“Pay first, eat later”, can the paid membership system really save Xiabu Xiabu?

Xiapu Xiabu is a chain hotpot brand that uses a membership marketing model to attract customers and increase sales. Through the membership marketing model, Xiapu Xiabu continuously optimizes customer experience and enhances brand influence.

Recently, Xiabu Group officially launched a paid membership model, where consumers can become annual paid members for 208 yuan. Unlike the monthly membership system with monthly renewals, Xiabu "Unlimited Eating Card" has chosen the annual membership model like Sam's Club.

Founder He Guangqi and the group are confident in this model and predict that this model will bring at least 600 million yuan in membership fee income to the group by the end of this year. The group's confidence in this model comes from the success of membership supermarkets such as Walmart in China, and it is expected that this model will also be a booster for the group's revenue growth.

1. Xiabu Xiabu was trapped by its out-of-focus brand positioning

Hotpot has been popular in China for a long time. As early as 2014, Xiabu Group was listed on the main board of the Hong Kong Stock Exchange, thus becoming the first chain hotpot stock. As the leader of the hotpot industry, Xiabu Group launched its own cross-border and multi-brand strategy in 2016. Xiabu Group's efforts in multiple categories are in fact a microcosm of the entire hotpot industry. Other hotpot brands are also extending into new areas, and all this seems to imply that the once hot hotpot track has cooled down.

This is also confirmed by Xiabu Group's 2022 financial report. In 2022, the group's revenue was 4.725 billion yuan, a year-on-year decrease of 23.14%; the net loss was 353 million yuan, a year-on-year increase of 20.41%. The reason given by the group for this loss was simply the impact of the epidemic.

In fact, there have been signs of Xiabu Xiabu Group's weak revenue. According to the financial report, since 2018, the group's revenue has always been stuck at the threshold of 6 billion yuan, while profits have continued to decline, and even losses have occurred. At the same time, Xiabu Xiabu Group's table turnover rate has also continued to decline. Currently, Xiabu Xiabu's overall table turnover rate is 2 times/day, a decrease of 0.3 times/day compared with the same period last year.

At present, new brands are emerging frequently in the hot pot category, and all market segments are already crowded with competitors. Consumers are faced with a variety of brands, and their love for a single brand is naturally diluted. At the same time, young consumers love novelty very much. Various novel experiences and fresh consumer products can always arouse their desire to try, which also explains why so many people pay attention to store exploration posts. The decline in table turnover rate is also related to the decline in service quality of individual stores.

In addition, the Xiabuxiabu brand, founded in 1998, seems to have reached the point where its brand positioning has lost focus. In the past, Xiabuxiabu was a brand that focused on low-price strategy. It won many consumers with its clear brand positioning and successfully went public. In the future, Xiabuxiabu Group will continue to expand its stores. Between its glorious history and its ambitions, Xiabuxiabu is now at a loss.

From frequent cross-border operations to shifts in brand positioning, from pausing annual revenue growth to losses, a series of apparent bottom lines all point to the same thing - in a market with serious problems of internal circulation and constitutionalization, being vague is definitely not a good thing.

However, it is worth noting that Xiabu Group has not reduced its store expansion plan. While its peers are considering closing stores, Xiabu Group plans to continue opening new stores. Considering the unsatisfactory revenue situation in recent years, this move is actually a bold attempt. Sunk costs have been sunk, and past failures do not seem to be what Xiabu Group cares about most.

2. Expected to bring in NT$600 million in revenue by the end of the year

How effective is the new “paid dining” method?

Xiabu Xiabu sells six privileges to consumers at a price of 208 yuan, including card purchase, discount, points, new store, birthday, and new products. Consumers can use the benefits at stores of the five major brands of Xiabu Xiabu, Coucou, Chenshao, Chamicha, and Xiabu Foods, and enjoy discounts worth more than 1,888 yuan throughout the year, including "188 yuan cash coupons" and "11% off every Monday".

Regarding the paid membership model, Xiabu Xiabu has three levels of expectations: by the end of this year, the number of paid members will reach at least 3 million, and strive to reach 8 million, which will bring in 600 million to 1.6 billion yuan in revenue; achieve cross-brand and cross-strong and weak store traffic; explore joint marketing with paid members of Fortune 500 companies and third-party platforms, so that the group's operating income source is expanded from a single operation to a "normal operation + paid membership" model.

Essentially, the profit logic of the paid membership system is to extend the life cycle of consumers and achieve price-for-volume. For consumers, the core selling point is cost-effectiveness and sense of value. Therefore, the key to Xiabu Xiabu's success in running this model lies in whether it can provide high-quality services to enhance the sense of value of paid members.

