This is an English adaptation of a FoodBud historical article originally published on October 23, 2021.
Yihai International built its business as the hot-pot seasoning supplier behind Haidilao, but by 2021 it was accelerating a shift away from that dependence. The company was using Haidilao-related revenue as a base while trying to compete for a broader retail and foodservice market.
At the same time, competition in hot-pot bases and ready-to-eat products was changing. According to information shared at a recent Yihai International expert-exchange session, the company expected to raise prices gradually, saw some rivals slowing or leaving parts of the market, and was increasing media and advertising spend as it removed Haidilao branding from some products.
Yihai International originally supplied hot-pot bases for Haidilao. In 2007, it received exclusive, free, indefinite rights to use the Haidilao trademark and became Haidilao’s sole hot-pot base supplier.
The business was separated from the Haidilao group in 2013 and listed in Hong Kong in July 2016 at an issue price of HK$3.30. By 2018, Yihai held a 34.7% share of China’s mid-to-high-end hot-pot base market and had become the country’s second-largest hot-pot seasoning supplier.
Consumer recognition of the Haidilao brand helped Yihai keep marketing costs low in retail channels. On the B2B side, Haidilao’s store expansion generated recurring demand. In the first half of 2021, Yihai generated RMB 900 million in sales from related parties, Haidilao and Shuhai, equal to 34% of total revenue.
Yihai became the second listed condiment company after Haitian Flavouring to exceed RMB 100 billion in market value. At the end of 2020, it was heavily favored by Hong Kong-listed consumer-stock investors, and its share price repeatedly reached new highs in early 2021.
That momentum did not last. As Hong Kong consumer stocks weakened in 2021, Yihai’s market value fell from nearly HK$150 billion on February 11 to HK$54.8 billion on October 22. It was among the largest decliners in the CSI Hong Kong Stock Connect Consumer Theme Index.
Across Yihai’s distribution network, the share of revenue contributed by Haidilao and related companies declined from more than 50% in 2015 to under 30% in 2020, before rebounding in the first half of 2021. During that period, Yihai’s total revenue continued to grow.
The company had started laying the groundwork for its Kuaishou Xiaochu transition in 2018. Over time, it diluted Haidilao’s presence on products, and in 2021 removed the Haidilao logo, shifting to “produced by Yihai” branding.
The change reportedly had limited impact in major first-tier city markets. In second- and third-tier markets, the company used media advertising and interactive campaigns to offset the loss of Haidilao branding. Even under heavy competitive pressure, it said it maintained double-digit growth.
The shift required more external promotion: advertising investment rose by 2-3 times compared with earlier levels.
According to the expert-exchange notes, Yihai was preparing price increases, though timing was uncertain and could fall before or after the Lunar New Year period.
The driver was rising raw-material costs. The wider industry was also moving toward higher prices because raw-material inflation and heavy competitive spending had pushed profits too low.
Yihai’s approach was to retain best-selling products and concentrate spending on categories with intense competition. Because price increases could trigger negative consumer sentiment, the company was testing gradual increases. From June, it raised terminal retail prices for some products while keeping ex-factory prices unchanged, using product positioning and demand to test market elasticity.
The expert-exchange notes described competition as slowing. Many products were focused online, while Yihai emphasized offline sales, even though offline sales carried lower gross margins.
The notes said Haitian’s product positioning had been problematic. Haitian had initially used brand strength and price advantages to capture some market share, but sales movement reportedly stopped from the second quarter, inventory accumulated, and Haitian decided to exit the market and seek a third-party sales company to take over.
For Yihai, the second half of the year was a seasonal peak. Its push into third- and fourth-tier markets, along with weaker competitor growth in ready-to-eat products and exits from hot-pot base competitors, eased the competitive landscape in the third quarter. The notes also pointed to recovery in costs, consumer demand, and both B2B and C-end markets.
Yihai viewed Uni-President as the key ready-to-eat competitor, with strong growth even as the overall market declined. In hot-pot bases, it cited Tianwei and Dezhuang as important competitors.
The notes identified low-priced self-heating mini hot pots as a potential high-growth item, with expected sales of RMB 600-700 million, as consumers leaned toward lower-price mini hot-pot formats.
Dipping sauces were expected to become the industry’s leading segment for Yihai, with sales above RMB 300 million. The company had focused on dipping-sauce R&D over the previous two years, expanding from three products to nine.
On why the second half of 2021 could improve despite a high 2020 base, the answer cited seasonality, expansion into third- and fourth-tier markets, slower competitor growth in ready-to-eat products, exits among hot-pot base competitors, and recovery across cost, consumer, B2B, and C-end conditions.
On why Yihai and Tianwei reduced spending, the answer said competition slowed in the second half versus the first half, multiple companies exited, and Yihai concentrated spending on best-selling products to pressure competitors further.
On organization changes, the notes said Yihai’s structure changed frequently. From 2015 to 2018, it resembled Haitian and Tianwei. In 2018, it adopted a partner system, and in 2020 a regional-head system. The company strengthened channels and flattened management, but uneven sales led to fewer regional leaders and lower partner confidence. The notes said Yihai was better suited to self-allocation of expenses than top-down allocation.
On self-heating mini hot pots, the notes said competition was intense, but many companies were slowing or declining. The format reflected convenience-driven demand and had a positive outlook, though it also faced a shorter product life cycle.
On mature-region C-end growth in the second half, the notes cited high-single-digit growth, while growth in third- and fourth-tier cities doubled.
On brewed or instant products, the notes said consumer dependence and value-for-money were not high, so leisure-oriented products needed fast iteration.
On compound seasonings, Chinese-style seasonings, and hot-pot bases, the notes said traditional condiments were harder than compound seasonings. Outside hot-pot base products, Yihai had substantial room to grow, but low consumer dependence meant no company had yet secured a dominant position. The market still needed 3-5 years of exploration before large, highly relied-upon hero products appeared.
On differentiation in hot-pot bases, the notes cited brand, flavor, price, and packaging. Each product type had benchmark products that led competitors from different angles.
On Yihai’s C-end advantage versus Tianwei, the notes said the two companies were penetrating each other’s categories and each had strengths in different products, but overall Yihai had a relative advantage.
On price reductions caused by competition, the notes said first-half market conditions pushed Yihai’s single-product prices lower, and short-term price increases were unlikely. Consumers were expected to spend rationally, while the company used cost and capacity policies to maintain profitability.
Note: IPO, market-value, pricing, sales-target, and forward-looking figures are historical as of the article’s October 23, 2021 publication date.