China Consumer

Walking the wok

Why Chinese food chains have become a hotspot for IPO investors

CSC w

For a sign that Beijing’s ongoing crackdown on the lucrative tech sector has sent investors in search of alternative markets, look no further than the growing list of restaurant chains that are looking to go public.

Last week, Country Style Cooking (CSC) announced plans to file for an IPO in Hong Kong. If the name sounds familiar to equity investors, that’s because it is not its debut appearance on an exchange.

CSC started life in 1996 as a small Sichuanese restaurant in Chongqing. Its Chinese name Xiangcunji, which meant ‘village chicken’, was a play on KFC’s Chinese name (aka Kendeji). Indeed, its founder once claimed that it would expand to all the Chinese cities that KFC had set up shop in. Yet after a brief attempt to offer Western fast food, CSC ditched fried chicken from its menu and began to focus on Chinese fare instead. It has since also refashioned its Chinese brand a bit, which now means ‘village base’, but the format still looks similar to a local KFC store on first glance.

Back in 2010, the company first went public on the New York Stock Exchange but took itself private in 2016. This was because after a phase of rapid expansion, growth started to stall and as CSC bled cash investors started dumping the stock in droves.

It now operates over 1,145 stores nationwide. It serves Chinese-style fast food like braised pork rice and deep-fried chicken filet. On average, a main dish along with a side dish and a drink will cost between Rmb20 and Rmb30, which is considered to be at the mid-tier of the market. Its sub-brand Mr. Rice is slightly lower-end, offering buffet-style Chinese fast food (think Panda Express).

The company has since been working on a return to the stock market. In 2020, VC giant Sequoia China invested Rmb300 million ($47 million) for a 7.8% stake in the chain.

Meanwhile, another popular food franchise Hefu Noodle is also seeking a listing in Hong Kong.

The noodle outlet recently concluded a funding round – led by CMC Capital – raising Rmb800 million from longstanding investors like Tencent and Longfor Capital. The company is believed to be valued at around Rmb7 billion.

Like CSC, Hefu has been around for some time, having opened its first restaurant in 2013 in Shanghai. The company now runs around 380 outlets around the country, with most located in second and third-tier cities. From the pricing point of view, Hefu Noodle is not cheap. For example, its signature herbal noodle soup costs around Rmb30 a bowl and the average bill size is around Rmb45. The company operates another brand Xiao Mian Xiao Jiu, which as the Chinese name implies, sells noodles as well as alcohol.

The list gets longer. In late January, seafood hotpot chain Qi Xintian also announced IPO plans in Hong Kong. If successful, it’ll become the third hotpot group – after Haidilao and Xiabuxiabu – to list. Famous malatang chain Yang Guo Fu – whose fare is inspired by a popular street food in China – is reportedly mulling a Hong Kong IPO in February too.

Why are all these eateries in a rush to go public at the same time? PE Daily, a private equity industry blog, reckons that the pandemic proved a turning point for the restaurant industry. The sudden drop in customer flows and table turnovers forced their managements to scramble for cash. The reason they have all chosen to list in Hong Kong is because the review process is usually quicker than for the A-share market, which also makes it easier for PE and VC firms to exit.

“A very important reason for these restaurant chains to IPO is to first fight for survival and then try to expand market share. They are planning ahead for the post-pandemic era,” one VC investor told PE Daily.

Those that see opportunities in the sector point out that China’s catering industry is heavily fragmented. According to data from delivery giant Meituan, the market share of larger restaurant chains in China has risen slowly from just 12.8% to 15.0% between 2018 and 2020, with most of the bigger players being fast food giants with Western origins like KFC.

Although that proportion is rising every year, the percentage is still very low. Restaurant chains in the US and Japan account for 54% and 49% share of the market, respectively. “The catering industry appeals to a wide demographic and the number of nationwide chains is still relatively low. It is still possible to raise consumer awareness through sheer scale. However, when it comes to going public, can a weak brand support a listed company?” 36Kr, a news portal, queried.

One of these VC-backed local restaurant brands may turn into the KFC or McDonald’s of Chinese fast food. That’s the lure for IPO investors at any rate.


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