GreenTree to Acquire Majority Stakes in Da Niang Dumpling and Bellagio for Nearly RMB 400 Million

This is an English adaptation of a FoodBud historical article originally published on May 17, 2022.

On May 16, GreenTree Hospitality Group announced that it would acquire an 83.9% stake in Da Niang Dumpling and Bellagio for nearly RMB 400 million. The transaction was expected to close in the second half of 2022.

Key terms disclosed in the article:

• After closing, GreenTree would hold 83.9% of Da Niang Dumpling and Bellagio.
• GreenTree was acquiring the stake from GTI, the controlling shareholder of the two restaurant brands.
• The agreement included a compensation clause: if the target businesses' net income, excluding non-recurring operating income, was below USD 20 million in any fiscal year from 2022 through 2026, GTI would make up the shortfall to GreenTree.
• The two brands generated combined unaudited revenue of about RMB 740 million in 2021.

Why GreenTree Wanted the Deal

FoodBud framed the acquisition as a way for GreenTree to add a more stable restaurant cash-flow base alongside its hotel business.

The article highlighted three strategic points:

• Restaurant demand was viewed as steadier than GreenTree's hotel business, with less dependence on discretionary cash flow, potentially helping offset hotel cyclicality.
• Foodservice and hotel operations could create cross-selling opportunities.
• As of the end of 2021, Da Niang Dumpling had 297 stores: 160 company-operated and 137 franchised. Bellagio had 39 stores across mainland China, Macau and Southeast Asia, including 31 company-operated stores and 8 franchised stores.

Da Niang Dumpling's Resale History

Da Niang Dumpling was founded in 1996, when Wu Guoqiang opened a dumpling shop in the food court of Changzhou Commercial Building. He later renamed it Da Niang Dumpling.

The brand grew by focusing on dumplings as a core menu item and using chain franchising to expand in China's fragmented Chinese fast-food market. According to public information cited in the article, Da Niang Dumpling reached RMB 350 million in revenue in 2005. By 2013, it had more than 450 stores across 19 provinces and cities in China, with annual revenue above RMB 1.5 billion.

As the business scaled, Wu looked for a more professional management structure. In 2013, CVC acquired Da Niang Dumpling and took nearly 90% of the company, leaving Wu with about 10%.

FoodBud, citing Hexun, said Wu had two reasons for bringing in CVC: he believed the brand's expansion was still not fast enough, and he felt his own ability to manage a large restaurant chain was limited.

The article argues that CVC's ownership damaged the brand. It says CVC changed production methods, reduced dumpling size from 20g to 17.5g, cut some soup ingredients by 10%, raised prices, and replaced the brand's previously emphasized handmade positioning with more machine-based Western-style production processes.

According to data cited in the article, Da Niang Dumpling's sales fell by about 20% per year on average in 2014 and 2015. By 2016, its debt ratio had reached 70%. CVC then sold Da Niang Dumpling to GreenTree's related group.

CVC and Restaurant Investments in China

FoodBud also linked the Da Niang Dumpling case to another well-known CVC restaurant investment in China: South Beauty.

The article quoted a lengthy Zhihu commentary from a private-equity industry participant that criticized CVC's China approach. The commentary argued that CVC favored consumer businesses with strong cash flow, especially restaurant companies, but interfered in management while lacking sufficient understanding of the China market.

In the Da Niang Dumpling example, the quoted commentator called the reduction in dumpling portion size especially damaging for a restaurant brand. The article also referenced disputes around CVC's South Beauty transaction, including IPO-related agreement terms and founder Zhang Lan's 13.8% equity stake.

FoodBud's references for this section included Jiemian News' article on Da Niang Dumpling's decline and a Zhihu discussion about CVC's equity disputes involving South Beauty and Da Niang Dumpling.

Note: acquisition terms, IPO-related references, financial figures, and forward-looking clauses are historical as of the original May 17, 2022 article.