Chinese catering, which was once called "the hottest track of China's big consumption" by CICC, is intensively setting off a wave of IPOs. In May and July last year, Laoxiangji and Laoniangjiu respectively submitted prospectuses to the stock exchange, and companies such as Green Tea Restaurant, Yang Guofu Malatang, and Laowang are also promoting listing plans.
The fourth largest Chinese fast food group in China, Countryside Fast Food Chain Holdings Co., Ltd. (hereinafter referred to as "Countrybase"), which occupies about 0.6% of the market share, has also recently submitted a prospectus to the Hong Kong Stock Exchange again. Goldman Sachs and CMB International are joint Sponsor.
In the past three years, the catering industry has faced a lot of shocks. According to the data of the National Bureau of Statistics, the growth of the income scale of my country's catering industry has stagnated in the past three years, with an average annual growth rate of -0.45%, and its proportion in GDP will drop from 4.7% in 2019 to 4.1% in 2021. It slipped further to 3.6%. However, according to data from the rural base prospectus, from 2019 to 2022, the company's revenue has risen steadily, reaching RMB 3.257 billion, RMB 3.161 billion, RMB 4.618 billion, and RMB 4.706 billion, reflecting the company's operating resilience.
With the recovery of consumer demand, confidence, and scenes, the catering industry has entered a period of strong recovery. Can the rural base usher in a higher level of growth?
The potential of the Chinese catering market is released, and the rural base hits the IPO
The Chinese catering where the country base is located is a track with huge potential, and the market potential is being released at an accelerated rate. According to data from Guoyuan Securities, the scale of the Chinese fast food market is expected to reach 1.27 trillion yuan in 2025, catalyzed by factors such as the fast pace of life and capital overweight.
The expansion of the market scale has driven the rapid growth of the industrial chain. Many leading companies in subdivided fields, such as Countryside Ji and Laoxiang Chicken, have accelerated the pace of IPOs.
According to the latest data from Frost & Sullivan, in terms of the number of chain restaurants, Countryside is the largest direct-operated fast food group in China, with a total of 1,154. Founded in 1996, Village Base has been able to move smoothly from the Sichuan and Chongqing regions to the whole country, mainly relying on the long-term business philosophy of "delicious and inexpensive", providing consumers with a variety of affordable Chinese-style freshly fried fast food. In the past four years, rural base revenue has shown a gradual upward trend as a whole, which is related to its precise anchoring of customer groups and establishment of product strategies.
For consumer goods companies, only by grasping the core customer groups and understanding the core needs can they go long-term. Catering is a typical high-frequency fast-moving consumer goods. One of the market characteristics is to be able to continuously "introduce the old and bring forth the new" around the core needs.
Judging from the prospectus of Countryside, the company's target customers and product strategies are very clear.
Countryside has two major brands, namely "Countrybase" for family-style fast food and "Mr. Rice" for office workers. The main requirements of family-style fast food are safe, secure, and cost-effective ingredients. Therefore, the store style of "Country Base" is clean and warm, and the unit price is only 15-30 yuan. There are sufficient SKUs and Sichuan dishes. The small stir fry can basically cover the main needs of family fast food.
Office workers often have no obvious geographical characteristics, and there are often workers from multiple parts of the country in an office building. Therefore, they have higher requirements for the types and tastes of fast food, but their price sensitivity is relatively low. "Mr. Rice" has more than 40 kinds of SKUs, and its cuisine covers Jiangsu, Zhejiang and Cantonese styles, which can satisfy different tastes. The unit price has also increased to 20-35 yuan, which not only avoids competition with "Country Base" in the same price range , It also ensures the quality of the dishes and the long-term development of the brand.
The differentiated dual-brand driving strategy makes the company's market share in the forefront, which gives the village base the confidence to hit the IPO. According to a survey by Frost & Sullivan, based on total revenue in 2022, Countryside will account for 0.6% of the Chinese fast food restaurant market in China, ranking fourth in the domestic market, and the gap with the 0.7% of the third-ranked Hometown Chicken is relatively small. As the company's cost control continues to improve and its profitability improves, its market share is expected to further expand.
Can rural base be recognized by the capital market to tap profit growth space?
Whether the main business is stable or not is one of the current capital market concerns for IPO companies, because the stability of the company's main business in the future can determine its continuous operation and profitability. For a business with small profits but high sales like the fast food industry, in order to gain recognition from the capital market, it is necessary to strike a balance between profit and sales to achieve the optimal solution.
Since cost performance is one of the important characteristics of Chinese fast food, rashly raising prices to gain more profit margins may affect product sales and have high operational risks, so profits must be obtained from two other aspects. The first is endogenous growth, tapping growth potential internally, and improving operational efficiency, reducing costs, and increasing revenue scale through measures such as refined management, energy saving, and process optimization.
