In the trillion-dollar hotpot market, productism beats traffic thinking

This article takes the closure of the "Hongjie" hot pot restaurant as a starting point and deeply explores the three survival and growth paths of the hot pot industry: low prices, products and services. By analyzing the successful experience of Banu Hot Pot, it emphasizes the importance of productism in internal circulation and points out the key role of supply chain construction.

On May 26, in the bustling Beijing CBD, a hotpot restaurant named "Hong Jie" quietly closed down just one year after opening.

Hongjie Hotpot has a great background and was once on Dianping's must-eat list, but due to the internal competition in the industry, it could not escape the fate of leaving the market in disgrace.

Hongjie Hotpot is not an isolated case.

According to statistics, 130,000 hotpot restaurants have been closed in the past year.

There are many companies closing their doors, but there are still many newcomers and newcomers.

Take Banu Hotpot for example. As of July 10, Banu Maodu Hotpot has opened 123 stores in total, with 10 stores opened since the second quarter of 2024 alone. According to data from Zhaimen Canyan, in the past year, among hotpot brands with an average price of 120-160 yuan per person, Banu ranks first in the number of store growth.

According to the "Hot Pot Category Development Report 2023" released by the Red Restaurant Research Institute, in the first 11 months of 2023, 66,000 new hot pot-related companies were added, a year-on-year increase of 31.4%. According to Qichacha data, from January to May 2024, a total of 22,600 new hot pot-related companies were registered.

The hot pot industry has become one of the most inward-looking catering sectors at present, entering a period of "four highs" of high growth, high entry, high elimination, and high bankruptcy.

During the period of internal competition among the four highs, the hotpot industry has gradually differentiated into three distinct paths: a large number of mid-, long-tail and affordable hotpots have lowered their profile and continued to compete at low prices, there are also mid- and high-end hotpots like Banu that continue to compete head-on to compete in products, while Haidilao and a number of Internet celebrity hotpots have broken through from the side to compete in services.

1. Involution of the track, three-way differentiation

Haihai entered the game because he saw the broad prospects of the hot pot track

The "2023 China Catering Store Opening and Closing Report" released by NCBD (Canbaodian), a catering big data research organization, disclosed that in 2023, the scale of China's hot pot market will be 975.8 billion yuan, a year-on-year increase of 4.4%, and it is expected to exceed the 1 trillion yuan mark in 2024.

But the trillion-dollar dividends cannot be shared equally by all players - the track is growing and the internal competition is intensifying.

According to Guoxin News, in the second half of 2023, the same-store performance of the hot pot industry has just recovered to 80% of the level in 2022. In the past year, 220,000 new stores have been added to the hot pot market, but the net increase is only about 84,000, which means that more than 130,000 hot pot restaurants have left the market.

Haidilao, an industry benchmark, has even been affected by the internal circulation, as can be seen from the table turnover rate.

The financial report shows that from 2020 to 2022, Haidilao's table turnover rate was 3.5 times/day, 3.0 times/day and 2.9 times/day respectively. The table turnover rate began to rise in the first half of 2023, reaching 3.3 times/day in the first half of the year. The overall table turnover rate in 2023 was 3.8 times/day, but it still did not return to the highest point-the table turnover rate in 2018 was as high as more than 5 times.

Judging from the figures written in the financial reports, the average customer spending in the hotpot industry is also declining. For example, Haidilao's spending has dropped from 104.9 yuan in 2022 to 99.1 yuan in 2023; the average consumption of Xiabu Xiabu's high-end brand Coucou Hotpot has also dropped from 150.9 yuan in 2022 to 142.3 yuan.

Under the internal circulation, the industry has differentiated into three paths for survival and growth.

The simplest and most brutal model is to sell at a very low price.

Since the beginning of this year, a number of hotpot brands including Xiabu Xiabu, Nan Hotpot, and Song Hotpot have collectively lowered their prices, and even lowered the price bottom line of hotpot to the 9.9 yuan era - from 9.9 yuan for the hotpot base, 9.9 yuan for beef to 9.9 yuan for a voucher worth 100 yuan, the discounts are unprecedented.

Shuang Hotpot, which focuses on the concept of affordable prices, once again raised the banner of price cuts in June this year. The "admitting admonition" posted outside the store said: "Hot pot base starts at 8 yuan, meat dishes start at 9.9 yuan, vegetarian dishes start at 6.6 yuan, and all-you-can-eat braised rice is 6 yuan." According to a rough estimate by Caijing Story Collection, the price of dishes has dropped by 0.9-14 yuan, and the price of hot pot base has dropped by 2-4 yuan.

