The grassroots boss from Anhui takes 663 stores to be listed.

Author | Li Xinting

Editor | Li Qian

Nearly one year after submitting the initial prospectus, on December 4, Xiaocaiyuan International Holdings Limited (referred to as "Xiaocaiyuan") passed the listing hearing on the Main Board of the Hong Kong Stock Exchange, and is expected to become the first catering enterprise to land on the Hong Kong Stock Exchange in 2024.

Established in Tongling, Anhui in 2013, Xiaocaiyuan is in the mass convenience Chinese catering track (that is, the customer unit price is between 50 yuan and 100 yuan). Although among many local catering brands, Xiaocaiyuan's popularity is not high, it performs well in this track.

The latest post-hearing document shows that as of November 28, Xiaocaiyuan has a total of 663 directly operated stores in operation, including 658 stores of the same-name brand Xiaocaiyuan and five stores of other sub-brands, covering 146 cities or counties in 14 provinces in China. Among them, the main store operation area is located in East China.

According to Frost & Sullivan, in terms of store revenue in 2023, Xiaocaiyuan ranked first among all brands in the mass convenience Chinese catering market in China, accounting for 0.2% of the market share. This revenue scale exceeds that of Tai Er Sauerkraut Fish, Green Tea Group, Xiabu Xiabu Hot Pot, and the Jiangsu-Zhejiang cuisine brand Grandma's Home.

As an industry with a low threshold, high competition, and low profit, the catering industry not only has to face changes in the external environment, but also has a very limited attraction to the capital market.

In the past two years, many catering enterprises have launched an impact on going public. Among them, Laoniangjiu Catering and Laoxiangji have both failed in the A-share IPO, and may change to the Hong Kong stock market in the future; while in June this year, Green Tea Group also submitted the prospectus to the Hong Kong Stock Exchange again. If it fails to pass the hearing in December, the prospectus will also face expiration.

01 From Chef to Boss, Opening More Than 600 Stores in 10 Years

Behind Xiaocaiyuan is a grassroots founding team, and the founder Wang Shugao is quite low-key in the industry and rarely accepts external interviews.

According to Anhui Broadcasting and Television Station, Wang Shugao was born in an ordinary rural family in Tongling, Anhui. When he was eighteen, he left school early and entered the society. After accumulating a certain amount of work experience, Wang Shugao and his wife started from opening a couple's store and gradually developed a business chain hotel with more than ten stores in Tongling - Harmony Hotel.

After completing the transformation from chef to boss, Wang Shugao took 6 million yuan to Nanjing. However, after investing in a business hotel, he suffered a loss for six consecutive months. After this battle, Wang Shugao decided to switch to leisure Chinese catering, and Xiaocaiyuan came into being.

Under the leadership of Wang Shugao, who is from a grassroots background, Xiaocaiyuan's store expansion strategy is quite "down-to-earth", deeply cultivating the low-end market. In 2021, 2022, 2023 and the first eight months of 2024, the number of Xiaocaiyuan stores in third-tier and below cities reached 191, 213, 242 and 278 respectively. During the same period, the store revenue from the above-mentioned areas accounted for 45.3%, 45.7%, 42.6% and 40.8% respectively.

Relying on the layout of the third-tier and below markets, Xiaocaiyuan's performance has grown steadily in the past three years. In 2021, 2022 and the first eight months of 2023, Xiaocaiyuan's revenue was 2.646 billion yuan, 3.213 billion yuan and 3.070 billion yuan respectively; the net profit was 227 million yuan, 238 million yuan and 395 million yuan respectively; the net profit rate was 8.6%, 7.4% and 12.9%. In 2022 and 2023, the same-store sales growth rate of Xiaocaiyuan was 1.2% and 20.8% respectively.

This year, the competition in the catering industry has intensified, the cost-effective consumption trend is obvious, and the growth rate of many listed companies has slowed down. Xiaocaiyuan has also been affected by the environment and has adjusted the prices of its two signature dishes, Ground Pot Chicken and Stone Plate Garlic Shrimp. As of the eight months ended August 31, 2024, compared with the 2023 fiscal year, the average price of Ground Pot Chicken has decreased from 64.5 yuan to 54.9 yuan, and the average price of Stone Plate Garlic Shrimp has decreased from 55.7 yuan to 53.3 yuan.

In the first eight months of 2024, Xiaocaiyuan's net profit rate dropped to 11.3%, and the same-store sales also decreased by 11.4%.

