Country Style Cooking Updates Hong Kong IPO Filing After January-May Loss

This is an English adaptation of a FoodBud historical article originally published on August 2, 2022.

FoodBud reported that Country Style Cooking recently updated its Hong Kong IPO prospectus, with the main new disclosure covering operating data for January-May 2022. The company, which operates two brands, Country Style Cooking and Mr. Rice, faced a difficult start to the year and fell into a net loss for the five-month period.

Revenue and Profitability

In 2021, the two brands generated total revenue of RMB 4.6 billion and net profit of RMB 110 million.

In 2020, the first year of the pandemic, Country Style Cooking recorded a loss of RMB 2.4 million. In January-May 2022, the loss widened to RMB 22.244 million, on revenue of RMB 1.79 billion.

For January-May 2022, dine-in accounted for 66.5% of store revenue, while delivery accounted for 33.4%.

Store Base

Country Style Cooking was founded in 1996. As of the end of May 2022, it had 564 directly operated stores nationwide.

Mr. Rice was founded in 2011. As of the end of May 2022, it had 582 directly operated stores nationwide.

Together, the two brands had 1,146 stores at the end of May. The founder came from a Sichuan cuisine chef background. Country Style Cooking’s store network was concentrated mainly in Chongqing and Sichuan, while Mr. Rice had expanded beyond Sichuan and Chongqing into Hunan, Hubei, Shanghai and other markets.

During January-May 2022, Country Style Cooking had a net closure of 11 stores. Mr. Rice opened 35 stores and closed 27, for a net addition of 8 stores.

Operating Metrics

Mr. Rice has consistently outperformed Country Style Cooking on table turnover.

For January-May 2022, Country Style Cooking reported:

• Average daily sales per store: RMB 10,000
• Average check: RMB 25
• Average daily sales per square meter per store: RMB 50
• Table turnover: 2.5

For the same period, Mr. Rice reported:

• Average daily sales per store: RMB 11,700
• Average check: RMB 21.9
• Average daily sales per square meter per store: RMB 63.4
• Table turnover: 4.1

Same-Store Sales

In January-May 2022, Country Style Cooking’s same-store sales fell 13%, with average same-store sales per store of RMB 1.7 million.

Mr. Rice’s same-store sales declined 1.5%, with average same-store sales per store of RMB 1.8 million.

Supply Chain and Cost Pressure

The company also faced rising raw-material costs. For example, pork prices increased from RMB 25.6 per kilogram in 2019 to RMB 38.5 per kilogram in 2020.

Country Style Cooking used price-lock agreements with suppliers, similar in structure to upstream coffee-bean purchasing arrangements used by Starbucks. Under a one-year contract, the company secured fixed purchase prices, though Starbucks’ lock-in period is longer. If market prices fall when purchasing raw materials, Country Style Cooking has the right to renegotiate prices.

Purchases from the company’s five largest suppliers accounted for 26.1%, 23.4% and 20.8% of total purchases in 2019, 2020 and 2021, respectively.

Cash Position

As of the end of May 2022, Country Style Cooking had RMB 88.919 million in cash and cash equivalents.

Market Coverage and Expansion Plans

The prospectus included market-size forecasts for core cities.

In 2021, the number of Chinese fast-food stores was:

• Chongqing: 40,000
• Chengdu: 31,000
• Changsha: 19,000
• Wuhan: 23,000
• Shanghai: 42,000

The top five players accounted for 9%, 9%, 10%, 12% and 8% of those city markets, respectively. Country Style Cooking was the largest Chinese fast-food chain in Chongqing, Chengdu, Changsha and Wuhan, and the fifth-largest in Shanghai.

The company’s next priority expansion cities were Suzhou, Hangzhou and Shenzhen. In 2021, those cities had 23,000, 25,000 and 27,800 Chinese fast-food stores, respectively. The top five players accounted for 4%, 7% and 6.5% of those markets.

Planned new store openings were:

• Country Style Cooking: 80-100 stores in 2022, 140-160 in 2023, and 140-200 in 2024
• Mr. Rice: 100-140 stores in 2022, 200-240 in 2023, and 200-280 in 2024

Mr. Rice’s average cash payback period was 16.2 months, while Country Style Cooking’s was 17.3 months. Capital expenditure for a new Country Style Cooking or Mr. Rice store was RMB 800,000 to RMB 1 million.

Competitive Position

By 2021 revenue, Country Style Cooking ranked fourth among Chinese fast-food chains, with RMB 4.6 billion in revenue.

Yang Guofu Malatang ranked first and Zhang Liang Malatang ranked second, each with revenue of about RMB 6.1 billion. Lao Xiang Ji and Country Style Cooking were both around RMB 4.6 billion. Xijiade ranked fifth, with revenue of about RMB 3.8 billion.

By directly operated store count, Country Style Cooking ranked first, followed by Lao Xiang Ji, Xijiade, Kungfu and Yonghe King, which is owned by Jollibee.

Note: IPO-related figures and forward expansion plans are historical disclosures from the 2022 prospectus update.