Haidilao, China’s largest hotpot chain, is best known for its focus on customer service (see WiC411). But since outlets reopened in March, it has dispensed with the free manicures and shoe shining services for queueing customers. In their place are temperature checks, hand sanitisation and even robots that deliver takeaways packed by staff in hazmat suits.
All that sounded fine till customers picked up their bills and found that their meals were more expensive than before Covid-19 upended the country. Some moaned that the price hike was more than the average 6% increase that the Beijing-based eatery had claimed. Another gripe was that the sizes of popular orders had also shrunk.
“I feel like I’m being butchered,” Zhang Heng, a customer in Jiangsu, told All Weather TMT, a zimeiti. “In the past, I spent around Rmb240 on a meal [at Haidilao]. But now I’m paying Rmb295 even though I’ve pretty much ordered the same dishes.”
“An Rmb200 meal used to keep me full and satisfied – but not anymore,” he added.
It took no time for Haidilao’s price inflation to become a trending topic on social media. The public reaction was also enough to draw a response from Haidilao, which said it would readjust its prices back to pre-coronavirus levels and offer chunky discounts on takeaway orders.
“The price increase was a misguided decision on the part of the company, which has hurt the interests of Haidilao customers. We deeply regret it,” it apologised on weibo. In an interview with the Beijing News, Haidilao’s management explained that the price hike was meant to offset rising costs, including the adjustments that it was required to make to its operating model.
It highlighted how there are now restrictions on the number of tables it can offer and the number of customers it can serve. Other restrictions prevent it from deploying its staff at full capacity too. It also remarked that the costs of ingredients have surged due to supply chain disruptions.
The virus outbreak, which forced Haidilao to shut down 700 stores in China between January and March, is estimated to cost the Hong Kong-listed company Rmb5.04 billion ($712 million) in lost revenue and Rmb580 million in net profit for 2020, according to China Securities, a local brokerage. Last year sales reached Rmb26.6 billion, up 57% on the year and net profits jumped 44% to Rmb2.3 billion.
Despite maintaining a healthy cash position, Haidilao secured a credit line of Rmb2.1 billion from local banks in February to shore up its finances.
But its much-criticised strategy for generating higher income isn’t unique. Popular milk tea chain Heytea and Inner Mongolia-based restaurant chain Xibei have also raised prices, although in the case of Heytea, customer sentiment was not much affected because the additional charges were limited to two yuan for selected offerings.
Some commentators say that other retailers are “testing” the market on expectations that consumers would go on “revenge spending” sprees after an extended period of lockdown.
One area of focus is luxury goods sales. Louis Vuitton says it recorded 50% sales growth across its stores on the mainland over the past three weeks and L’Oreal reported that its sales in China are on track for a gain of 5-10% this month, Bloomberg reported.
Much of this is simply a recovery from the deep-freeze in business earlier in the year. And a joint report from Ant Financial and the Southwestern University of Finance and Economics is warning against too much optimism on consumer spending in the near future, citing job losses and a sense of financial insecurity among the middle- and low-income groups.
More than half of the surveyed households said they were trying to save more and reduce their spending as the second quarter began, the report’s authors suggested.
© 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.