Judging from the rural base prospectus, the company's three expenses (raw materials, employee salaries, and store rent) are under stable control, and the quality of raw materials and employee incentives are not compromised, and the rental advantage is obvious. The data shows that from 2019 to 2022, the raw material rates are 43%, 43.4%, 42.7% and 42.9%, respectively. The company stated that its products use better quality raw materials for a long time. The employee salary rates are 23.8%, 22.2%, 23.6% and 24.9% respectively, and the store rent rates are 2.4%, 2.5%, 2.6% and 2.8% respectively. Dependence, so it has greater bargaining power in terms of rent.
It cannot be seen from the stable cost control that the rural base has strong control over the supply chain, personnel, stores and other elements. In the future, it is expected to further optimize efficiency and free up profit margins.
Another way to tap profits is to continue to open stores, form a strong scale effect, and increase profit levels through "multiple sales". This is also the common choice of leading Chinese fast food companies.
From the perspective of the entire industry, Hometown Chicken plans to open 700 new stores in Shanghai, Nanjing, Suzhou, Shenzhen, Beijing, Wuhan, Hangzhou, Hefei, Lu'an and other places in the future, mainly with direct sales and supplemented by franchising; In the next three years, the cumulative number of new stores will be around 300. The village base disclosed in the prospectus that it plans to open about 360 to 380 village base restaurants and 360 to 440 Mr. Rice restaurants in 2023-2025, and continue to focus on the direct sales model. This move will undoubtedly be further expanded Country-based market size.
Judging from the cost control and store opening momentum of the main business, there is no doubt about the sustainable operation ability of Countryside, but to further enhance the brand power, it is far from enough to have an advantage in the number of stores.
In fact, to accelerate store opening, in addition to extending brand power, expanding product power, and seizing market share by radiating consumer groups in more regions, another logic is to lay a solid quantitative foundation for the continuously improving single-store profit model.
The company’s prospectus discloses that the company has established a standardized product production process, and has a standardized operation and management mechanism in terms of food management, food service, equipment maintenance, and employee ethics.
This means that when the profit of a certain store increases, the practice or experience that caused the increase can be quickly copied to other stores, pooling a huge amount of profits and helping the company's profitability to achieve a leap. Therefore, only by continuing to create a perfect and reproducible single-store profit model, can Chinese fast food companies make steady progress on the road to brand chain growth and gain more recognition from the capital market.
Continuously improve the single store profit model under the direct sales model to add another boost to the sprint IPO
To build a single store profit model and continuously improve the single store profit level, it is necessary to start from the basic business model.
Although on the surface, the "Big Three" of the new Chinese fast food are all small fry, focusing on cost-effectiveness, but in fact their business models are quite different. The business structure model of Lao Niangjiu is relatively traditional. It is a model in which the central kitchen is connected to terminal stores. In order to improve operational efficiency, the investment in food delivery is larger than that of dine-in food. Build an ordering applet. Laoxiang Chicken is a whole industry chain model, in addition to Chinese fast food, it also plays the role of a supplier.
Countryside, on the other hand, is a standardized process for a direct-operated chain. It strives for high cost performance in both dish selection and store operations, and SKUs will be refurbished or eliminated in a timely manner following the market. Because of the asset-heavy nature of direct sales, it relies heavily on standardized production services, so high-quality service and comfortable experience are very important, which also makes Countryside invest heavily in ingredients and manpower.
It is worth mentioning that this direct sales model obtains the value of the overall chain. First, it has more advantages in cost control. Large-scale procurement can enhance the cost bargaining power of enterprises; secondly, it discards the intermediate links and directly faces The market can not only earn more operating profits, but also obtain first-hand market information and keep abreast of changes in consumer demand.
Therefore, Countryside will continue to look for greater profit margins in terms of service and efficiency in the future. The prospectus discloses that the company has established a central supply management system through the SAP platform, restaurants can place orders systematically, and the supply chain team coordinates orders and arranges delivery according to restaurant needs, avoiding waste of raw materials and reducing cost losses.
In addition, the company has also established a digital membership program to increase customer stickiness and repurchase rate, and at the same time provide better services for members. In addition to conventional ordering, digital payment, member rewards, etc., new products and promotions will also be released on digital platforms. Menu updates, discounts, and more. As of the latest practicable date of the prospectus, the village base membership plan has more than 10 million registered members.
Digitization is becoming a boost for rural bases to improve their single-store profit model. The management stated that the company will continue to promote the digitization and intelligence of business operations in the future, manage costs, improve structure, and improve efficiency. The capital market always needs new stories. Chinese fast food under the wave of digitalization is a brand-new label on the rural base, and it is worth looking forward to how much growth it can burst out in the future.
The IPO of Countryside in Hong Kong stock market also means that Chinese fast food has accelerated into the era of scale. From the perspective of development momentum, brand drive and market size, if Countryside succeeds in the IPO on the Hong Kong Stock Exchange, it will take off the title of "the first Chinese fast food stock". Guiguan can also boost fast food companies that are "queuing up" to go public. The flourishing of Chinese fast food may come soon.
Source: Hong Kong Stock Research Institute