This is an English adaptation of a FoodBud historical article originally published on July 6, 2022.
On July 5, 2022, Chinese fast-food chain Lao Niang Jiu disclosed its prospectus for a planned listing on the Shanghai Stock Exchange main board. The company planned to issue no more than 61 million shares and raise RMB 832 million, mainly for new restaurant development, supply-chain infrastructure and related projects.
Founded in May 2000, Lao Niang Jiu is a Yangtze River Delta-based Chinese fast-food chain known for standardized Jiangnan-style rice meals and other quick-service dishes.
From 2019 to 2021, the company reported:
Delivery became a major growth driver. Delivery revenue from restaurant operations was RMB 490 million in 2019, RMB 570 million in 2020 and RMB 700 million in 2021. Its share of restaurant revenue rose from 41.38% in 2019 to 47.3% in 2021.
The company’s own delivery platform also grew quickly, with revenue of RMB 376,300, RMB 41.706 million and RMB 70.36 million from 2019 to 2021.
Store operating gross margin in 2020 and 2021 was lower than in 2019, mainly because dine-in gross margin declined.
Dine-in operating gross margin was:
The decline was attributed to pandemic-related revenue pressure in the first half of 2020 and second half of 2021, while fixed costs such as rent continued to rise as the store base expanded.
Delivery gross margin was more stable and higher than dine-in:
The prospectus explained that dine-in area rent was booked to dine-in costs rather than delivery costs, making delivery margin comparatively higher. In 2020, delivery margin improved as the company promoted multi-person meal bundles, increasing average delivery order value and lowering rider delivery cost as a share of sales. In 2021, delivery margin declined because of upgraded packaging costs and higher staff wages.
Lao Niang Jiu mainly operated directly owned stores, with franchising as a smaller supplement. By the end of 2021, it had 388 stores across 16 Yangtze River Delta cities:
Franchised stores were mainly in two groups. Zhejiang Yingtong, an affiliated company jointly established with Zhejiang Communications Investment Group Industrial Development Co., operated stores mainly in highway service areas. Another franchisee, Huzhou Linzhen, operated the second group. At the end of the reporting period, Zhejiang Yingtong and Huzhou Linzhen operated 8 and 16 franchised stores respectively.
The company expected to open around 300 new stores over the following three years, while optimizing its store layout. Planned direct-store expansion was expected to come through new openings rather than acquisitions. Franchise expansion was expected to remain modest, with around 10 additional franchised stores over the following three years, also concentrated in the Yangtze River Delta.
Lao Niang Jiu’s main revenue came from directly operated store sales and ingredient sales to franchisees. Revenue dipped slightly in 2020 because of COVID-19.
According to the prospectus, the top five dishes in directly operated stores accounted for more than 50% of revenue. Core products included yu-shiang shredded pork, fish-and-meat lion’s head meatballs, and pork braised with preserved mustard greens.
In 2021, yu-shiang shredded pork sold 8.38 million portions.
Because Lao Niang Jiu’s stores were concentrated in Jiangsu, Zhejiang and Shanghai, the chain was materially affected after the pandemic began. In 2020, despite store-count growth, total sales declined slightly versus 2019 and average per-store revenue fell 10% year on year, mainly because some stores suspended operations or only offered delivery after the first-half 2020 outbreak.
In 2021, as pandemic controls became normalized, the store count increased and operations improved. Revenue grew 26.61% year on year, and average per-store revenue rose about 8% versus 2020, but had not fully recovered to the pre-pandemic level.
The company’s per-store revenue in first-tier cities fell more sharply from 2020. The article attributed this mainly to newly opened Shanghai “shared-kitchen” stores, which only provided delivery, had no dine-in service, used smaller footprints and required lower investment, resulting in lower per-store revenue.
Payment data also showed the move away from cash. From 2019 to 2021, WeChat Pay, Alipay, Meituan and Ele.me accounted for 88.52%, 93.28% and 93.89% of directly operated store revenue. Cash accounted for 6.29%, 2.79% and 1.97%.
