This is an English adaptation of a FoodBud historical article originally published on June 1, 2022.
In the third year of the pandemic, China’s restaurant chains were facing a tougher operating environment. Lockdowns continued to come and go, and Shanghai’s restrictions hit many brands hard. Even Yum China said it could fall into a loss in the second quarter if COVID restrictions did not improve.
FoodBud spoke with Wang Xiaolong, managing director of Hony Capital and CEO of Best Food Holding Company, who remained confident in the market. His view: a crisis creates room for change. Strong companies can weaken, weaker companies can become stronger, and already strong players may emerge even stronger.
Hony Capital and Best Food had acquired or invested in 16 restaurant brands: Hehegu, Xinladao, Quan Jin Cheng, Quan Wei, Pizza Marzano, Meet You Noodles, Seesaw Coffee, Baozaihuang, Yue Xiaopin, Minai Xiaoguan, Xishaoye, Dafulan, Foke Malatang, Haosepai Salad, Zhaocai Chicken Feet, and Panda Hotpot.
Among them, Pizza Marzano and Seesaw had a large share of stores in Shanghai and were hit hard by the city’s lockdown. Wang’s core message was blunt: in extreme conditions, restaurant operators cannot simply wait for normal store traffic to return. They must test new models, connect restaurant operations with China’s internet-driven channels, and move quickly.
Wang said larger restaurant brands were heavily affected not only because restrictions were strict, but because many companies were not mentally or operationally prepared for repeated volatility. That uncertainty created panic.
Some companies may have had three to six months of cash flow, but still lacked confidence because they did not know what would happen next. Wang argued that this is when entrepreneurship matters most.
FoodBud noted that some companies had been profitable in 2020, expected 2021 to improve, expanded, then found 2021 worse than 2020 and fell into losses. By 2022, conditions were even harder. Yum China, one of the market leaders, had warned that it could fall into a loss if second-quarter conditions did not improve.
Wang said the first priority in an uncertain environment was preserving cash flow and survival. If one case could trigger strict controls, restaurants became difficult to operate. Rent still had to be paid, employees could not be hired and fired overnight, supply chains were disrupted, and inventory decisions became harder.
Training also limits flexibility: skilled workers may need months to train, and even simple roles take time.
His conclusion was not “the strong survive,” but “the adaptable survive.” Some large companies may be washed out because large organizations turn slowly. Brands that keep searching for ways through extreme conditions may become stronger, because adaptability becomes part of their operating DNA.
Wang said short-term market predictions were less meaningful than the medium and long term. Demand would not disappear; if one brand failed, another would rise. Over the medium and long term, he expected the market to return to stable growth, while acknowledging severe near-term pressure.
Two portfolio brands had heavy exposure to Shanghai: Seesaw Coffee and Pizza Marzano.
Seesaw had 55 stores in Shanghai, nearly 60% of its footprint. Pizza Marzano had 32 stores in Shanghai, more than 50% of its footprint.
Coffee was not a necessity during lockdown and was initially outside the guaranteed-supply group-buying list. Still, Seesaw generated RMB 5 million to RMB 6 million in Shanghai revenue in April, with May expected to be higher.
According to Wang, Seesaw used Shanghai community group-buying leaders, built on its prior new-retail experiments, and combined WeCom group-leader communities with mini-program ordering. Once some stores received approval to resume operations, their productivity jumped: one store reached nearly RMB 200,000 in a single day.
Wang contrasted this with relying only on traditional store traffic, which he said would be fatal under lockdown conditions.
Pizza Marzano was a different case. It was a mid-to-high-end Western pizza chain, mainly dine-in, with a smaller delivery mix. During Shanghai’s lockdown, the team obtained guaranteed-supply qualification in early April, but had no community group-buying experience, did not know where to find group leaders, had staff locked down in residential compounds, and faced delivery constraints.
The breakthrough came because two or three employees had been locked inside stores before restrictions began, allowing limited order production. The company then used every available connection to find guaranteed-supply vehicles and recruit group-buying leaders, gradually launching group-buying operations in Shanghai.
Over nearly two months, colleagues kept applying to leave dormitories and live in stores. By late May, Pizza Marzano had 12 guaranteed-supply stores operating. Its April Shanghai performance was worse than Seesaw’s, but in May it was generating more than RMB 200,000 per day in Shanghai revenue.
Wang said there was no secret formula: under special conditions, the team looked for openings, connected restaurant operations with internet-enabled models developed in China over the previous five to ten years, and kept moving.
FoodBud asked about Wang’s earlier comments to 36Kr that restaurant investing is hard to evaluate through a simple “sector thesis.”
Wang said the sector-thesis approach used by venture capital assumes that if a category or model is attractive, a few winners will emerge, so investors back the top three or even top five players in that category.
He argued this does not fit restaurants well because concentration is low and China has many food categories. Even smaller categories can potentially support hundreds or even 1,000 stores. If an investor wanted to “own” the noodle category, backing 10 or even 20 companies might still not capture the future winners. Five years later, the successful brands may not be among those 10 investments.
FoodBud cited Best Food Holding’s 2021 annual report: Yue Xiaopin and Minai Xiaoguan together generated RMB 238 million in 2021 revenue, up 80% year on year, with net profit of RMB 10.63 million, up 700%.
