Guoquan Files for a Hong Kong IPO After Surpassing RMB 11.1 Billion in Retail Sales

This is an English adaptation of a FoodBud historical article originally published on April 4, 2023.

FoodBud reported that Guoquan Shihui recently submitted a prospectus to the Hong Kong Stock Exchange as it prepared for a Hong Kong listing. The company had 9,221 stores in China at the end of 2022, including 5 self-operated stores and 9,216 franchised stores.

Revenue from franchised stores accounted for 98.2%, 94.2%, and 90.3% of revenue in 2020, 2021, and 2022, respectively. By the end of 2022, about 29% of franchisees operated more than one store, and Guoquan had contracts with 5,680 franchisees. The number of franchisees operating more than one franchised store rose from 892 at the end of 2020 to 1,284 at the end of 2021 and 1,651 at the end of 2022.

A Home-Meal Retail Model at Scale

Guoquan positions itself as a retail solution for eating at home. In 2022, cumulative orders exceeded 100 million, and registered members reached about 20.4 million. Average daily online orders increased from 6,193 in 2020 to 68,831 in 2022, representing 21.5% of orders across all channels.

Among the top five retailers in China's at-home meal-solution market, Guoquan ranked first, with RMB 11.1 billion in retail sales in 2022.

Product Mix

At the end of 2022, Guoquan's portfolio covered eight main categories: hotpot products, barbecue products, beverages, single-person meals, ready-to-cook meal kits, fresh food, Western food, and snacks. The portfolio totaled 755 SKUs.

More than 95% of products sold nationwide were Guoquan Shihui private-label products, and 68% of SKUs were self-developed or co-developed.

SKU mix included:

• 312 hotpot SKUs
• 163 barbecue SKUs
• 280 other SKUs, including beverages and single-person meal products

Hotpot remained the core revenue driver. Of Guoquan's RMB 7.06 billion in 2022 revenue, hotpot products accounted for 75.8%.

Profitability and Store Growth

Guoquan turned profitable in 2022, recording RMB 240 million in net profit. Gross profit increased from RMB 330 million in 2020 to RMB 360 million in 2021, then rose 251.5% to RMB 1.25 billion in 2022. Gross margin was 11.1% in 2020, 9.0% in 2021, and 17.4% in 2022.

Store growth was rapid. Guoquan had 1,441 stores at the beginning of 2020 and reached 9,216 stores by the end of 2022. The 2022 store closure rate was 3%.

Since launching its digital system, the average number of stores managed by each member of Guoquan's store operations team increased from 3.2 as of December 31, 2020, to 10.7 as of December 31, 2022. The company had 2,124 full-time employees at the end of 2022.

Store Formats

Most standard Guoquan stores were 40-100 square meters and staffed by 2-3 employees. Beyond standard stores, the company also operated store-in-store and township formats.

Store-in-store locations were typically inside supermarkets or department stores, measured 40-50 square meters, and had 1-3 employees. Township stores measured 30-70 square meters and had 1-4 employees. Site selection generally favored locations near residential communities.

Supply Chain and Procurement

Guoquan expanded upstream through acquisitions. In August 2021, it acquired a beef processing plant and also acquired a meatball production plant. In November 2022, it acquired a hotpot soup-base factory.

The beef processing plant had a building area of about 54,000 square meters and mainly produced Guoquan's signature beef products. The meatball plant measured about 43,000 square meters, and the hotpot soup-base factory measured about 50,000 square meters. In 2022, the hotpot soup-base factory had the highest utilization rate, at 72.6%.

Purchases from Guoquan's largest supplier were RMB 210 million, RMB 220 million, and RMB 340 million in 2020, 2021, and 2022, respectively, accounting for 6.4%, 5.9%, and 5.3% of total purchases in those periods. Purchases from the top five suppliers accounted for 24.6%, 22.0%, and 20.7% of total purchases in 2020, 2021, and 2022.

Distribution expenses were RMB 120 million, RMB 160 million, and RMB 260 million in 2020, 2021, and 2022, representing 4.6%, 4.3%, and 4.3% of total cost of sales. Inventory turnover days were 50.8 days in 2022.

Guoquan recorded customer prepayments as contract liabilities, mainly including prepayments for at-home meal products and related products in delivery that franchisees had not yet received, as well as integrated guidance service fees not yet recognized as revenue. Customer prepayments totaled RMB 91.14 million in 2022.

Cash and cash equivalents stood at RMB 690 million at the end of 2022.

Note: IPO-related figures and forward-looking listing context are historical, based on the April 4, 2023 source article.