China Consumer

Steaming ahead

Why is LVMH buying a restaurant chain that makes Chinese food?

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LVMH: from bags to baozi

A baozi (a steamed bun) shop in Chongqing won plaudits last year for the clever wordplay on its signage. The pun was around LV Bao. The Chinese character bao signifies both bun and bag. The shop’s owner then announced that he would make his baozi into the Louis Vuitton of steamed buns.

Perhaps LVMH was watching – after three years of courtship the luxury giant’s private equity arm last week acquired the restaurant group Crystal Jade in a deal worth $100 million.

Founded in 1991 and headquartered in Singapore, Crystal Jade operates more than 130 restaurants in Asia, including China. It has a reputation for pairing run-of-the-mill Chinese cuisine with elements of finer dining (for example, it offers a steamed bun dish with a black truffle stuffing.)

Crystal Jade is now expected to tap into LVMH’s relationships and brand presence to establish more outlets in Europe and the Middle East. Its first US restaurant is also scheduled to open in San Francisco in August.

But LVMH’s investment will also help the chain to expand in China, where it runs about 20 outlets in top-tier cities, focusing on the market for casual business dinners.

Singapore’s Strait Times reported that LVMH backs brands “that can travel well internationally”, and part of the logic behind this purchase may well be that as more and more Chinese travel abroad (for pleasure as well as business), they will seek out the sort of comfort food Crystal Jade offers. The newspaper meanwhile also suggested that online fashion firms, as well as beauty or wellness brands, could be its next targets in China.

Foreign private equity funds have now bought three Chinese restaurant brands in as many months. In March, CVC Capital completed the acquisition of Da Niang Dumplings, a mid-market dim sum chain with 440 outlets. Last week, CVC also bought majority ownership in South Beauty after a prolonged tussle with regulators, as well as the Sichuan chain’s founder Zhang Lan (See WiC225). The deals underline investor confidence in the catering industry, reckons Bian Jiang, deputy director of the China Cuisine Association. He adds that the buyers have timed their purchases to take advantage of lower valuations spurred by Beijing’s ongoing austerity and anti-graft campaigns. “Foreign private equity funds have long been bullish on China’s catering industry but have been fended off by a bubble fuelled by irrational spending. They now see value,” Bian told CBN.

The Hong Kong Economic Journal concurs, although it also cites fundamental changes in cost structures because of the rise of online shopping. With less demand for bricks-and-mortar shops, rents on commercial sites should fall, improving restaurant margins. “The catering industry is expected to usher in a new golden age,” the newspaper predicts.

Other chains are also looking at international expansion. Quanjude, a state-owned restaurant group renowned for its Peking duck, has just opened its first overseas branch in Australia’s Melbourne. Hotpot chain Little Sheep – now owned by Yum Brands – has also set up more than 20 restaurants in North America (though see WiC212 for a hot pot chain that struggled with its early efforts overseas).

The government wants to promote Chinese cuisine overseas too. Backed by the Ministry of Foreign Affairs, a Chinese Food Festival at the United Nations last year introduced oat noodle chain Xibei (Secretary General Ban Ki-moon was said to be a fan). Other Chinese eateries will promote themselves at a similar event at the UN’s headquarters in New York this month. These state-supported efforts, together with the interest of foreign investors, will help Chinese restaurant brands make more of an impression in international markets, reckons the Qingdao Daily.

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