Lao Niang Jiu stores were mainly located around urban commercial areas. Community commercial areas and business commercial areas contributed the highest revenue share, and revenue from these formats grew as the company expanded.
More than 10% of store operating revenue came from transport-hub stores, including high-speed rail stations, airports, highway service areas and metro locations. From 2020, pandemic controls caused a significant decline in both revenue and share from these stores compared with 2019.
The company also operated three exhibition-venue stores in large Shanghai exhibition sites. These had high per-store revenue, but revenue also fell from 2020 because of pandemic controls.
Lao Niang Jiu’s main business costs rose year by year, while its cost structure remained relatively stable. Direct materials included raw ingredients, externally purchased food materials and packaging. Labor costs included factory production staff, production management staff and restaurant employees. Rider delivery and transport costs covered store delivery and factory-to-store logistics. Utilities included water, electricity and gas used by factories and stores. Other costs included depreciation, renovation amortization, equipment maintenance and cleaning.
Food ingredients were the largest cost category, followed by labor and rent.
In 2020 and 2021, the top five suppliers accounted for 30% and 27.6% of total procurement respectively.
At the time of the prospectus disclosure, Lao Niang Jiu’s controlling shareholder was Yang Guomin, who directly held 39.58% of the company.
The actual controllers were Yang Guomin and his son Yang Junhui. Yang Guomin directly held 39.58%, while Yang Junhui directly held 8.96% and indirectly controlled 4.55% through three employee shareholding platforms: Hengchuang Partnership, Tongzi Partnership and Xiaowaisheng Partnership. Together, the two controlled 53.09% of the company. Yang Guomin served as chairman and general manager, while Yang Junhui served as vice chairman and deputy general manager.
Fosun invested in Lao Niang Jiu in 2008 at a valuation of RMB 224 million. In 2010, because some shareholders failed to meet performance-bet terms, a combined 3% stake was transferred to Fosun for RMB 1, lifting Fosun’s holding to 23%.
In 2015, Fosun sought to exit, and Lao Niang Jiu’s founder repurchased all of Fosun’s shares.
In 2016, Lao Niang Jiu brought in investors including a fund under K-Boxing Group and Jiang Jianqi, chairman of Xiangpiaopiao. That financing valued the company at RMB 500 million. Lao Niang Jiu also entered into a performance-bet arrangement in that round and ultimately met the target.
Jinhui Investment, a fund associated with Zong Fuli, daughter of Wahaha chairman Zong Qinghou, entered during Lao Niang Jiu’s RMB 100 million fundraising round in 2020. At that point, the company’s valuation had risen to RMB 2 billion, and Jinhui invested RMB 30 million.
In that round, Yang Guomin and three investors including Jinhui agreed on IPO timing terms: the company was required to submit listing application materials by the end of 2022 or complete an IPO listing by the end of 2025; otherwise, equity repurchase obligations would apply.
The planned IPO proceeds were mainly intended for store expansion, supply-chain construction, information-system upgrades and brand promotion.
Over the following three years, Lao Niang Jiu planned to invest RMB 420 million in store expansion, adding 260 stores in major Yangtze River Delta cities and renovating 25 stores.
For supply chain, the company planned to build workshops for fish products, prepared foods, rice and flour products, and compound sauces, while purchasing production equipment and supporting facilities to expand prepared-food supply capacity.
The supply-chain expansion project was to be carried out by Anhui Hengman, a wholly owned subsidiary. The construction period was 24 months, with total investment of RMB 310 million. After completion, the project was expected to support annual processing capacity of 56,779 tonnes of processed products. Including directly supplied products, annual revenue was expected to reach RMB 1.3 billion.
The company also planned to upgrade its business, data and technology middle platforms. Planned modules included inventory synchronization, online service, deeper BI design and development, and RPA robotic process automation, with the aim of improving cross-department information flow and operating efficiency.
Note: IPO, fundraising, valuation, expansion and forward-looking capacity figures above are historical disclosures from 2022.