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Text｜Li Xin, reporter of "Chinese Entrepreneurs"

Editor: Mina

Source of header image｜Visual China

Tai Er Pickled Fish's parent company, Jiu Mao Jiu Group, has fallen into a vicious circle of increasing revenue but not profits.

On the evening of August 23, Jiu Mao Jiu Group released its 2024 interim performance announcement. The financial report showed that the company achieved revenue of 3.064 billion yuan in the first half of the year, a year-on-year increase of 6.4%. The net profit during the period was 67.97 million yuan, a year-on-year drop of 71.5%.

In the profit warning announcement issued on July 19,99The company had attributed its weak performance to government subsidies received in the same period last year and changes in consumer habits due to changes in the external environment.

In the days after the profit warning was issued, Jiu Mao Jiu's share price continued to fall. On August 23, it hit an intraday low of HK$2.31, setting a new low since its listing.

Jiu Mao Jiu is a catering group with nearly 20 years of history. In 1995, Guan Yihong, a native of Taiyuan, Shanxi, opened the first noodle shop "Shanxi Noodle King" in Haikou, which could only accommodate 6 tables. In the following years, he opened branches in Guangdong and named the brand Jiu Mao Jiu in 2005. In the same year, the Guangzhou headquarters was established.

Since 2015, Jiu Mao Jiu has expanded the group's brand portfolio by launching sub-brands. It currently has established and operates several catering brands, including "Jiu Mao Jiu Northwest Cuisine", "Tai Er Pickled Fish", "Shuang Hotpot", "Shangxian Yuemu" and "Shan De Shan Wai Wai".

In January 2020, Jiu Mao JiuHong Kong Exchanges and Clearing LimitedAfter listing, the stock price continued to rise within just 5 months, and Guan Yihong was on the Hurun Global Rich List for many consecutive years.Today, Jiu Mao Jiu has grown into a large chain restaurant group with more than 700 restaurant brand stores.

But for this catering giant, it faced unprecedented challenges in the first half of 2024.The data of average customer consumption and same-store sales of its brands including Tai Er, Shuang Hotpot and Jiu Mao Jiu Northwest Cuisine are all in a downward trend.

Previously, in an exclusive interview with "China Entrepreneur", Xiabu Xiabu Group founder He Guangqi said: "The entire catering market is lowering prices, and we have no choice but to adjust. If you don't compete in this market, you will starve to death." This statement is very insightful about the situation faced by all catering brands, including Jiu Mao Jiu.

Therefore, in the first half of 2024, Jiu Mao Jiu successively cut off two sub-brands whose profits did not meet expectations, lowered the average customer spending of Tai Er and Shuang Hotpot, and officially announced the gradual opening of the franchise and cooperation business of Tai Er Pickled Cabbage Fish and Shan De Shan Wai Wai Sour Soup Hotpot, hoping to accelerate expansion at a lower cost.

However, the fact that both the table turnover rate and the average customer spending have dropped proves that the price cut has not yet helped Jiu Mao Jiu to win back more consumers; and the brand that is open to franchising only opened 5 new stores in the first half of the year, which is also said to be slow progress.

China Entrepreneur asked Jiu Mao Jiu about the current progress of the franchised brands and whether the reason for the sale of the two brands "Na Wei Uncle is a Chef" and "Lai Meili Sour Soup Grilled Fish" was that the profits did not meet expectations. However, as of press time, no response has been received.

Cut off two brands to survive

In the first half of 2024, Jiu Mao Jiu, which has always focused on multi-brand operations, got rid of two "burdens" one after another - it successively sold the two brands "Uncle Na Wei is a Chef" and "Lai Meili Sour Soup Grilled Fish".

Among them, "That Uncle is a Chef" is a sub-brand launched by Jiu Mao Jiu in 2019, which is positioned as light luxury creative new Cantonese cuisine, with an average per capita consumption price of about 140 yuan. As for the significance of the layout of this brand, its brand manager told the media at that time that he hoped to make up for the group's lack of layout in Cantonese cuisine through this brand.

