This is an English adaptation of a FoodBud historical article originally published on January 25, 2022.
On January 25, 2022, Chinese fast-food chain Country Style Cooking submitted a listing application to the Hong Kong Stock Exchange, with Goldman Sachs and CMB International as joint sponsors.
According to the prospectus, most of the company’s revenue came from restaurant operations, including dine-in restaurant business and delivery.
Revenue was:
In 2020, Country Style Cooking was China’s largest directly operated Chinese fast-food group, with 969 restaurants. From January 2019 to September 2021, its directly operated restaurant count rose from 638 to 1,145, a 79.5% increase and the fastest growth among the top five directly operated players.
The group began entering Shanghai in June 2020. From September 2020 to September 2021, its Shanghai restaurant count increased from 6 to 70.
As of September 30, 2021, the company operated 602 Country Style Cooking restaurants nationwide and 543 Mr. Rice restaurants in China.
For the first three quarters of 2021, the prospectus reported:
Country Style Cooking and Mr. Rice restaurants opened during the track record period and still operating as of September 30, 2021 generally reached breakeven in their first full calendar month of operation.
The typical cash payback period during the track record period was 12 to 18 months. Restaurants opened in 2020, most of which were smaller-format stores, typically had an average cash payback period of less than 12 months.
Mall stores
For restaurants opened after 2019, gross floor area was usually about 100 to 200 square meters. For restaurants opened before 2019, it was usually about 200 to 300 square meters.
Country Style Cooking adopted a “small-store strategy” and began strategically opening generally smaller new restaurants from 2019. As of September 30, 2021, about 50% to 60% of Country Style Cooking restaurants and about 30% to 40% of Mr. Rice restaurants were in this category.
Office-area stores
These were typically located in office-building food courts, often in basement levels, or in ground-floor street-facing retail space within office buildings. Target customers were office workers.
For restaurants opened after 2019, gross floor area was usually about 100 to 200 square meters. For restaurants opened before 2019, it was usually about 200 to 300 square meters.
As of September 30, 2021, about 10% to 15% of Country Style Cooking restaurants and about 40% to 45% of Mr. Rice restaurants were in this category.
Community stores
These were located near or inside residential areas, usually in neighborhood centers or small ground-floor street-facing retail spaces in residential buildings. Target customers were nearby residents, especially families. Gross floor area was usually about 70 to 150 square meters.
As of September 30, 2021, about 10% to 20% of both Country Style Cooking and Mr. Rice restaurants were in this category.
Other formats
These included stores in transport hubs, near hospitals, and on busy streets with a delivery-oriented format. Target customers included passing travelers and visitors to public facilities.
Gross floor area was generally about 180 to 250 square meters for transport-hub and hospital formats, and about 40 to 60 square meters for delivery-oriented locations.
As of September 30, 2021, about 10% to 15% of Country Style Cooking restaurants and about 10% of Mr. Rice restaurants were in this category.
Country Style Cooking’s stated value proposition was “ultimate value for money = freshly cooked, freshly prepared dishes + reasonable prices.” The company’s story began in Chongqing in 1996, when co-founders Li Hong and Zhang Xingqiang opened their first restaurant with the aim of serving tasty, affordable food.
The brand was initially called Xiangcunji, literally “Country Chicken,” because the founders had not yet settled on a name and used chicken, the core product, as the naming anchor.
Early on, the company tried to imitate KFC, with fried chicken, burgers and fries as its main products. Even though Li Hong had formal culinary training and the team worked carefully on the menu, the restaurant was in a busy location, and pricing was clearly low, customers were not convinced. The business could not compete effectively with Western fast food.
The slow business gave Li Hong time to rethink the model. She concluded that Western fast food was popular because it tasted good and offered a good dining environment. She also noticed that rice dishes were popular in Western fast-food outlets, while KFC’s rice-based offerings were limited. That created an opening for Country Style Cooking.
In 1998, Li Hong adjusted the product line and shifted the core menu to Chinese fast food, replacing fried chicken, burgers and fries with traditional items such as pickled-vegetable rice noodles, beef rice noodles and pickled-pepper chicken rice. Prices were kept around RMB 12, with generous portions aimed at value-conscious mid- to low-end consumers. After finding its positioning, the company continued working on standardization.
Capital later accelerated the company’s growth. In 2007, shortly after Chinese New Year, Sequoia Capital China founder Neil Shen and his team visited Chongqing to evaluate projects. After completing a deal discussion, they noticed a long line outside a restaurant. Shen queued to buy a meal, which ultimately led to contact with Li Hong and her husband, and then to cooperation among Sequoia Capital, SIG Asia Investments and Country Style Cooking.
With investment from the two capital providers totaling roughly RMB 150 million, Country Style Cooking became the first Chinese fast-food brand from China to list in the United States in 2010. On its first trading day, the stock opened sharply higher at US$25, 51.5% above its US$16.50 issue price.
The momentum did not last. In 2016, Country Style Cooking was privatized and delisted. Its privatization price was US$5.23 per ADS, equivalent to 31.7% of its IPO price.
A company representative later summarized the post-listing experience by saying that after listing, companies often face a “curse”: after raising funds in the first year, nearly all listed companies push forward aggressively, which departs from the normal rhythm of the industry and the company’s own development.
Country Style Cooking planned to open about 90 to 110 restaurants in 2022 and 140 to 160 restaurants in 2023.
Mr. Rice planned, depending on market conditions, to open about 160 to 180 restaurants in 2022 and 200 to 240 restaurants in 2023.
The expansion strategy included continuing to enter new markets to enlarge Country Style Cooking’s store network. For new-market development, the company planned to focus on tier-one and new tier-one cities with high population density, strong consumption power and high growth potential, such as Suzhou and Hangzhou. It planned to open more Country Style Cooking restaurants in commercial districts, office buildings and residential areas.
To strengthen Country Style Cooking’s leadership in Southwest China, the company also planned to open more restaurants in office buildings and commercial districts where dining demand was generally high, mainly using smaller-format stores.
Mr. Rice planned to continue expanding into tier-one and new tier-one cities. Shanghai was described as a strategic market, where the company planned to further expand the Mr. Rice restaurant network. By replicating its Shanghai expansion model, the company planned to open new restaurants over the following two to three years in commercial districts, office buildings and residential areas in other tier-one and new tier-one cities, including Shenzhen, to increase market share and strengthen market position.
In Central China, the company planned to expand Mr. Rice coverage by opening new restaurants in residential areas, commercial districts and office buildings, with the goal of consolidating its leading position.
According to the prospectus, estimated capital expenditure and other operating expenses for opening a new Country Style Cooking restaurant generally ranged from about RMB 800,000 to RMB 1.0 million, mainly depending on restaurant size. For 2022 and 2023, expected investment costs for opening new Country Style Cooking restaurants were estimated at about RMB 180 million to RMB 270 million.
Estimated capital expenditure and other operating expenses for opening each new Mr. Rice restaurant also generally ranged from about RMB 800,000 to RMB 1.0 million, mainly depending on restaurant size. For 2022 and 2023, expected investment costs for opening new Mr. Rice restaurants were estimated at about RMB 280 million to RMB 420 million.
Note: IPO, valuation, listing, expansion-plan and forward-looking figures above are historical, based on the January 25, 2022 article and prospectus disclosures cited there.