This is an English adaptation of a FoodBud historical article originally published on April 26, 2022.
On April 26, 2022, Haidilao released its 2021 annual report. Full-year revenue reached RMB 41.1 billion, up from RMB 10.6 billion in 2017. FoodBud described it as the largest restaurant group grown locally in China, while noting that Yum China generated RMB 62.7 billion in 2021 revenue through franchised brands such as KFC and Pizza Hut.
The report also showed the cost of Haidilao's earlier expansion strategy. Even as the company was dealing with strategic missteps, its operating scale remained substantial.
Haidilao's 2021 revenue still came mainly from restaurant operations. Delivery, compound condiments and ingredient sales each accounted for 1.7% of revenue, making relatively small contributions.
Average spend per guest declined across first-tier, second-tier, third-tier and lower-tier cities in mainland China. Only stores outside mainland China recorded a slight increase in average spend. Table turnover also declined broadly.
Same-store performance was weak as well. Same-store average daily sales fell across the system, and same-store table turnover dropped from 3.8 to 3.5.
For the full year 2021, more than 378 million guest visits were recorded at Haidilao restaurants. By March 2022, Haidilao had more than 100 million registered members.
Haidilao has built a relatively complete upstream and downstream system around the hotpot category, while keeping control of key supply-chain functions.
According to the annual report, Haidilao's largest supplier and five largest suppliers accounted for 15.1% and 36.1% of purchases respectively in 2021. Its largest supplier was Shuhai. The second- and third-largest suppliers were Shuyun Dongfang and Yihai.
The ecosystem was organized by function:
In 2021, Haidilao recorded RMB 3.466 billion in total transactions with Shuhai, RMB 2.16 billion with Shuyun Dongfang, RMB 1.93 billion with Yihai, RMB 210 million in purchases from Jarud Banner, and RMB 260 million with Weihai.
Beyond these core supply-chain arrangements, Haidilao also formed a joint venture with Panasonic, Yinghai Technology. Haidilao held 51% of Yinghai Technology, with an investment cost of RMB 67.694 million.
FoodBud viewed Haidilao's vertical supply-chain layout as relatively successful: hotpot demand at the front end was stable enough to support supply-chain companies at the back end, which could then serve external customers once they reached sufficient scale.
Yihai had already listed in Hong Kong. Revenue contributed by Haidilao and Shuhai to Yihai had declined to just over 30%. For reference, Yihai International reported 2021 revenue of RMB 5.94 billion, up 10.9% year on year; gross profit of RMB 1.92 billion, down 7.9%; and net profit of RMB 860 million, down 12.7%.
Haidilao's horizontal multi-brand expansion was less successful. It had invested in U-Ding-U and later acquired it, but many U-Ding-U stores had closed by 2021, leading Haidilao to record goodwill impairment.
Some brands previously invested in by U-Ding-U were still held by Haidilao, including 25% of Haidao Xia, 25% of Shanghai Yuangu, 15% of Xu Xiaoshu Malatang and 17.65% of Jiayi Bing.
In February 2021, Haidilao acquired 80% of Shanghai Shuhai for RMB 120 million. Shanghai Shuhai operated the Han She Chinese Cuisine brand and related restaurant businesses. In 2021, Shanghai Shuhai contributed RMB 137 million in revenue and RMB 1.525 million in net profit to Haidilao.
Outside restaurant operations and supply chain, Haidilao was also a limited partner in a number of investment institutions, including Keywise Capital, Greenwoods Asset Management, CDH Investments, Yunfeng Capital, Sequoia Capital, Eastern Bell Capital and Yonghua Capital. In 2021, Haidilao's private-fund investment assets totaled RMB 6.58 billion.
Under continued pressure from the pandemic, Haidilao's main responses, beyond store closures, were stronger product innovation and investment in intelligent systems.
Competition in hotpot remained intense. FoodBud noted that Banu Hotpot's product-led positioning had created pressure for Haidilao. Shuhai's core role was focused on warehousing, distribution and quality control across supply-chain links, which meant Haidilao had some gaps in product innovation.
In 2021, Haidilao established a product committee. R&D staff were organized by category project groups to develop new soup bases and dishes, improve product presentation, raise dish quality, improve category freshness and optimize shelf life. The company also used higher R&D performance bonuses to increase new-product development motivation.
Haidilao also worked with Alibaba Cloud to develop the IPM smart dish platform to improve its use of product data. In 2021, it developed and launched 368 new items: 18 soup bases, 147 dishes, 75 desserts and snacks, and 128 alcoholic and non-alcoholic beverages.
On the intelligent-operations side, Haidilao deployed the IKMS integrated kitchen management system. The system monitors smart-restaurant back-of-house operations in real time and unifies production, quality and inventory information management.
IKMS connects POS ordering with kitchen production, dish preparation and table delivery through a digital workflow. Smart restaurants use dishware embedded with RFID chips. IKMS records item information and production time through RFID, enabling automatic inventory counts, real-time shelf-life monitoring and blocking expired dishes from being served.
The system also manages automated production equipment such as smart dish warehouses and automatic soup-base mixers through standardized connections. It monitors operating parameters, production efficiency and inventory status, and alerts staff when abnormalities arise.
Haidilao was also using technology to improve efficiency across manicure services, waiting areas, ingredient preparation, soup-base preparation, cleaning and automatic dish dispatch and delivery.
Key initiatives included:
FoodBud also compared executive compensation among Haidilao, Yum China and Jiumaojiu.
In 2021, Haidilao founder Zhang Yong received RMB 48.646 million in compensation. Chief Information Officer Shao Zhidong received RMB 16.543 million, and Chief Strategy Officer Zhou Zhaocheng received RMB 13.733 million.
For Yum China, FoodBud cited previously compiled 2021 executive compensation: CEO Joey Wat received USD 16.556 million, equivalent to RMB 105 million; CFO Andy Yeung received USD 5.11 million, equivalent to RMB 32.527 million; Chief Legal Officer Joseph Chan received USD 4.056 million, equivalent to RMB 25.818 million; KFC General Manager Johnson Huang received USD 3.2 million, equivalent to RMB 20.369 million; Chief Human Resources Officer Aiken Yuen received USD 2.463 million, equivalent to RMB 15.678 million; and Chief Supply Chain Officer Danny Tan received USD 3.86 million, equivalent to RMB 24.57 million.
For local restaurant group Jiumaojiu, founder Guan Yihong received RMB 1.029 million in 2021 compensation.
Haidilao's annual report also disclosed equity incentives for employees. Jiumaojiu, meanwhile, allowed part of the founding team to cash out through an increased stake in Tai Er Sauerkraut Fish. FoodBud concluded that each company had different incentive mechanisms and profit-distribution systems.
Note: IPO, equity, investment and compensation figures above are historical, based on disclosures and reporting available for 2021 and early 2022.