China Consumer

Morning glory

How a breakfast bun retailer became a breakout hit


Made its founder a billionaire

From a single breakfast outlet in Shanghai to a 2,799-store franchise across China, Babi Mantou makes more than Rmb1 billion ($147.2 million) in sales a year selling buns. They range from the savoury pork-and-vegetable classic to sweeter options like sesame and red bean.

The brand’s parent firm Babi Food will make its debut on the A-share market (likely) next week.

When 19 year-old Liu Huiping arrived in 1997 in Nanning, a city in southern China near the Vietnam border, he rented a storefront for Rmb5,000 and began baking buns (mantou) with an apprentice.

In 2001, he made the move to the busy Henan Road in Shanghai and opened a popular breakfast outlet called Master Liu’s Buns. Within two years he had become a renminbi millionaire and the ambitious Liu made the momentous decision to emulate KFC’s example by expanding his store into a franchise.

In 2004, he filed for the trademark Babi Mantou and opened up 20 more stores – 10 of which were managed by friends and family to pilot the franchising concept.

Babi Mantou really took off in 2005 when it launched a broad-based franchising programme. Keeping down the expenses of starting a new store, Babi Mantou drew interest from entrepreneurs around the country. Over 50 venues were opened by September of that year and 500 stores were up-and-running five years later. By 2017, the brand had nearly 3,000 outlets across major cities like Beijing and Shanghai, as well as dotted across more prosperous provinces like Jiangsu, Zhejiang and Guangdong. Only 16 are wholly-operated by the brand’s owners, according to Yicai Global.

The company has two main streams of revenue: selling a regular stock of filled buns to franchise stores (where they are steamed up for diners on site) and charging the franchisees an operating fee for use of the brand and its support network.

In the three years from 2016 to 2018 Babi Mantou earned more than Rmb2.5 billion in income, growing sales steadily each year.

The company’s prospectus says it plans to raise Rmb950 million in its IPO, with some of the funds going into an upgrade of its production facilities.

Investment will also be allocated to its R&D unit, which seeks to expand its menu’s offering; as well as funding a wider push into online sales channels.

Song Xiang, the chairman of Harvest Capital, a private equity fund, gave his assessment to Huxiu, a news platform, on how Babi Mantou has been able to grow so quickly. His analysis seems pretty straightforward. “Shanghai has 25 million people, Beijing has almost 20 million. Just think about how many people need to have breakfast… There are 50 million people eating out for meals, or just breakfast, and every person pays 4, 5 or 10 yuan, which isn’t very expensive for breakfast. That means everyday they make Rmb20 to Rmb40 million in sales. A business that thrives has a product that appeals to the masses,” he explained.

The couple controlling Babi Mantou now boast a combined net worth of at least Rmb1 billion. Liu owns 54% of the bun firm he started, while his wife Ding Shimei owns another 10%. Through other companies the couple indirectly own another 17% of the shares, giving them substantial majority control.

Huxiu also spoke to Yu, a Shanghai resident and regular customer of Babi Mantou, about why she kept going back for breakfast there.

Again, the analysis wasn’t especially sophisticated but it highlights how the brand delivers the basics of its menu and its business model in a consistent way.

“Apart from the various pre-steamed mantou and filled buns (baozi), there is electric-steamed corn, packaged black rice cakes and rice balls,” Yu explained. “And their steamed items will still be available for sale in the afternoon, so customers won’t leave empty-handed. A lot of Shanghai stores will sell out in the morning and close for the day, but Babi Mantou can last until the afternoon.”

Although best known for its breakfast menu, Babi Mantou also has a strategy for pulling in evening traffic.

“In Shanghai old people have a habit of buying buns late at night and heating them up for the next day, so they don’t have to go out and buy them again. So every night Babi Mantou will steam another batch of buns for them as well. This method is quite clever,” says Yu.

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