The army heading to the Hong Kong stock market has finally seen the emergence of hot pot enterprises.
Following HAIDILAO (6862.HK) and Xiaobuxiang (0520.HK), the domestic third-largest hot pot brand, BaNu, recently submitted its prospectus to the Hong Kong Stock Exchange.
In 2024, BaNu ranks third with a market share of 0.4%, behind HAIDILAO and Xiaobuxiang.
However, in the high-end hot pot chain sector, BaNu stands out as &#34;the only one.&#34;
In the quality hot pot sector with an average consumption of over 120 yuan, it ranks first with a market share of 3.1%.
Among the top five chain quality hot pot brands with a unit price above 120 yuan, BaNu is the only brand that has maintained positive growth.
However, against the backdrop of price reductions in the catering industry, intense competition in the hot pot sector, and the rise of franchise models, BaNu still faces severe growth challenges.
“How long can the story of 'productism' be told?”
<h2>High Prices and &#34;Productism&#34;</h2>
Positioned as a high-end hot pot brand, BaNu did not originate from major cities like Beijing, Shanghai, Guangzhou, or Shenzhen, but was born in Anyang, a fourth-tier city in Henan.
In 2009, BaNu entered Zhengzhou, the capital of Henan Province, and began to compete with HAIDILAO.
Founder Du Zhongbing commented, “After three years of effort and three years of learning, I was determined to surpass HAIDILAO, but I didn’t even touch the edge.”
Three years later, BaNu first shouted the slogan, “Service is not BaNu's specialty; tripe and broth are,” establishing &#34;productism&#34; as its core foundation.
The signature tripe product abandoned the traditional lye processing technique and innovatively adopted &#34;papaya protease tenderizing technology,&#34; resulting in better taste and health benefits, quickly carving out a niche in the Sichuan-Chongqing hot pot sector.
The largest external investor, Tomato Capital, invested in BaNu twice between 2020 and 2022, with a total investment of 273 million yuan.
External investment helped BaNu weather the downturn in the catering industry.
In 2024, BaNu's revenue reached 2.307 billion yuan, with a compound annual growth rate of 26.9% over the past three years.
In a time when the catering industry generally emphasizes cost-effectiveness, operating a high-priced hot pot is a challenge.
The &#34;sky-high&#34; 18 yuan for just five slices of selenium-rich potatoes and the founder's remark, “If you earn a monthly salary of 5,000 yuan, don’t eat hot pot,” have both embroiled BaNu in public opinion controversies.
In 2024, BaNu's average customer spending dropped from 150 yuan the previous year to 142 yuan.
The same-store comparable turnover rate fell from 3.2 times to 3.1 times, with an overall decline in same-store sales of 11.9%.
BaNu, striving to find a balance between high-end positioning and market share, hopes to attract customers back through gradual price reductions.
For example, it changed the traditional single pot format to a three-compartment self-selection model, lowering the average price of the pot base by charging per compartment.
It launched the &#34;Vegetable Monthly New&#34; plan, adding pork and vegetable products to the main product mix of tripe and beef, achieving structural price reductions.
Starting in the second half of 2024, BaNu gradually opened &#34;24-hour operation&#34; mode in 120 stores, using &#34;late-night canteen&#34; as a selling point to attract customers.
&#34;Exchanging price for volume&#34; has somewhat curbed the downward trend in store performance.
In the first quarter, BaNu's customer traffic surged by 40% year-on-year to 5.41 million, and the turnover rate rose significantly from 3 times in the same period of 2024 to 3.7 times
Against the backdrop of an overall year-on-year decline of 10 yuan in average transaction value, same-store sales growth turned positive to 2.1%.
However, in second-tier, third-tier, and lower cities where per capita consumption is already lower, the stimulating effect of &#34;late-night canteens&#34; is significantly diminished, with same-store sales growth rates of only 0.4% and 0.3%.
<h2>The Paradox of Price and Profit</h2>
Banu has stated that it hopes to deeply integrate hot pot dining into business banquets and high-end clientele, breaking the barriers between business banquets and hot pot.
However, the company's comfort zone does not lie in first-tier cities where business activities are more concentrated.
In the first quarter, Banu's average transaction value in first-tier cities was 159 yuan, 21 yuan higher than the average level; the operating profit margin was 20.7%, 3 percentage points lower than the average.
In the field of business banquets and high-end dining, first-tier cities often mean more intense market competition, as well as higher rent and labor costs.
In second-tier and lower cities, where nearly 80% of its stores are located, Banu's store traffic is higher, and the operating profit margin has reached 24.5%.
But at least at this stage, Banu's high transaction value has not brought about a corresponding high profit.
In 2024, Banu's average transaction value reached 138 yuan, 45 yuan higher than HAIDILAO.
However, the adjusted net profit margin of 8.5% is 6.1 percentage points lower than HAIDILAO's core operating profit margin during the same period.
Another factor affecting profit is the fixed costs related to the supply chain.
Banu is the only company among the top five hot pot chain brands that has achieved centralized supply of all store dishes from a central kitchen.
To ensure the quality of ingredients and supply stability, Banu builds a central kitchen whenever it opens a store in a new region.
By radiating nationwide stores through five central kitchens, it delivers daily, emphasizing &#34;if it can be fresh, don't freeze it; if it can be natural, don't use additives; if it can be same-day, don't let it sit overnight.&#34;
From 2022 to 2024, Banu's depreciation and amortization of other assets amounted to about 100 million yuan, accounting for revenue proportions of 7.8%, 5.1%, and 4.5%, respectively.
