The “0.99” Moment for 999: An In-depth Review of a Giant in the Food and Beverage Industry’s Struggle to Survive
Hello everyone, I’m your financial journalist. Today, we’re going to talk about a company with a rather amusing name—999.
Why is it amusing? Well, its stock price has actually dropped to 0.99 Hong Kong dollars (with a low of 0.985 Hong Kong dollars during trading). A company named “999” now has a stock price that’s literally just “999 cents”—a stark irony that reflects the intense pain and transformation this once-leading company in the Hong Kong food and beverage industry is going through.
Many people might think, “Profit growth of 24.9% sounds good, so why is the stock price still falling?” Let me give you the key point first: 999’s current profit growth is the result of closing stores, cutting costs, and selling assets to stop the bleeding, rather than opening new stores or selling more food to generate new revenue. It has been forced to shift from an “expansion-oriented” company to a “cost-conscious, defensive” one.
To help you understand this better, I’ll break it down into five parts in plain language.
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1. From “Queue King” to “Store Closure Wave”: Why the Glories of the Past Are Gone?
Looking back at 2021, 999 was one of the brightest stars on the Hong Kong stock market, with its stock price reaching a high of 38.7 Hong Kong dollars. Back then, its restaurant, Tai Er Suan Cai Yu (Pickled Cabbage Fish), was the “queen of queues,” with a turnover rate of up to 4.9 times per table per day.
But those good times didn’t last long:
- Tai Er’s Charm Faded: The turnover rate plummeted to 2.6 times, or even lower. What used to be a novelty (suan cai fish) is now common in other places like Jiang Yu Er and A Qiang Jia, so its uniqueness is gone.
- The Successor Fails: The company hoped its new restaurant, “Song Huo Guo” (Timid Hot Pot), would take over Tai Er’s success, but despite opening many stores, sales per store decreased significantly.
- Expansion Turns to Contraction: While it used to open dozens or even hundreds of stores a year, in the first half of this year, 999 only opened 4 new stores but closed 42.
In simple terms: It’s like a popular restaurant that once attracted customers with long queues, but now that similar restaurants have opened nearby, it has to close less profitable stores to survive.
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2. The “Truth” Behind Profit Growth: Is It Really Making Money, or Just Saving Money?
The news says “net profit increased by 24.9%,” which sounds great, but let’s analyze where the money came from:
- Revenue is Actually Declining: Total revenue for the first half of the year was 2.391 billion yuan, a 13.2% decrease from the same period last year. They’re selling fewer dishes.
- How Did the Profit Increase?
1. Closing Loss-making Stores: By closing less profitable stores, the average performance of the remaining stores improved.
2. Sold Assets for a Profit: The company sold some properties and equipment, earning a one-time income.
3. Investment Returns: Associated companies turned from losses to profits.
4. Reduced Costs: With fewer stores, rent, financing interest, and impairment losses all decreased.
In simple terms: It’s like having 10 chickens that didn’t lay eggs and ate a lot of feed. This year, you sold those 5 chickens, and with cheaper feed, the remaining 5 laid more eggs. Overall, your “egg income” didn’t change much, but the “cost of raising chickens” decreased, so net profit increased. But that doesn’t mean your chicken farm has gotten stronger; it just means you’re no longer losing money on them. The market isn’t fooled, so the stock price dropped because investors are worried about future growth.
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3. The Bold Bet on a “Fresher Model”: Tai Er’s Attempt at a Revival, but at a High Cost
999’s biggest move is to transform Tai Er from a “specialized suan cai fish restaurant” into a “new Tai Er: Fresh Ingredients Sichuan Cuisine.”
- Previously: The menu was simple, focusing on suan cai fish, with standardized cooking and fast service, making it easy to replicate.
- Now: They’ve added fresh chicken, beef, and stir-fried dishes, emphasizing “fresh fish and dishes prepared on the spot.”
Why the Change?
