Summary of Key Points
Xiaobu Xiaobu has seen a narrowing of its losses in the first half of the year (expected loss of 29-39 million yuan, a 50-60% reduction from the same period last year), but its revenue has plummeted by 23% (to only 1.5 billion yuan). The reduction in losses is not due to an improvement in business performance; rather, it is the result of measures taken to stop the bleeding, such as closing unprofitable stores and reducing asset impairment charges. The average daily turnover per store has fallen below the critical threshold (only 9,200 yuan, which is below the break-even point of 10,000 yuan). Once a dominant player in the small hot pot market, Xiaobu has encountered difficulties due to price increases (from 44 yuan per order to 70-80 yuan), an aging management team (slow to respond and conservative in approach), and strategic mistakes (attempting to target the high-end market too aggressively). The company's self-help efforts (closing high-end stores and launching affordable “Xiaobu Ranch” stores) have been insufficient. To turn things around, it needs to lower prices, replace its management, and restructure its business model. However, it is uncertain whether the owner has the courage to make the necessary drastic changes.
1. Reducing Losses Does Not Mean Improvement; It Indicates a Shrinking Business
The fact that losses have decreased may seem like good news, but a 23% drop in revenue should actually lead to even larger losses under normal circumstances. The secret lies in a 30% reduction in asset impairment charges: simply put, Xiaobu has closed the stores that were consistently losing money, and these stores no longer contribute to the loss figures, making the overall loss appear smaller.
The company claims that cost reductions in the supply chain and more efficient membership management are responsible for the improvement, but these factors are not directly linked to an increase in customer traffic or business growth. In essence, these actions are merely attempts to stabilize the situation, similar to removing decaying parts of a body to stop bleeding, rather than promoting overall health.
2. Average Daily Turnover Falls Below the Critical Threshold
With revenue of 1.5 billion yuan, 900 stores, and 180 operating days in the first half of the year, the average daily turnover per store is only 9,200 yuan. For the catering industry, 10,000 yuan is a critical threshold for survival:
Take the classic example of “Lao Li’s Hot Pot Restaurant”: a 200-square-meter store with monthly fixed costs of 150,000 yuan (including rent and salaries), and daily expenses of 5,000 yuan. Food costs account for 40-50% of the turnover, meaning 4,000-5,000 yuan must be spent on ingredients to reach a break-even point. With an average daily turnover of 9,200 yuan, Xiaobu is operating at a loss.
Xiaobu faces additional costs related to headquarters management and the supply chain, making its situation even more dire compared to smaller businesses. Compared to ten years ago, when the average daily turnover per store was 20,000-50,000 yuan, business performance has significantly declined.
3. Good Opportunities Squandered Due to High Prices and Outdated Strategies
1. Stranded in a Mid-range Price Range
The once-affordable small hot pot at 44 yuan per order is now priced at 70-80 yuan. It cannot compete with brands like Haidilao, which have stronger brand recognition, and it is also losing business to cheaper options like Longge (30-40 yuan per order). Customers complain, “We used to afford Xiaobu only because hot pot was too expensive; now we can’t afford it anymore.”
2. Aging Management and Outdated Strategy
After founder He Guangqi took back control, the team consists mainly of older employees in their fifties and sixties. The catering industry is changing rapidly—with the rise of group buying, live streaming, and short-video reviews, as well as a shift towards more affordable options. Xiaobu is slow to adapt, still sticking to outdated menus and operational processes.
The most problematic decision was attempting to target the high-end market with the “Chen Shao” concept, which resulted in the closure of all such stores within two years. Even when higher-end brands raised their average order price to 148 yuan, their table turnover rate dropped from 1.6 to 1.4, and the number of stores was halved, becoming a major burden. While the market is moving towards more cost-effective options, Xiaobu remains stuck in its old dreams of brand upgrading.
4. Insufficient Self-Help Measures
Xiaobu’s efforts to improve include closing some “Chen Shao” stores and launching the affordable “Xiaobu Ranch” concept, as well as implementing a membership and partnership program. These steps are in the right direction, but they are not enough:
- Ten “Xiaobu Ranch” stores are a drop in the bucket compared to its 900-plus outlets.
- The management team remains unchanged, slow to make decisions and conservative in approach.
- The store model has not been restructured, leading to low efficiency.
The fact that revenue still decreased by 23% in the first half of the year shows that these efforts have had little effect.
5. Turning Things Around Requires Drastic Changes
The article suggests three key solutions:
1. Lower prices to around 40 yuan to compete with cheaper hot pot brands.
2. **Replace the management with younger individuals who understand new marketing strategies (live streaming, short videos) and target younger consumers.
3. Restructure the store model to focus on efficiency by redesigning menus, operational processes, and cost structures.
With Xiaobu’s brand heritage (as a pioneer in the small hot pot market) and the potential of the industry (expected to grow to 400 billion yuan by 2025), these changes could potentially help the company recover. However, the key question is whether founder He Guangqi has the courage to make the necessary sacrifices and break with the old ways.
In Conclusion: Xiaobu does not lack opportunities; it simply needs the determination to undergo significant reforms. If it continues to stick to its old ways, it will only sink further. On the other hand, with bold reforms, it could return to its former success. However, so far, there is no sign of the owner’s willingness to make these difficult decisions.