The predecessor of "Lai Meili Sour Soup Grilled Fish" was "Lai Meili Green Pepper Grilled Fish" which was founded in 2021. In the more than three years since its establishment, the brand has undergone three upgrades and adjustments. The main product has changed from green pepper grilled fish to Meishan pepper grilled fish, and then it was transformed into Guizhou sour soup grilled fish at the beginning of this year.

The speed of making money is slower than expected, which may be the direct reason why Jiu Mao Jiu abandoned the above two brands.

In the 2023 annual report, Uncle Nawei was the only sub-brand of Jiu Mao Jiu with declining performance. In the first half of this year, the brand's revenue dropped from 6.523 million yuan in the same period last year to 1.555 million yuan. As for Lai Meili's sour soup grilled fish, Jiu Mao Jiu mentioned in April this year that its profit model has not yet met expectations.

Over the years, Jiu Mao Jiu has always adhered to the strategy of covering multiple categories through multiple brands. At the beginning of its listing in 2020, Jiu Mao Jiu disclosed that it had five brands, namely "Jiu Mao Jiu", "Tai Er", "2 Egg Pancakes", "Shuang" and "Uncle Na Wei is a Chef", which correspond to Northwestern cuisine, pickled fish, pancakes, Sichuan cold pot skewers and boutique Cantonese cuisine categories respectively. Later, it hatched "Lai Meili Green Pepper Grilled Fish" to enter the grilled fish field.

Segmented brands cover segmented groups of people. The target customers of "Tai Er", "2 Egg Pancakes" and "Shuang" are young white-collar workers around shopping malls; the target customers of "That Uncle is a Chef" are mid- to high-end consumer groups.

In 2023, Jiu Mao Jiu incubated Shangxian Yuemu, a high-end beef hotpot restaurant with an average per capita consumption of over 500 yuan. In 2024, it opened Shanwai Guizhou Sour Soup Hotpot.

Although there are many sub-brands, Jiu Mao Jiu Group has always been "iron-fisted" towards those brands that are not profitable enough and will stop losses in time.In addition to abandoning "Uncle Na Wei" and "Lai Meili Grilled Fish", in the past few years, Jiu Mao Jiu Group also closed its Sichuan cold pot skewers stores and transferred 80.85% of the equity of its brand "2 Egg Pancakes".

In fact, the Jiu Mao Jiu Group, which has been exploring the rhythm of diversified operations through opening and closing, has relied heavily on the Jiu Mao Jiu and Tai Er brands for most of its revenue for a long time.

The 2019 annual report shows that the combined revenue share of Jiu Mao Jiu and Tai Er is as high as 98.6%. In the following years, Jiu Mao Jiu's revenue share has been on a downward trend, while Tai Er Pickled Cabbage Fish's revenue share has stabilized at more than 70%, gradually becoming the engine driving performance growth. In the 2023 annual report, Shuang Hotpot became a new growth point after Tai Er, with revenue contribution increasing by 210.4%. The combined revenue share of Tai Er Pickled Cabbage Fish and Shuang Hotpot was 88.3%. Jiu Mao Jiu also stated that it will concentrate resources on Tai Er Pickled Cabbage Fish and Shuang Hotpot in the future.

When talking about the advantages and disadvantages of Jiu Mao Jiu Group in incubating new brands, Shen Meng, director of Xiangsong Capital, analyzed that for a catering group of the size of Jiu Mao Jiu, the risk of incubating new brands and new categories lies in the cost, because it is difficult to extend the accumulation of existing brands and dishes to new brands and new categories, but it has a more mature advantage in the supply chain.

Star sub-brands, weak growth

In the past one or two years, Tai Er, the once internet-famous restaurant, has been "lowering its profile" in order to embrace more consumers.

Tai Er Pickled Fish was once one of the most distinctive brands. Its store rules of "no reception for more than four people", "no shared tables, no extra seats, no takeout", and "only pickled fish, no more or less spicy" were once regarded as its unique brand tone. However, Tai Er Pickled Fish has gradually broken these principles - the store can accommodate 6 people, opened a satellite store specializing in takeout, and also put non-spicy pickled fish on the shelves.

