Core Viewpoint - The article discusses the cautious approach of franchise operators in the current market, highlighting the challenges and risks associated with joining new brands, particularly in the food and beverage sector. It emphasizes the need for careful evaluation of brand viability and market conditions before making investment decisions [5][6][24]. Group 1: Franchise Market Trends - Franchise operators are increasingly hesitant to open new stores, with one operator reporting zero new projects in the past year, reflecting a shift in market dynamics and increased competition [7][8]. - The lifespan of successful restaurant brands has decreased significantly, with operators estimating it to be around six months to one year, compared to previous years [6][31]. - The number of snack stores has doubled within a year, but the consumer base has not expanded correspondingly, leading to intensified competition and reduced profitability [9][10]. Group 2: Investment Considerations - Operators are focusing on brands that have demonstrated success and are looking to enter the market at the peak of a brand's momentum to ensure quick returns on investment [6][12]. - The costs associated with opening new stores, particularly in the hard discount supermarket sector, are substantial, with estimates ranging from 2.6 million to 4 million yuan, making it a significant financial commitment [25][29]. - The article highlights the importance of location in determining store performance, with a good site potentially accounting for 80% of a store's success [12]. Group 3: Consumer Behavior and Market Dynamics - There is a growing consumer preference for quality and cost-effectiveness over brand prestige, allowing smaller, well-managed brands to thrive [21][22]. - The article notes that many franchise operators are now more cautious and selective, often waiting for the right opportunity rather than rushing into new ventures [24][32]. - The rise of social media influencers in promoting franchise opportunities has created a complex landscape where distinguishing genuine opportunities from marketing hype is increasingly challenging [15][20].

Investment Rating - The report maintains a "Buy" rating for Haidilao with a target price of HK$20.40, indicating a potential upside of 41% from the current price of HK$14.47 [1][6]. Core Insights - Haidilao's 1H25 performance was below expectations, with revenue of RMB 20.703 billion, a year-on-year decline of 3.7%. The brand's revenue accounted for 90% of total income, with significant contributions from various city tiers [3][4]. - The company is actively adjusting its operational strategies to improve performance in 2H25, focusing on personalized customer service and enhancing dining experiences to attract younger consumers [4][5]. - Despite a decline in profits and revenue, Haidilao maintains a high dividend payout ratio of 95%, with cash reserves of approximately RMB 6 billion, indicating strong cash flow management [5][6]. Financial Summary - Revenue projections for 2025-2027 are expected to grow at rates of 3.3%, 3.3%, and 3.1%, reaching RMB 441.5 billion, RMB 455.9 billion, and RMB 470.0 billion respectively. Net profit is projected to grow at 2.7%, 3.0%, and 2.9% over the same period [6][7]. - The company reported a net profit of RMB 1.759 billion for 1H25, reflecting a year-on-year decrease of 13.7%, with a net profit margin of 8.5% [3][4]. - The financial outlook remains stable, with a projected P/E ratio of 21 times for 2026, supporting the target price of HK$20.40 [6][7].

Investment Rating - The report does not explicitly provide an investment rating for the restaurant industry Core Insights - The restaurant industry in China is facing unprecedented challenges due to economic adjustments and changes in consumer behavior, leading to a significant compression of profit margins for restaurant businesses [6][10] - The report highlights a dual trend of short-term consumption downgrade and long-term consumption upgrade, indicating a shift in consumer preferences towards personalized and diverse dining experiences [40][43] - The competitive landscape is evolving, with chain brands expanding rapidly while niche restaurants gain popularity among specific consumer groups, prompting businesses to enhance their core competencies [6][10] Summary by Sections Macroeconomic Background - Economic adjustments are ongoing, with incremental policy effects gradually becoming apparent [7] - In 2024, GDP growth is projected to slow to 5.0%, with retail sales growth significantly declining to 3.5% [10] - Restaurant revenue growth is expected to drop sharply from 20.4% in 2023 to 5.3% in 2024, reflecting a broader economic slowdown [10] Current State of the Restaurant Industry - The industry is experiencing a misalignment of supply and demand, leading to a "dark moment" for restaurants [20] - High-cost pressures from labor and rent are forcing businesses to focus on cost reduction and efficiency [32][34] - The average price of dining has decreased, with the overall dining price dropping from 43.2 yuan in 2022 to 39.8 yuan in 2024, a decline of 6.6% [29] Consumer Dynamics - There is a notable shift in consumer behavior from quality-focused to practical spending, with a significant impact on mid-income groups [40][43] - The average number of family members is decreasing, leading to a rise in dining out, which is expected to stabilize demand for essential and self-indulgent dining experiences [45] - Consumers are increasingly favoring unique dining experiences over traditional social dining, with a growing preference for small, niche restaurants [51][56] Trends in Restaurant Operations - Cost reduction and efficiency enhancement are becoming core operational goals amid economic pressures [60] - The report outlines a "5S principle" for cost reduction, emphasizing smaller store models and flexible staffing to lower operational costs [62][66] - Digital tools and flexible staffing models are being adopted to improve efficiency and reduce labor costs by 15% to 25% [70] Supply Chain Trends - The trend towards downstream chain and scale operations is driving increased specialization in upstream supply chains [92] - The report emphasizes the importance of integrating supply chains to ensure quality and stability in food supply, particularly as the market evolves [92]