With relaxing jazz music in the background, comfy chairs and free WiFi, Starbucks has created what it calls the “third space”: that is, a place people can hang out outside of their home and work.
In China, a popular beverage chain wants to be a night-time Starbucks. Though instead of latte and macchiato, Helen’s serves alcohol.
Founded by Xu Bingzhong, a 47 year-old from Hubei, Helen’s opened its first pub in Beijing in 2009. Xu’s original goal was to create a physical gathering space, or what he calls an “offline social platform”, to welcome young consumers that spend most of their lives online.
The company has quickly scaled up since 2018, expanding from a chain of 62 outlets to more than 500 today. The year 2018 was an important one for Helen’s development. Haidilao, the most valuable hotpot chain by market value, also went public that year as investors poured money into restaurant chains with the potential of growing them into nationwide players by offering standardised Chinese food.
Indeed, starting in 2018, Helen’s began adopting Haidilao’s model by cutting down the number of franchisees and expanding its network of self-operated pubs.
It was Helen’s turn to go public last Friday in Hong Kong after raising $300 million. As of Thursday, it was worth HK$28 billion ($3.6 billion).
Helen’s target demographic is college students and young workers. To that end, the company chooses locations near large universities in second- and third-tier cities, which promise not only cheap rents but also a large and steady flow of millennial consumers. To draw attention to new pub openings, the company offers free booze: in the first week of a new venue opening customers are entitled to six free bottles of beer each day without having to make any purchases.
“Compared with first-tier cities, the population structure and low cost of operations in lower-tier cities are ideal for the development of pubs. Sales from third-tier cities and below is expected to account for 26.7% for China’s pub industry between 2020 to 2025,” calculated Tianfeng Securities, a local brokerage.
Unlike nightclubs, there’s no dance floor or disco lights at Helen’s. To keep its cost base low, there is also no live music or DJ. Nevertheless, in another similarity with Haidilao, Helen’s makes sure its customers are happy with its service. For instance, it adjusts the music volume according to the time and number of people in the bar. It offers, as the founder Xu puts it, “highly efficient and timely service combined with trendy music, [to] bring our customers a carefree, relaxed, and enjoyable night atmosphere”.
Given the majority of its target consumers are college students, Helen’s understands that the prerequisite for success is cheap beer. Its private-label bottled beers cost no more than Rmb8 ($1.24). Even branded ones like Corona and 1664 Blanc are Rmb10. It also offers cocktails like mojitos as well as simple bar snacks like French fries and chicken wings – though the company not only allows but even encourages patrons to order food from nearby restaurants and have their dishes delivered to the bar.
Even though its mark-up for beer is low, Helen’s makes its return on high sales volumes. According to its prospectus, the operating revenue of the pub chain went from Rmb115 million ($17 million) in 2018 to Rmb818 million in 2020. Net profits also went up from Rmb10 million to Rmb75.7 million during the same period.
It certainly helps that 70% of its beverage sales come from its own- branded drinks, including Helen’s beer and fruit drinks. The gross profit margin from its private label drinks was 78.4% in 2020, comparing with 51.5% for other branded beers. Small wonder then, 36Kr describes Helen’s as “Pinduoduo-style bartending,” comparing the pub chain with the e-commerce platform, which has struck a chord with consumers thanks to its rock-bottom prices.
The company is also hugely savvy when it comes to marketing on social media. Last December, it promoted on TikTok’s Chinese sister site Douyin its Helen’s Coke Bucket, a cocktail made from whisky and Coca-Cola served in a large drinks dispenser. Customers who uploaded a video of themselves drinking the enormous beverage and tagged it on social media received a coupon for drinks for a whole table. The campaign was so successful it was viewed over 1.2 billion times on the short-video site.
That’s not to say Helen’s has no obstacles ahead. Haidilao, for one, saw its share price nosedive when word of mouth started to wane. “A business can rely on consumer demand and economies of scale to grab market share. But if it wants to achieve sustainable development, it will inevitably need to strengthen its operation and management,” 36Kr concluded. Indeed, whisper it, but some investors may be looking at the story of another ultra fast-growing beverage chain, Luckin Coffee, and seeing a bad precedent…
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