Ranked 2nd in the fast casual restaurant industry in China and capturing 52% market share within the fast casual hot pot segment, Xiabu Xiabu (XBXB) revamped the entire concept of traditional hot pot cuisine since 1998. It differentiates itself from peers as a pioneer of the do-it-yourself (DIY), bar-style hotpot, offering customers a unique fast casual dining experience. Since inception, XBXB has committed to build a simple and scalable hot pot chain, which offers customers consistently great tasting and healthy food at value-oriented price with hospitable yet efficient services.
Despite fierce competition in the restaurant sector and weaker macroeconomic environment in China, XBXB’s strong operating model allows it to continue to outperform its competitors, including leading international and domestic quick service restaurant chains such as Ajisen, Tsui Wah and Yum!China.
- Simple, standard and scalable model:
- Individual DIY pot: XBXB’s unique store concept flexibly caters to both solo dinners and group dining. Minimal food processing or serving is required, eliminating roles of chefs, central kitchen or complicated in-store kitchen. This significantly lowered capital expenditure per store and facilitated its fast expansion.
- U-shaped bar-style hot pot: allows higher density of seating with flexible space requirement. One caterer can provide attentive yet efficient services for over 10 customers simultaneously, leading to huge labor cost savings. It also enables higher table turnover rate than most of its peers
- Standardized store design: all stores have standardized inner designs and theme color of bright orange, connoting the warmth of home, which is particularly attractive to the growing urban population that works away from home.
The unique model allows XBXB to achieve high operating efficiency with cash breakeven in 3 months and 14-month payback period, one of the best store investment return profiles among peers. Its scalability serves as its major competitive advantage in an industry with traditionally low barrier to entry.
- State-of-the-art supply chain management
- Procurement: XBXB procures key food ingredients through a highly centralized procurement system. Being one of the largest meat purchaser in China and working closely with a few selected suppliers, XBXB is able to assert strong pricing power and ensure high food quality. It also maintains direct-controlled cooperative vegetable farms to ensure stable, cheap and high-quality supply.
- Logistics: XBXB’s logistics operations coordinate the purchasing, storage and delivery of supplies throughout its restaurant network. It has established a three-tier logistics system comprising one central distribution center at Beijing headquarter, one regional distribution center in Shanghai, as well as 3 transit warehouses in the cities where it operates. Each of these logistic facilities has a service radius of approximately 400 km, delivering fresh raw materials to each store on a daily basis.
- Inventory management: On a store level, XBXB employs advanced back-of-house (BOH) system for accurate inventory forecasting, allowing each restaurant manager to devise individual ordering and delivery plan on a daily basis, largely reducing waste and ensuring freshness of food supplies.
- Continuous product and business innovation
- Dipping sauce: XBXB invents and manufactures its proprietary soup bases and dipping sauces at its own food processing plant. These sauces and bases, containing no preservatives and staying fresh for only 2 days, contribute significantly to the popularity of XBXB. In-house production of such materials protects its proprietary recipes, ensures consistency of food quality and achieves economics of scale.
- New businesses: XBXB owns a R&D center, constantly innovating on new food and beverage items, set menus, sauce recipes and other business ideas. In the past year, it rolled out 16 “Beverage Stop” to capture traffic during off-peak hours, launched “summer time” initiatives to extend operating hours of selected highly popular stores, as well as O2O take-away business.
- Recruiting and training
- XBXB gathers an organized, well-incentivized and systematically trained group of employees.
- It offers uniform formulated and staged training modules to promote standardized operation at all stores, including service (detailed to the greetings), operation and customer relationship management.
- It also encourages internal upward mobility which helps with employee retention.
XBXB’s operating model is perfectly tied with its business model, driving it to become one of the most popular restaurants nationwide. It has experienced exponential growth since 2009, with store counts rising 5 folds in the past 6 years, approaching 500 by 1H 2015. Its footprint also expanded from Beijing to 31 cities across the country.
With its unique dining concept, commitment to safety and quality ingredients, mass-market oriented position, scalable and standardized business model, I believe XBXB will continue to thrive in China’s highly competitive restaurant sector.
Credit Suisse equity research reports on Xiabu Xiabu (Aug 2015; Jan 2015)