The downsizing of Haidilao, a much-adored Chinese hot pot brand

Haidilao, a popular Chinese hotpot chain that embarked on a major global expansion beginning in 2018, has announced a major down-sizing due to cash flow problems.

• By the end of the year, the hot pot chain will shut down 300 stores, amounting to a fifth of its business, a major setback for a company that had been at the forefront of the trend in Chinese consumer brands.
• The pandemic reduced the average table turnover rate of Haidilao stores by 8.8%. Declining revenues could not keep up with the climbing costs of continued expansion.
• In addition to the pandemic, the Sichuan-based chain blamed the geographic placement of its stores, management problems, and a lack of talent, for its decision.

The context: Haidilao’s fall is as spectacular as its initial period of growth. In 2018, Haidilao raised nearly $1 billion in a Hong Kong initial public offering. That led to a burst of expansion with 544 stores opened in 2020 alone.

• Last April, Haidilao hiked its prices due to supply chain complications caused by the pandemic.
• Customers were not happy: the resistance on social media was so fierce that the company had to roll back their prices a week later and apologize to its customers.

The takeaway: China’s consumer brands are known for cash-intensive expansion. But structural problems — supply chain issues, geopolitics, and lingering pandemic effects — can ruin ambitious plans.