Even while breaking the rules to cater to more consumers, Tai Er also joined the price war in the catering market in 2024.

Financial report data shows that from 2021 to 2023, the average per capita consumption of Tai Er stores was 80 yuan, 77 yuan and 75 yuan respectively. In the first half of 2024, this figure was further reduced to 71 yuan. In July this year, a restaurant with the price per customer of Tai Er pickled fish fell to the level of 7 years ago.WeiboThe topic also became a hot topic and sparked heated discussion.

Jiu Mao Jiu pointed out in the announcement that the decline in per capita consumption was due to the group's adjustment of the menu structure and food prices in consideration of internal and external factors such as market conditions and industry competition landscape.

However, the lowered profile of Tai Er Pickled Fish did not attract more consumers. The semi-annual report data showed that the turnover rate of Jiu Mao Jiu's main brand Tai Er (self-operated stores) was 3.8, while the figure for the same period last year was 4.3.

To some extent, the predicament of Tai Er Pickled Fish is not unrelated to the characteristics of the pickled fish category.

Around 2013, sauerkraut fish was discovered as a niche dish. In 2015, the Tai Er brand was established. In the following years, sauerkraut fish experienced explosive growth. In the catering market during the same period, some sauerkraut fish fast food brands, such as the Yu Ni Yi Qi brand stores, also entered the fast lane of development through the "direct operation + franchising" method.

In this explosive market, Guan Yihong took a differentiated approach when developing pickled fish. He did not focus on the fish, but made the pickled cabbage different from the competitors and launched the advertising slogan "pickled cabbage is better than fish". In this way, under the strong effect of the Internet celebrity category and Internet celebrity restaurant, Tai Er Pickled Fish became an instant hit.

At that time, the outside world believed that this was the second growth curve that Jiu Mao Jiu Group found against the backdrop of the weakening growth of its main brand Jiu Mao Jiu. In 2018, the turnover rate of Tai Er Pickled Fish reached 4.9.

Although sauerkraut fish belongs to a category where customers have low expectations for innovation and iteration, its bonus period disappeared quickly.Huatai SecuritiesThe research report pointed out that due to the relatively fixed taste of pickled fish, many brands have encountered homogeneous competition in multiple aspects such as dishes, scenes, and services during rapid expansion, causing the market enthusiasm to wane.

As the appeal of the single niche category of pickled fish gradually weakens, the Tai Er brand’s internet celebrity halo is no longer what it used to be.

The dilemma also emerged for Shuang Hotpot. Shuang Hotpot was once regarded by Jiu Mao Jiu as the group's third growth curve. In 2023, Shuang Hotpot surpassed Jiu Mao Jiu Northwest Cuisine and became the second largest source of income after Tai Er.

Public reports show that in the first half of this year, in the catering industry's pursuit of cost-effectiveness, Shuang Hotpot also officially announced price cuts, shouting out slogans such as "Hot pot from 8 yuan, meat dishes from 9.9 yuan, vegetarian dishes from 6.6 yuan, and all-you-can-eat stewed rice for 6 yuan." According to media estimates, the price of hot pot has dropped by 2 to 4 yuan, the price of meat dishes has dropped by 3 to 14 yuan, and the price of milk tea and other drinks has dropped from 18 yuan to 13.8 yuan, a reduction of 4.2 yuan.

Under the active price adjustment strategy, the per capita consumption of Shuang Hotpot dropped from 128 yuan to 113 yuan from 2022 to 2023, and further dropped to 110 yuan in the first half of this year. However, the turnover rate also dropped from 3.9 in the same period last year to 2.9. The price reduction also did not attract more consumers.

Recently, the news that all three stores of Shuang Hotpot in Wuhan have closed has directly triggered discussions about its "Waterloo" in the Wuhan market. Based on this, "China Entrepreneur" asked Jiu Mao Jiu whether Shuang Hotpot has withdrawn from the Wuhan market and the reasons behind it, but no reply was received as of press time.

