China Consumer

Flying higher

China’s largest ‘local’ fast food chain expands

Laoxiangji-w

Started in Anhui, now in Shanghai

The demobilisation of People’s Liberation Army servicemen in the 1980s liberated a handful of major business talents. Among the military men to become business moguls: Huawei’s Ren Zhengfei, Vanke’s Wang Shi, Haier Group’s Zhang Ruimin, Lenovo’s Liu Chuanzhi and Dalian Wanda’s Wang Jianlin.

A less high profile member of this group is Shu Congxuan, whose Chinese-style fast food chain Laoxiangji (or Home Original Chicken) is a leader in its field. That’s according to recent rankings by the trade groups the China Hospitality Association and the China Cuisine Association.

These ranked Laoxiangji fourth overall with annual sales of over Rmb3 billion ($429.42 million) across 800 stores, behind KFC, McDonald’s and Burger King. But for some, its high ranking came as a surprise because the Hefei-based eatery – whose most popular dishes include steamed chicken wings with bamboo shoots – does not have much of a presence in tier-one cities. It only started operations in Shanghai this year and the majority of its restaurants are concentrated in provincial capitals closer to its home turf in Anhui province (Jiangsu’s Nanjing and Hubei’s Wuhan each have around 100 stores).

A lot of diners have only become aware of the 19 year-old brand through marketing stunts, such as the offer of a free lunch to celebrate its fourth place position in the recent ranking. That soon became a trending topic on weibo, when nearly a million people queued up to eat, according to China Economic Times.

There have been a number of turning points in Laoxiangji’s development. The first came in 2011 when it hired Trout & Partners, a US consultancy, for advice on its growth strategy. The prescription involved a Rmb20 million rebranding exercise to get rid of the unappealing label ‘the Old Hens in the west of Hefei’ (it doesn’t sound any better in Chinese), the shedding of its side businesses, and a refocusing on its local market in Anhui until it became a dominant player. The gameplan helped Laoxiangji more than double its income the following year, according to 36Kr, a local news site.

The next big break came in early 2018, when it sold a 5% stake to private equity firm Harvest Capital for Rmb200 million. The investment helped Laoxiangji to take over Wuhan Yonghe, a 40-store breakfast chain selling soymilk and fritters, and spurred an expansion spree that now adds 20 stores a month.

Harvest partner So Wenjun discovered Laoxiangji when he was scouting for investment opportunities in Anhui. The private equity veteran, whose other investments have included Didi Chuxing and snack company QiaQia Food, recalled that the first chicken soup he tried at Laoxiangji reminded him of the ones cooked by his mother when he was a little boy. The experience drove him to seek out Shu.

Laoxiangji often credits the taste of its chicken dishes to the practice of raising its own chickens. While an average broiler chicken survives for about 40 days, Laoxiangji lets them live longer, up to 180 days. In fact, poultry rearing was where Shu started working when he returned to civilian life in the early 1980s, seeded by just Rmb1,800.

Laoxiangji’s menu requires more experienced chefs, capable of cooking a range of Chinese dishes from scratch. But unlike smaller restaurants, it is committed to standardisation across its network of outlets. The company circulates 24 manuals across its employee base with guidelines on all aspects of operations, including food production, procurement, customer service and hygiene. One rule, for instance, is that food unconsumed within three hours has to be disposed of.

Shu’s son Xiaolong joined the company in 2012 after studying in the US. The 30 year-old oversees Laoxiangji’s marketing, as well as its expansion plans (the chain doesn’t use a franchising model).

Laoxiangji plans to open 1,500 stores in the next three years, shifting some of its focus to tier-one cities. Of course, the costs of running outlets in places like Beijing and Shenzhen are going to be higher than lower-tier locations, says Yujian, a zimeiti focused on the food industry. But the local-style fast-food market was estimated to be worth Rmb940 billion this year and Laoxiangji wants to grab a bigger chunk of it, growing annual sales to Rmb10 billion by 2024.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.