Behind JIUMAOJIU's profit warning: Intensified "price war" in the chain catering industry

The "price war" in the catering industry that started in the second half of 2023 has shown signs of intensifying recently, with some chain catering brands already being affected. Recently, JIUMAOJIU, which owns multiple well-known chain catering brands such as Tai'er Pickled Fish and Sōng Hot Pot, issued a profit warning for the first half of 2024, expecting a net profit of no less than 67 million yuan, a year-on-year decrease of no more than 69.8%. The significant decline in performance is attributed to the "price war". According to the announcement, in the first half of 2024, both the average customer spending and turnover rate of JIUMAOJIU's restaurants have declined. For example, the average spending per customer at Tai'er Pickled Fish in the second quarter was 69 yuan, dropping to the level of 2017. The decline in average spending is not unique to JIUMAOJIU. According to data from the national catering industry database platform Narrow Door Kitchen Eyes, in June of this year, the average spending at Haidilao, Xiǎo Xiǎo, Còu Còu, and Bā Nú decreased by 1%, 2%, 5%, and 9% respectively compared to the same period last year. "The industry's internal competition, represented by the 'price war', is intensifying." Li Liang, a senior catering professional and founding partner of Dashu Luodi Coaching Strategy Consulting, told Shanghai Securities News that under the trend of rational consumption, consumers are becoming more price-sensitive, focusing more on the basic function of dining, "eating well and eating enough". Some catering brands with excessive marketing gimmicks but lacking in product quality are being abandoned by consumers. It is understood from interviews that the one-sided pursuit of low-price competition is unsustainable and has become an industry consensus. Many chain catering brands are starting from various aspects such as upgrading raw materials and optimizing the supply chain to improve the cost-effectiveness of their products. Many chain catering brands are reducing prices To cope with increasingly fierce market competition, many catering brands have chosen to "cut prices on their own products". According to the investigation, since the second quarter, many chain catering brands including Haidilao, Xiāng Cūn Jī, and Hé Fǔ Lāo Miàn have announced price reductions on their products. For example, on June 21st, Hé Fǔ Lāo Miàn announced a price reduction of about 32% on several classic herbal soup noodles. "In the past two years, starting from coffee promotions, everyone's consumption has become more cautious and rational. Faced with this environment, brands must quickly integrate and adapt to these changes. The 'price war' of trading price for volume is an established fact as the industry enters a period of intense competition." Li Xuelin, the founder and chairman of Hé Fǔ Lāo Miàn, said in an interview that after the national menu switch in June, nearly 90% of Hé Fǔ Lāo Miàn's products are priced at 30 yuan or less. The market's feedback on the new prices has been positive, with a significant increase in customer flow. A senior catering professional in Shanghai told reporters that the catering industry is a fully competitive industry, and adjusting prices is a normal behavior for companies to adapt to market changes. From the current situation, the reasons for product price reductions vary, such as lower raw material costs, improved operational efficiency, periodic promotions, and attracting customers. "In the first quarter of 2023, the catering industry saw retaliatory consumption, attracting a large amount of external capital. As the consumer market returns to rationality, the catering industry is entering a reshuffling period. Relatively speaking, companies that can provide high cost-effective products and refine their operations will survive longer." Reporters learned from some catering brands that announced price reductions that the price reductions are mainly achieved by improving operational efficiency. For example, Xiangcunji announced on June 17 that 4 products were significantly reduced in price, returning to the prices of 2008. It is reported that the confidence for the significant price reduction mainly comes from three aspects: first, by leveraging the advantages of centralized procurement, direct sourcing from the source eliminates intermediary costs; second, building a complete supply chain to ensure efficient and high-quality supply of raw materials; third, executing the gene of "good and affordable" to the end. Pursuing the consensus on product quality and price ratio Li Liang believes that the decline in performance of Jiumaojiu is mainly due to the fact that the marketing concept innovation of the brands Tai'er and Song Hot Pot is greater than the innovation of category and product substance, and there is a problem of insufficient attractiveness of the products themselves. "The core problem of Tai'er is the declining attractiveness of its signature dish, Sour Cabbage Fish. The truly effective strategy should revolve around the signature dish, redefining or enhancing the value of 'Old Tanzi Sour Cabbage Fish'." From the latest statement of Jiumaojiu, it can be seen that the company has made improving the product quality and price ratio a key focus. On July 23, a person in charge of Jiumaojiu told reporters that in response to changes in the market environment and emerging consumer trends, the company is actively responding and adjusting. "Since the fourth quarter of last year, the catering market has faced fierce price wars, but we believe that blindly pursuing low-price competition is not sustainable. People's pursuit of a better life will not change, and absolute low prices are not our goal. We will focus on improving product quality, and based on this, price reasonably, so that customers can not only eat well and have a good experience, but also feel that they are getting value for their money," the person in charge said. Li Xuelin also expressed the attitude that Hufu Hand-Pulled Noodles will pursue the quality and price ratio. "Price wars are only effective in the short term, because there will always be products with lower prices in the market. In the context of weak consumer demand, brands need to withstand pressure, but relying on low-end cheap ingredients and chaotic price wars is not sustainable," Li Xuelin said. It is understood that in order to meet consumers' demand for health and wellness, Hufu Hand-Pulled Noodles has upgraded many of the raw materials on its menu to national organic certification, green certification, and geographical indication certification ingredients, which is extremely rare among national chain fast food restaurants. For example, the black cabbage used by Hufu Hand-Pulled Noodles comes from Rugao, Jiangsu, a famous "longevity town" in China. "To ensure the source of black cabbage supply, the black cabbage base currently cooperated with by Hufu Hand-Pulled Noodles covers 4,000 mu, and may expand to 10,000 mu next year," Li Xuelin revealed. Currently, the proportion of organic and green certified ingredients used by Hufu Hand-Pulled Noodles is over 10%, and this ratio is continuously expanding. "In the future, based on the return to reasonable prices, Hufu Hand-Pulled Noodles will continue to leverage the advantages of the supply chain, ensuring food safety and quality, while bringing consumers more and better product experiences," Li Xuelin said. Author: Zheng Junting, Source: Shanghai Securities News, Original Title: "Chain Catering 'Price War' Intensifies"