This is an English adaptation of a FoodBud historical article originally published on August 25, 2021.
Image source: Pexels
Helens International Holdings Company Limited, the Chinese pub chain operator, cleared its Hong Kong Stock Exchange listing hearing on August 22, 2021, and formally began pre-IPO roadshow preparations. The company was targeting fundraising of up to US$300 million, with CICC acting as sponsor.
According to the prospectus, founder Xu Bingzhong was the controlling shareholder before listing, holding 77.42% of the company.
Helens completed its first financing round in February 2021, raising US$33 million. The round was led by new-consumption fund Black Ant Capital, with CICC participating. At the end of March 2021, Helens International Holdings Company Limited submitted its listing application to the HKEX.
Helens described itself in the prospectus as China’s largest pub chain. By revenue in 2020, it held a 1.1% share of China’s pub market, ranking first. Citing Frost & Sullivan, the prospectus said Helens maintained market leadership by number of pubs in 2018, 2019 and 2020, and for the three months ended March 31, 2021.
China’s pub industry revenue rose from about RMB84.4 billion in 2015 to about RMB117.9 billion in 2019, a compound annual growth rate of 8.7%, supported by higher disposable income and growth in pub locations.
By the end of 2019, China had about 42,000 pubs, compared with 35,000 at the end of 2015, a CAGR of 5.0%. In tier-three and lower cities, the number of pubs grew at an 8.1% CAGR from 2015 to 2019, outpacing the industry average as well as growth in tier-one and tier-two cities.
COVID-19 affected the market in 2020. China’s total number of pubs fell from about 42,000 at the end of 2019 to about 35,000 at the end of 2020, mainly because some small independent pubs lacked cash flow and operating capital under domestic pandemic-control policies. With restrictions easing and consumption-support policies introduced, the number of pubs was expected to recover gradually in 2021. From 2020 to 2025, China’s pub count was forecast to grow at a 10.1% CAGR.
Helens was founded in 2009. Starting in 2018, it shifted from its earlier franchise model to a directly operated model. At the time of the prospectus, it was a fully directly operated offline pub chain headquartered in Shenzhen.
The company opened 105 new pubs in 2020. As of the latest practicable date in the prospectus, it had 528 stores across 24 provincial-level regions and 100 cities. It also planned to operate more than 1,000 stores globally in 2022.
Helens’ expansion model showed a clear push into lower-tier markets. In 2020, it operated 56 pubs in tier-one cities, 200 in tier-two cities, and 94 in tier-three and lower cities, representing 16.0%, 57.0% and 26.8% of its total pub count for the year.
Revenue for 2018, 2019, 2020 and the first three months of 2021 was RMB115 million, RMB565 million, RMB818 million and RMB369 million, respectively. Net profit for the same periods was RMB9.734 million, RMB79.136 million, RMB70.072 million and negative RMB76.332 million.
In the first half of 2020, operating days and customer traffic were lower than in the same period of 2019. For the full year, average daily same-store sales increased 16.5%, from RMB406,000 to RMB473,000.
For the three months ended March 31, 2020 and 2021, same-store sales rose 257.7%, from RMB31.1 million to RMB110 million. Average daily same-store sales over the same period rose 45.2%, from RMB864,000 to RMB1.3 million.
Across 2018, 2019, 2020 and the three months ended March 31, 2021, Helens renovated 121 pubs in total. Average renovation cost per pub was about RMB180,000.
Each directly operated Helens pub generally had a gross floor area of about 300 to 500 square meters, accommodated about 150 to 200 customers at the same time, and had 36 to 50 tables. During the track record period, average seating per directly operated pub was generally 144 to 180 seats, and average gross floor area was usually 331 to 384 square meters. As of December 31 in 2018, 2019 and 2020, and March 31, 2021, each directly operated Helens pub had an average of 36, 41, 45 and 45 tables, respectively, with each table seating four to six people on average.
Helens built a product mix led by own-brand products and supplemented by third-party products. During the track record period, own-brand alcoholic drinks accounted for most alcoholic beverage revenue.
In 2018, 2019, 2020 and the three months ended March 31, 2021, own-brand alcoholic drinks represented 68.4%, 64.2%, 69.8% and 74.8% of total alcoholic beverage revenue, respectively. Third-party brands offered included Budweiser, Corona, 1664 and Jagermeister.
Citing Frost & Sullivan, the prospectus said Helens was among the earliest companies in China’s pub industry to introduce the idea of “beverage-like alcoholic drinks.” Helens identified demand among younger Chinese consumers for lower-alcohol beers with varied flavors, and also found that mixed alcoholic drinks such as whisky cola buckets and vodka Red Bull were popular in its pubs.
After product development and taste testing, Helens launched beverage-like alcoholic drinks including white peach, grape and strawberry fruit beers, gradually forming its fruit beer series.
Revenue from beverage-like alcoholic drinks was RMB12.6 million in 2018, RMB130 million in 2019, RMB240 million in 2020 and RMB160 million for the three months ended March 31, 2021. These accounted for 25.5%, 35.4%, 40.1% and 54.7% of revenue from Helens own-brand products in the corresponding periods.
All bottled beer products at Helens were priced below RMB10 per bottle. For example, a 275ml Helens craft beer was priced at RMB7.8 per bottle, while a 275ml Budweiser was priced at RMB9.8 per bottle. According to Frost & Sullivan, the industry average price for the same Budweiser product was RMB15 to RMB30 per bottle. Helens said its scale and bargaining power allowed it to sell Budweiser beer to customers at prices 35% to 67% below the average market price.
