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Forensic Analyst

Jason Yap, CFA

Forensic Accounting

Haidilao International Holding / Forensic Accounting

On 5 November 2021, <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a> announced its decision to shut down or suspend the operation of 300 poor performing stores within the next 2 months, which is approximately one-fifth of total restaurants.Haidilao opened 308 stores in 2019 and 544 in 2020, and added 299 new stores in H1 2021.  As at 30 June 2021, Haidilao had approximately 1,600 stores.  After closing 300 stores, Haidilao remains China's largest hot pot chain with around 1,300 stores. Amidst concerns of over-expansion, Haidilao's share price has declined by 75% since its February 2021 peak, wiping out HKD333.5 billion (USD42.9 billion) of its market cap. On hindsight, Zhang Yong, founder of Haidilao, conceded that the expansion plan had been "<a href="https://www.globaltimes.cn/page/202111/1238261.shtml" target="_blank" rel="noopener">too confident</a>". In this Insight, we discuss whether Haidilao's store closures were fait accompli given the early warning signs of deteriorating performance, which becomes apparent as we examine Haidilao's performance on a store by store basis. Apart from pandemic disruptions, this deterioration would have been compounded by increased competition and permanent changes in consumption habits that have resulted from the pandemic (such as preference for products designed for convenient home cooking).

On 5 November 2021, Haidilao (6862 HK) announced its decision to shut down or suspend the operation of 300 poor performing stores within the next 2 months, which is approximately one-fifth of total restaurants.Haidilao opened 308 stores in 2019 and 544 in 2020, and added 299 new stores in H1 2021.  As at 30 June 2021, Haidilao had approximately 1,600 stores.  After closing 300 stores, Haidilao remains China's largest hot pot chain with around 1,300 stores. Amidst concerns of over-expansion, Haidilao's share price has declined by 75% since its February 2021 peak, wiping out HKD333.5 billion (USD42.9 billion) of its market cap. On hindsight, Zhang Yong, founder of Haidilao, conceded that the expansion plan had been "too confident". In this Insight, we discuss whether Haidilao's store closures were fait accompli given the early warning signs of deteriorating performance, which becomes apparent as we examine Haidilao's performance on a store by store basis. Apart from pandemic disruptions, this deterioration would have been compounded by increased competition and permanent changes in consumption habits that have resulted from the pandemic (such as preference for products designed for convenient home cooking). 

Haidilao (6862 HK)'s Store Closures - A Fait Accompli?