On July 7, Haidilao International Holding (06862.HK) and Jiumaojiu (09922.HK) issued profit warnings on the same day. Haidilao International Holding announced a loss of about 900-1 billion yuan, and 99 Maojiu fell from a profit of 164 million yuan to a negative value. There is a huge revenue gap, but the market does not react much.

Children, do you have a lot of question marks?

In theory, the catering industry, which is obviously the most damaged in the epidemic, should be relatively weak in the face of a cliff decline in revenue for half a year. However, throughout the epidemic, the market has been very optimistic about the trend of Haidilao International Holding and Jiumaojiu. Haidilao International Holding has risen 12.43% and 42.98% since January.

While Da Happy and everyone's happiness, which are also listed in Hong Kong stocks, are not so easy, with a cumulative drop of 12.78% and 19.22% respectively. All belong to China's catering chain industry, why Haidilao International Holding 99 can cross the epidemic to get capital recognition, while other companies can not?

Studying the operation models of Haidilao International Holding and Jiumaojiu, we can find that their development strategy is to follow McDonald's Corp, the most successful chain catering enterprise in the world.

1) High-standard chain stores: a broad market and rapid expansion of stores

2) healthy capital structure: good market mood and abundant cash flow.

3) strong brand effect: stable popularity, high customer stickiness.

First, high-standard chain stores: a broad market, rapid expansion of stores

At the beginning of the 20th century, the McDonald's Corp brothers opened a humble car restaurant in Los Angeles. because it was easy to eat and easy to make, many Americans drove hundreds of miles to taste it. Hamburgers sold for 15 cents each, and the McDonald's Corp brothers earned $250000 a year. The McDonald's Corp brothers found that their products were loved by customers and boldly tried the expansion policy, but the blind expansion of the new store allowed many franchisees to change the formula and seasoning at will, which seriously damaged McDonald's Corp's brand and reputation.

At this moment Ray. Klock appeared, he is the real father of McDonald's Corp, led McDonald's Corp to develop into one of the most successful groups in the world. Klock found that young Americans at that time were the main consumers in the market, with a fast pace of life and a high willingness to spend. A clean, cost-effective family restaurant with personality will be sought after by people. Through negotiations with the McDonald's Corp brothers, he set up the famous QSCV standard: Quality-- has excellent quality, delicious taste and comprehensive nutrition; Service-- service is fast and warm and considerate; Cleanness-- is clean and hygienic and pleasant; and Value-- is cost-effective, high quality and convenient.

From then on, McDonald's Corp regarded "QSCV" as a strategic management policy to ensure McDonald's Corp's service quality. In addition to this service, McDonald's Corp creates his own supply system of meat, vegetables and other raw materials to ensure a high degree of unity in stores. McDonald's Corp had only 1000 stores in 1968, compared with 5000 in 1978, a growth rate of 400% in a decade. Today, McDonald's Corp has 37855 stores and receives 68 million customers every day. McDonald's Corp has become the most successful chain operation in the world.

Drawing our attention back to today's China, "QSCV" has also become a secret weapon in the expansion of Haidilao International Holding and 99 Mao.

"customer is God" has always been Haidilao International Holding's biggest trump card, but it also has McDonald's Corp's expansion key. Haidilao International Holding Group has a set of mature, huge and strict supply chain system, which has become a leader in the domestic catering chain. Haidilao International Holding opened 302 new stores in 2019, and a new Haidilao International Holding was born every 1.2 days on average. This speed of expansion is not without Haidilao International Holding's mature supply system behind it.

Haidilao International Holding's supply system includes raw materials, store decoration and personnel recruitment, among which Weihai Consulting is perpendicular to personnel training in catering services, and has also developed services such as high-quality catering manager training. The establishment of a set of standardized raw materials, labor and design system ensures Haidilao International Holding's "QSCV" so that it no longer needs to face the uneven quality of chain stores when expanding. This set of "McDonald's Corp supply logic" opened up Haidilao International Holding's development line and grew rapidly.

Hot pot can be standardized as long as it ensures the freshness of raw materials and the production of the bottom of the pot. And how can Jiumaojiu, who is cooking northwest food and Boiled Fish with Pickled Cabbage and Chili, protect his "QSCV" under the rapid expansion?

Fast food culture is the secret that Jiumaojiu learned from McDonald's Corp. The idea of the founder of Jiumaojiu has three elements: 1) delicious; 2) few products; and 3) high standardization.

According to the revenue forecast, Taier has become the main source of revenue for the 99 Maojiu Group. The branch of Jiumaojiu also includes two eggs (pancake fruit) and chicken (string) category. Chinese fast food will become the main source of revenue for Jiumaojiu Group in the future.

