Struggling to find the second growth curve: HAIDILAO (06862) appoints new CEO

In the first half of this year, HAIDILAO's table turnover rate increased to 4.2 times per day, much higher than the 3.3 times per day during the same period last year. Along with the increase in table turnover rate, it was also discovered that HAIDILAO's CEO turnover rate has also increased. Since 2018, HAIDILAO has changed CEOs three times, with the first CEO, Zhang Yong, serving for four years, followed by Yang Lijuan for two years and three months. In July of this year, Gu Yiqun took over. According to HAIDILAO, the adjustment of CEOs is to deal with the different stages that HAIDILAO is facing. Two and a half years ago, HAIDILAO founder Zhang Yong stepped down from the CEO position, somewhat taking the blame. In 2020, when the epidemic began to spread, HAIDILAO expanded massively according to its established plan, opening 489 new stores in China in one year. As a result, the aggressive expansion led to huge losses, and in the following year of 2021, HAIDILAO's net profit dropped by 4.1 billion yuan, wiping out the net profit it had earned in the three years since going public. After that, Zhang Yong stepped down as CEO, and the "best waiter" Yang Lijuan took over. After Yang took over, HAIDILAO began to adjust its store and management models, temporarily halting its expansion strategy, bringing HAIDILAO back to its roots. In 2022 and 2023, HAIDILAO saw two consecutive years of positive net profit, with the net profit reaching a new high since going public in 2023, nearing 4.5 billion yuan. Recently, HAIDILAO released its mid-year report for 2024, showing positive performance in terms of revenue, core net profit, and table turnover rate. However, after the rebound, a new concern emerged for HAIDILAO: where is the incremental growth? After two years of reforms during Yang Lijuans tenure, HAIDILAO's table turnover rate is now very close to the peak period of 2019. Looking at the average spending per customer, in the first half of this year, HAIDILAO's per capita consumption was 97.4 yuan. This figure is 5.5 yuan lower than the same period last year, reaching a new low in the past eight years. HAIDILAO explained that the decrease in per capita consumption is mainly due to adjustments in the consumption structure and increased discounts. In other words, HAIDILAO has lowered its prices (could it be that everyone is tightening their belts and spending less?) With the increase in table turnover rate and the decrease in average spending per customer, it means that there is very little room for further growth in individual stores. At this point, they must go back to the path of expanding stores again. Gu Yiqun took over from Yang Lijuan to tell a new story. Whether it's Yang or Gu, they are both front-line executives, while Zhang Yong is the mastermind behind the scenes. The series of reforms implemented by Yang Lijuan after taking office at HAIDILAO were called the "Woodpecker Plan" and the "Hard Bone Plan" within the company. These strategies were all put forward by Zhang Yong, and Yang was responsible for their full execution. The founder of HAIDILAO, Zhang Yong, who has already immigrated to Singapore, is originally from Chengdu Jianyang. Thirty years ago, he was preparing to open a hot pot restaurant. At that time, there was no assistance from AI, and he had trouble coming up with a name for the restaurant. One day, his wife won a hand in mahjong called "HAIDILAO Yue," which refers to the last player to win by drawing the last tile. His wife suggested that the hot pot restaurant be named HAIDILAO. In Mahjong, drawing the last tile to win is called "a brilliant return to spring." By promoting Yang Lijuan to the CEO position, HAIDILAO was able to bring itself back to its roots within two years. It can be said that Zhang Yong, who originally came from a welding background, played a brilliant move in revitalizing the company. Now, with another change in CEO, HAIDILAO is looking for a second spring. Similarly to the average spending per customer, HAIDILAO's stock price has also followed a reverse V-shaped pattern since going public in 2018. Starting at over 80 Hong Kong dollars per share in early 2021, it now fluctuates around 12 Hong Kong dollars per share, with a total market value of only 70 billion Hong Kong dollars, shrinking by 400 billion Hong Kong dollars compared to its peak period. How can HAIDILAO experience a second spring? The organization needs Gu Yiqun to find a new growth curve, which requires achieving two major goals: expanding stores and diversifying business. In March of this year, HAIDILAO, which has been operating directly for 30 years, announced opening up for franchising in order to expand. Regarding diversifying business, HAIDILAO officially announced in its mid-year report that it will incubate and develop more new dining brands to push forward a multi-brand strategy called the "Red Pomegranate Plan." Like Yang Lijuan, Gu also has a plan to reap rewards. In the real estate industry, Vanke is known as the naming expert, often giving