This is an English adaptation of a FoodBud historical article originally published on March 24, 2022.
Lao Wang, a hot pot operator best known for pepper pork-tripe chicken soup, updated its IPO prospectus in March 2022. At the time, it operated in 30 cities in mainland China, with 149 mainland stores and one store in Taipei.
The company opened 19, 38, and 26 stores in 2019, 2020, and 2021 respectively.
Lao Wang’s main brands were Lao Wang Hot Pot, Guo Ji, and Lao Wang Xinling Tripe Chicken Soup. Its store base included:
For Lao Wang Hot Pot in 2021:
Same-store sales for Lao Wang Hot Pot declined 8.3% in 2021 versus 2020. Same-store average daily sales were RMB 29,000, with a same-store table turnover rate of 2.4.
A typical Lao Wang Hot Pot unit was 300-700 square meters, with an average of 30 tables and capacity for 140 guests. Average checks were RMB 123.7 in 2019, RMB 128.1 in 2020, and RMB 124.4 in 2021. The average cost to open a new Lao Wang Hot Pot restaurant was about RMB 8,000-9,000 per square meter, with an average cash payback period of 13 months.
Among the 84 Lao Wang Hot Pot stores opened over the prior three years, 48 had recorded cumulative losses. Of those 48 stores, 35 had not recovered their cash investment, and 16 had not yet reached first breakeven.
Guo Ji, a small-format hot pot concept, used stores of 165-213 square meters, with about 30 tables and capacity for 50 guests. Average check was RMB 99 in 2020 and RMB 109.9 in 2021. The average opening cost was RMB 5,000-7,000 per square meter.
Lao Wang Xinling Tripe Chicken Soup, positioned as a fast-casual dining brand, had average checks of RMB 101.6 in 2020 and RMB 108.7 in 2021. Stores were 190-300 square meters, with 15-30 tables and capacity for 100 guests. The average opening cost was RMB 10,000-14,000 per square meter.
Lao Wang positioned itself as the No. 1 brand in China’s Cantonese-style hot pot market. According to Frost & Sullivan data cited in the prospectus, the Cantonese-style hot pot market generated RMB 63 billion in total revenue in 2020, and Lao Wang had a 1.7% market share.
Across China’s hot pot brand market, Lao Wang ranked fourth. Haidilao ranked first, Xiabuxiabu second, Qixintian third, and Banu Hot Pot fifth.
According to Lao Wang’s prospectus, 2021 revenue was RMB 1.3 billion, gross profit was RMB 820 million, and net profit was RMB 140 million. Cost structure as a share of revenue included:
Lao Wang’s network was concentrated in Jiangsu, Zhejiang, and Shanghai, where it had 124 stores. Outside East China, Lao Wang Hot Pot had 20 stores across markets including Beijing, Shenzhen, Chongqing, Chengdu, Xi’an, and Wuhan.
In Shenzhen, average table turnover declined from 3.74 in 2019 to 3.25 in 2020 and 2.83 in 2021.
Lao Wang had 9.3 million members. Among the 1.4 million members who provided age-group information, 72% were under 35. The 90-day repeat dining rate for members was 14.4%. Members contributed more than 60% of revenue, and in 2021 the membership base grew by about 90,000 people per month on average.
Lao Wang operated a central factory in Suzhou, Jiangsu, responsible for R&D and production of soup bases. The facility had achieved semi-automated intelligent production: production staff handled simple steps such as dipping sauces and seasonings, while other production steps could be automated. The factory’s capacity could support soup-base demand for more than 300 stores.
In November 2019, the factory added a semi-automated production line, increasing capacity. As a result, factory utilization fell from 94.9% in 2020 to 60.6% in 2021.
Lao Wang planned to build a second central factory in Zhejiang or Jiangsu to replace the existing facility. The stated reasons were that the existing factory lease would expire in April 2021, and the company saw limited likelihood of obtaining additional production permits for food categories beyond seasonings and soup bases. The planned second factory had designed capacity of 2,940 tonnes, far above the existing factory’s capacity.
The company had also built a logistics distribution system consisting of the central factory and eight third-party warehouses in cities including Shanghai, Suzhou, Hangzhou, Chongqing, Beijing, Shenzhen, Xiamen, and Nanjing. Each warehouse had frozen storage.
Short-shelf-life ingredients such as vegetables, fruit, fresh meat, and seafood were delivered directly from suppliers to stores the next day. For processed foods, Shanghai stores submitted requests to headquarters, while stores in other regions submitted requests to the central factory. Headquarters or the central factory then placed orders with suppliers. Within 7-10 days, suppliers delivered ingredients to third-party warehouses, which then distributed them to stores.
To keep flavor and quality consistent, Lao Wang used suppliers’ industrialized production capabilities. It required manufacturing suppliers to buy from designated raw-material suppliers, follow specified production processes, and accept on-site supervision by dedicated personnel.
The company had also built standardized store operating procedures covering all aspects of restaurant operations, supported by an online training system for store employees at different levels. This training system had helped Lao Wang build a reserve of more than 200 store-manager candidates.
Lao Wang worked with 98, 140, and 149 suppliers in 2019, 2020, and 2021 respectively. Supplier payment terms were generally 30-60 days. In 2021, its top five suppliers accounted for 40.9% of total purchases, mainly covering rice, flour, grain and oil, beef, pork tripe, and pork bones.
The company required suppliers with annual purchase amounts above RMB 500,000 to pay an integrity deposit. As of December 31, 2021, Lao Wang had collected a total of RMB 2.15 million in integrity deposits from more than 70 suppliers.
Lao Wang planned to open 44, 60, and 80 new stores in 2022, 2023, and 2024 respectively.
Note: IPO, financial, and forward expansion figures are historical and reflect the company’s 2022 prospectus disclosures.