A new round of expansion competition in the chain catering industry begins? HAIDILAO opens up franchising opportunities.

After experiencing the "hit" of direct expansion during the epidemic, the cautious HAIDILAO (6862.HK) has now opened up to franchising.

On March 4th, HAIDILAO (6862.HK) announced that it will implement a franchise business model for HAIDILAO restaurants to further promote the expansion of its restaurant network through diversified operations.

In addition, HAIDILAO has established a franchise business unit to develop detailed franchise business models and business cooperation processes.

HAIDILAO stated that it will use multiple criteria to select franchisees, including brand values, vision planning, industry experience, and financial foundation. Different franchisees will be promoted in a "rigorous and systematic manner" based on factors such as market size, competitive landscape, property conditions, and geographical location, in order to explore new business models.

According to the HAIDILAO official website, opening a HAIDILAO franchise store involves six processes: franchise application, qualification review, intention communication, committee negotiation, and others. However, the website does not specify the strict requirements for franchisees.

TradeWind01 inquired with HAIDILAO about the financial threshold for franchisees and the specific requirements for franchise store locations, but as of the time of writing, no response has been received.

For reference, in February of this year, Jiumaojiu (9922.HK) opened up its Tai'er brand and Shan's Shanwaimian Guizhou Sour Soup Hot Pot for franchising, with a financial requirement of over 3 million in legal cash or proof of assets that can be realized for over 20 million.

In the announcement, HAIDILAO stated that it will implement unified operational and quality standards across all self-operated restaurants. HAIDILAO will provide support to franchisees in areas such as personnel training, supply chain management, management experience, food safety control, brand marketing services, and performance evaluation. HAIDILAO believes that introducing a franchise business model will not only maintain management standards and customer experience but also enhance operational capabilities, bring in more high-quality resources, improve operational efficiency, and help expand the HAIDILAO brand to more cities, providing services to a wider range of customers.

As of the first half of 2023, compared to the same period in 2019, HAIDILAO's number of stores in mainland China has nearly doubled, with a net increase of 644 stores to 1360, surpassing the 6 times of COFCO's COFCO (0520.HK) and 32 times of Jiumaojiu's SONG Hotpot.

During the pandemic, the overly optimistic founder of HAIDILAO, Zhang Yong, aggressively opened new stores, but had to launch the "Woodpecker Plan" (closing stores that did not meet standards) after setbacks, closing some already operating stores and committing not to open new stores if the turnover rate is less than 4.

Fortunately, in 2023, as offline dining began to recover, HAIDILAO breathed a sigh of relief.

HAIDILAO's previously announced profit forecast shows that its full-year revenue for 2023 is expected to be no less than 41.4 billion yuan, a year-on-year increase of no less than 33.3%; the estimated net profit is no less than 4.4 billion yuan, a 168% increase compared to the 16.4 billion yuan net profit excluding Teahai International in 2022, and nearly double the 23.45 billion yuan net profit in 2019.

According to Lin Wenjia, an analyst at Pu Yin International, HAIDILAO's overall turnover rate in December last year had basically returned to the level of the same period in 2019, with 9 new stores added throughout the year, and 20 to 30 "tough" stores (previously closed under the "Woodpecker Plan") reopened.

In the past, due to the impact of the pandemic, it was difficult to see the diversion effect of new store openings in HAIDILAO's past performance, and the demand in the lower-tier markets has not been fully validated.

After this comprehensive opening of franchising, HAIDILAO will face these challenges head-on.