This is an English adaptation of a FoodBud historical article originally published on October 1, 2021.
Even high-profile restaurant brands have life cycles. For operators, the harder question is whether a concept has the fundamentals and operating depth to keep scaling after its first wave of popularity.
According to Hong Kong Stock Exchange disclosures, as of September 29, Green Tea Group Limited’s previously submitted prospectus had not been updated for six months and was marked as lapsed. The related application materials were no longer available to view or download.
A lapsed filing did not necessarily mean Green Tea Group’s Hong Kong listing attempt had failed. The company could still reactivate the listing process by updating its materials.
Green Tea Group was founded in 2008 and positioned itself as a high-value, “new Chinese fusion” casual dining chain. Average spend was about RMB50-80 per guest. Each restaurant offered roughly 80-100 dishes, with about 20% of the menu refreshed annually.
On March 29, 2021, Green Tea Group submitted a listing application to the Hong Kong Stock Exchange.
The company planned to raise about HKD1.55 billion. The proposed use of proceeds included restaurant openings, repayment of bank borrowings, purchase of centralized food-processing facilities, upgrades to information technology and related infrastructure, and working capital. Citigroup and CMB International were joint sponsors.
Before the IPO, co-founders Wang Qinsong and Lu Yan, through wholly owned entities Yielding Sky, Contemporary Global Investments, and Time Sonic, controlled 65.85% of Green Tea Group.
Green Tea Group had also completed a 2017 strategic financing from Partners Group. As of December 31, 2020, Partners Group managed about USD109 billion in assets. Before the IPO, Partners Group held 28.2% of Green Tea Group through Partners Gourmet.
The prospectus showed Green Tea Group revenue of RMB1.311 billion in 2018, RMB1.736 billion in 2019, and RMB1.569 billion in 2020. Profit for the year was RMB44.4 million in 2018, RMB106 million in 2019, and a loss of RMB55.262 million in 2020.
Green Tea Group said in the prospectus that casual Chinese fusion restaurants might continue expanding into second-tier and lower-tier cities. The company planned to open around 60 restaurants in 2021 and 80-100 new restaurants per year from 2022 to 2023.
According to China Insights Consultancy, China’s Chinese-cuisine market was expected to generate RMB2.1992 trillion in total revenue in 2020, while the casual Chinese-cuisine market was expected to generate RMB351.5 billion. In 2020, the top five casual Chinese restaurant operators accounted for about 3.8% of total market revenue: Xibei, Xiaocaiyuan Restaurant, Tai Er under Jiumaojiu, Green Tea Restaurant, and Grandma’s Home. Green Tea Restaurant ranked fourth with a 0.5% share.
Average spend per guest rose from RMB54.8 in 2018 to RMB58.4 in 2019 and RMB61.3 in 2020. That was roughly in line with Jiumaojiu, a mainland restaurant group already listed in Hong Kong. Haidilao led the industry on this measure, with average spend of RMB110.1 in 2020.
On operating margin, Jiumaojiu, whose customer spend was similar to Green Tea’s, posted 16.7%. Green Tea Restaurant recorded 10.4%, 11.7%, and 4.9% over the past three years covered by the prospectus.
On table turnover, Haidilao reached 3.5 turns per day in 2020, while Tai Er and Jiumaojiu restaurants reached 3.8 and 1.7 turns respectively. Green Tea Restaurant’s 2.62 turns placed it in the middle of the industry. However, partly due to the pandemic, Green Tea’s table turnover had been declining: from 3.48 turns per day in 2018 to 3.34 in 2019 and 2.62 in 2020.
As of the end of 2020, Green Tea Group had 6,353 employees. The prospectus also disclosed underpayments of employee social insurance and housing provident fund contributions. The shortfalls were RMB700,000 in 2018, RMB2.2 million in 2019, and RMB4.9 million in 2020.
Green Tea Group said this was mainly due to a large workforce and high employee turnover, and that it had provided compensation and benefits to employees who were unwilling to participate in the programs. As of the prospectus filing, the company had not received any penalty notice or payment demand from regulators, nor any material employee complaints. It therefore considered the likelihood of major administrative penalties during the listing period to be relatively low.