Consumers have changed. They’re more sensitive to “pre-made food” and “prepared dishes.” If Tai Er continues to only offer standard suan cai fish, it might be seen as “industrial food.” The change is a attempt to regain consumer trust and upgrade the brand’s image.
But This Move Is Difficult and Expensive:
- Slower Efficiency: Preparing three dishes in 7 minutes was fast; now, they need to slaughter fish and cook meat on the spot, which slows down service.
- Increased Costs: Employee costs have risen from 30.1% to 31.3% due to more chefs needed on-site.
- Trust Crisis: Media tests showed that Tai Er’s food was too quickly prepared, leading to doubts about its freshness. Even though the company explains the difference in store operations, these doubts are hard to dispel.
In simple terms: It’s like a fast-food chain that used to sell hamburgers quickly and cheaply. Now it wants to sell freshly made steaks and salads. Customers may think it’s more upscale, but the increased costs and slower service could lead to dissatisfaction.
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4. Trapped in Tai Er: The Risks of 999’s Single-Product Focus
Looking at 999’s revenue structure, there’s a concerning trend:
- Tai Er’s Impact: Its revenue accounted for 70.8% last year and has risen to 75.2% this year.
- Other Brands: The revenue from other brands like Song Huo Guo and Northwest Cuisine has dropped significantly, and the new brands (Shan Wai Mian and Chao Nian Bian) are still in their infancy.
What Does This Mean?
999 is now more dependent on Tai Er. If Tai Er performs poorly, the entire company suffers. Although Tai Er’s revenue is declining by 7.8%, its larger share means its performance directly affects the group’s fate.
- Other Brands Are Failing: Other brands are struggling, and 999 has no backup options.
In simple terms: 999’s success used to depend on its main brand, Tai Er. If Tai Er fails, the whole company is at risk.
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5. Why Doesn’t the Market Buy In? The Deep Reason Behind the Stock Price Drop to 0.99
Even though profits have increased, the stock price has fallen below 1 Hong Kong dollar. Why?
The capital market looks at the future, not the past.
- In the Past: The company’s growth story (opening stores) made sense, so investors were willing to pay a high price (38.7 Hong Kong dollars).
- Now: The strategy of closing stores to save money doesn’t convince them. They’re worried about:
1. Lack of Growth: No new stores or emerging brands mean no future revenue growth.
2. Transformation Uncertainty: Will the new “fresh model” succeed? Can costs be controlled? Will consumers accept it?
3. Intense Competition: The food and beverage industry is highly competitive, and 999’s advantages are unclear.
In simple terms: Investors bought 999 because they expected it to open thousands more stores. Now that it’s closing stores and changing its menu, they doubt its ability to grow. This is why the stock price has dropped.
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Summary: Is 999 “Getting Better,” or Has It Just Changed Its Approach?
The answer is: It has changed its approach, but it hasn’t proven its new strategy will work.
- Short-term: By closing stores and optimizing costs, it has stopped profit declines and even seen some growth. This is a survival strategy.
- Long-term: It faces significant challenges. Will the new model succeed? Will new brands perform well? There are no answers yet.
Lessons for Everyone:
1. Don’t Just Look at Profit Numbers: Understand where the money comes from—whether from selling products or from selling assets or closing stores. The former is sustainable, the latter is not.
2. Don’t Rely Only on Brand Fame: A brand’s popularity may fade quickly. The food and beverage industry changes rapidly, and even giants can fall.
3. Don’t Rely Only on Stock Prices: The market is rational and harsh. When a company’s growth story fails, the stock price reflects this.
999 is at a crossroads. It’s no longer an expansion-oriented company but a cost-conscious one. Whether it can recover depends on its ability to regain consumer interest and profitability in its new approach.
In conclusion: The stock price dropping to 0.99 is both a dark joke and a warning. For investors, buying into it now requires great courage; for consumers, you might get fresher food at Tai Er, but at a higher price and with longer waiting times. This is the cruel yet realistic side of the business world.