Famous in China (Part 5)

To try and create greater familiarity for those living elsewhere, we’ll periodically profile some China brands and businesses that we believe will be household names across the world soon. This month let’s look at something quintessentially Chinese – a hotpot restaurant chain called XiaBu XiaBu (呷哺呷哺)

Background

Xiabu Xiabu started in 1998, pioneering the concept of a DIY hotpot restaurant. They expanded slowly initially, until taking on some funding and rapidly growing after 2008.

The company now operates Xiabu Xiabu, which is the low price, popular brand, as well as Cou Cou, which is a more premium hotpot with herbal soups and higher quality ingredients. The founder, Ho Kuang-Chi, from Taiwan had stepped aside in recent years and appointed Zhao Yi – previously CFO of the company – into the CEO role. However, Zhao Yi left the company just a month ago and the founder has taken back the reins of leadership.

They claim more than 50% of the fast casual hotpot segment and are a leading player in casual dining in China. While rival Hai Di Lao is a better known hotpot brand and has about thrice the revenue, Xiabu Xiabu occupies a unique niche in the fast casual segment, with low prices and fast turnaround.

The company is listed on the Hong Kong stock exchange under XBXB

Financials

In one of its worst years in recent history (because of the pandemic) Xiabu Xiabu has still held its own. Revenue dropped last year by 10% to 5.5 billion RMB, profit dropped 96% to 11.5 million RMB. Those are not bad numbers to have in a year where F&B was ravaged by the pandemic.

Success Factors

The main thing driving the success of Xiabu Xiabu is a very well thought out model which has led to tremendous scalability. The store design is standardized for maximum seating capacity and efficiency. The individual DIY hotpot concept offers maximum flexibility to diners while minimizing any kitchen or food preparation arrangements – there is no chef in any of the restaurants, no complicated in-store kitchen. It’s really a business about optimizing the supply chain of fresh ingredients and delivering them to the diner on their table.

That scalability makes it easier and faster for each new store to achieve profitability, driving the ability of the chain to expand.

Future Outlook

China loves hotpot. Xiabu Xiabu, despite a hard 2020, has held on to its revenue (with only a 10% drop) and still managed to be above breakeven. That’s a great platform for the future.

They’ve had their share of controversy with a diner claiming there was a rat in her hotpot, (though apparently that isn’t a straightforward story and there may be mala fide intentions at play) but for a chain with 23 years of history they’ve been remarkably un-newsworthy, which is really a sign of consistency and food safety practices that work.

Call me sentimental, but a founder coming back from semi-retirement to take the helm and redefine the future is something I always root for. While the stock price may have declined precipitously in recent times with the somewhat unflattering annual report and the departure of two senior management executives, to me that feels like a temporary blip in what seems to be a company poised for world domination, one hot-pot at a time.

While our focus as a consultancy is making new brands famous in China, there are many (already) famous Chinese brands that aren’t well known overseas. We will be bringing them to light in this series over time.

If you’d like your brand to be famous and successful in China reach out to us at enquiries@searchlightchina.com – we work with both local startups as well as international brands that would like to do better in this market.