of individual companies? After careful analysis, there is only one root cause: it is too complicated!

After the special period of 2020, some catering companies predicted a recovery cycle and seized market share against the trend. However, they got the rhythm wrong and suffered a major blow to their business and performance. The most typical examples are Haidilao and Hailunshi (09869.HK).

However, the temptation of counter-cyclical layout is too great. Everyone remembers the story of Xiabu Xiabu's rapid rise to become the "first hot pot stock" around 2003.

Since 2023, the market has clearly recovered, allowing a large amount of investment and personnel to enter the catering industry. This time, they were still disappointed. The market form returned to normal, but demand did not keep up quickly, forming a stampede effect.

In order to stand out in the increasingly fierce competition, all major businesses have to join this extreme internal competition. They compete on products, services, ingredients... Of course, the simplest, crudest, most direct and effective way is to compete on price.

In the coffee and new tea market, Luckin Coffee has dethroned Starbucks with its affordable prices; the latecomer Kudi is competing with Luckin Coffee with its 9.9 yuan price; Heytea, Nayuki, and Bawang Chaji have lowered their prices, competing against mid- and low-end brands such as Chabaidao (02555.HK), Guming, and Mixue Bingcheng. In the recent 9.9 yuan price war for new tea drinks, even the usually aloof Cha Yan Yue Se has joined.

In the hotpot market, leading hotpot brands such as Haidilao, Coucou, and Banu use vouchers, group purchase packages, fan-favoring days and other activities to lower the average customer spending. In 2023, Haidilao's per capita spending dropped from 104.9 yuan in the previous year to 99.1 yuan; during the same period, Coucou dropped from 150.9 yuan to 142.3 yuan.

In the 2024 half-year performance forecast, Xiabu Xiabu clearly stated that one of the reasons for the losses was: increasing customer flow by actively lowering prices and launching meal packages.

According to a research report released by Zheshang Securities, the average customer spending of mainstream catering and new tea brands has shown a downward trend compared with June 2023. The most exaggerated example is Shuang Hotpot, where the average customer spending has dropped by more than 20% in the past six months.

Jiu Mao Jiu, the parent company of Tai Er Pickled Fish and Shuang Hotpot, saw its performance drop by nearly 70%. The company that owns Xiabu Xiabu and Coucou Hotpot suffered huge losses. The reasons are all stated in these tables.

The revenue of the leading catering companies will most likely not collapse on a large scale, and in the end, they will just “earn a little more”.

The key point now is that the involutionary market state will not end on its own. Unless there is a round of survival of the fittest and the market concentration is further improved, it is possible to stop the damage caused by this round of price war.

How to break the deadlock? Japanese catering giants, such as Izumi (Shokukiya), Saizeriya, and Skylark, as well as Haidilao, the leader of the catering industry in the Chinese market, have already pointed out the way.

In response to market demand, we adjusted and optimized our business layout, focused on the mass consumer market, and delved into scenarios such as family consumption; we attached importance to the supply chain, strengthened product power, and controlled pricing power; and we went overseas.

In this regard, Xiaocaiyuan, which focuses on popular and convenient Chinese dining, Xiangcunji and Mr. Rice, which advocate "ultimate value for money = freshly cooked delicious dishes + reasonable prices" in Chinese fast food, and Haidilao, which has already made great achievements in overseas catering, all have the foundation to survive through the cycle.