In fact, from 2021 to 2023, the average customer spending per capita at Shuang Hotpot has been declining, from 129 yuan to 113 yuan.

Xiabu Xiabu Hotpot, a subsidiary of Xiabu Group, the "first stock in the chain hotpot chain", which had been raising prices in the past two years, has also turned downward and started the "largest price cut in the past decade", with a year-on-year drop of more than 10%. "We have no choice but to adjust. If you don't grab this market, you will starve to death," said its founder He Guangqi a little helpless.

The second is to roll out products as always.

For example, Banu Hotpot - rolled products have become its consistent path dependence.

In the early years, Banu, led by founder Du Zhongbing, won by its ultimate single product and became popular with its tripe, which made diners unable to stop eating.

Having tasted the sweetness of "rolled products", Banu has gone all the way. In Banu, Du Zhongbing is positioned as the chief product manager. For almost every original dish, Lao Du is the "chief designer" who starts it and the "chief gatekeeper" who nods his approval. Today, the slogan on its door has been gradually changed to "Service is not the specialty of Banu, tripe and mushroom soup are" - further strengthening the product positioning.

But tripe alone is obviously not enough to continuously tantalize the taste buds of gluttonous diners. For this reason, Banu has also started to take an unconventional approach in the vegetable category, which is the most difficult to introduce. In June this year, Banu’s official Weibo account revealed that it would remove a number of vegetables, led by cabbage, including outdoor spinach, lettuce, and celery, because they were "too common."

This is part of Banu's "New Vegetables Monthly" plan. The goal is to remove homogeneous vegetables from the shelves and introduce seasonal fresh vegetables to meet consumers' implicit demand for fresh ingredients. In April, there are fresh bamboo shoots, chayote tips, and Yunnan ginger melons. In May, there are new water spinach and mung bean vermicelli. In June, there are yellow wax gourd, green wax gourd, kale shoots, kohlrabi, etc. In July, there are purple back vegetables, Shangri-La lettuce tips, wood ear vegetables, and artemisia selengensis.

This "unique" and decisive move is to push the product to the extreme.

The third is the roll-in service - this is the path for Haidilao and other Internet-famous hotpot restaurants to stand out.

Once upon a time, from manicure to driving test, from face throwing to Sichuan opera face changing, from birthday wishes to companionship after a breakup, from shoe polishing to helping with childcare... relying on extremely meticulous and humane good service, Haidilao has brought itself to a new height of "impossible to learn".

However, recently, Haidilao has been having trouble getting its free service.

First, on May 30, "Customers over 14 years old cannot get Haidilao toys for free" became a hot search. A month later, #Haidilao some stores have introduced manicure charging standards# caused dissatisfaction among users, and "Haidilao requires customers to order the soup base" also caused controversy. This week, #Haidilao responds to the lack of beef cubes on the condiment table# once again topped the Weibo hot search list.

Haidilao’s previously invincible “roll service” strategy seems to be starting to fail.

2. Break through the volume, product is king

In the hotpot industry, which has become a red ocean, internal competition will continue for a long time. Which of the three paths can break through? Judging from the fact that Banu opened stores quickly against the trend, why did productism prevail?

The simple and crude method of lowering the price seems to be the easiest way to work.

The "2024 Catering Industry Market Analysis Report" released by Jia Shi Consulting revealed that consumers' primary concern when choosing a hot pot restaurant is price (62.3%).

However, the risk of coiled prices is that, firstly, it is easy to fall into the internal circulation of homogeneity, resulting in the loss of product quality.

Relatively speaking, leading hotpot chains can reduce costs and terminal pricing through scale chain effects; however, due to the lack of scale and cost advantages, small and medium-sized brands have no bottom line in price cuts, which often means being forced to cut food and labor costs, ultimately leading to quality out of control and safety compromise.

Unlimited price cuts may cause damage to the entire industry, and other industries have already experienced such incidents.

For example, in the tea and coffee industry, price wars have resulted in a mess, with 800 enemies killed and 1,000 of one's own men injured. There are almost no winners in the industry.

Kudi Coffee, which initiated the price war, reported bad news of tight cash flow, store losses, and high store closure rate; Luckin Coffee was also forced to get involved, from a profit of 500 million last year to a net loss of 83.2 million yuan in the first quarter of this year; Tims Coffee, which once launched a 9.9 yuan coffee voucher campaign, has now left the "table" ahead of schedule.

