Lowering prices is also difficult to regain customers, XIABUXIABU's stock price hits a new low again

The top hot pot chain, XIABUXIABU (00520.HK), is not only "abandoned" by young people, but also shunned by funds in the capital market. On September 10th, XIABUXIABU's stock price, which had already fallen to a low, hit a new low again, closing down by 8.89% on that day, with the stock price at HKD 0.82, continuously trading as a "penny stock" for several days. The company's market value also fell below HKD 900 million to HKD 891 million, dropping out of the top ten in the catering sector of the Hong Kong stock market. The dismal performance of XIABUXIABU's stock price may be attributed to two factors: extremely poor operational performance in the first half of the year and being removed from the Hong Kong Stock Connect list on September 9th. The impact of these two major negative factors has shaken market confidence, leading to a mass exodus of funds. Hot Pot is No Longer Appealing It is well known that this year, the domestic catering industry has been struggling, with intensified industry competition, fierce price wars, rising costs of ingredients, and a cautious consumer market, posing significant challenges to the industry. Unfortunately, XIABUXIABU has not shown the same resilience as Haidilao (06862.HK) this year, instead facing a Waterloo in operational performance. In the first half of this year, XIABUXIABU achieved revenue of RMB 2.395 billion, a year-on-year decrease of 15.9%; the company's attributable net loss was RMB 273 million, compared to a profit of RMB 2.406 million in the same period last year. Prior to this, XIABUXIABU had been incurring losses for three consecutive years, with accumulated losses exceeding RMB 1.1 billion including the first half of this year. Haidilao, on the other hand, has relatively good performance, with revenue growth but no profit growth in the first half of the year, achieving a net profit of RMB 2.038 billion. In its interim report, XIABUXIABU mentioned that despite a steady growth in industry revenue, issues such as "revenue growth without profit growth" and "excessive operational pressure" in the catering industry remain severe. XIABUXIABU seems almost powerless against the industry competition, with its management expressing at the performance meeting: the industry competition in the catering sector is too intense! The operational data of XIABUXIABU in the first half of the year is far from that of Haidilao, with same-store sales of XIABUXIABU's brand totaling only RMB 827 million, a 34.8% decrease from RMB 1.268 billion in the same period last year; the same-store sales growth rate was -19%, compared to 29.1% in the same period last year. To cope with the crisis, XIABUXIABU had to follow the industry trend of lowering prices and reduced its average customer spending. In May this year, XIABUXIABU reduced the price of its individual set meals by up to RMB 8, with an overall price reduction of around 10%. At the same time, XIABUXIABU introduced a paid membership model in May last year to enhance customer loyalty, offering discounts for XIABUXIABU and COCO brands. However, despite the price reductions, XIABUXIABU is still "abandoned" by young people, and the customer traffic for its two major brands has not improved. As a mid-to-high-end hot pot brand, COCO is even more powerless in the weak consumer market environment, with a table turnover rate of only 1.6 times in the first half of the year, performing even worse than in 2022 during the outbreak of the epidemic In addition, the same-store sales and same-store sales growth of Coucou are significantly lower than those of Xiabu Xiabu brand. In the first half of the year, the same-store sales were 751 million yuan, a year-on-year decrease of over 43%; the same-store sales growth rate was -43%, compared to 8.9% in the same period last year. Haidilao's popularity is significantly better than Xiabu Xiabu. In the first half of the year, based on price reductions, the table turnover rate was 4.2 times per day, compared to 3.8 times per day for the whole of last year. Some industry insiders pointed out that consumers are becoming increasingly sensitive to the prices of dining. Their perception of Xiabu Xiabu's improvement is not as sensitive as their perception of price increases. No matter how exquisite the model and concept are, it ultimately needs to return to the aspect of cost-effectiveness. Painfully Closing Stores to Stop Losses The threshold for the hotpot industry is not high. During a downturn in the overall environment, the industry is prone to intense competition, and under internal competition, the profits of industry participants will be suppressed. On the other hand, after many years of development, the degree of chain operation in the domestic hotpot industry is relatively high, and the industry's existing scale is large, so the new expansion space is not as large compared to other catering formats. In the first half of this year, with the sluggish consumption, Xiabu Xiabu had a considerable number of loss-making stores, which were also important factors contributing to the company's losses. Xiabu Xiabu stated in the interim report that due to the low willingness of dining customers to visit the stores, after careful consideration, it is expected to close and continue to operate loss-making restaurants, and will provision for impairment losses of approximately 203 million yuan in the first half of 2024. Xiabu Xiabu had to close some underperforming stores in the first half of this year, with a total of 78 stores closed. Among them, Xiabu Xiabu and Coucou stores closed 48 and 23 stores respectively. At the same time, Xiabu Xiabu opened 52 new stores, far fewer than the number of closed stores, marking the first time since the first half of 2022 that the number of closed stores exceeded the number of new stores opened by the company. However, Xiabu Xiabu remains confident about the future. In the interim report, it stated that it will continue to deepen its membership loyalty program and implement the "expansion to the east and west" strategic plan. Xiabu Xiabu pointed out that the strategic plan of "expansion to the east and west" centered on its second headquarters in Shanghai has been validated, and the sustainable high table turnover rate has solidified the group's business in first-tier cities such as the coastal areas, the Yangtze River Delta region, and the Greater Bay Area, and further expanded into new first-tier and second-tier markets. Currently, the domestic catering industry is undergoing a new cycle. Faced with a challenging industry environment, Xiabu Xiabu has to withstand market pressure to turn the tide, which is no small challenge