36Kr Exclusive | The freshly-made steamed bun chain brand "Tang Shang Tang", which is determined to open a joint operation and partnership system, has completed a pre-Series A financing of several million yuan.

Author | Zhong Yixuan

36Kr learned that the baozi (Chinese steamed bun) chain brand "Tang Shang Tang" recently completed a Pre-A round of financing worth several million yuan. The investors are the local state-owned enterprise Hefei Construction Investment Capital and existing shareholder Tomato Capital. Zhu Chao, the founder of Tang Shang Tang, told 36Kr that the funds from this round of financing will be used for key aspects such as supply chain construction and talent team building.

Tang Shang Tang is a chain catering brand that 36Kr has been continuously following. The baozi in its stores are freshly made and steamed on the spot, with a 1:1 ratio of dough to filling. They are only sold within 2 hours after being baked, and there are only 9 SKUs of baozi on sale, which is very streamlined. After five years of establishment, Tang Shang Tang has opened more than 20 stores in Hefei, Anhui. Currently, it is the only brand on the Must-Eat List in the baozi category on Dianping for three consecutive years, and it is also a brand on the Must-Order List on Meituan Takeaway.

Image source: Official

Compared with ordinary baozi shops, the retail price of Tang Shang Tang's baozi is not low. A pork baozi costs 3.5 yuan, and a stir-fried yellow beef baozi sells for 6 yuan. Under such circumstances, Tang Shang Tang has broken the limitation of baozi being only for breakfast and become a full-time product. Zhu Chao told 36Kr that currently, the proportion of sales for the three meals at Tang Shang Tang is 50% in the morning, 10% at noon, and 40% in the evening. There are often queues during dinner time.

When asked about the reason, Zhu Chao believes that Tang Shang Tang has broken through people's traditional perception of the quality of baozi. Baozi can not only "fill the stomach" but also be a product that people are willing to pay for because of its "tastiness". "Customers can tell whether it's delicious or not with just one bite."

Different from traditional baozi shops that use frozen or minced meat for the filling, Tang Shang Tang uses first-class chilled fresh meat from listed companies to make the filling, and all the seasonings used are household-grade brands such as Jinlongyu, Haitian, and Taile. In addition, different from the industry's common 7:3 ratio of dough to filling, Tang Shang Tang uses a 1:1 ratio, and all the coarse grains in the stores come from Yanzhifang. "Because of its high quality and high price, Yanzhifang has always targeted C-end customers and rarely supplied to B-end catering businesses in the past." Zhu Chao told 36Kr.

Zhu Chao said that focusing on quality is not a new concept, but most traditional brands find it difficult to raise the retail price. Tang Shang Tang also had a tough start. "In the early days, consumers were not willing to accept our prices just because of the increased cost of ingredients. It took us half a year to make them feel the difference in quality and gradually increase the repurchase rate."

However, since this year, there have been two core changes at Tang Shang Tang - it has decided to shift from direct operation to an open joint-venture partnership system; and a new supply chain factory in Hefei has been put into production, and its production capacity coverage will be expanded from 30 stores to 200 stores.

Before deciding to open the joint-venture partnership system, Zhu Chao had considered the future prospects of direct operation, franchising, and the joint-venture partnership system. Due to the on-site making and steaming of baozi, baozi shops have higher labor requirements than ordinary restaurants. After expanding the number of stores, the management cost of the direct operation model is higher, and there is a greater risk of talent flow. As for franchising, it is difficult to control the quality. Especially since Tang Shang Tang only sells freshly made baozi within two hours, if franchisees keep the baozi for profit, it will affect the taste and reputation. Zhu Chao believes that if Tang Shang Tang cannot maintain its current strong control, it will be no different from other baozi shops. "There is definitely no shortage of an ordinary baozi shop in China."

Zhu Chao admitted that in order to learn about the joint-venture partnership system, he consulted well-known pioneer companies in the partnership system such as Wallace and Xi Jiacheng in the industry. Finally, he iterated a management model that combines three systems (the horse-racing system, the master-apprentice system, and the partnership system) for Tang Shang Tang. By motivating employees and allowing stores to share the operating results, the operational efficiency of the stores has been improved.

After continuous verification, Zhu Chao told 36Kr that small dine-in stores will be the main store type for Tang Shang Tang's future store expansion. Currently, the investment cost for a single store of this type is about 300,000 yuan, with an optimal area of 50 - 60 square meters, and the average monthly turnover of a store is about 200,000 yuan.

There are three models for Tang Shang Tang's existing stores. The first-generation large dine-in stores have a traditional layout, with ordering on the left and picking up food on the right, and the open kitchen area accounts for about one-third. The second-generation small dine-in stores increase the area of the open kitchen and reduce the dine-in space. The third-generation takeaway stores directly cancel the dine-in area and sell in the form of a pure takeaway stall.

Zhu Chao told 36Kr that when considering the store model for the joint-venture partnership system, he once thought about focusing on the third-generation takeaway stores. "Later, we found that although the investment threshold for this type of store is low, only about 100,000 yuan, customers can't sit down and eat, so there will be no difference between us and traditional baozi shops."

Image source: Official

In addition, Tang Shang Tang's supply chain factory has been completed and will support the needs of 200 stores in the future. By then, all the processing of raw materials such as washing, cutting, and portioning will be completed in the factory, and the stores will only be responsible for the on-site production and serving of baozi. "When we planned to expand production, the local government helped us finalize the current factory. The business environment in Hefei is very good, and they have made great efforts in simplifying procedures and solving difficulties." Zhu Chao said.

According to 36Kr, next, Tang Shang Tang will focus on community locations. After opening 100 stores in Hefei, the next step for store expansion will give priority to neighboring provinces such as Jiangsu and Hubei.

But the question is, in most cities, baozi shops are still the mainstream places for breakfast consumption. How likely is it for Tang Shang Tang to expand beyond Hefei?

Zhu Chao believes that in a city like Hefei where rice is the staple food, Tang Shang Tang has achieved 40% of its operating income from dinner, which has given them confidence. The local cultural and tourism bureau in Hefei has records of the local eating habits. The urban and rural residents in Hefei have always regarded rice as the staple food and also eat other coarse grains. In addition, Hefei is also the birthplace of chain fast-food brands such as Laoxiangji and Zheng Xiaowan.

"We also thought about the fact that people in the north have the habit of eating dumplings, but when they come to the south, dumplings may turn into wontons or cloud buns. However, baozi exist everywhere in China, and they are more widely accepted than dumplings. Moreover, compared with dumplings that usually require dine-in, baozi can be taken away. Since Yuanji Wonton has opened more than 4,000 stores in China, we believe that the market prospect for baozi will be even broader." Zhu Chao said.