This is an English adaptation of a FoodBud historical article originally published on November 5, 2021.
On November 5, 2021, Haidilao announced on the Hong Kong Stock Exchange that it would gradually close around 300 restaurants whose performance had fallen short of expectations by December 31, 2021. Some of those stores would be temporarily rested and potentially reopened later, with the rest period capped at two years.
The company said it would not lay off employees because of the closures, and that staff and management from affected restaurants would be reassigned appropriately.
At the same time, Haidilao launched a “Woodpecker Plan,” led by executive director and deputy CEO Yang Lijuan. The plan focused on underperforming restaurants, rebuilding and strengthening selected functional departments, restoring regional management, tightening internal management and assessment mechanisms, and slowing expansion to improve operating conditions.
The announcement sent three clear messages:
Haidilao’s share price had fallen sharply amid the pandemic and mounting concerns over its rapid expansion. On February 16, 2021, the stock reached a historical high of HK$85.779 per share, with market capitalization once reaching HK$468.2 billion. By November 5, 2021, the share price had fallen to HK$21.05, with market capitalization at HK$114.9 billion. That implied a decline of about HK$353.3 billion, or roughly RMB290.6 billion.
Capital markets trade on confidence. Haidilao’s decision to accelerate store openings during the pandemic created knock-on effects. Founder share sales and repeated consumer-facing incidents at restaurants also weighed on market sentiment.
FoodBud’s reading at the time was that Haidilao had already recognized the problem internally around May 2021 and began changing direction in June.
The underperformance of some restaurants traced largely to Haidilao’s expansion strategy from 2019 onward. The company opened 308 new stores in 2019, 544 in 2020, and 299 more in the first half of 2021. As of June 30, 2021, its global store count was reported at 1,597. Even after removing the roughly 300 stores targeted for closure, Haidilao would still have more than 1,300 restaurants.
Internally, Haidilao classified stores into A, B, C, and D grades. From April to August 2021, a large share of restaurants fell into the C and D categories under operating-data assessments. The company reviewed this in the third quarter. In the first quarter of 2021, C and D stores accounted for about 30%, while A-grade stores were limited to just over 100.
The operating priority shifted toward quality and controlled growth. Although Haidilao opened about 200 stores in the first quarter, expansion slowed significantly from April to June:
Haidilao was also continuing to test models in third- and fourth-tier cities and county-level markets.
Among Haidilao’s roughly 1,600 restaurants, about 60% of store managers had been with the company for more than five years.
Managers with more than three years of experience generally had stronger control capabilities. But because store openings accelerated, many managers were promoted quickly, often becoming store managers within two to three years. When these managers encountered difficult operating conditions, their toolkit was often limited.
Haidilao identified this issue internally in May 2021. It split up Haidilao University and moved training responsibilities to the regional level, where regions handled training and job-level certification.
From June 2021, Haidilao began replacing its regional-coach coordination model with a large-region and small-region management model. Stores were grouped by location. Large-region managers coordinated operations across regions, while small-region managers conducted on-site inspections, assessments, and coaching.
Store KPI assessment became two-track:
Headquarters gave regions significant discretion in setting specific operating targets, while regions still carried performance responsibility.
Haidilao also adjusted compensation. Profit-sharing at the store level began in May, with store managers taking equity-like participation. Because lower table turnover reduced piece-rate income, frontline employees were often relying on base wages, affecting stability and motivation. With profit-sharing, the highest monthly pay for ordinary employees could reportedly reach RMB15,000 in first-tier cities, RMB10,000 in new first-tier cities, RMB8,500 in second-tier cities, RMB8,000 in third-tier cities, and RMB7,500 in fourth-tier cities.
In Shanghai, ordinary employees previously averaged about RMB6,000 to RMB7,000. The new system could add roughly RMB20,000 per year on average, with about 20% to 30% of employees in a store able to reach higher pay.
At the same time, Haidilao reduced store-manager base salaries. Existing mentoring and “fission” bonus arrangements remained, and the company also granted shares. If a store exceeded the profit-sharing threshold, 10% of excess profit went to the store manager under company-level rules.
During the pandemic, Haidilao bet on rapid expansion partly because lease opportunities were attractive. In some third- and fourth-tier cities, rent costs could be around 1%, with long rent-free periods. The company also used a densification strategy: adding stores in first- and second-tier cities and planting new stores in third- and fourth-tier cities to expand coverage and reduce long wait times.
Some lower-tier densification was too aggressive. In one Anhui city cited in the article, there had been only two stores the prior year, before four to five more were added. The new stores opened the previous year had poor table-turnover performance and became key watchlist stores, while the two older stores still recorded turnover above 3 times per day. Site selection and traffic diversion both contributed. In some cities with less aggressive densification, certain stores still achieved 4 to 5 turns.
Expansion was hurt by site-selection errors and a shortage of strong managers.
In 2019, Haidilao’s Shanghai restaurants averaged 4.6 turns per day, below the national level. Southwest markets, including Chongqing, reached about 4.7 in 2019; Chengdu was around 4.2 to 4.3. The pandemic hit Haidilao hard in 2020, with Shanghai falling to just over 3 turns.
By 2021, even after the pandemic situation stabilized, Shanghai’s overall turnover was still weak, at just over 3 turns in May. Chongqing and Shanghai had opened few new stores, yet Chongqing was also only slightly above 3 turns. March and April were especially weak, though the company saw some of that as seasonal softness after Chinese New Year.
FoodBud judged that a return to 2019 levels in 2021 was unlikely. Still, after equity and profit-sharing changes, there were some positive signs: performance was no longer falling and was slowly improving.
Internally, Haidilao was taking 2021 seriously. If the broader environment did not deteriorate, the company still hoped second-half turnover could return above 4 times per day. Family dining was recovering, and university-student consumption was also significant.
For a typical 1,000-square-meter restaurant, turnover below 3 times per day generally meant the store was not profitable. Net-profit benchmarks varied by city, as did excess-profit sharing. In Shanghai, turnover slightly above 3 could still produce net profit near 10%.
Average spend was cited at about RMB150 in Shanghai, RMB130 in second-tier cities, RMB110 in third-tier cities, and just over RMB100 in fourth-tier cities. As regional authority increased, future average spend could move lower.
Haidilao recognized its expansion problem internally in May 2021. That same month, founder-team members Zhang Yong and Shi Yonghong’s family vehicles made a large share placement.
On May 7, Haidilao announced that shareholders SP NP Ltd. and LHY NP Ltd. planned to place 47 million shares at HK$33.2 per share, representing 0.89% of issued share capital. Each shareholder cashed out about HK$780 million. The placement was scheduled for completion at 9:00 a.m. on May 11, 2020, as stated in the source article.
According to Haidilao’s annual report, SP NP Ltd. and LHY NP Ltd. were holding vehicles for the founder team. SP NP Ltd. was registered in the British Virgin Islands, with all share benefits owned by Zhang Yong’s wife Shu Ping. LHY NP Ltd. was another British Virgin Islands company, with all share benefits owned by Shi Yonghong and Li Haiyan. In total, the founder team received HK$1.56 billion from the reduction.
In June 2021, Zhang Yong communicated directly about the situation. His core points were:
According to Frost & Sullivan data cited in the article, Haidilao was the leader in China’s hotpot sector, with a 5.8% market share by revenue in 2020. Some securities firms had previously expected Haidilao to raise concentration further to 10%. FoodBud’s view at the time was that, given the situation, Haidilao would likely prioritize stability for at least the next year.
Haidilao’s financial reports showed table turnover of 4.8 times per day in 2019, a high level for the industry. In 2020, turnover fell to 3.5 times per day. In the first half of 2021, it fell further to 3 times per day, while newly opened restaurants averaged only 2.3 times per day.
Restaurants below 3 turns were highly likely to be loss-making, meaning many new stores had operating problems. The article notes that UBS had reportedly expected Haidilao to close about 150 stores. Haidilao’s own disclosure of around 300 closures suggested a more decisive reset.
FoodBud framed the move as a painful but necessary correction: Zhang Yong had recognized the problems created by blind expansion and was willing to acknowledge them publicly. Returning to more stable operations showed that Haidilao retained some capacity for self-correction.
On April 27, 2020, Zhang Yong announced in an internal email that he planned to retire within 10 to 15 years. Some observers felt the timetable was unusually early, but Zhang’s stated view was that early planning would make the process calmer.
