Chinese Hotpot Giant Haidilao Expanding Too Quickly

On March 23, hotpot giant Haidilao (海底捞) published its annual financial report of 2020. It shows that the company’s revenue for 2020 was 28.6 billion RMB, which is 7.75% growth year-over-year. But its retained profits were 309 million RMB, which is a 86.81% decrease year-over-year. 

Impact of the Pandemic

Haidilao claims the drop in retained profits from 2.3 billion to 300 million was due to dining restrictions from the COVID pandemic around the world. 

Within China, the dining industry was heavily affected by the quarantine period at the beginning of 2020. At that time, Haidilao didn’t open its stores for over 40 days. During this tough period, it changed its focus to the takeaway business. Because of this, takeout orders drove 718 million RMB of the company’s revenue in 2020, a 60% increase compared with 2019. The contribution was still very small though at 2.5% of its total revenue in 2020.

While that is part of the problem, there is more at play. 

Haidilao Opened 530 New Stores in 2020

It is fair to say that over the 2-3 years Haidilao’s rate of expansion has been similar to new beverage stores such as Hey Tea and Nayuki Tea. Haidilao keeps opening new restaurants.

Despite COVID’s effect on the economy, Haidilao opened 530 new stores globally in 2020. This is in comparison to 198 new stores in 2018 and 302 in 2019. Currently, it has 1,205 restaurants in Mainland China. On average, it opened 1.49 new stores every day over the past year.

It is also fair to say the majority of Haidilao’s revenue in 2020 came from its new stores. It seems that Haidilao is using its new stores to boost income. According to Guosen Securities (国信证券), a Chinese state-owned financial services company, Haidilao can expect to max out at around 2,100 to 3,000 stores domestically.

Expanding May Not Save Haidilao From Its Backward Performance

As consumers, we can see there are more and more Haidilao stores. But behind this prosperity, there are issues bubbling up inside the hotpot giant.

First, the table turnover rate is decreasing. In 2020, the rate dropped from 4.8 times to 3.5 times. Well, the good news is, the average amount per order was increased to 110.1 RMB, which was 4.66% growth YoY. 

The other issue is its growing staff costs. Over the past year, Haidilao’s number of employees broke 130k. Its staff costs, including salary, bonus and allowance reached 9.6 billion RMB. This accounted for 33.8% of its total expenditures, 3.72% higher than 2019. 

But then again, Haidilao is well-known for its detailed customer service and for treating its employees well. In the third quarter of 2020, it raised its frontline employees’ salary by 200 to 1,600 RMB. The average employee annual salary was 73.8k, which is far better than other restaurant brands.

Another reason why Haidilao didn’t benefit as much as it expected from its expansion was its budget and spending on opening new stores. Founder of Haidilao Zhang Yong (张勇) said in a forum in 2020 that: “I suggest you don’t learn from Haidilao, as we still have tons of issues to solve.”

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