The article also noted that Hangzhou Green Tea Catering Management Co., Ltd., a wholly owned subsidiary of actual controller Wang Qinsong, received administrative penalties from the West Lake Scenic Area branch of the Hangzhou Public Security Bureau in 2018 and March 2020 for failing to promptly report information on newly hired migrant employees.
Supplier management was another operating risk. Over the previous three years, Green Tea Group relied heavily on its largest supplier, Supplier A, which mainly provided ingredients and semi-processed food. Purchases from Supplier A were RMB165 million in 2018, RMB299 million in 2019, and RMB117 million in 2020, representing 31.9%, 45.8%, and 18.0% of total purchases respectively. Although Supplier A’s share declined in 2020, it remained far above the single-digit shares of the other top suppliers. Any interruption in that relationship could adversely affect operating performance.
Food safety was also a concern. Green Tea Group disclosed a food-safety incident in August 2020 involving a Shijiazhuang Green Tea Restaurant location. Reported issues included employees tasting food improperly, unhygienic food storage, undisinfected restaurant utensils, and employees lacking health certificates. Consumer complaints on Black Cat Complaint also alleged issues such as substandard food quality, finding cockroaches in food, and hair in dishes.
In 2008, Green Tea Group co-founders Wang Qinsong and Lu Changmei opened the first Green Tea Restaurant in Hangzhou. Before that, they had operated Green Tea Youth Hostel and provided affordable meals for backpackers, which became the prototype for the later restaurant business.
Green Tea Restaurant’s rise coincided with two broader shifts in China’s foodservice market: category segmentation in domestic dining, and the transformation of shopping malls around 2012, when many malls reduced retail space and added more restaurants and experiential formats. Green Tea Restaurant, Grandma’s Home, Tan Yu, and similar concepts were among the first generation of “fast-fashion dining” brands.
The “fast-fashion dining” model borrowed from apparel concepts such as stylish design, good quality at accessible prices, limited supply, and rapid turnover. In restaurants, this translated into affordable pricing, hit dishes, high table turnover, and fashionable dining environments. The format appealed strongly to younger consumers at the time.
Contemporary media coverage described Grandma’s Home, Green Tea, and similar concepts as top-tier youth favorites, with six to eight table turns per day and queues 365 days a year. These first-generation brands grew quickly and were praised by Generation Y consumers as fashionable places that were “tasty and not expensive.”
In the second half of 2012, as shopping centers across China shifted toward more dining and experiential business, fast-fashion dining brands such as Grandma’s Home, Green Tea Restaurant, 57°C Xiang, Tan Yu, and Shui Huo became highly sought-after mall tenants because of their ability to drive traffic.
At the time, some malls even used the expected arrival of a fast-fashion restaurant brand as a leasing pitch. These restaurants were seen as major traffic and revenue drivers for shopping centers.
Skepticism about fast-fashion dining existed even during its peak. Some restaurant industry observers argued that sacrificing dining experience in pursuit of standardization and high turnover would be difficult to sustain over the long term.
The core economics of fast fashion relied on pricing close to cost in exchange for high customer traffic. For brands such as Green Tea and Grandma’s Home, table turnover reportedly needed to reach 400% just to break even. Restaurants gave up margin through lower prices, while customers gave up time by waiting in line. Low prices and queues were therefore central to the operating model. Once queues declined, low pricing could expose restaurants to losses.
The article identified three reasons why the fast-fashion dining boom cooled:
1. These brands borrowed the fast-fashion model from apparel but did not match apparel’s pace of innovation. Some dishes remained unchanged for more than a decade.
2. Some operators lost product focus, chasing whatever was trending. If crayfish became popular, they added crayfish; if bullfrog became popular, they sold bullfrog. Product innovation lacked a coherent direction.
3. Many fast-fashion dining brands failed to keep up with younger consumers’ changing expectations.
Early fast-fashion dining concepts attracted customers with stylish, refined interiors. Over time, however, dark lighting and industrial-style design began to look dated compared with newer internet-famous restaurants. Without distinctive products or fresh marketing, these brands gradually lost relevance with younger consumers.
Even the hottest brands have life cycles. In the end, restaurant companies are tested by fundamentals and overall operating strength. How a brand stays relevant over time remains a common challenge across the consumer sector.
Note: IPO, fundraising, ownership, expansion-target, and forward-looking figures above are historical as of the 2021 source article.