Haidilao, an Internet Company Serving Hotpot

With profound user operation, complete supply chain, long dwell time, and rapid expansion strategies, China's largest hotpot chain Haidilao is essentially an internet company.

Xiaomi's founder Lei Jun once said that Haidilao was basically the same as tech giants like Xiaomi, Toutiao and Tencent. 

Founded in 1994, Haidilao is now a world-famous catering enterprise. Its founder, Mr Zhang Yong, is the fourth-richest person in Singapore in 2021, with a net worth of US$16 billion. In China's restaurant sector, Haidilao has always been imitated but never surpassed. Even Xiaomi's Lei Jun once said that he learnt from Haidilao at the beginning of Xiaomi. By a deep dive into its operation model, we found that Haidilao is an internet company rather than a restaurant chain.

User Operation 

·       Customer-centred Services

Haidilao is best known for its services beyond a typical Chinese diner's expectations. Their excellent and sometimes overzealous services have made headlines and trending topics across China's social media. On Zhihu, the Chinese version of Quora, under the question "What are some unforgettable services you experienced at Haidilao?" there are more than 5,000 answers. Haidilao customers shared their heart-warming memories with Haidilao, from babysitting to receiving free teddy bears when dining alone in case they are lonely.


As early as 2010, Haidilao has put information technology into its enterprise management, simplifying the internal process and bringing more convenient and personalised service. Customers can order food on Haidilao iPads or their phones through WeChat, Alipay, Haidilao website and App. The ordering system saves the customer's information, records the customer's preference, and analyses the customer's consumption ability. Waiters also put in remarks in the system if they receive any special requirements. When customers walk into Haidilao again, they will receive more personalised services and promotions. Haidilao's smart soup base machine and DIY soup base system allow customers to customise the soup. "Single customer" menu set designed for solo dinners supports cancelling and returning any untouched plates, lowering sales but increased potential return customers.

Haidilao has more than 71 million registered members and has served over 250 million customers as of 2020. Even under the impact of Covid-19, the table turnover rate at Haidilao is way above average, 2.25.

They have been working with food delivery giant Eleme during the pandemic. Their "little hotpot" delivery service allows customers within three kilometres to receive the meal in less than an hour. In 2020, Haidilao's takeout revenue reached RMB718 million (US$112.2 million), up 160% year on year. For customers who live too far from any Haidilao restaurants, Haidilao provides more than 20 kinds of ready-to-cook hotpot on e-commerce platforms and self-collect locations.

·       Online Operation

Haidilao launched its website in 2003 when none of its competitors is scaling up using the power of the internet. Its marketing strategies focus on social media and search engines. More than 254,000 Weibo users have posted under hashtag #haidilao, and it gained over 520 million views as of August 2021. In 2015, Haidilao opened an "internet experience store" at a location gathered with countless internet and tech companies in Beijing, providing an open social platform combining traditional catering with mobile internet. They introduced activities such as "programmer's day" and provide a forum or event venue for We Media and O2O companies, moving the online social activities to the dining place. Thanks to its online marketing strategies, every move of Haidilao can become a hot topic. There are good and bad public opinions, but what remains unchanged is netizens' attention.

Powerful Supply Chain Ecosystem

Haidilao is considered one of the most outstanding Chinese enterprises in catering supply chain orchestration. Backed with Zhang's "don't put all your eggs in one basket" strategy, Haidilao refuses to keep the entire supply chain in the back. It acts as a platform, with each sector in the supply chain operating independently. Besides being a part of Haidilao's kingdom, these companies serve and empower the whole F&B industry. Some of them are even listed.

Haidilao’s Supply Chain Ecosystem

Long User Dwell Time

Internet companies try to keep users on their products as long as possible, which Haidilao has done. Most Haidilao restaurants are open from 10 am to 10 pm. Some are 24/7 and offer 12%-25% off during night times.

·       Offline

A typical meal at Haidilao starts with a two-to-three-hour queue. To calm the anxious and hungry customers, Haidilao put a lot of thought into the waiting areas. Free and unlimited snacks and drinks are standard. Board games are a must. Free manicures make a trip to Haidilao complete. The longer people wait, the hungrier they are and the more they will order later.

·       Online 

Besides the basic functions such as queuing and ordering, Haidilao App offers a community that allows users to share videos, shop online and play games to collect "Lao Coins", which they can spend in the marketplace. The total number of downloads of the Haidilao App on Android phones is about 32.5 million, and the average daily downloads on iPhones in the past month (July 2021) is 8102.


Rapid Expansion

Rapid expansion helps a brand to occupy a distinctive place in the mind of the target market. In Haidilao's case, a large scale has another perk: it helps keep the rent down. It brings more customers to the malls, so Haidilao can always get much lower rent than its competitors. In 2020, Haidilao spent RMB236 million (US$36.9 million) on rent, accounting for 0.6% of its income. The numbers of Xiabuxiabu, the second player in the market, are RMB220 million (US$34.4 million) and 4.0%. Hotpot can be a standardised dish and does not require many skilled chefs, making it possible for rapid expansion and scaling up.

According to Guosheng securities, the distribution of the Chinese restaurant industry is relatively fragmented. As of 2019, only 10.3% of China's restaurants are chains, and the number is 54.3% in the US and 49.7% in Japan. A report by Frost & Sullivan shows that the size of China's hotpot restaurant market is expected to reach RMB707.7 billion (US$110.6 billion) by 2022. According to ASKCI Consulting, China's hotpot restaurant market's top five concentration ratio (CR5), the percentage of the total market share of the top five companies, was 5.5% in 2020. Even a giant like Haidilao takes less than 3%. In addition, the accelerating urbanisation process in the country provides more opportunities for Haidilao with its "central kitchen + chain restaurants" fast food model and advantages in supply chain management. In 2019, Haidilao's leaders claimed that the country has enough room for 3,000 Haidilao restaurants nationwide.

To achieve rapid expansion, a restaurant chain that adopts an all-direct-sale model needs at least four key factors: a complete restaurant supply chain system, a standardised management system, a talent training system, and substantial capital. With all those in place, Haidilao was able to scale up fastly. According to Haidilao's 2020 financial report, the total number of restaurants was 1,298 by the end of 2020, an increase of 178.5%. There were 544 new locations opened in 2020, almost 1.5 new ones each day.


Despite the rising costs and declining profits due to the pandemic and a drop in Haidilao's share price, securities agencies still recommend buying. It indicates the market's recognition for Haidilao and its expected bullish long-term development.

Summary

Although the founder, Mr Zhang Yong, claims not to understand the so-called "Internet thinking", Haidilao has always been the first to leverage new business models and technologies and keeping up with the trend. Haidilao's nature as an internet company is essential for its unprecedented success.