plans an image-based name, such as the "Pirate Plan" for poaching talent from China Overseas, the "Octopus" strategy for incubating diverse businesses, as well as the "Tropical Rainforest" and "Big River and Sea." It can be said that, from the Woodpecker to the Hard Bone, and now to the Red Pomegranate, HAIDILAO is becoming an expert in naming plans in the catering industry. Will this plan help HAIDILAO achieve a second spring? As for expanding stores, HAIDILAO is using a franchise model, which has lower operating costs than direct operations and motivates franchisees. However, the challenge for HAIDILAO will be to ensure that brand and service quality are not compromised by this expansion. HAIDILAO claims to have received 10,000 franchise applications, with most coming from third-tier and below cities, aligning with HAIDILAO's strategy of expanding to lower-tier cities. HAIDILAO, Jiumaojiu (Tai'er Suancai Fish), Nayuki, Heytea, Starbucks, and a series of high-end dining brands are all entering county towns. Are there enough middle class and young people in these towns? In terms of table turnover rate, HAIDILAO's second-tier cities and third-tier cities have a higher rate than first-tier cities. Among them, in the first half of this year, the table turnover rate in third-tier cities and below was 4.1, which increased by 0.9 compared to the previous year, far higher than other city levels. However, the question remains: is this sustainable?The number of young people is decreasing, and middle-aged people still advocate for the wine culture. The opening of low-level city franchises like HAIDILAO is difficult, as they have to focus on winning single stores in small towns.Furthermore, the development of multiple brands is essential. A single business may not be able to provide incremental growth, whereas new brands have the opportunity to create growth points. From industry experience, examples of both failure and success can be found, but of course, there are more instances of failure than success. For example, JIUMAOJIU successfully incubated Taier Suancai Yu, contributing over 70% of the group's revenue. However, despite the successful experience of JIUMAOJIU, they have not been able to replicate the Taier myth. Follow-up ventures such as Song Huoguo, Uncle with 2 Eggs, Lai Meili Suan Tang Kao Yu, and others have not been successful. Xi Bei failed to create a second Xi Bei; Xia Bu Xia Bu did not hatch a second Cou Cou. Originally planning to open at least 20 "Chen Shao" barbecue restaurants by 2023, Xia Bu Xia Bu closed all seven of their locations in the first half of this year and announced a complete exit from the barbecue industry in the mid-term report. Currently, Haidilao's Hong Shiliu plan has involved nearly 20 new innovative brands or those that have been tried, such as Yanqing Kao Rou, Xiao Hai Huoguo, Wugu Sancan, Miao Shixiong Xiangguo, Hanshe, and Xiao Hai Aizha, covering a variety of business formats including hot pot, fast food, barbecue, Chinese fine dining, noodles, and fried chicken. Haidilao has been experimenting with all sorts of restaurant categories, and with further exploration, it wouldn't be surprising if Haidilao ventures into the tea or coffee sector. At the end of August, Haidilao announced that they had appointed the founder of Bar King Tea Princess, Zhang Junjie, as an independent non-executive director. It is speculated that Haidilao is looking to learn from Bar King's franchising experience and continue to expand their milk tea category, as they had already begun experiments with milk tea as early as 2019. Incubating a second or new brand requires strength, but more importantly, it requires just the right amount of luck. From an industry-wide perspective, intensifying competition in the industry means that average spend per customer in the catering industry continues to decline, putting pressure on the profit margins of catering companies, leading to further consolidation. There is a rumor in the industry that Zhang Yong can calculate the coefficients of employee piece-rate wages very clearly, indicating that he has spent a lot of time focusing on organization, personnel, and KPIs. Zhang Yong understands how to inspire human nature, knowing who to use and when. Yang Lijuan's rise from a waitress to a core executive in Haidilao is a prime example. Both Gou Yiqun and Yang Lijuan are seasoned Haidilao employees, with Gou having been with the company for 24 years, and Yang for 30 years. Unlike Yang Lijuan's path from waitress to executive, Gou Yiqun was a former teacher and has specialized in various roles within Haidilao. He started as the financial head, spent over a decade in financial roles, and then shifted to become head of technology, supply chain, and procurement management all more backend roles. Now, Zhang Yong has placed Gou Yiqun in the position of Haidilao CEO to lead the charge. Will the outcome be a stroke of genius or will they be trying to catch the moon in the sea? This article is reprinted from the WeChat public account "Feng Shengsheng," author: Gou Danbendan; GMTEight editor: Yan Wencai.