Financial Report 2024 | Price war lowers unit price, 9.9 embarks on franchise participation in expansion race

There is no time to savor the mixed joys and sorrows of 2023, as chain catering brands are gearing up for a new round of expansion competition.

Jiu Mao Jiu (9922.HK) recently released its 2023 financial report, benefiting from the recovery of offline catering, achieving a full-year revenue of 5.99 billion yuan last year, a year-on-year increase of 49.4%; achieving a net profit of 450 million yuan, a year-on-year increase of 820.2%.

In terms of dividends, Jiu Mao Jiu plans to distribute dividends at 0.15 HKD per share, totaling approximately 216 million HKD for dividends, with a dividend payout ratio increasing by 16.3 percentage points year-on-year to 43.1%, reaching a historical high.

Jiu Mao Jiu expects to maintain a dividend payout ratio of over 40% in the future.

In 2023, offline catering consumption has significantly recovered, not just for Jiu Mao Jiu.

Haidilao (6862.HK), which previously released performance forecasts, expects a year-on-year revenue growth of no less than 33.3% for the full year last year; excluding the 1.64 billion yuan net profit of TeHai International (9658.HK) in 2022, the net profit increased by 168% year-on-year.

However, behind the bright performance is the increasingly intense expansion anxiety of chain catering brands, with Jiu Mao Jiu being no exception.

Last year, catalyzed by industry price wars, its core brand "Tai Er" not only saw a decline in average customer spending, but also lagged in table turnover in the second half of the year, with a turnover rate for the whole year being 0.2 times/day lower than the first half of the year.

On the trading day following the financial report release, on March 25th, Jiu Mao Jiu's stock price opened high and closed lower, falling by 4.44% to 5.6 HKD per share.

Consequences of Price Wars

In the consumption recovery after the epidemic, the top priority for catering enterprises is to seize the limited consumer spending power.

However, this is not easy, as price wars have almost become the only choice for various brands, whether actively or passively.

Xin Feng (ID: TradeWind01) once wrote in the article "Expectations and Disappointments of Chain Catering in 2023" that in the first half of 2023, despite the rapid recovery of catering consumption, the table turnover rates of many listed chain catering companies have not yet returned to the level of 2019, and the average customer spending has further declined.

According to a source in the catering supply chain interviewed by Xin Feng (ID: TradeWind01), the current trend in catering consumption shows a "K-shaped recovery".

Based on observations, mass-market catering with an average spending of 40-50 yuan and upscale catering with an average spending of 200-300 yuan have recovered relatively quickly Compared to that, the recovery of dining expenses between 100 yuan and 200 yuan per capita is relatively slow, but this is the main price range for the melee of chain catering enterprises.

In terms of performance, compared to the first half of last year, JiuaJiu faced increasing competitive pressure in the second half of the year.

In terms of brands, the core brand TaiEr contributed revenue of 4.48 billion yuan, a year-on-year increase of 44%, with a net increase of 128 stores to 578 stores;

Sōng Hot Pot doubled its store count to 62, with revenue increasing by 210.9% year-on-year to 810 million yuan.

JiuaJiu brand contributed revenue of 630 million yuan, a 4% year-on-year increase; Uncle Na, the chef, contributed revenue of 10.77 million yuan, a 12.8% year-on-year decrease; LaiMeiLi Grilled Fish contributed revenue of 47.65 million yuan, a 272.3% year-on-year increase; the newly opened high-end hot pot brand ShangXianYueMu contributed revenue of 7.17 million yuan.

In terms of customer unit price, TaiEr brand's customer unit price reached 75 yuan, a decrease of 2 yuan year-on-year; Sōng Hot Pot reached 113 yuan, a decrease of 15 yuan year-on-year.

JiuaJiu attributed the decline in the customer unit price of the two brands mentioned above to internal and external factors such as market conditions and industry competition, and adjusted menu supply and food prices.

The background of JiuaJiu's price adjustment is that catering enterprises in general are engaged in a price war.

In fact, not only JiuaJiu, but also Haidilao and Xiabu Xiabu (0520.HK) did not recover to the same level as the first half of 2021 in terms of customer unit price in the first half of last year.

In order to seize limited consumption power, some platforms even indirectly set up a "choose one" for brands.

In October last year, JiuaJiu's chairman Guan Yihong pointed out directly on WeChat Moments that the day before, TaiEr's first live broadcast on Douyin, the next day it could not be found on Dianping. Two days later, TaiEr's official Weibo released a clarification announcement stating "differences in rules in marketing and technical interfaces between the two sides".

The maneuvering of catering brands between platforms and the competitive pressure of participating in price wars are evident.

