Sichuan spicy hotpot chain Haidilao prepares for Hong Kong IPO

Pearl Liu
1 / 4
Sichuan spicy hotpot chain Haidilao prepares for Hong Kong IPO

Haidilao International Holding, considered China’s most popular Sichuan-style hotpot restaurant chain, has filed to launch an initial public offering (IPO) in Hong Kong. 

Founded in 1994 by its current chairman Zhang Yong – a former welder and tractor factory worker from in Jianyang Sichuan – the Beijing-based business opened its first outlet in Hong Kong in October last year, cooking up impressive revenues in the city of 16.2 million yuan (US$2.54 million) by the end of the year. 

It filed its application for an IPO on Thursday night. 

Brokers expect the company to seek to raise between US$600 million and US$700 million, while the final size has not been announced and will depend on market sentiment and investor appetite. 

Last year the company reported an annual profit of 1.028 billion yuan, a 39.8 per cent rise, according to the filing made to the Hong Kong stock exchange. Its revenue jumped 36 per cent to 10.6 billion yuan. The IPO is being led by CMB International and Goldman Sachs. 

Quirkily it’s not just its boiling broths with meat, seafood, vegetables, tofu and noodles that sets it apart from its competitors, however.

Staff offer customers free shoulder massages, manicures, snacks and fruit while they are waiting for their tables. After being seated, diners are given a moist warm towel and apron to protect their clothes.

Plastic bags are provided for mobile phones and those dining solo are sometimes offered a teddy bear to accompany them.

Haidilao currently has 320 restaurants, 296 of which are spread across outlets in 29 Chinese provinces. The rest are in Taiwan, Hong Kong, Singapore, Tokyo, Seoul and Los Angeles

The IPO’s proceeds are likely to be used to fund another 180 to 220 new restaurants this year, including more in the US.  

Reports of its listing have been circulating since 2012. It denied them, however, even as recently as last month, saying “it does not have plan for going public at this stage”.

McDonald’s, Coca-Cola and Starbucks are all a reflection of American culture. As the Chinese economy grows and the world starts to put more focus on China, I believe there’s a chance for Chinese restaurants

Zhang Yong, chairman of Haidilao 

One of its related companies chose to list in July last year, however. Yihai International Holding, Haidilao's exclusive supplier of the hotpot seasonings, raised HK$861 million (US$109.7 million) on the Hong Kong stock exchange. Zhang Yong holds a 36 per cent stake in Yihai. 

The only real hitches to its dramatic rise to national fame involved a couple of hygiene issues.

Last year, when two of its Beijing branches were reported to having serious cleanliness problems, the 

company responded quickly with an official statement acknowledging the problem and cleverly started live streaming video feeds from its kitchens to customers. 

Then in February this year, one of its Singapore branches got suspended for two weeks over unsanitary food handling practices, and was fined S$800 (nearly US$600).

According to a recent profile on the business by Bloomberg, products from one of its offshoots Haidilao Catering are also sold in China by Wal-Mart, Carrefour and other retailers. 

Chinese hotpot chain Haidilao reopens Beijing branches after food hygiene scandal

Zhang appears on Bloomberg Billionaires Index, thanks to his various businesses – a far cry from someone who started out earning just 93 yuan a month in his first factory job, it said, and who never finished high school. 

Bloomberg also reported that in 2016, the founder bought a luxury property in Singapore – where his wife and son live – for S$27 million, quoting the Business Times, a financial daily.

Haidilao also looks after its staff, as well as its customers. 

Zhang told Bloomberg he provides a monthly subsidy for the parents of senior staff and managers. There’s a disaster fund for when employees’ families face hardships from natural disasters. “It’s not easy being a rural migrant in China,” he added.

At Haidilao, wages start low, but rise rapidly for top performers. That and other generous perks keep turnover lower, an anomaly in China’s high churn service industry, points out Warren McFarlan, professor emeritus at Harvard Business School, who co-authored a 2011 case study on Haidilao.

By treating employees well, Zhang “inspires a real level of loyalty,” he says.

Asia’s biggest food producer offers dial-a-hotpot as palettes grow weary of instant noodles

Successful managers are also eligible to open franchises. Wang Bin, a 32-year-old migrant from Shaanxi province who started out cleaning toilets at Haidilao, now runs a 24-hour restaurant in Sanlitun, Beijing’s trendy nightlife district, and recently opened his first franchise shop in the coastal town of Weihai, Shandong. 

Founder Zhang, however, is determined to take the Haidilao brand global. 

At his sole US outlet in Los Angeles, he said he’s unhappy that its business relies heavily on ethnic Chinese customers, however, and told Bloomberg that to try and attract a more varied crowd, he says future restaurants in the US will adopt a more night-club-like atmosphere, with pop music and set menus for diners and perhaps even individual hotpots for each diner at the table. 

“McDonald’s, Coca-Cola and Starbucks are all a reflection of American culture,” said Zhang. 

“As the Chinese economy grows and the world starts to put more focus on China, I believe there’s a chance for Chinese restaurants.”

This article Sichuan spicy hotpot chain Haidilao prepares for Hong Kong IPO first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2018.

More from South China Morning Post: