The market capitalization of Haidilao (06862.HK), the first hotpot stock, recently exceeded HK$200 billion, a record high. And for investors in this company, the new high is actually a reminder.
Zhang Yong, the founder of Haidilao, once said that in order to ensure the quality of service, the number of new stores will not exceed 30 per year. After the company went public, this guarantee was broken. 2018, Haidilao added 200 new stores. And in the first half of 2019, another 127 new stores were added, with an average of one Haidilao opening every two days.
Investors need to note that Haidilao's crazy store opening does not seem to be for profit. The reason why I say so is because, is regarded as the secret of Haidilao's success of the ultra-high turnover rate, in the recent half-yearly report for the first time appeared to decline. The decline in the turnover rate will directly affect the profitability of Haidilao.
Why would Haidilao do such a thing as to make the return on investment decline?
It can be seen that the strategy of Haidilao before the listing is to deepen the cultivation and improve the revenue of single store, and after the listing, it seems to become a more rough development mode. The reason behind this is directly related to the single-store revenue topping.
Haidilao dining customers per capita consumption growth is offset by the decline in the number of diners, so the overall seems to be the same store revenue growth is more and more weak. Haidilao's same-store sales revenue growth in first-tier cities declined from 11.7% in 2018 to 3.3% this year. And the per capita consumption of Haidilao's stores in first-tier cities rose 3.7% this year, all of which suggests that it has seen a decline in the number of same-store diners.
Second-tier cities also suffered the same situation, and even the growth rate of decline is more serious. The growth rate of same-store sales revenue in second-tier cities fell from 4.3% in 2018 to 1.9% this year, which is less than the CPI growth rate. The number of same-store diners fell by 2.5 percent. Worse, second-tier cities contribute more than half of Haidilao's revenue. The slowdown in store revenue growth in second-tier cities has a greater impact on the overall revenue growth of Haidilao.
Although the performance of same-store revenue in third-tier cities remained at a high level. However, third-tier city revenue accounts for less than 20% of Haidilao's revenue, and its contribution to overall revenue is limited.In 2018 and the first half of 2019, Haidilao's same-store revenue growth rate was 10.6% and 12.5%, respectively. According to the half-year report, the average spending of customers in stores in third-tier cities increased by 3.2 percent. The number of same-store diners increased by 9 percent. This indicates that there is still room for growth in single-store revenue in third-tier cities. Moreover, Haidilao said that the future sinking of stores will be the next step in the focus of work.
The same-store revenue growth topped, Haidilao chose to accelerate the opening of new stores to maintain growth. 2018 and the first half of 2019, Haidilao's store growth rate of 70.6% and 73.9%, respectively. And during the same period, Haidilao's revenue growth rate was 59%. This all shows that Haidilao's growth at this stage is almost driven by new stores.
But the problems also come one after another. The first and foremost is the decline in the turnover rate.
The turnover rate of Haidilao has been maintained at about 5 times. And the same is a chain hot pot brand sip feed the turnover rate is only about 2.5 times. And this is held up as the secret of Haidilao's success of the ultra-high turnover rate, in the recent half-yearly report for the first time in the decline.
According to the 2019 half-year report, the table turnover rate of Haidilao's mainland China restaurants was 4.8 times, compared with 5.0 times in the same period last year. Moreover, the turnover rate of all first- to third-tier cities showed a decline. Not only that, the decline in the turnover rate of newly opened restaurants was even greater. It dropped sharply from 4.6 times in 2017 to 3.9 times at present, indicating that the profitability of newly opened restaurants is no longer what it used to be.
The decline in the turnover rate is a direct threat to the profitability of Haijiao.
Haidilao, which is characterized by extreme service, has labor costs that are much higher than the industry average. As of the end of 2018, Haidilao*** had 69,000 employees, and the average salary of employees was about 73,000 yuan, which was higher than in 2017 and higher than the industry average. The proportion of revenue accounted for by Haidilao's salary expenses has also risen year after year, from 27.3% in 2015 to 31.2% today. And it is about 5 percentage points higher than peer Gluttony. This has a great impact on the restaurant industry, which is already thin profit.
On the one hand, the new stores caused by the old stores customers are diverted, on the other hand, with the radical opening of stores and rapid increase in salary expenses, rent, utilities and other costs. In the past, Haidilao in the ultra-high single-store revenue guarantee, can cover the extreme service brought about by the rising costs to achieve profitability. And also set up the brand image of Haidilao, so that this business model can be successful. However, if Haidilao's single-store revenue continues to decline, the cost of the proportion will rise rapidly, swallowing Haidilao's profits.
In fact, Haidilao's net interest rate has declined sharply. 2016 is the peak of Haidilao's net profit, which also happens to be the year, Haidilao's expansion speed accelerated, and the net interest rate began to gradually decline. By 2019, Haidilao's net profit margin was already as low as 7.78 percent, 1 percentage point lower than the same period last year. According to the 2019 half-yearly report, Haidilao's store count grew 74 percent and operating income grew 59 percent, while net profit only grew 40.9 percent. In the future, this situation may become more and more serious, and even the situation of increasing revenue without increasing profit.
Not only that, Haidilao's operational indicators are also gradually deteriorating. According to this year's half-yearly report, Haidilao's total asset turnover ratio was 0.81, compared with 1.78 in the same period last year.The operating cycle has also increased from 3.43 days in 2018 to 4.27 days today. Restaurant companies have thin margins, and operational efficiency is crucial to their profitability. Continuous and large-scale expansion of stores has led to a decrease in Haidilao's net profit margin and operating efficiency. It's no surprise that the return on equity (ROE) has seen a significant decline. Today's ROE is only 9.9%, almost one-tenth of what it was two years ago.
The result of the frantic opening of stores, as the major shareholder of the sea salvage Zhang Yong may not have foreseen. The deeper reasons for allowing Haidilao to continue to open stores, I'm afraid that the supply chain system. Here, Haidilao is playing a big game.
Zhang Yong's industry almost covers the hot pot of the catering industry from raw materials to the transportation of ingredients in the whole industry chain. Responsible for the production of hot pot base for Haidilao is another listed company under Zhang Yong - Yihai International (1579.HK). Yihai International is Haidilao's main hotpot base supplier, and Mr. and Mrs. Zhang Yong hold a 35.61% stake in it. 2015-2018 Haidilao's raw material purchases from Yihai International increased from 16.8% to about 22.6%. 2018 Haidilao's purchases from Yihai International amounted to as much as 1.1 billion yuan, which accounted for 38% of the operating income of Yihai International.
There are also related parties in the upstream ingredients supply chain. Shuhai supply chain, Sichuan Haidilao, Zalutqi are Zhang Yong's name of the affiliated companies. Among them, Shuhai supply chain has the largest scale of related transactions, he not only provides hot pot ingredients for Haidilao but also provides food storage and transportation services. 2018, Haidilao purchased food ingredients from related parties in the total amount of 1.9 billion yuan. Together with the previous 1.1 billion hot pot base material payment that Haidilao procured from Yihai International, Haidilao's total procurement from related parties amounted to 3 billion yuan, accounting for 55% of the total procurement amount.
Even the store decoration business, Haidilao is also fat and water flow outsiders. The group's Shu Yun Dongfang was originally the engineering department of Haidilao. Before the listing of Haidilao, it was divested from the table, specializing in restaurant decoration and renovation services.In 2018, Shu Yun Dongfang received orders from Haidilao amounted to 79 million yuan, a year-on-year increase of 70%, and the growth rate of Haidilao's stores in 2018 was in line with the growth rate of Haidilao's stores. It is expected that with the growth of Haidilao stores in the future, Shu Yun Dongfang's turnover will also grow rapidly.
Not only that, Haidilao's affiliates are also engaged in Haidilao's takeaway services and human resource management and information services.
In fact, Haidilao radical expansion of stores, although from the single-store revenue growth rate and other data on the surface, some of the gains and losses. But if you look bigger and farther, you can understand that Zhang Yong is to build a Haidilao "empire", the purpose is only to expand the supply chain system services. And the purpose of doing so, it is obvious.
Undeniably, the catering industry downstream has long been in the red sea market, even if Haidilao is located in the fast-growing hot pot track, but also inevitably by the pressure of competitors. Under the pressure of rising labor and rental costs, the profitability of restaurant chains is getting smaller and smaller. Moreover, the taste difference between different regions is large, restaurant chain stores want to open the national market is more difficult. At present, the market share of Haidilao has reached 3.6%, in the leading position. It is not easy to continue to improve.
However, the supply chain of food and beverage is in the blue ocean market, not only the industry space is broad, profit margins than the restaurant chain is also considerable. Although there is no public information on the net interest rate of the supply chain of Shuhai. However, the same is the catering supply chain upstream Yihai international gross profit margin and net interest rate of 37% and 17%, respectively, much higher than the listed Haidilao. Making the supply chain system of Haidilao bigger can improve the profitability and capital utilization efficiency of the whole group.
Through the expansion of Haidilao stores, the supply chain system of Haidilao can not only get more orders, but also enlarge its own scale, so as to better serve the external catering enterprises. The core of the supply chain system is logistics and warehousing, both of which require scale effects to establish a competitive advantage. Obviously, from the perspective of the group's overall interests, by opening up the market of the larger downstream catering industry, let the supply chain system bigger and stronger is the urgent need of Haidilao. In this way, it can explain why Zhang Yong did not choose to let the bottom of the sea to expand profits steadily, but at the expense of a portion of the profit margin, in an almost radical way to expand stores.
Haidilao crazy behind the expansion of stores, there is a single-store performance top, rely on the expansion of stores to protect the reasons for growth. But more importantly, Haidilao hopes to take the downstream chain stores as the upstream supply chain system flow entrance. Even if Haidilao itself because of store expansion and lead to a decline in net interest rate, the whole group's profits can be made up from the supply chain company. However, the decline in net profit of listed companies due to crazy expansion may have to be listed on the small shareholders to pay the bill.
The real growth story of Haijilao obviously can't be shared with the small shareholders, and the risk of the inflated market value of 200 billion dollars is really to be borne by the small shareholders.
This article is from the cat finance
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