Source: Zhitong Finance Author: Zeng Hui
The restaurant industry is “pro-cyclical”, how to select the best?
In 2023, the entire catering industry, which was pulled out of the shackles of the epidemic, ushered in a strong recovery.
According to data from the National Bureau of Statistics, in 2023, the country's food and beverage revenue broke through the 5 trillion mark for the first time, reaching 5289 billion yuan, an increase of 20.4% over the previous year. In the process of restoration in the restaurant industry, Haidilao Restaurant received more than 6.5 million customers in 5 days during the 2023 Spring Festival, Haidilao received nearly 400 million customers throughout the year, Meituan Milk Tea Carnival on August 8, 150,000 milk tea shops participated, and sold 40 million cups of milk tea on the same day.
On the other side of the boom, a new round of industry reshuffle is also in full swing. According to the “2024 White Paper on China's Catering Franchise Industry 2024” issued by the China Chain Management Association, as of the beginning of January 2024, the number of domestic catering companies cancelled was 1.359 million, more than double the number of catering companies cancelled in 2022 (519,000 in 2022).
As a result of the reshuffle in the restaurant industry, the chain rate gradually increased and market share concentrated on medium and large enterprises. According to Meituan data, the chain rate of restaurants in China reached 21% in 2023, up 8 percentage points from 13% in 2019. According to data from the National Bureau of Statistics, the food and beverage revenue of units above the quota in 2023 was 1335.6 billion yuan, up 20.9% year on year, higher than the overall increase of the catering industry. The above growth data is reflected in the performance of listed catering companies.
Performance: Profit quality is picking up, shareholder returns are rising
Sorting through the 2023 financial data of some listed companies in the Hong Kong stock catering sector, it was found that the overall performance of the sector showed an “increase in revenue and more profit” situation. Among them,$JIUMAOJIU (09922.HK)$,$HAIDILAO (06862.HK)$,$DPC DASH (01405.HK)$Revenue increased by more than 30%. Jiumojiu, Haidilao,$NAYUKI (02150.HK)$,$SUPER HI (09658.HK)$The net profit of many of these companies increased by more than 100%.
It is worth noting that with the restoration of profitability, many companies have strengthened returns to shareholders. According to the 2023 final dividends declared by various companies, Haidilao,$AJISEN (CHINA) (00538.HK)$,$TAI HING GROUP (06811.HK)$,$HELENS (09869.HK)$Many other companies have dividend ratios of 4% or more.
In addition to declaring cash dividends, some companies also give back to investors through share repurchases, etc. A typical example of this is Yum Sheng China. In 2023,$YUM CHINA (09987.HK)$Shareholders were given back US$833 million through cash dividends and share buybacks, an increase of 24.7% over the previous year. Yum China announced on November 16, 2023 that the company will give back US$3 billion to shareholders through dividends and share repurchases from 2024 to 2026.
Diaodian: Equal emphasis on sinking and going out to sea
In addition to following the general trend of “natural growth” in the performance growth of Hong Kong stock catering companies in 2023, various companies played a critical role in adjusting their store opening and store operation strategies in a timely manner.
In terms of opening stores, Yum China was active. By the end of 2023, the number of the company's stores reached 14,644, a net increase of 1,697. In addition, the net increase of more than 100 stores in 2023 also includes: Jiumaojiu, Nai Xue's Tea, and Dashi Co., Ltd. In the sector, only a few companies, such as Ajisen (China) and Helens, experienced a net decrease in stores in 2023. However, Helens has resumed store growth through the “Hi Beer Partners” program. As of March 19, 2024, the number of Helens Taverns reached 503.
As can be seen, various catering companies place importance on expanding the size of their stores, but the focus of their opening strategies is different. Take Yum China as an example. The company adopted a flexible store model, focusing on developing a sinking market. Currently, Yum China has developed models such as mini stores and low-tier stores for the encryption of high-tier cities and the sinking of low-tier cities, with rich and addable modules such as speedy pickup, coffee shoulder to shoulder, and small stations. At the same time, the company is also further improving coverage in remote areas, schools, and highway service areas through the franchise model.
China Merchants Securities said in a research report that as Internet users continue to sink, the income of urban residents continues to grow, and young people in small towns “leave the domain,” there is a clear trend of Western-style fast food sinking, and the market penetration rate is expected to continue to increase, contributing to the growth of the industry.
Unlike Yum China's efforts to sink in, Nai Xue's tea insists on further expanding the tea shop network and increasing market penetration, mainly in existing first-tier, new first-tier, and key second-tier cities.
In recent years, in addition to being deeply involved in the domestic market, “going overseas” has also been a major theme for catering companies. For example,$XIABUXIABU (00520.HK)$While adopting the strategy of “expanding east to south” domestically, the company also formally established an international division in early 2023. By the end of 2023, the Xiabu Group operated a total of 5 Xiabu Xiabu restaurants and 14 Minato restaurants in Hong Kong, Taiwan, and Singapore. Among them, Minato Minato Restaurants outside of mainland China accounted for only 5.5% of the company's total number of Minato stores, but achieved a net revenue share of 11.89%, reaching 311 million yuan, a significant increase of 36.5% over the previous year.
