This is an English adaptation of a FoodBud historical article originally published on May 21, 2022.
Fast-casual Chinese restaurant chain Lao Xiang Ji formally disclosed its prospectus, aiming to list on the Shanghai Stock Exchange main board and compete for the title of the first listed Chinese-style fast-food chain.
The company planned to issue 63.53 million shares and raise RMB 1.2 billion. Of that, RMB 475 million was earmarked for headquarters projects, RMB 510 million for new stores, and RMB 215 million for digital infrastructure.
At the end of the reporting period, Lao Xiang Ji had 991 company-operated stores and 82 franchised stores, mainly concentrated in Anhui, Jiangsu, and Hubei.
For comparison, Country Style Cooking reported 602 Country Style Cooking restaurants nationwide and 543 Mr. Rice restaurants in China as of September 30, 2021. Lao Xiang Ji was smaller by store count, but not by a wide margin.
Lao Xiang Ji was originally called Feixi Lao Mu Ji, with chicken soup as its core product. When the company decided to rename the brand, it already had more than 100 stores.
In 2011, after listening to a positioning report from Trout & Partners at the firm’s Lujiazui office in Shanghai, founder Shu Congxuan agreed to change the brand from “Feixi Lao Mu Ji” to “Lao Xiang Ji.” The company chose to switch the brand overnight without pre-announcing the change.
The strategic logic was that Chinese-style fast food offered a larger opportunity than chicken soup alone. The previous name carried a strong regional association with Anhui, while “Lao Xiang Ji” was easier to understand nationally.
The brand then focused on Anhui, positioned itself around being the province’s largest fast-food chain and emphasizing cleanliness and hygiene, and concentrated resources on company-operated fast-food stores. By 2016, Lao Xiang Ji had more than 400 direct-operated stores in Anhui before entering Wuhan and Nanjing, where it opened more than 60 direct-operated stores within a year. In 2019, it entered Shanghai.
By 2014, Lao Xiang Ji had about 300 stores. Over the next five years, its store count and revenue both tripled, reaching RMB 2.2 billion in 2018.
According to the prospectus, Lao Xiang Ji generated revenue of RMB 2.86 billion, RMB 3.45 billion, and RMB 4.39 billion in 2019, 2020, and 2021, respectively. Net profit was RMB 160 million, RMB 100 million, and RMB 130 million over the same period.
Country Style Cooking’s prospectus showed revenue of RMB 3.26 billion in 2019, RMB 3.16 billion in 2020, and RMB 3.42 billion for the nine months ended September 30, 2021. Its net profit was RMB 82.702 million, negative RMB 2.424 million, and RMB 163 million, respectively.
Another Chinese fast-food brand, Lao Niang Jiu, had entered listing guidance and had 404 stores. Even if it listed around the same time, its scale still lagged Lao Xiang Ji and Country Style Cooking. The race for the leading listed Chinese-style fast-food chain was therefore mainly between Lao Xiang Ji and Country Style Cooking.
Lao Xiang Ji raised RMB 200 million from Jiahua Capital in 2018. The article noted that, despite pandemic pressure and more cautious expansion across the restaurant sector, stronger chains could still expand selectively when attractive locations became available, provided they had enough capital and manageable risk.
Industry sources estimated that Country Style Cooking’s Hong Kong listing could raise HKD 3.5 billion, about RMB 2.8 billion.
Country Style Cooking operated two brands: Country Style Cooking and Mr. Rice. It planned to open about 90 to 110 Country Style Cooking restaurants in 2022 and 140 to 160 in 2023. Mr. Rice planned to open about 160 to 180 restaurants in 2022 and 200 to 240 in 2023, depending on market conditions.
Across both brands, that implied a two-year plan of 590 to 690 new stores, with a midpoint of 640, close to Lao Xiang Ji’s planned scale.
Lao Xiang Ji expected to open 700 company-operated stores over three years in key areas of Shanghai, Nanjing, Suzhou, Shenzhen, Beijing, Wuhan, Hangzhou, Hefei, Wuhu, and other markets.