If you can't beat them, join them?

After entering 2024, franchising has become a major trend in the chain catering industry. From the leading large-scale chain catering brands to snack and beverage entrepreneurial brands, all are competing for franchisees.

A restaurant brand founder once talked to China Entrepreneur about his experience: After entering 2024, franchising is no longer a negative word in the public's cognition, but represents a larger employment and entrepreneurship market.HaidilaoAfter the official announcement of the franchise, the franchise market, which has experienced the era of quick recruitment and crazy growth, has entered an era of "good money accelerating the expulsion of bad money."

On the other hand, when rationality and cost-effectiveness became the "first principles" of mass consumption, the catering industry gradually got rid of superficial prosperity and even developed to the point where it had to rely on price cuts to find a way out in the market. As a result, market involution and escalating price wars became the mainstream narrative of the catering market in the first half of the year, and the industry eventually fell into a vicious circle of "increasing revenue but not profits".

Jiu Mao Jiu, which is in the middle of it, decided to "join if you can't beat them."

In the first half of 2024, Jiu Mao Jiu will explore more effective growth strategies based on the major trends in the catering industry in the first half of 2024, such as cost-effectiveness, franchising, and going overseas.

At the beginning of the year, Jiu Mao Jiu Group announced that its two brands, Tai Er Pickled Fish and Shan De Shan Wai Wai, were open for franchising. As to why the above two brands were chosen, He Cheng Xiao, the newly appointed CEO of Jiu Mao Jiu Group, told the media at an exchange meeting in April,The dance training requirements for Shuang Hotpot are high (the brand has designed music and dance performances during dinner time), which is a heavy burden for franchisees. In comparison, Tai Er has the highest reputation and the strongest brand potential in the group; Shanwai, which specializes in sour soup hotpot, has a business model specially designed for the franchise format.

Regarding franchising, He Chengxiao also mentioned that the successive opening of franchising by all directly-operated brands is a reflection of the maturity of the catering franchising system, which enables each brand to better balance the relationship between franchisee benefits and brand protection. The franchising model can also help brands accelerate market penetration and make up for resource shortcomings.

In addition to recruiting franchisees to open stores, Tai Er has also considered more about store types. Public reports show that since May this year, Tai Er Pickled Fish has opened more than 30 takeaway "satellite stores" in major cities across the country. These stores are "smaller, with fewer employees, and no dine-in service" and are exclusively for takeaways.

The reason behind this move may be that Tai Er has tasted the sweetness from its takeaway strategy. According to He Chengxiao, the Tai Er stores that previously launched single-person takeaway packages have seen a 60% increase in takeaway orders, and this has contributed to an increase in store turnover of about 15%.

At this stage, the overseas business also relies on Tai Er. Previous reports showed that the brands that have been exported to overseas markets under Jiu Mao Jiu include Tai Er and Lai Meili Grilled Fish, involving Singapore, Malaysia, Canada and other countries. However, with the transfer of Lai Meili Grilled Fish brand, only Tai Er is left to continue to support Jiu Mao Jiu Group's hope of expanding into the international market.

By lowering prices to do business with most people and allowing franchising to expand rapidly at a lower cost, Jiu Mao Jiu seems to have made the right choice.

However, the price war in the current catering market has already become fierce, and there is no lowest price in the market; and when Jiu Mao Jiu made rigid requirements to franchisees such as "providing more than 3 million yuan in legal cash", the golden signboard of Tai Er Pickled Fish seemed to have lost its former strong appeal - Tai Er only opened 2 franchise stores in the first half of the year.

Everything has not gone as Jiu Mao Jiu wished, and the future is still full of uncertainty. Even for a catering giant, if it wants to survive the cycle, it still needs to work hard on its internal strength.

References:

"Opening up to franchising, Tai Er sinking to lower-tier cities, Jiu Mao Jiu "subverting" Jiu Mao Jiu", Times Finance