In the past few weeks, both good news and bad news happened to Haidilao, China’s No.1 hot pot brand. The good news is that Haidilao International Holding became a Hang Seng Index constituent on 15 March 2021. While the stock price plunged quickly over the past month, it began to bounce back later this week.
What's the bad news?
First, Haidilao released that the Group expected a decrease of approximately 90% in net profit for the year ending on 31 December 2020. Then, in China, people complained about Haidilao setting up CCTV systems inside the private dining rooms of the restaurants. Though the company confirmed that it is purely out of security concerns, customers began to worry about their privacy. What’s more, Haidilao changed its signature free and unlimited 'mini beef stew' into 'plant-based ground meat', considered by mandy to be a cost-control measure, raising the price in another way.
It is not the first time that Haidilao has faced strong opposition when increasing the prices of food, beverage, and services. Early last year, Haidilao raised menu prices only to end up with an apology from management and a revoking of the price-hike strategy. Even though nearly all brands have raised prices, only Haidilao has been singled-out for criticism.
In BrandZ Top 100 Most Valuable Chinese Brands 2020 report, even if Haidilao was not in the Top 100, it was listed as a typical example of positive consumer experience. BrandZ called its “great service” as “a connotation of the Haidilao brand”.
Brand Finance listed Haidilao as No.9 for its world restaurants ranking in 2020 and 2021, the only Chinese brand among the top 25, in between the likes of Starbucks, McDonald, KFC, PizzaHut, and Burger King. The rankings also highlighted Haidilao as the fastest growing brand in 2020, jumping from 15th to 9th, with a perfect dining experience and huge expansion programme, serving more than 100 million customers a year.
Customers both from China and abroad already have a very high expectation of the brand and its services. The brand has not stopped expansion despite the COVID-19 pandemic, but has actively opened new restaurants and adopted active measures to control costs. As a result, its net profit dropped sharply compared with 2019. Haidilao attributed the net profit plunge to two main reasons: One is Covid-19 restrictions; the other is foreign exchange loss because of the fluctuations of the US dollar against the renminbi.
Yet even if dine-in services have slumped, the revenue from the takeaway food business more than doubled. Does the pandemic and transformation from dine-in to take-away mean a new opportunity, even for hot pot restaurants like Haidilao?
The brand is well-known all over the world for the best dining-in experience. How can it now innovate and balance for the next step? How to achieve sustainable growth amid the uncertainties of the Covid-19 pandemic? Here is what a couple of senior marketing consultants had to say:
We learned from experts in the restaurant industry that Haidilao tends to select locations where it relies heavily on destination diners than random walk-in customers because of its high brand awareness. After the pandemic, the footfalls at its outlets are decreasing steeply. Not taking lockdown as an excuse for slowing down the expansion, Haidilao continued its new stores’ speedy development. It may be good news for its investors in the short-term, but it will eventually impact business profitability and harm brand reputation.
For overseas markets where eating hot pot is still an occasional dining-out option, Haidilao's special services amplify its customers' dining experience and create excitement. The signature experience is an excellent driver for occasional diners to visit Haidilao. However, if we suppose Haidilao aims to expand its business by opening more local outlets, accumulating a more extensive customer base, and attracting more traffic, the brand has to focus more on localization while understanding customer's distinctive needs in each market, to bring relevance to local customers.
At the same time, it is also important to note that the increasing number of controversies around Haidilao, to some extent, uncovers specific problems of its organizational management and company culture. Such brand associations would bring a negative impact on Haidilao. When a restaurant brand begins to lose positive associations (as around its food, service, environment) while the mainstream customers start to shift to younger generations, the young customer groups would no longer consider Haidilao as the first choice. As a result, the brand would begin to age.
As consumers' habits and preferences around dining evolve, they demand a better choice of dishes and quality of food, and better safety and environment, which is an opportunity for Haidilao to upgrade its brand. How to elevate the brand's value proposition through product and service innovation that connects with emerging consumer needs in "the new normal," while transforming internally for a better organization and culture, will be pivotal for its growth.
Co-founder & Principal
Haidilao’s story is really about the recovery of the restaurant business post-Covid and the challenge of China brands going global.
Firstly, the nature of Haidilao’s business does not allow for a pivot beyond food delivery. They are an experience business. Their advantage is what happens on-premises, which is a challenge when people cannot dine-in. For such companies, the focus going forward should be on increasing their supply chains' efficiency through better process, organizational structures, and smart data-driven procurement. This will help make local business more sustainable and help in their global expansion.
Moving into new markets is always a challenge for Chinese brands. In this case, Haidilao might consider appealing to a younger generation in overseas markets. This demographic may not be as wealthy as Haidilao’s traditional target audience, but younger people globally are more open to trying new brands, have less bias against Chinese brands, and are willing to pay for unique experiences.
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