02 Believing in the Apprentice System in Internal Management, Dividends Exceeding 400 Million Yuan in Three Years

According to the latest prospectus, the core management team of Xiaocaiyuan basically comes from Wang Shugao's previous entrepreneurial team. Currently, the three directors and regional general managers of Xiaocaiyuan, Zhou Bin, Tao Xu'an and Wang Weifang (Wang Shugao's niece), all once served in Tongling City Harmony Catering Co., Ltd. founded by Wang Shugao, holding positions such as executive chef and manager.

Wang Shugao, who is from a grassroots background, also has a simple altruistic concept.

At an internal training session of Xiaocaiyuan in 2019, Wang Shugao once said that the culture of Xiaocaiyuan is to allow more chefs and waiters to change their own destiny. "We should believe in ourselves, believe in the people we lead, and help them realize their dreams," Wang Shugao said.

Wang Shugao's proposition is reflected in Xiaocaiyuan's management style and equity distribution.

Currently, Xiaocaiyuan has more than 100 natural person shareholders who are subject to equity incentive and come from headquarters management personnel, regional management personnel and key employees. At the same time, the company also implements an apprentice training system within the company and is supplemented by certain performance incentives. As of November 28, 90.4% of the existing shareholders of Xiaocaiyuan have developed from store grassroots employees. Almost all store managers and head chefs are internally trained and promoted, and 100% of regional managers are internally trained and promoted.

In terms of equity, as of November 28, Wang Shugao controls approximately 92.99% of the voting rights of the issued share capital of Xiaocaiyuan through seven shareholding platforms, including XCY Yongqing Limited, XCY Xuyuan Limited, XCY Zhiyuan Limited, XCY Huiming Limited, XCY Weiyuan Limited, XCY Liyuan Limited and XCY Future Limited, holding 39.96%, 25.61%, 6.48%, 5.21%, 2.50%, 1.91% and 11.32% of the issued share capital of Xiaocaiyuan respectively.

Among them, Wang Shugao and other individual shareholders (that is, Li Daoqing, Tian Chunyong, Zhou Bin, Tao Xu'an, Ye Hongli, Fang Zhiguo, Wang Weifang and Chen Haiyan) hold 29.26%, 9.84%, 9.84%, 9.84%, 9.84%, 8.51%, 8.51%, 7.18% and 7.18% of the equity of XCY Yongqing Limited respectively. At the same time, Li Daoqing, Tian Chunyong, Zhou Bin, Tao Xu'an and Wang Weifang are the executive directors of Xiaocaiyuan, and Ye Hongli, Fang Zhiguo and Chen Haiyan are the supervisors of Xiaocaiyuan Catering Holdings, a subsidiary of Xiaocaiyuan. These individual shareholders have been acting in concert with Wang Shugao since the establishment of XCY Yongqing Limited in 2021.

Up to now, Xiaocaiyuan has made three dividend distributions. In 2021, 2023 and the first eight months of 2024, Xiaocaiyuan declared dividends of 150 million yuan, 135 million yuan and 188 million yuan respectively, with a total amount of 473 million yuan.

In order to achieve further growth in performance, Xiaocaiyuan will also accelerate store expansion in the future. In 2021, 2022, 2023 and the eight months ended August 31, 2024, the number of new stores opened by Xiaocaiyuan was 107, 48, 132 and 109 respectively. In 2025 and 2026, Xiaocaiyuan plans to open about 160 and 180 new stores respectively. In the prospectus, Xiaocaiyuan stated that the funds raised will be used to continuously expand the store network to expand the company's geographical coverage and increase market penetration, etc.

However, as the competition among local catering brands in the national market intensifies, Xiaocaiyuan will also face greater challenges in its future development.

While announcing the store expansion plan, Xiaocaiyuan said that the store expansion plan includes increasing the brand's penetration rate in the markets where the existing stores are located, and the densification of stores may lead to a decline in the sales performance and passenger flow of the existing stores in the region. At the same time, Xiaocaiyuan may also open new stores in markets with little or no operating experience, which also tests the market appeal of the relatively niche Huizhou cuisine among the eight major cuisines.

It is worth noting that the brand "Caishou", which is regarded as the second growth pole by Xiaocaiyuan, is also not developing smoothly. In October 2023, Xiaocaiyuan launched the community catering brand Caishou, and the menu prices of the stores are set at 20 yuan to 40 yuan. However, as of November 28, the number of Caishou stores is only 3. In May and July this year, two Caishou stores were closed because the passenger flow in the business district where they are located did not meet the group's expectations.

This article is from the WeChat official account "Times Finance APP", author: Li Xinting, and 36Kr is authorized to publish it.