Chinese food has a metaphysics: "add a little soy sauce and salt, and a delicious dish is done." this description is believed to be a nightmare for many kitchen rookies when they see recipes. In order to avoid the problem of Chinese food metaphysics, Jiumaojiu specializes in keeping less SKU in large items. Taier focuses on Boiled Fish with Pickled Cabbage and Chili, SKU not only avoids the unity of the kitchen but also avoids the clutter of the supply chain. At the same time, Tai er played the name of "sauerkraut tastes better than fish" and the confidence that he could not change the spiciness. In fact, these names are borrowing the heavy taste of spiciness and acidity to ensure the unity of the product. Therefore, Taier's kitchen is responsible for preparing the bottom of the soup according to the formula, slicing fish slices and dripping oil. Although there is no innovation in a set of processes, it has a high degree of consistency.

According to the 2019 annual report, Taier stores expanded at a rate of 48.4% in 2019, with 61 new stores opened. There will be 80 new stores in 2020. The new stores focus on first-tier cities and new first-tier cities, and the supply chain is gradually expanding to the northern market. At the same time, Jiumaojiu said it would open a new central kitchen in Foshan to enhance supply chain capacity to support future expansion plans.

The methodology of "QSCV" allows Haidilao International Holding and Jiumaojiu to maintain their high standards and expand rapidly at the same time, winning the trust of the capital market. Compared with Haidilao International Holding's need to sink into the sinking market, the expansion of Tai er in the first line and the new line has more advantages. This is also the reason why the rise of 99 cents is better than that of Haidilao International Holding.

Second, healthy capital structure: good market mood and abundant cash flow.

The expansion plan is supported by cash and leverage, and cash flow has always been an important measure for the catering industry.

McDonald's Corp in the development stage, Klock has always believed that maintaining a stable capital structure and adequate cash flow can expand rapidly. McDonald's Corp's capital structure has remained stable for decades of historical data. Except recently, McDonald's Corp spent $20 billion to buy back the company's shares at low interest rates from 2014 to 2016, resulting in an extreme imbalance in the company's capital structure.

Haidilao International Holding's debt ratio reached 73.68 per cent before the listing and stabilized at about 48 per cent after the listing, a ratio similar to the capital structure before McDonald's Corp.

The debt ratio of 99% has been stable at 80% before the listing, and even reached 90% in 2019. The public offering of shares also brings an opportunity for 99% to adjust the capital structure, and the increase in common stock equity will reduce the company's leverage and reduce the proportion of the company's interest expenses. According to the forecast of Soochow Securities Research Institute, the ratio of total debt to capital structure is expected to be 49.53%, 49.38% and 50.01% in 2020, 2021 and 2022 respectively. 99% will stabilize the capital structure within the leverage it can bear and maintain steady growth.

The reason for the market evaluation of McDonald's Corp's share buyback is that the company has encountered a growth bottleneck and growth has begun to sluggish. This is the market's evaluation of changes in asset structure. In the face of the epidemic, even McDonald's Corp, a highly leveraged veteran, cannot withstand the withdrawal of market capital.

On the contrary, Haidilao International Holding and Jiumaojiu are now in the strongest momentum and are favored by the capital market. For example, Haidilao International Holding is like an entrepreneur in his prime, while 99 Mao is like a young man who has just stepped into society. An epidemic may affect an once-glorious old man (McDonald's Corp), but it is only a small test for the prime of life (Haidilao International Holding) and the youth (99).

The cash growth rates of Haidilao International Holding and 99 Mao are another noteworthy data. Haidilao International Holding went public in the second half of 2018 and 99 in early 2020, and the two companies received great attention in the market.

Haidilao International Holding's cash has increased nearly eightfold since 2018, mainly from the company's listing. Haidilao International Holding used to raise cash to expand 302 stores in 2019. Haidilao International Holding did not stop even during the epidemic, opening 90 new stores in the first half of the year. These stores will give back more revenue for Haidilao International Holding after the epidemic is over.

According to the annual report in 2019, 99 intends to use 77.4% of the funds raised, about HK $1.84 billion, to expand the restaurant network. Of this amount, HK $920 million will be used to open a new Tai er in the next two years. As of March 15, 2020, 97.6% of this amount is still in the account, which means that Tai er is still holding a lot of cash. Taier will accelerate the pace of expansion in the next two years to generate revenue for shareholders.

Haidilao International Holding and Jiumaojiu raised a lot of cash through listing before the epidemic. The cash, which was originally used for expansion and recapitalization, has become the best hedge. Continued cash flow allowed Haidilao International Holding and Jiumaojiu to continue their expansion blueprints during the shutdown of the epidemic. The surge in stores after the epidemic and Haidilao International Holding and Jiumaojiu will successfully turn investment cash into future revenue.

Third, strong brand effect: stable popularity, high customer stickiness

The word "user stickiness" appears most frequently in Internet companies, but in fact, customer stickiness in catering enterprises is just as important, because it brings repeat customers. McDonald's Corp knows very well that "QSCV" this set of quality standards is the standard that catering enterprises should have, but how to make themselves stand out from the numerous fast food and become a catering enterprise with 70 million customers a day?