Wang said Yue Xiaopin and Minai Xiaoguan share the same product lineage but use different store models: Yue Xiaopin is leaner and more casual, while Minai Xiaoguan is closer to full-service dining. He described them as already China’s leading Vietnamese-food brands by scale and profitability, and said that based on their current trend they could become China’s leading Southeast Asian-food brand within three years.
He gave two reasons for the category’s growth. First, the flavors are close to southern Chinese tastes, especially in Guangdong and Guangxi, and he sees them as part of the broader Chinese-food universe. Second, Southeast Asian economies had grown quickly, Chinese travel to Southeast Asia had increased before the pandemic, and Southeast Asian visitors also came to mainland China. With travel to Thailand, Vietnam, and other Southeast Asian countries restricted for more than two years, consumers still had demand for those cuisines.
Wang emphasized that market growth and company growth are different. A growing market does not guarantee company performance. He credited the brands’ own execution across product, store model, and internal organization.
FoodBud asked about the rise and fall of restaurant investment interest, noting that many investors had become confused in 2022, were looking at fewer front-end chain brands, and some had shifted attention upstream to supply chains.
Wang said most investors become conservative in uncertain environments, and countercyclical investors are always a minority.
Hony invested in more than a dozen restaurant projects in 2016 and 2017, when few investors were watching the sector. In the second half of 2020, when restaurant investing became hot after the pandemic improved, Hony made no new investments and only added capital to existing portfolio companies.
Wang said many institutions that had not previously studied restaurants were unfamiliar with the sector’s development patterns. Restaurant companies cannot grow at the speed of internet companies, though many investors expected Luckin Coffee-like expansion.
The reality diverged from those expectations, and pandemic control volatility further damaged investor confidence.
He said many funded brands would be fortunate simply to survive the year. Some had misjudged conditions, opened stores aggressively, assumed the next financing round would be easy, and entered high-rent locations during a land-grab phase. Even under normal conditions, those stores would have been difficult to make profitable; under recurring COVID volatility, the challenge was greater.
Still, Wang said he was not especially pessimistic. Restaurants are a stable-growth industry, not an industry of overnight transformation. Companies should advance steadily.
He described the pandemic as a test of organizational resilience. Brands that survive may rise quickly once conditions recover. He cited Seesaw as an example, saying its post-pandemic business model would be stronger because it was no longer fully dependent on offline store traffic.
Wang expected a short-term consumption burst after restrictions ended, but said dine-in would be difficult to restore to previous levels for a longer period. Not every brand would survive. Some operators might cut costs during lockdowns, then discover after reopening that monthly sales were only 70% of prior levels, making the original model unworkable.
Although restaurants are a traditional industry, Wang said Best Food prefers companies that keep layering innovation onto traditional restaurant operations.
FoodBud also asked about GreenTree Hospitality’s acquisition of Da Niang Dumpling and Bellagio at a valuation of only 0.5x price-to-sales, and whether private-market valuations had collapsed.
Wang said valuation depends on the specific brand. Companies with upward momentum and those losing momentum are very different. Large international restaurant companies were still growing steadily, and their valuations had generally risen over many years despite short-term volatility. He cited McDonald’s as an example.
His view was that the market would return to fundamentals. If a company operates steadily, it can avoid fundraising during a weak environment and wait for market stability. But investment windows are limited: once the market fully recovers, the opportunity may no longer be available. At this point, only investors with deep market understanding, courage, and real value-adding capability would dare to place bets.
FoodBud asked whether China could produce firms similar to 3G Capital or JAB, and whether the model would need to change because China has fewer professional managers capable of managing brands for asset appreciation, with many companies still relying heavily on founders.
Wang said he agreed with half of that view and disagreed with the other half.
He agreed that China has a shortage of broadly capable professional managers. He cited two reasons: many Chinese founders are reluctant to delegate authority, limiting the development of fully rounded managers; and foreign-invested companies have trained many people, but those managers may lack comprehensive operating capability outside established multinational systems. Some founders then become disappointed when professional managers fail to meet high expectations, though Wang noted there are exceptions.
He disagreed that only founders can run companies well. He cited Yum China as an example of a non-founder-led company that performs very well, arguing that the important question is why such companies can operate effectively.
For a China-style 3G Capital, Wang said the long-term goal may point in that direction, but the Western model cannot be copied. China has too much local innovation, professional managers remain too scarce, and the 3G model is not yet very feasible in China. He suggested it may take another 10 years, and that success would require understanding, confidence, determination, accumulated experience, and sufficient resources.
FoodBud also asked how directly operated restaurant systems in China could be invested in, integrated, and scaled, compared with franchise-chain models such as Juewei’s shared procurement, warehousing, and delivery system.
Wang said it is harder for directly operated systems to reach very large scale, defining that scale as the global size of KFC or Starbucks. In China, the maturity of directly operated management systems and industrial chains makes it difficult for a brand to reach that scale in the short to medium term.
Best Food’s approach, he said, is “Chinese-style franchising,” not the exploitative franchise model sometimes seen in China. He said the company studies the development models, paths, and systems of international brands in depth and has people dedicated to that work.
Note: Forward-looking statements, IPO-related comparisons, valuation references, and financial figures are historical as of the original article date, June 1, 2022.