Although the investment in the supply chain is high, the current production capacity utilization rate is not high.
The central kitchen utilization rates in North China and South China are only 22% and 28%, respectively, while in the central region where stores are most densely located, the utilization rate is only 60%.
Alongside the development of the supply chain, store expansion is also underway.
Banu plans to build satellite warehouses in Henan, Shaanxi, Hubei, Anhui, Zhejiang, and Jiangsu provinces, extending the supply radius beyond the original 600 kilometers to support store expansion into surrounding cities.
The increase in procurement driven by store expansion and the scale effect may become the ultimate weapon for optimizing supply chain operational efficiency and even cost rates.
However, in the face of the current trend of declining average transaction values in the catering industry, Banu has chosen to reduce costs and increase efficiency by &#34;lowering the labor level.&#34;
In 2024, although Banu's full-time employees increased by 131, the number of part-time employees surged by 1,553, a full 1.4 times increase.
In the first quarter, the proportion of employee costs at Banu continued to rise, increasing by 0.6 percentage points to 34.2%.
<h2>The Challenge of Direct Management</h2>
From both the perspective of improving quality and efficiency and the urgency of capturing the market, scale is crucial for Banu's current stage of development.
Hong Kong stock fundraising is expected to become a driving force for the new round of store growth for BaNu.
From 2025 to 2027, the company plans to open approximately 40, 50, and 60 new directly-operated stores respectively, which means the number of existing stores will double within three years.
Competitors are also expanding their territory at the same time.
Currently, several chain hotpot restaurants under Peijie Chongqing Hotpot and Jiumaojiu (9922.HK) have started a franchise model.
The two leading hotpot companies, Haidilao and Xiaobuxiang, which have primarily operated under a direct sales model in the past, are also showing a positive attitude towards franchising.
Haidilao announced the launch of franchising in March last year, collaborating with institutional investors or those with operational experience, and has already established 13 locations.
Xiaobuxiang's founder, He Guangqi, also revealed that they may adjust the pace of opening stores, with plans to launch franchising by 2025 at the latest.
Du Zhongbing believes that whether a business model is suitable for franchising depends on the degree of reliance on people.
&#34;Fast food relies on products and has very mature processes. As long as the supply chain is established and material delivery is in place, the franchise model is feasible,&#34; said Du Zhongbing.
Even though hotpot is the most standardized category within Chinese cuisine, in Du Zhongbing's view, it still does not meet the standards.
&#34;BaNu's offerings are all unique, and the difficulty of standardization is high, making franchising even more challenging,&#34; Du Zhongbing said.
In fact, Haidilao's franchising adopts a &#34;strong management&#34; model.
This means that Haidilao is fully responsible for the daily operations of the franchise stores, including store operations, performance evaluation, personnel recruitment, membership management, and supply chain, while franchisees often act as &#34;hands-off managers.&#34;
BaNu may not yet be at the stage of opening franchises, possibly due to the brand's strong bargaining power.
Currently, it has only entered 14 provinces and municipalities, with fewer than 10 stores in several provinces, including Yunnan and Shaanxi, and has not established sufficient brand influence.
In the sinking market of third-tier cities and below, BaNu's bargaining power is even weaker, with a price difference of up to 40 yuan compared to first-tier cities, while Haidilao's price difference is about 13 yuan during the same period.
The current insistence on direct sales essentially serves the narrative of &#34;productism.&#34;
However, from the perspective of management radius, risk resistance, and flexibility, direct store openings not only face an expansion ceiling but also will not be very fast in store expansion.
In the first quarter of this year, while BaNu opened three new stores, it also closed three, resulting in a total number of stores remaining stagnant.
The hotpot industry has already passed the golden expansion period of increasing chain rates.
As a leading player, Haidilao has explored growth through various means over the past two years.
In 2023, Haidilao implemented a regional system reform, decentralizing decision-making authority and strengthening regional attributes in its menu. The following year, it launched the &#34;Pomegranate Plan,&#34; incubating sub-brands through internal entrepreneurship.
Recently, it even introduced a 22 yuan self-service lunch to seek new growth based on its traditional store business.
BaNu has not been without attempts at diversification and personalization.
However, its previous trials in the seafood category and its budget hotpot sub-brand &#34;Chao Dao&#34; have not been successful.
In 2024, BaNu's revenue growth rate significantly slowed to 9% from 47% in the same period last year, with operating cash flow declining by 7.7%
If the expansion process falls short of expectations, BaNu may have to tell a new story beyond the expensive &#34;productism.&#34;

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High places are hard to bear the cold

- The hot pot brand Ba Nu has submitted its prospectus to the Hong Kong Stock Exchange, following competitors Hai Di Lao and Xia Bu Xia Bu.  
- Despite facing challenges in a competitive market, Ba Nu leads in high-end hot pot with a 3.1% market share and has maintained positive growth in recent years.  
- However, the company is experiencing declining average customer spending and sales, prompting strategies to balance high-end positioning with market share recovery.

Banu's Impact on Hong Kong Stock IPO: Can "Productism" Withstand the Price Reduction Tide?