In terms of results, the effect of the price war is not particularly significant.

In 2023, TaiEr brand's table turnover rate reached 4.1 times per day, an increase of 0.6 times per day year-on-year, but lower than the 4.3 times per day in the first half of last year;

Sōng Hot Pot's annual table turnover rate reached 3.8 times per day, an increase of 0.2 times per day year-on-year, but also lower than the first half of last year, indicating that the table turnover rate of these two major brands in the second half of last year was slightly slower.

Deng Wenhui, an analyst at Guolian Securities, said that after September last year, due to the weakening of consumption power, JiuaJiu's table turnover rate significantly declined.

A restaurant chain owner in the Jiangsu-Zhejiang region told TradeWind01 that in recent years, due to the opening of shopping centers in close proximity and the gradual homogenization, there is a diversion effect on the customer flow of restaurants, and the rent of shopping center stores has been increasing year by year. The cost has risen but the revenue of a single store has not increased, so the performance of single store operations has correspondingly deteriorated.

According to data from iMedia Research as of the end of 2022, the total number of shopping centers nationwide reached 5,685, compared to 4,335 in 2019, an increase of more than 1,300 shopping centers in three years Nine Maojiu, Haidilao and other chain catering companies used to rely mainly on direct-operated models for asset-heavy expansion. Not only is the speed slow, but they also have to bear costs such as employee salaries, rent, utilities, and depreciation of stores.

In the second half of last year, Nine Maojiu's net profit margin, excluding stock payments, was about 8%, slightly down from the first half.

Sun Yu, an analyst at Dongwu Securities, analyzed that the decline in net profit margin was mainly due to the increase in the proportion of employee costs, promotional expenses, and the higher proportion of depreciation from the addition of many new stores.

In the current situation where the return on investment per store is declining, it is not surprising that Nine Maojiu wants to expand rapidly by opening up franchising.

Expansion Race

Currently, Nine Maojiu's franchising expansion is not only aimed at domestic destinations but also overseas markets.

On February 1st this year, Nine Maojiu announced the opening of franchising for the Tai'er and Shande Mountain Sour Soup Hot Pot brands.

The franchising scope of Tai'er mainly covers provinces such as Xinjiang, Tibet, Taiwan, domestic airports, high-speed rail hubs, as well as overseas markets such as Australia and New Zealand.

Shande Mountain Sour Soup Hot Pot is open for cooperation with designated shopping malls and will open for franchising on February 3, 2025.

According to Nine Maojiu's requirements, franchisees need to provide proof of legal cash of over 3 million RMB or liquid assets of 20 million RMB (and need to provide reasonable proof that the funds come from personal efforts rather than investments from others).

From the regions where franchising is open, Nine Maojiu's expansion of its core brand Tai'er seems somewhat "restrained."

In China, the provinces and regions it opens up are relatively remote, and the restrictions at high-speed rail hubs, airports, etc., limit franchisees to those with corresponding resources in various locations;

In overseas markets, the requirements for franchisees' funds and store locations are also relatively strict. Public information shows that the location of Tai'er's overseas stores is limited to areas where Chinese people gather.

Therefore, the first batch of qualified franchisees for Nine Maojiu will inevitably not be many, indicating a clear "trial" within a specific range.

This requirement corresponds to the single-store investment cost of Tai'er.

According to Li Zhen'ni, an analyst at Fangzheng Securities, the single-store investment cost of Tai'er is around 2.5 million RMB.

Xin Feng (ID: TradeWind01) learned from sources close to Nine Maojiu that internally, Nine Maojiu's analysis believes that the payback period for Tai'er stores is approximately 10-12 months.

Xin Feng (ID: TradeWind01) inquired about the progress of recruiting franchisees since February and the review period with relevant personnel from Nine Maojiu, but as of the time of writing, no response has been received.

Testing overseas stores also reveals Nine Maojiu's determination to go global.

By the end of 2023, Nine Maojiu's Tai'er brand had opened 18 stores in Hong Kong, Macau, Taiwan, and international markets, with a turnover rate as high as 5.5 times per day, higher than the 4.1 times per day in the mainland Chinese market.

Nine Maojiu plans to open 80-100 new Tai'er stores and 35-40 new Sheng Hot Pot stores in mainland China in 2024, and 15-20 new Tai'er stores in Hong Kong, Macau, Taiwan, and international markets Just one month after 99 opened up for franchising, on March 4th, Haidilao, the king of chain hotpot restaurants, also announced that it will implement a franchise business model for Haidilao restaurants, targeting the expansion path of light assets.

In the new round of rapid expansion race among catering enterprises, 99 may need more franchisees to help