In August 2021, Haidilao announced several board changes. Shu Ping resigned as non-executive director and audit committee member. Shi Yonghong resigned as executive director. Yang Lijuan, Li Peng, Yang Hua, Liu Linyi, Li Yuxian, Song Qing, and Yang Li were appointed executive directors. Dr. Ma Weihua and Wu Xiaoguang were appointed independent non-executive directors, and Cai Xinmin joined the audit committee. Yang Lijuan was also appointed deputy CEO.
FoodBud interpreted the 300-store closure disclosure as an effort to release negative information in one step. With the share price already falling, a full release of bad news could push the stock toward a low point. The founder team then had two possible strategic moves, according to the article:
During the pandemic, Haidilao incubated several sub-brands in fast-casual noodle and rice-noodle categories, but most failed. “Qiao Qiao’s Noodles,” for example, survived for less than 10 months.
Internally, Haidilao had considered giving each store manager RMB3 million to incubate sub-brands, believing that if one manager failed, 10 could be tried. The company later found that this approach did not work within its own system.
Haidilao had already extended its hotpot leadership into related businesses such as Yihai, Weihai, Shuhai, and Shuyun Dongfang. Yihai had listed, while Shuhai looked, in FoodBud’s view, like it had the potential to become China’s Sysco.
After internal incubation largely failed, Haidilao still pursued external acquisitions. In September 2020, it announced plans to acquire the restaurant businesses of “Hanshe Chinese Cuisine” for RMB120 million and “Hao Noodles” for US$3.04 million.
The article also cited industry talk that Haidilao had been interested in acquiring Fengmao Skewers in the barbecue category. The strategic logic was that Fengmao could reuse Haidilao’s back-end support system, but the deal was said to have fallen through after Fengmao raised its price at the last moment.
According to Haidilao’s interim report, as of June 30, 2021, the company had RMB3.52 billion in cash and cash equivalents. From a cash-flow perspective, FoodBud viewed the company as well supplied, but noted that Haidilao had not made especially large investment moves.
The article argued that this may reflect a direct-operated-store mindset: strong at internal control, but less oriented toward external cooperation and profit-sharing. By contrast, a franchise-oriented company such as Juewei Food had to mobilize external resources and share economics with partners. Juewei’s third-quarter financial report showed long-term equity investments of RMB2 billion.
FoodBud ended by asking when Haidilao would use capital more actively to find its second growth curve.
The article closed by reproducing Zhang Yong’s April 27, 2020 internal letter announcing the start of Haidilao’s succession plan.
In the letter, Zhang told employees that he planned to retire, but that the plan would take at least 10 years and no more than 15. He joked that three senior figures would not participate in the succession plan because they were “too expensive”: Shi Yonghong, Gou Yiqun, and Yang Xiaoli.
Zhang said the four long-time leaders remained clear-headed and energetic, but had become worried over the prior two years that their learning ability might not keep up, and that they might become obstacles to the company’s development. The plan was intended to identify a leader who loved Haidilao, understood the business, and could read human nature.
He also described the logic of Haidilao’s promotion system: hardworking frontline employees depend on hardworking store managers; store managers depend on family heads; family heads depend on coaches; and behind those coaches is an effective promotion system.
The company had introduced an income cap for cadres above the family-head level around October 2019. To earn more, people had two paths: take on unfamiliar work such as finance, new technology, or procurement, or pursue internal entrepreneurship. New work generated points, and when cadres were considered for promotion, leaders would review those with the highest points and select based on long-term observation, especially character and kindness.
Zhang emphasized that high points did not automatically guarantee promotion. He, Shi Yonghong, Yang Xiaoli, and Gou Yiqun would spend 10 years observing and judging candidates.
The plan covered all employees, though details differed by role. Zhang said that if Haidilao still existed 10 years later and had found an outstanding successor, he would apply to his wife for one high-profile moment: a retirement dinner where the four leaders praised each other and avoided talking about shortcomings.
Note: IPO, market-capitalization, share-sale, acquisition, repurchase, cash-position, table-turnover, and forward-looking figures are historical and reflect the source article’s November 5, 2021 context.