Famous Braised Duck Chain Zhou Hei Ya in Decline
If you have visited China, its likely you have seen a Zhou Hei Ya (周黑鸭) braised duck store. The little stalls are often found in high foot traffic areas such as subway entrances and shopping malls. While braised dishes, known as luwei卤味 in Chinese, are becoming increasingly popular among consumers, Zhou Hei Ya, a household name in China, is in decline. What happened?
Young Chinese Consumers Love Braised Dishes
Luwei is a braised dish unique to the greater China region that is made with a special sauce that includes soy sauce and other spices. Many types of meat can be used to make luwei and it is often eaten cold as a snack, kind of like how people in the west might have jerky or cold cuts.
According to CBNData, the luwei market broke 300 billion RMB in 2020 with a growth rate of 20%. When people were quarantined at home, they bought snacks, and luwei was the top category that they favored. Based on statistics from Tmall, over 60% of luwei consumers are females. Young people love it, especially Gen Z.
Spotting the trend, many restaurants have started adding braised dishes. For example, popular hotpot restaurant Haidilao (海底捞) launched luwei tripes and dimsum restaurant Diandude launches luwei pigs’ feet with ginger.
Luwei is a little bit spicy and the taste can be addictive. This means consumers might have higher frequency to repurchase luwei foods. If you think about hotstrip or latiao (辣条), a popular Chinese snack, it is also a food that makes people addicted to it.
Used-To-Be Top Runner Zhou Hei Ya Failing To Achieve Growth
Zhou Fuyu (周富裕), the founder of Zhou Hei Ya, went to Wuhan 27 years ago. At first, he was running a small luwei store. In 2002, he officially created the Zhou Hei Ya brand, which became very popular around China for its braised duck. At its golden age, the city of Wuhan even named a subway station after the brand.
Bu the brand is going through a backward process as its retained profits has been declining for three years. From the financial reports published by the company, in 2020 its profits were 2.18 million RMB and which is a 31.5% decrease YoY. The brand’s retained profits in 2019 saw a 24.56% decrease YoY, and its profits in 2018 saw a 29.1% decrease compared with 2017.
What Happened to Zhou Hei Ya?
Coronavirus affects the business
Same with any business, especially those that rely heavily on offline sales, the brand was seriously affected by COVID. What makes things worse was that since most of its stores are located in Wuhan, the first city in China that had the outbreak, it also was hit harder.
Not willing to open franchisee stores
Though the company has the ambition to become “the Starbucks of ducks”, it was very cautious about expanding and hesitant to leverage the franchisee model for fear that the stores wouldn’t be as good. In the long run, it was able to maintain the consistency and high quality of its products, but it failed to create the “scale effect”.
Another luwei brand that is growing very quickly is Juewei Food. It was founded in 2005. Opposite from Zhou Hei Ya, Juewei focuses heavily on franchisee stores. Under such mode, 90% of its revenue comes from those franchisee stores. In the second half of 2020, Juewei opened 1,104 new stores while Zhou Hei Ya only had 66 new stores.
Zhou Hei Ya’s supply chain needs to be improved
At the moment, Zhou Hei Ya has 4 factories located in Wuhan, Nantong, Dongguan, Cangzhou, and Chengdu. But its Nantong factory didn’t start manufacturing until January 2021 and its Chengdu factory is still under construction and it is expected that it will start manufacturing products in 2022.
4 factories are not enough for a brand that has the ambition to become the Starbucks in the industry. A key reason why Juewei is able to expand so quickly is its supply chain. It already has more than 20 smaller factories located in different areas of China. This makes sure that Juewei is able to deliver its products more quickly instead of ordering from a factory somewhere far away.
If the brand wants to speed up its expansion, it needs to improve its supply chain geographically.
Relationship-based management hurting the company
Zhou Hei Ya has a strong relationship culture. Founder of the brand Zhou Fuyu (周富裕) and his wife Tang Jianfang (唐建芳) hold over 60% of the company’s stock. This has made it a family run company and it may guide the decision-making process to be based on relationships instead of what is best for the company.
How is the Brand Trying to Solve These Issues?
Allow more franchisee stores
COVID-19 helped the brand realize that if it doesn’t allow franchisee stores to open, one or two incidents may lead to the rapid decline of the company. Those stores secure the survival of the company.
Since June November 2019, the brand started adopting the business model that combines direct-sales and franchisee stores. In June 2020, the brand officially announced that it would allow purely franchisee stores to develop.
As of December 2020, the brand received over 29k applications for its franchisee stores. At the moment, Zhou has 598 franchisee stores, while Juewei already has 10,598 stores. They have covered different provinces and areas in China, while Zhou’s stores are mainly located in the southern part of China and first tier cities.
Marching to ecommerce platforms
During COVID, Zhou Hei Ya also realized the importance of having an online presence. It started livestreaming on Tmall, Douyin, Kuaishou and 7 other ecommerce platforms. In 2020, online sales brought 458 million RMB for the brand, which was 28.5% growth compared with the year before.
Other than these traditional online channels, the brand is also joining community group buying, such as Dingdong Maicai (叮咚买菜), Xingsheng Youxuan (兴盛优选) and Shihuituan (十荟团). These apps help people who don’t want to go to the supermarket get vegetables, sources, meat, fruits and other daily necessities delivered to their homes. These channels drove 66M RMB in sales, a 334% growth compared with 2019’s performance.
While Zhou Hei Ya still has a long way to go, it appears that is it working hard to catch up and there is still hope for the brand!
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