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PostsOnce the darling of the catering industry, now almost below net asset value, the valuation has reached the extreme point of the spring, waiting for a catalyst!
Jiujiu Restaurant Group, listed in Hong Kong$JIUMAOJIU(09922.HK), has been facing tough times. After a 70% drop last year, it fell another 40% this year, with its market value evaporating over 90% cumulatively.
You might not be familiar with this company's name, but if we mention Tai Er Sauerkraut Fish, you've probably tried it.
Jiujiu Restaurant Group is a Hong Kong-listed company with multiple restaurant brands. Besides Tai Er Sauerkraut Fish, its brands include Jiujiu, Northwest Cuisine, and Song Hotpot.
However, among all its brands, only Tai Er Sauerkraut Fish stands out, accounting for over 70% of the group's total revenue.
Relying on its signature Sauerkraut Fish dish, Jiujiu Restaurant Group was once a darling of Hong Kong's consumer stocks.
Over the past few years, the company's performance soared, with revenue increasing from RMB 1.5 billion in 2017 to RMB 4.2 billion in 2021, a compound annual growth rate of 30%. Net profit also rose steadily from RMB 66.86 million in 2017 to RMB 340 million in 2021. Even during the pandemic in 2022, revenue and profits rebounded to new highs in 2023 as the industry recovered.
But times have changed. Even the Sauerkraut Fish market is struggling now. According to Jiujiu Restaurant Group's earnings forecast, revenue for the first half of 2024 is expected to be around RMB 3.1 billion, up 6.4% year-on-year, with net profit no less than RMB 67 million, down no more than 69.8% year-on-year.
The report did not mention Tai Er's specific revenue, but judging from same-store sales and table turnover rates, Tai Er's performance has declined significantly.
In Q2, Tai Er's self-operated stores saw same-store daily sales drop 18.1% year-on-year, and table turnover rates fell from 3.9 times in Q1 to 3.6 times in Q2.
Meanwhile, Tai Er's average spending per customer has dropped to RMB 69, returning to levels from seven years ago and RMB 20 cheaper than the peak of RMB 80 in 2021.
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Why is this simultaneous decline in volume, price, and demand happening?
1. Market saturation for Sauerkraut Fish
Sauerkraut Fish became popular over the years due to its sour, spicy, and fresh flavors, which have broad appeal and gradually broke regional barriers, becoming a national dish.
However, the challenge is that standardized pre-made Sauerkraut Fish dishes have lowered entry barriers, leading to fierce competition and market saturation.
Data from a restaurant research and evaluation agency shows that in the first half of 2023, 31.3% of Sauerkraut Fish businesses were growing slowly, with half of the chain brands shrinking or stagnating.
This suggests consumers are losing interest in the Sauerkraut Fish category.
At its peak in 2021, there were nearly 50,000 Sauerkraut Fish restaurants nationwide. By June this year, that number had dropped to fewer than 30,000.
This shows the business is tough, with many closing down—the market is shrinking!
2. High prices make it vulnerable to economic downturns
Tai Er's relatively high prices also don't align with the current trend of budget-friendly alternatives.
According to the 2023 China Food and Beverage Consumption Trends Report, China is entering the fourth wave of consumerism, where people are unwilling to pay for excessive brand premiums and instead prioritize practical experiences and emotional needs.
Real-world examples include the popularity of affordable tea and coffee brands like Mixue Bingcheng and Cotti Coffee.
The rise of Zibo BBQ and 'special forces-style' travel reflects consumers' pursuit of novelty and high cost-performance ratios.
After all, if people are even looking for cheaper alternatives to Uniqlo, a RMB 69 Sauerkraut Fish meal might still be a bit pricey.
3. Conclusion
Jiujiu Restaurant Group's core business relies heavily on Tai Er Sauerkraut Fish. But with the Sauerkraut Fish market shrinking and Tai Er's prices higher than competitors, declining sales and prices are inevitable amid consumer downgrading.
Overall, restaurant stocks are highly volatile and not ideal investments.
However, Tai Er Sauerkraut Fish still holds some brand premium in the industry.
Using replacement cost valuation, Jiujiu Restaurant Group, now nearly below book value, looks very cheap. But stable growth in its stock price and performance will require an economic recovery and increased consumer spending.
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