Lao Xiang Ji said new stores generally required 9 to 18 months to break even. Country Style Cooking and Mr. Rice restaurants generally had cash investment payback periods of 12 to 18 months during the track record period; restaurants opened in 2020 usually had payback periods under 12 months, most of them smaller-format units.
The prospectus cash-flow data showed Lao Xiang Ji’s outbound investment increasing year by year, meaning company-operated expansion required a stronger cash position.
After the Jiahua Capital round, Lao Xiang Ji did not take additional capital until before the listing. Jiahua invested at a valuation of about RMB 4 billion. At the pre-IPO stage, Maxing Investment and GF each invested RMB 89 million and RMB 50 million, holding 0.49% and 0.28%, respectively, at a valuation of around RMB 18 billion.
The combined RMB 200 million from Jiahua Capital, RMB 139 million from the pre-IPO round, and the planned RMB 1.2 billion IPO raise still left Lao Xiang Ji below Country Style Cooking’s expected fundraising scale. The article viewed this as a cautious read on the broader environment, especially if the ambition were to move from China’s leading Chinese-style fast-food chain to a global one.
Lao Xiang Ji began franchising in 2020. Franchise revenue accounted for 0.33% of company revenue in 2020 and 1.9% in 2021, making it a minor contributor.
The company had 13 franchised stores in 2020 and 82 in 2021, located in Anhui, Jiangsu, and Henan.
The disclosed franchise policy included an annual franchise fee of RMB 50,000, a royalty fee equal to 4% of revenue, an advertising fee equal to 2% of revenue with 0.5% returned to franchisees under certain conditions, and business support service fees depending on the situation.
According to the prospectus, chairman Shu Congxuan did not directly hold shares in the company. Control was mainly held by family members. Shu Congxuan and Zhang Qiong are husband and wife and are the parents of Shu Xiaolong and Shu Wen. Shu Xiaolong and Dong Xue are husband and wife. Shu Xiaolong, Shu Wen, and Dong Xue together held 91.32% of the company.
Although Shu Congxuan did not hold shares, he had veto power on the board.
Five members of the latest board were part of the Shu family system. Liu Chun, a veteran media executive, was also notable: he had been editor-in-chief of Sohu and was vice president of Phoenix New Media, which helped explain Lao Xiang Ji’s strength in new-media marketing.
Shu Congxuan’s son Shu Xiaolong became general manager in January 2019, then resigned from that role in April 2020. Shu Congde, then deputy general manager, became general manager in July 2020. Shu Congde held 0.56% of the company.
Lao Xiang Ji’s menu was built around Feixi old-hen chicken soup, with home-style dishes such as farmhouse steamed egg, braised chicken offal, preserved-vegetable pork belly, farmhouse stir-fried pork, and spicy fish in chicken sauce.
In 2021, the company sold 137 million portions of rice. Chicken soup products sold 29.7 million portions. The next-best-selling dish after chicken soup was stir-fried pork, with 20.98 million portions sold in the year.
The company’s top five customers contributed little revenue and were mostly franchisees.
Its top five suppliers included major upstream suppliers such as Wens and Wilmar. In 2021, purchases from the top five suppliers accounted for 21.45% of total procurement.
Lao Xiang Ji had built an integrated chain from upstream hen breeding to midstream central kitchens and restaurant operations. Subsidiaries Nongmu Technology and Shouxian Lao Xiang Ji handled breeding. The food subsidiary operated as the central kitchen and handled food processing. The parent company and regional restaurant subsidiaries provided end restaurant services.
The article noted that the upstream farming segment, namely the breeding business, generated profit, while the central kitchen and restaurant operations in different regions were loss-making. Because these businesses sat within the same system, profit structure could potentially be adjusted internally; the key issue to monitor was whether store-level losses reflected efficiency problems or the broader operating environment.
The article also highlighted Lao Xiang Ji’s employee equity incentive policy. A dedicated employee-incentive company included employees across many roles, including store service staff. At the end of 2021, Lao Xiang Ji had 17,500 employees, including 14,500 full-time employees.
The original article stated that detailed operating data for 991 direct-operated stores and 82 franchised stores followed, but the supplied article text does not include those tables.
Note: IPO, valuation, fundraising, and expansion-target figures above are historical, based on the article published on May 21, 2022.