Breakfast club

Are there big bucks in baozi?

Mao Daqing, like many other of the senior executives at his previous employer Vanke, is an outdoor sports enthusiast.

Famously Vanke founder Wang Shi has climbed Mount Everest – twice, in fact. Mao, a former vice-president at the property giant, is more of a marathon man. The long-distance runner claims to lead his start-up Ucommune as if he were competing in a race: with focus, perseverance and tenacity.

Ucommune, which Mao founded after he left Vanke in 2015, was once described as China’s WeWork (when that was still a flattering comparison). His firm reached unicorn status in two years and Mao took Ucommune public on Nasdaq in a backdoor listing in November 2019 shortly before WeWork blew up.

Like other coworking initiatives, Ucommune creates office space for small and medium sized companies from older or underutilised buildings.

But it struggled to find sustainable growth during the pandemic and hasn’t seen much improvement in its bottom line even after China’s domestic economy started to reopen up. Sales in the third quarter were Rmb253 million ($40 million), with net losses of Rmb170 million during the same period. The share price has been in retreat, dropping from $6.02 at the beginning of the year to less than $1.

Despite Mao’s persevering persona, spreading a little of his risk is probably not a bad idea. Last week he posted on his Sina Weibo account that he has started another new venture: a baozi cafe. The store, called Yaofood, is located in Beijing’s CBD, selling steamed buns and lattes, an unconventional combination for a baozi shop. Mao explained that he chose baozi because it was his favourite breakfast food. His shop sells a range of choices for around Rmb3.5 a bun.

As steamed buns are typically eaten for breakfast, he has included other traditional breakfast options like soy milk and millet porridge. There are options for coffee fans too, including the black sesame latte, the most expensive choice on the menu at Rmb22 ($3.45).

Mao’s baozi plan isn’t entirely leftfield. In September, Ucommune announced the acquisition of Xiao Sushi, a budget sushi chain. The strategy is to create a “closed-loop ecosystem” that offers meals and snacks in office buildings. Presumably many of them will be Ucommune locations.

Mao isn’t the only high-profile tycoon going into the food business. Lu Zhengyao, the ousted chairman of Luckin Coffee (see WiC490 for more on this controversial Starbucks challenger), has launched a noodle restaurant chain called Qu Xiaomian, for instance. It serves Chongqing-style noodles and bingfen, a sweet jelly dessert popular in Sichuan. The company says it plans to open 500 shops.

Part of the reason there are so many new entrants into the restaurant industry is that it’s become a hotspot for investors pivoting away from data-heavy internet plays to consumer stalwarts that seem less vulnerable to sudden changes in government policy. Several Lanzhou lamian chains have attracted a flurry of investment from VC firms (see WiC546) and BEITC, a business news blogger, reports that institutional investors have already been in touch with Mao, hoping to turn his Yaofood baozi shop launch into a franchise model.

There is only one nationwide chain selling steamed buns (called Babi Mantou; see WiC514) and selling breakfast is a huge business: one estimate sizes the market in China at Rmb2 trillion.

“From the product perspective – even though there are many types of breakfast foods – steamed buns have mass appeal, the kind that attracts everyone from north to south,” BEITC noted. “And from the market perspective, baozi is a type of fast-food that is usually simpler and easier to standardise.”

Mao is not giving up on Ucommune either. Much of his time has been spent on refashioning its business model to an asset-light approach in which the company leases office space, rather than buying it outright. That has allowed the firm to reduce its some of its liabilities. The proportion of Ucommune projects operated under the asset-light model is expected to increase from about 50% in 2020 to about 75%, Mao points out. Perhaps a few of them will soon be getting a baozi shop too…

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