Under cooperation agreements with third-party brands such as Budweiser or Carlsberg, Helens typically purchased third-party alcoholic drinks from authorized distributors at prices set directly with Budweiser or Carlsberg. The distributors handled delivery and could not change the pre-agreed prices.
For Budweiser, Helens could potentially run marketing activities for Budweiser products and receive market service fees. If purchases from Budweiser and its authorized distributors exceeded pre-agreed thresholds, Budweiser would provide Helens with a discount on the agreed price. During the track record period and up to the latest practicable date, Budweiser and Helens had not launched those marketing activities, Helens had not received marketing fees, and the discount clause had not been triggered.
Helens paid authorized distributors monthly, rather than paying third-party brands directly. During the track record period, total purchases of Budweiser products were RMB2.6 million, RMB13.6 million, RMB29.5 million and RMB1,030 million as reported in the source for the four periods. Total purchases of 1664 were RMB3.0 million, RMB1,130 million as reported in the source, RMB14.8 million and RMB6.4 million.
Customers could pay through online methods such as WeChat Pay and Alipay, as well as cash and other methods. In the year ended December 31, 2020, cash payments accounted for only 0.3% of total bill value.
Helens also offered snacks to meet social-occasion needs. Eight basic snacks were offered nationwide, including spicy peanuts, wasabi cucumber, fruit salad and popcorn chicken. Some pubs also offered one or two localized snacks based on regional taste preferences. For example, pubs in Sichuan offered spicy dried tofu and sauced edamame.
Snack revenue was RMB16.8 million in 2018, RMB100 million in 2019, RMB160 million in 2020 and RMB73.6 million for the three months ended March 31, 2021. These represented 33.9%, 28.8%, 26.2% and 25.8% of revenue from Helens own-brand products in the corresponding periods.
Helens positioned its pubs around areas where young consumers gathered. Stable and sufficient traffic was described as the most important factor in site selection.
According to Frost & Sullivan, China had about 6,700 shopping malls in 2020, a number expected to reach 8,300 by 2023. Areas around such malls were considered suitable for new Helens pubs. To build what it called an offline social platform for young people, Helens placed most pubs in urban districts where young people gathered.
Helens evaluated site factors including the number, location and grade of nearby malls, transportation convenience, the number and brands of similar businesses, available rental area and lease terms. It also assessed nearby residential communities, population size and commercial activity before scoring target locations.
The company also assessed the size of the young consumer base in a target area. It argued that younger consumers were more active on social media, supporting word-of-mouth promotion, and that brand exposure among younger consumers helped build a loyal customer base.
The strategy also led Helens to operate multiple pubs in dense commercial districts. As of March 31, 2021, Helens had 10 pubs in Changsha’s Jiefang West Road business district.
To limit cannibalization between existing and new pubs, especially in markets where it already had an established position, Helens considered:
Helens emphasized technology development and operational standardization. Its self-developed Future BI system combined ERP and CRM into a unified data analytics and management platform, giving the company real-time visibility into store operations.
Future BI tracked sales, customer traffic, weather, staffing and electricity consumption for each store, helping assess staffing and energy use. It also generated raw-material ordering data automatically based on product sales and real-time inventory, reducing the need for store managers to conduct manual inventory counts and calculations. Once a store manager submitted an order, the system transferred it to the procurement department for processing.
Future BI connected two main operating systems:
Procurement was managed through standardized and integrated processes. An internal control center centrally managed procurement, while the ERP system automatically exported orders based on pub demand. The control center confirmed weekly ordering quantities, developed purchasing plans, entered approved plans into the ERP system and issued them to suppliers. Third-party logistics providers or suppliers then arranged delivery to pubs. After Helens accepted goods, the ERP system supported automated barcode scanning into inventory.
Raw material and consumables costs were RMB31.7 million in 2018, RMB200 million in 2019, RMB270 million in 2020 and RMB110 million for the three months ended March 31, 2021.
Helens also built a unified visualized intelligent music management system. At the time, only five employees were needed to control background music accurately and in real time across all Helens pubs nationwide.
The company created a nationwide unified music library and used software to test each track’s BPM and add emotional tags. Pubs could select music based on operating hours, peak-period length, customer mix and holidays. The system could also adjust volume and rhythm automatically based on daily customer traffic.
Helens said music was an important part of its pub atmosphere. The company used playlists from a centralized library that included current popular tracks and customer-recommended songs. Tracks were authorized by the Music Copyright Society of China.
Music licensing fees were RMB123,000 in 2018, RMB189,000 in 2019, RMB426,000 in 2020 and RMB54,000 for the three months ended March 31, 2021.
Playlist preparation considered operating hours, peak-period duration and customer demographics. Pubs that opened earlier used earlier playlist timing, while later-opening pubs extended peak and late-night rhythm patterns. The music library was updated at the start of each week, and themed music selections were created before holidays.
The system could also play special music for holidays and customer birthdays. Customers could recommend music through a WeChat mini program connected to Helens’ internal music system, comment on songs, like songs through the mini program and recommend songs to friends through social media.
Note: IPO, fundraising, market forecasts, expansion targets and other forward-looking figures are historical and refer to the 2021 source article.