Caixin
May 18, 2018 05:07 AM
BUSINESS & TECH

Hot Pot Chain Haidilao Brings Spice to Hong Kong Market

At the end of 2017, Haidilao was running 273 restaurants in cities including Los Angeles, Seoul and Tokyo. Photo: VC
At the end of 2017, Haidilao was running 273 restaurants in cities including Los Angeles, Seoul and Tokyo. Photo: VC

* Haidilao was the top Chinese cuisine restaurant both in China and globally based on 2017 revenue

* China’s hot pot market is expected to grow at an average annual rate of 14.7% between 2016 and 2020

Haidilao International Holding Ltd., one of China’s most popular hot pot chains, filed Thursday for an initial public offering on the Hong Kong Stock Exchange.

The company didn’t disclose the size of the IPO or the amount of shares to be offered. Reuters reported last month that Haidilao was planning to raise $600 million to $700 million with the Hong Kong listing.

Chengdu-based Haidilao has picked China Merchants Bank International and Goldman Sachs as joint sponsors, according to the company’s prospectus for the offering.

Haidilao was the top Chinese cuisine restaurant both in China and globally based on 2017 revenue, according to the consultancy Frost & Sullivan. Started in 1994 by a former tractor factory worker, the restaurants mainly serve spicy Sichuan-style hot pot and are popular for creative customer service. Zhang Yong, the co-founder, is now a billionaire and controls two related companies that went public in the past two years.

Haidilao said in the prospectus that it plans to open 180 to 220 new restaurants this year. The hot pot chain is gearing up efforts to take its brand global. The restaurant chain already has entered overseas markets including Singapore, Los Angeles, Seoul and Tokyo, according to the company’s website.

Haidilao’s revenue grew 36% in 2017 to 10.6 billion yuan ($1.7 billion) while net profit climbed 22% to 1.2 billion yuan, according to the prospectus. At the end of 2017, Haidilao was running 273 restaurants.

Expectations of the Haidilao listing rose after two of its sister companies went public over the past two years. In 2016, Yihai International Holding Ltd., a hot pot seasoning maker, was spun off from Haidilao and raised HK$861 million ($110 million) in a Hong Kong IPO. The company, controlled by Haidilao’s co-founders, currently has a market capitalization of around HK$11.6 billion.

Last year, another restaurant chain controlled by the Haidilao founders, Youdingyou (Beijing) Food Ltd., listed on China’s New Third Board, an over-the-counter market open only to wealthy investors.

Only a handful of Chinese restaurant companies have been publicly listed due to the difficulties of standardizing operations and expanding to national and international levels to attract investors, analysts said.

But hot spot chain operators like Haidilao have found it easier to work out a standardized format to be applied in different outlets as the cuisine revolves around raw ingredients boiled in a pot at customers’ tables.

Hot pot is one of the most competitive segments of China’s restaurant market. According to a March research report by CITIC Securities, total revenue of China’s hot pot market reached 364.7 billion yuan in 2016, or 22% of the entire market. CITIC Securities forecast that the hot pot market will grow at an average annual rate of 14.7% between 2016 and 2020.

But hot pot market players also face fierce competition because of lower costs of entry in the market and food safety challenges, CITIC Securities said.

Last year, Haidilao suffered a setback after domestic media exposed rats and other sanitation problems at two of the chain’s restaurants in Beijing. The scandal triggered the city’s Food and Drug Administration to downgrade Haidilao’s sanitation rating and ordered the chain to conduct a major overhaul and open all of its kitchens in Beijing to the public.

Haidilao took responsibility and accepted the punishment. The company pledged to respond to all the problems and to suggestions from the media and the public.

Contact reporter Han Wei (weihan@caixin.com)

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