In 2023, restaurants under Jiumaojiu have been deployed to many countries such as Singapore, Canada, Malaysia, Thailand and the United States. The number of Tai'er brand stores in markets outside mainland China reached 18, a net increase of 12 compared to 6 in 2022.
In terms of restaurant management, companies mainly increase revenue and achieve cost reduction and efficiency through various methods such as product innovation and service innovation. For example, in 2023, “Taste Bud Tour” became a new driving force for cultural tourism consumption. Haidilao followed the trend to explore individualized regional development and launched many regional landmark cuisines. According to the annual report data, in terms of product innovation, Haidilao launched a total of 29 new national products in 2023 and upgraded 13 national dishes. More than 300 new and upgraded local dishes have been developed or upgraded, including more than 30 specialty wok pans.
Another example is Jiumaojiu's hot pot brand, which actively adjusted the menu structure to adapt to changes in the needs of young consumers, and the unit price for 2023 customers was 113 yuan, a decrease of 12% over the previous year. Tai'er pickled cabbage fish improved the cost performance ratio through various packages and small portions of sauerkraut fish. The unit price of 72 yuan for mainland Chinese customers decreased by 4% over the same period last year.
These measures have had a positive effect on increasing restaurant turnover and same-store sales levels. The overall turnover rate of Haidilao Restaurant in 2023 was 3.8 times per day, the same-store turnover rate was 3.9 times per day, and the overall turnover rate in 2022 was 3.0 times per day and 3.1 times per day, respectively.
In 2023, Haidilao and Taier's same store growth rates reached 27.7% and 18.3% respectively, leading the industry. In 2023, all brand restaurant operating margins benefited from increased turnover and cost reduction optimization. Among them, Haidilao's operating profit margin reached 14.3%, up 7.1 percentage points year on year, while the operating profit margins of Jiumaojiu's three brands, Nan Hot Pot, Taier Pickled Cabbage, and Jiumaojiu Northwest Cuisine Restaurant, also increased 14 percentage points, 5 percentage points, and 5 percentage points, respectively.
Outlook: Strong procyclical properties, growth can be expected in 2024
Looking ahead to the future market, it is expected that the strong growth cycle of leading catering companies will continue. In 2023, the chain rate of 21% in China's catering industry, compared with the chain rate of over 50% in developed countries such as the US, there is still a lot of room for improvement.
According to a report by the China Chain Management Association, judging from the spatial distribution of chain stores, in 2023, 55% of chain restaurants were located in first-tier and second-tier cities, and 44% of stores were located in Tier 3, 4, and 5 cities. Compared with 2021, Tier 3, 4, and 5 cities increased by 1.7 percentage points. As the pace of expansion of the restaurant brand market accelerates, there will be more and more chain stores in small and medium-sized cities. Tier 3, 4, and 5 cities provide broad space for food and beverage brands to grow.
Furthermore, since 2012, with the rise of the supply chain, the restaurant industry has completed the “corporatization” process and moved towards digital management. Chinese food has completed multiple iterative upgrades from products, brands, supply chains, and organizational capabilities. In particular, the spread of various new digital tools has reshaped Chinese food. This gives Chinese catering companies more ability and strength to participate in “international” competition.
In the short term, the Chinese restaurant market will continue to recover in 2024. From January to February 2024, social zero food and beverage revenue benefited from a year-on-year increase of 12.5%. In April, Qingming holiday travel expenses increased by 12.7% compared to the same period in 2019, faster than the number of travelers grew 11.5% in the same period in 2019. For the first time since 2020, service consumption recovered at an accelerated pace.
Dongwu Securities pointed out in the research report that judging from the pace of operation, the 2023 base figure is high and low, and is expected to be high around 2024. Looking ahead to the whole year, with the pro-cyclical recovery of leading restaurant companies, there is room for volume and price increases, and operating flexibility is worth looking forward to. Currently, the valuations of some individual stocks have fallen back to historic lows. It is recommended to focus on varieties with a certain degree of growth in performance and a high degree of fulfillment.
The Zhitong Finance App notes that companies such as Yum Sheng China, Haidilao, and Xiabuxiabu are worth focusing on if the flexibility of the restaurant sector's subsequent performance growth is assessed at the level of store expansion.
Among them, Yum China plans to add about 1,500 to 1,700 net stores in 2024, aiming for a total of 20,000 stores in 2026. From 2024 to 2026, it is estimated that 15% to 20% of new stores opened each year will be franchise stores. In 2024, the Xiabu Xiabu brand will open no less than 100 restaurants; together, it is planned to open 26 new hot pot restaurants in mainland China. In 2024, Xiabu Group will continue its overseas strategy.
On March 4, 2024, Haidilao issued an announcement announcing that it will begin implementing the Haidilao Restaurant franchise model to further promote the expansion of the restaurant network through diversified business models. Guoxin Securities believes that Haidilao chose to open up the franchise without denying the possibility of direct store expansion in 24 years, or reflects the company's prudent approach to steady operation of stores, providing a more cost-effective option for the company to continue to sink and expand in the long run.
edit/lambor