Take McDonald's as an example. After purchasing a monthly membership of 19 yuan, consumers can enjoy eight benefits, including "super value four-piece set", "40% off breakfast", "30% off McCafe", "free delivery fee", "birthday gift", etc. Consumers can make back their money by ordering only two meals. This kind of membership system with a low threshold and very specific benefits is "why not" for consumers. Xiabuxiabu's "all-you-can-eat card" is obviously difficult to achieve such an effect.

At the same time, Xiabu Xiabu's paid membership model is significantly different from that of Sam's Club and other paid membership models. The founder of the group believes that the success of the paid membership system of domestic supermarkets has proved the feasibility of this model. However, the daily fast-moving consumer goods sold in supermarkets are high-frequency consumption, and the benefits brought by membership are very intuitive, while the catering services of a single brand are low-frequency consumption. It is difficult for Xiabu Xiabu to convince consumers that they can get enough discounts and benefits through paid membership.

In addition, the membership model is mainly for loyal users of the brand. One consumer said in an interview, "After all, I paid more than 200 yuan for membership. For the discounts and value-for-money consumption experience, I may continue to choose this hot pot brand in the future, but I still want to try more hot pot brands." For new consumers, the "loyalty" implied by the 208 yuan paid membership is too heavy.

However, Xiabu Xiabu's current dilemma lies in attracting new customers, rather than promoting their business. The decline in turnover rate means insufficient customer flow. Repeatedly harvesting a small number of old users is just a drop in the bucket. Attracting new users to consume is the top priority. All of the above have cast a shadow on the revenue-increasing effect of Xiabu's unlimited eating card.

3. Paid membership system of "a life or death situation"

In China, paid membership has become quite popular, and most consumers have paid for paid membership, but whether consumers will renew their membership and how long they will renew their membership is another question entirely.

Image source: Xiabu Xiabu official Weibo

Some time ago, Youku's first-month 1 yuan membership event caused great controversy because of the issue that users were defaulted to signing a 1-year contract after paying 1 yuan. It can be seen that some users only become members temporarily because of the low price discount, or they only become members when necessary, and do not have long-term membership needs.

For video apps, the problem of member loss is also quite serious. The number of Tencent's Q1 video paying members was 113 million, a year-on-year decrease of 9%. The problem of member loss has lasted for four quarters.

In foreign countries, paid membership is not a panacea that works everywhere. Amazon launched the Prime membership system in 2005. However, the growth in the number of members is based on profit sharing. In recent years, under pressure to make profits, Amazon has raised Prime membership fees several times. According to reports, as many as 23% of users have canceled Prime membership services in the past year. At the same time, 41% of users use it for no more than 6 months.

These examples show that if companies want to rely on paid membership systems to gain customers, they need to pay a real price. If the discount is not big enough, it will not attract consumers; if the discount is too big, the company's profit pressure will increase; even if the company really finds that delicate and perfect balance point, with changes in the macro environment such as inflation, this balance point will inevitably be broken, and the problem of member loss will follow.

Therefore, the original intention of Xiabu Xiabu's paid membership system is good, but whether this system is attractive, how many consumers are willing to pay for it, and whether this system can truly bring profits, a series of "whether" are all unknown.

At present, Xiabu Xiabu's market value has fallen by nearly 55% from its peak. After the group proposed the concept of paid membership, many investment institutions paid close attention to it, and the media also discussed the effect and prospects of this plan. Even if the profit effect of the paid membership system may not be as good as expected, it has boosted the confidence of the capital market in Xiabu Group to a certain extent, and is expected to build momentum for the store expansion plan.

The paid membership model is a new bargaining chip for Xiabuxiabu Group. The group has determined that there are still opportunities in the hot pot industry. Even though there is serious internal competition and increasing internal and external pressures, the group is determined to move forward.

References:

[1] "Xiabuxiabu launches "paid membership" model, expected to generate at least 600 million yuan in revenue by the end of the year?", Winshang.com, May 24, 2023

[2] “Can paid membership become a new growth point for Xiabuxiabu?”, The Paper, May 31, 2023 [3] “Xiabuxiabu goes left, Haidilao goes right?”, Kunyu Business Review, April 8, 2023

[4] “Has Xiabu Xiabu survived after closing 200 stores?”, Guanwang Finance, February 7, 2023

[5] “Xiabu Group launches paid membership card, pioneering cross-brand paid membership marketing model”, Beijing Evening News, May 24, 2023

Author: New Consumption Think Tank

Source: New Consumption Think Tank