This is an English adaptation of a FoodBud historical article originally published on August 1, 2022.
This article was adapted from a New Consumer Blueprint account of a June 29 online foodservice summit hosted by Zhaimen Group, Tomato Capital, and Zhaimen Supply Chain. The speaker was Wang Guoyu, chairman of Beijing-based restaurant chain Nanchengxiang.
Wang Guoyu said many operators were asking the same question: how should restaurants be opened in the future?
The common answer, he said, was to go smaller: less investment, simpler products, smaller stores, lighter fit-out, fewer staff, and lower technical requirements. His view was the opposite.
He used Nanchengxiang’s 2022 performance as context. From January to May 2022, the company was roughly at breakeven. May was the toughest month because dine-in service was suspended, causing losses of several million yuan. Although restrictions eased in June, more than 20 stores took turns closing and more than 200 employees were quarantined.
By that point, nearly three years into the pandemic, Nanchengxiang had doubled its store count. Compared with small independent restaurants, Wang said the chain had stronger pressure resistance and risk resistance because it had built around efficiency.
In his framing, the main pressures in foodservice are rent and labor. One Nanchengxiang outlet, he said, can equal about 10 small restaurants in output. Labor efficiency is also central: the company uses relatively few full-time staff, with about one-third of workers employed as part-time or hourly staff.
His broader point was that operators should not treat shocks as rare accidents. Nanchengxiang had prepared for uncertainty eight years earlier, he said, and restaurants with weak fundamentals would not automatically improve after the pandemic.
Wang cited Zeng Guofan’s line: do not pursue things that have long been profitable, and do not go where everyone is competing.
Nanchengxiang’s strategy, he said, has been to move against the crowd. Eight years earlier, the company proposed the idea of “all-day community dining.” Its three core product lines - rice meals, skewers, and wontons - had been in place for about 10 years. Industry teachers told him the model was wrong, he said, but the company built it anyway.
His market view was that China had too many small restaurants. He argued that many storefronts were structurally surplus and would have to close. Offline retail was also under pressure from e-commerce, with supermarkets such as Walmart, Lotte, and Wumart facing difficult conditions.
Delivery adds another layer of competition. Wang said one Nanchengxiang store averages more than 10,000 yuan in daily delivery sales, equivalent to the sales of four or five small restaurants. Based on the company’s contact with Meituan and Ele.me, he said small restaurants, small brands, and unbranded stores find it hard to gain exposure. In his view, the threshold for operating restaurants will only rise.
Wang outlined several routes.
First, small operators can work with branded chains. He said some former small restaurant owners now work at Nanchengxiang, such as grilling lamb skewers, earning 10,000, 20,000, 30,000, or 40,000 yuan per month - in his view, better than running a small restaurant alone.
Second, small restaurants that continue operating need to invest more and become “small but refined.” Wang rejected the idea that operators should simply reduce spending. Restaurants need better design, better decor, and some cultural identity. He said some small restaurants still use equipment Nanchengxiang phased out 10 years ago, while Nanchengxiang updates equipment every year. In its kitchen model, one cook can manage eight induction stoves.
Third, location matters. Wang said a good site may take a year to find. Poorly positioned corner or edge locations cannot make money, and without a good location, operators should not proceed.
Fourth, management standards need to rise. In the past, diligence, courage, and a good site could support a small restaurant. Now, Wang argued, lower education and limited cultural literacy make the business harder. He pointed to Dongfang Zhenxuan’s livestreaming team under Yu Minhong as an example of higher-level competition entering commerce.
At Nanchengxiang, becoming an assistant store manager requires experience across the back kitchen, cashiering, ordering, headquarters training, and exams. Fast candidates may complete the process in two years; slower ones may need three years or more. Only outstanding assistant managers can apply to become store managers, who then receive further assessment and direct training from Wang. He said training a store manager takes at least three years.
Wang said even simple-looking systems have required long-term upgrading. The company’s lamb-skewer ovens have been upgraded for more than 20 years, its rice steaming systems have improved, and every store has installed purified water.
Rice is a specific example. Wang said many friends recommended northeastern Chinese rice, and Nanchengxiang sent staff to the northeast several times to study production areas. Wuchang rice was widely recognized as high quality, but he said it was too expensive and too sticky after steaming for the company’s use case.
Instead, Nanchengxiang worked with a professor and graduate students from Beijing Agricultural University to develop rice suited to restaurant and delivery needs. Wang’s requirement was that rice should suffer as little texture decline as possible after about two hours, because delivery rice that tastes good in-store may not taste good by the time it reaches customers.
He argued that most restaurant companies should not claim to do R&D because they often lack true research capability. Nanchengxiang, he said, spends 3 million yuan per year on consultants and discusses major decisions with top experts and advisers.
The company also chose community locations when many others were moving into shopping malls. Wang said Nanchengxiang had 130 stores at the time, with just over 20 people in its headquarters management team, and claimed leading performance in cost efficiency, labor efficiency, delivery, single-store revenue, and manager income within its peer set.
For small restaurants that keep operating, Wang recommended “singing old songs in a new way”: keep the fundamentals, but recombine them for the operator’s own market and region.
He said the era when a single item - noodles, wontons, or buns - could reliably support a family was over. Operators should avoid strange novelty products and focus on well-executed basics. Nanchengxiang’s own products, such as lamb skewers and wontons, are basic items.
Single-product stores, in his view, are no longer enough. In Beijing, he said, a single product may generate only 4,000-5,000 yuan in daily sales, not enough even to cover a breakfast business. Operators can add one product, then expand to three core products if the model works. Categories such as malatang, hot pot, or Yunnan crossing-the-bridge rice noodles can work as product series if executed well.
He also warned small operators not to treat prepared dishes as a shortcut. Used well, they can help; used poorly, he said, they can hurt the business. If foodservice becomes too simple, he argued, foodservice workers lose their role. Large chains often simplify more as they scale, which creates an opportunity for small restaurants to compete through refinement.
Wang argued that operators should stop using gimmicks and improve value for money.
He criticized restaurants that charge separately for small bowls of rice, tissues, or chopsticks. At Nanchengxiang, he said, the company buys 20 million yuan of pickles and fruit per year and offers them free to customers.
Asked why Nanchengxiang had not expanded beyond Beijing, Wang said its Beijing density was still insufficient. With 130 stores at the time, he believed Beijing could hold around 500 Nanchengxiang stores, which would further reduce costs.
His advice for small-format chains was not to open stores one by one across the country. Big restaurants can lay out nationally, he said, but small stores need clustered openings to lower costs.
He gave two recommendations:
For chains, Wang said central kitchens are necessary. They can improve quality, reduce costs, strengthen supply chains, and remove intermediaries. Intermediaries, in his view, create not only price gaps but also turnover and quality problems.
He argued that the quality of a chain is not measured only by store count. Big but weak companies still face problems, and future closures will not depend simply on size. Stores that should be closed need to be closed.
Nanchengxiang closed two stores in June 2022, he said, not because they were losing money, but because they earned too little.
He also addressed criticism that Nanchengxiang had not used outside capital and did not franchise. In 2014, the company had fewer than 30 stores. Wang said he reorganized the business, closed seven or eight stores, reviewed earlier mistakes, and reset the company’s positioning and direction. After 2014 and 2015, he said, Nanchengxiang began doubling growth every year.
His closing advice was that operators can learn from Nanchengxiang’s essence, but should not copy it mechanically. Each restaurant needs to adapt the model to its own conditions and copy with a specific goal.
Note: Forward-looking store-capacity comments and pandemic-era operating figures are historical, reflecting the source article dated August 1, 2022.