In this regard, Xie Shuqin, executive director of Greater China at Sullivan, reminded the hot pot industry that although collective price cuts can bring short-term results, they may cause many problems such as damage to brand image and unclear positioning.

Compared with the low price of rolls, roll products are obviously more difficult to make - especially in the hot pot industry, the ingredients are relatively homogeneous as a whole, and it is extremely difficult to innovate.

As paranoid as Du Zhongbing is, he has a clear understanding of this. "Our KPI is to have several new products that impress people every year. Two that are particularly ideal. At least six that are good. We launch a new product every month, which means twelve." Even if the boss is in charge of the business himself, there are only "two" in a year, which shows how difficult it is to innovate.

However, once a product is well-established, it will be popular for a long time - for example, tripe and broccoli, etc., are still its enduring signature products. Relying on the above products, Banu has been on the must-eat list of Dianping for six consecutive years.

As long as the product is in place, diners are actually willing to pay for it - statistics show that the growth rate of hot pot in the 100-300 yuan range is rapid compared to 2022, three times higher than in 2022. Among them, the average customer unit price of Banu remains at around 140 yuan, and in Beijing it has risen to around 180 yuan.

From the performance point of view, Banu's table turnover rate is much higher than the industry level. The weekly table turnover rate of new stores in first-tier cities is stable at more than 4.0, which is twice that of Coucou Hotpot, which is priced at the same level. The daily table turnover rate of the latter is 1.9-2 times. During the Dragon Boat Festival this year, the daily table turnover rate of Banu stores in Beijing, Suzhou, Tianjin, etc. exceeded 7.

Users pay for the products, and data such as table turnover rate and same-store sales are among the highest in the industry, which also supports Banu's confidence in opening new stores.

As of July 10, Banu Maodu Hotpot has opened a total of 123 stores, with 10 stores opened since the second quarter of 2024 alone. In 2024, the number of tables served increased by 12% year-on-year, and the number of consumers increased by 15.1% year-on-year. According to data from Zhaimen Canyan, in the past year, among hotpot brands with an average price of 120-160 yuan per person, Banu ranked first in the number of store growth.

Providing high service is not an easy task - Haidilao, once the service king in the hotpot industry, has stumbled, which is not an accident.

First of all, deterministic services place high demands on "people", and people themselves are the most uncontrollable factor.

Haidilao founder Zhang Yong is well aware of this, "We don't open many stores, not because we don't have money, but because we lack qualified people. The number of stores we open each year depends first on how many qualified cadres and key employees we can train, and then on how much money we have to open new stores."

Secondly, labor costs will only go up and will not go down, so good services must be supported by high premiums.

In recent years, Haidilao's average customer spending has fluctuated downward. In 2023, its per capita consumption was 99.1 yuan, which has fallen below 100 yuan. The table turnover rate has also dropped by more than 20% compared with the peak at the end of 2018. When high premiums are difficult to maintain, free good services will inevitably be discounted.

Therefore, it is no coincidence that Haidilao has been criticized recently for its declining service quality.

To sum up, in the K-shaped differentiated hot pot market, low prices, products, and services all have their own ways out and challenges.

But overall, among the three consumption decision variables of price, product and service, product is the primary 1, and price and service are 0 - customers will neither tolerate unpalatable and unfresh ingredients for good services such as free shoe shining, nor lower their requirements for food safety for the low price of 9.9 yuan.

Therefore, the rolled product goes straight to the essence and responds to the core demands of hot pot consumption.

From the perspective of expansion model, once the product model and supply chain advantages are implemented, they will be more standardized and more certain than services.

Moreover, compared to the high labor costs that good services rely on, which will not decrease with the scale effect, good ingredients have obvious scale effects, and the marginal costs will gradually decrease.

In addition, relatively speaking, the barriers to good products are higher than the thresholds for service and price reduction, and the barriers to competition are also thicker.

In his book "Productism", Du Zhongbing asserts that every kind of food or product has the potential to become a "line of defense" for the Banu brand, forming a natural exclusive ability, which is the embodiment of product barriers.

Therefore, increasing prices and services are both blitzkrieg that work temporarily, while increasing products is a long-term battle. The essence of competition in the hot pot industry is that products are king.

3. Product volume at the front end and supply chain at the back end

Among the three paths of internal competition, in fact, competing for low prices and competing for services are both quick and easy to achieve - whether it is a 9.9 yuan hotpot base or a free shoe-shining service, end diners can more easily perceive it.

