The stock price of China’s most popular hotpot chain Haidilao came to a low this week with the company’s market value plunging over 50% after an extensive expansion during the Covid epidemic.
Just four months ago, Haidilao’s total market value used to exceed 450 billion Hong Kong dollars. That number has since shrunken to less than 200 billion and shares closed on Monday at 37.5 Hong Kong dollars a piece, making the company one of the worst performing stocks in the market.
Famous for taking meticulous care of its customers, the hotpot unicorn is one of the country’s favorite chain restaurants. Though complaints about its cuisine’s quality have long existed, the company has gained a large market share and even stepped into the global market. From 2015 to 2019, the number of Haidilao outlets jumped from 146 to 768 – a five-time increase in just five years – with new stores spreading across Asia, North America and Europe.
When the pandemic hit the economy hard in early 2020, the company also suffered and most of its restaurants were closed from January to March. But with the Covid 19 in mainland China gradually getting under control, the founder of the company, Zhang Yong predicted the Covid would end in September and the food industry would soon recover as well.
Zhang decided to rent more places and hire more staff. Opening new stores as the virus raged meant buying into the market at the bottom, which the company hoped would be a good strategy once the market bounced back. In 2020, Haidilao opened 544 new locations across China according to the company’s performance report.
But that bold bet was on the wrong horse. The Covid is still haunting the world, and more stores failed to bring more money – yet they carried higher operating expenses. Haidilao’s annual report shows that whereas profits in 2020 hoovered at about 310 million yuan, the figure for 2019 used to be 2.3 billion, marking an 86.6% reduction.
Faced with skyrocketing costs, the company decided to price up up the menu, stirring up controversies. “This is passing losses to consumers,” a customer commented on social media platform Weibo.
Many other competitors in the industry are also stepping up to seize the market. Banu, Xiaolongkan and Xiabuxiabu all pose a threat to Haidilao’s leading position, with an industry survey report showing that Banu’s satisfaction rate surpassed Haidilao in 2019.