The answer is "characteristics". Characteristics create the difference between brands and brands, and it is also the reason why customers fall in love with a store.

McDonald's Corp constructed McDonald's Corp's unique store culture with the yellow gold arch marked by M and the funny Uncle McDonald's Corp. As soon as you enter the door, all the shop assistants are smiling, lively and cheerful to communicate with customers, bringing a happy and relaxed atmosphere for customers is the purpose of McDonald's Corp. Almost everyone will think of McDonald's Corp as soon as they see M and will go to McDonald's Corp when it comes to relaxing dining places. McDonald's Corp will also change store styles according to different areas. McDonald's Corp, who is near the office building, has transformed from a former "children's restaurant" to a "white-collar restaurant".

Features are not only reasons for people to remember, but also arouse the curiosity of people who have never been there, thus attracting new passenger traffic.

To be fair, Haidilao International Holding and Jiumaojiu, as two catering chains, like McDonald's Corp, do not play with the ultimate delicacy as their own characteristics, but use personalized brands to attract diners. In the course of development, they recognize their own characteristics and give full play to their corporate and cultural qualities, thus forming a unique corporate culture, which is the most difficult to imitate, trade and surpass.

Haidilao International Holding is a master of service details, taking care of customers from the moment they pass the door, snacks, manicures, company chats and so on. This extreme contact service allows customers to enjoy the unstoppable "God experience" in Haidilao International Holding.

Rooted out Haidilao International Holding prospectus data show that customers are willing to eat again reached 98.2%. In addition to his own service is a bright spot, Haidilao International Holding also has Haidilao International Holding members and Haidilao International Holding community. By the end of 2019, Haidilao International Holding had 54.73 million members. Members can exchange their membership points for gifts, discuss Haidilao International Holding in the community, and even upgrade their privileges and engage in offline social activities.

If Haidilao International Holding sublimated McDonald's Corp's service, then 99 Mao sublimated McDonald's Corp's personality.

Taier under the flag of Jiumaojiu is a very "attitude" shop. Each Taier has its own store rules, but the first three remain basically the same (takeout made an exception during the epidemic). Tai er wants to control the number of diners. 2-4 diners come to eat rather than chat, which can improve the rate of excellence.

In addition to using taste addiction to attract repeat customers, Taier also has its own small community, including Mini Program, official accounts and store fans. Taier has a large fan base in Shenzhen, and the fan base is not sure to join the new activities, attracting fans to patronize repeatedly.

Haidilao International Holding and Jiumaojiu take advantage of corporate characteristics to attract new customers, use tastes and services to recall old customers, and make diners "fall in love" with them. Sufficient passenger flow also requires high-speed operational efficiency to grow at a high speed on the road of expansion.

Turf efficiency is one of the important indicators to determine operational efficiency: turf efficiency = turnover / store area. To put it simply, it means how much cash flow one square meter can earn back to the enterprise. The flat efficiency of Haidilao International Holding is as high as 41000 yuan per square meter, while that of Taier is 40000 yuan per square meter. Compared with the feeding of the same industry, its turf effect is only half that of Haidilao International Holding and Taier-21000 yuan per square meter.

The turnover of food and beverage mainly depends on the customer unit price and the turnover rate, and the customer unit price belongs to the restaurant positioning can not be changed at will, then the turnover rate becomes particularly important. Haidilao International Holding uses a single store to extend business hours for 24 hours to ensure a day's turnaround rate, while Taier uses a light diet to increase the speed. The 5.2 times turnover rate means that Haidilao International Holding can serve an average of 5.2 times a table a day, and the flat effect becomes very pleasant on the basis of the average unit price of 105.2 yuan.

Summary

Now it seems that Haidilao International Holding and 99 Mao Jiu walked on the road to success without deviating from the direction, and spontaneously displayed their own characteristics.

Haidilao International Holding and Jiumaojiu have the bargaining chips to become high-quality catering chains:

1) highly standardized stores and easy to copy

2) A large amount of cash flow and high quality capital structure

3) the turning-over rate is high and the users are sticky.

The market believes that their system has been proven, and even if the epidemic slows them down, it does not affect their future, and the cash reserves accumulated by the successful listing before the epidemic, let the market have optimistic expectations for their rapid recovery and expansion after the difficulties and the stability of the epidemic. Therefore, when both make a win alarm announcement, the market also understands that the profit is empty, and the overall mood is more stable.

The epidemic caught the entire catering industry by surprise, and even the veteran McDonald's Corp did not escape this disaster. in front of the capital market, growth is the eternal theme, so in the end, are Haidilao International Holding and 99 Mao good enough? or is the capital market willing to give higher tolerance to the "back waves"? If the impact of the epidemic lasts for a long time and the recovery progress of the catering industry in the second half of the year is uncertain, will the market continue to give Houlang tolerance as always?

Haidilao International Holding and Jiumaojiu still have a long way to go to become a successful and great catering chain like McDonald's Corp.