In comparison, rolling products is actually a slow process.

Firstly, it is difficult to satisfy everyone. It is not easy to find the common denominator of public taste. It requires constant trial and error and starting over again and again.

Du Zhongbing has had personal experience with this. He once promoted a spicy tomato hot pot base. "I think this is very good. Chili and tomato are two very good things. When paired together, it is sour, spicy and delicious. What a wonderful thing, healthy and delicious." However, mainstream customers did not approve of it, it did not get many clicks, and it was eventually taken off the shelves.

Secondly, the impact that coupon products bring to users is not as direct as price reduction. At least they have to eat and compare them before they can form cognition and word of mouth.

Thirdly, it is difficult to produce rolled products overnight. It is not just a simple reconstruction of the terminal food structure, but also a comprehensive reorganization of the upstream supply chain.

The first essential thing about roll products is the roll supply chain, because common ingredients are bound to be homogenized, and only by building your own supply chain can you achieve differentiation.

Du Zhongbing knows this very well, "Hot pot restaurants are different from Chinese restaurants. Every dish in a hot pot restaurant is an ingredient. The only thing we can change is the upstream." As early as 2021, Banu Liquor invested 150 million yuan to build a third-generation supply chain of "production + cold freshness" to ensure that the ingredients can remain fresh under the cold freshness process of 0~4°. This is the confidence to implement the "New Vegetables Monthly" plan.

Therefore, unlike Haidilao, which focuses on service and trains people before opening stores, Banu’s principle for opening stores is “build the chain first, then open stores” - they only consider opening stores in areas covered by Banu’s central kitchen and supply chain. Only by being so “nitpicking” can they achieve the goal of having stores all over the country with the same taste.

Today, Banu has invested more than 300 million yuan in the supply chain, including 4 central kitchens and 1 base material processing plant. Du Zhongbing requires the central kitchen to deliver food to the stores on a daily basis, "fresh and not frozen, natural and not additive, and ready on the same day and not overnight."

Slow at first and then fast. As Banu has improved its internal strength and built a dense, mature and efficient supply chain network across the country, which has strongly supported front-end store operations, it can speed up the pace of opening stores. This is also the confidence behind its retrograde store opening.

Nowadays, not only Banu, but all leading hotpot companies are sparing no effort in building the supply chain.

According to the "2024 China Hot Pot Industry Chain Development Status Insight Report" released by TouBao Research Institute, at present, many leading hot pot brands have advanced upstream, built their own planting bases, established a fully covered industrial chain and direct distribution system, etc.

Among them, Haidilao has direct supply vegetable bases throughout China to ensure the quality of ingredients and the stability of supply; Zuoting Youyuan established a radish planting base in Rugao, and later established a supply chain of fresh vegetables such as Chinese cabbage, spinach, and lettuce; Dezhuang has established hot pot raw material bases in many places in China, such as the Jiangjin green pepper base in Chongqing and the Huangguoshu ginger base in Guizhou.

Generally speaking, the hot pot industry has two purposes for building its own supply chain: one is to reduce costs by reducing costs and increasing efficiency in production costs, processing efficiency, and distribution cycles through refined operation management; the other is to support product innovation by building its own supply chain, such as Banu’s tripe with papain technology and fresh duck blood that has applied for and pioneered national standards.

However, as mentioned earlier, the impact of a good product is not as direct as free services, low prices, etc. Therefore, how to deliver good products to users and then form value recognition, emotional connection, and brand loyalty is also a necessary step.

Banu's approach is "silent and effective". For example, through marketing activities such as "Xunxian Market", it responds to young people's frequent calls for "getting rid of the work smell". Since May, the above-mentioned touring flash mob interactions have landed in landmark business districts such as Zhengzhou, Beijing, Shanghai, and Nanjing.

Right now, the hot pot industry, which is moving towards a trillion-dollar scale, still has a very low concentration. Sullivan data shows that the industry's CR3 and CR5 are 7.3% and 7.9% respectively, and internal circulation will continue for a long time.

Industry players have very different strategies and are moving in different directions. They have different positioning, stratified customer groups, and a differentiated market. They are both rivals and mirrors of each other, both benchmarks and spurs on each other. It is ultimately a good thing that diners with different tastes and consumption levels can each get what they want.

Interview and writing | Wan Tiannan

Editor | Chen Jiying