Guoquan’s growth goes into simmer mode post-Covid 

The home hotpot specialist, one of China’s leading ‘dine-at-home’ brands, has been approved for a Hong Kong IPO

Key Takeaways:  

• Guoquan Food returned to the black in the first four months of this year, earning a profit of nearly 120 million yuan 
• The dine-at-home family hotpot brand sharply expanded its network of retail stores during the pandemic, but is entering a slower growth phase as dining patterns return to normal 

By Lau Chi Hang

The pandemic was a challenging time for most caterers and restaurants, with the exception of companies serving the dine-at-home and delivery crowds. But now that daily life has returned to more normal patterns, those companies that briefly thrived could soon be finding themselves hungry for an era of earlier growth.  

Guoquan Food (Shanghai) Co. Ltd. falls into the category, specializing in ready-to-eat, ready-to-heat, ready-to-cook and prepared ingredients for eat-at-home hotpots that are a favorite among Chinese diners. The company made financial headlines this month when its plan to list in Hong Kong was officially approved by the stock exchange.

Founder Yang Mingchao was also recently in the spotlight this month when he had the honor of being a torchbearer at the 19th Asian Games in the Eastern coastal city of Hangzhou. 

After graduating from Zhengzhou University’s Chinese department in 1994, Yang was offered a government job, but was part of an early generation to eschew such security in favor of a try at entrepreneurship. He began by setting up a food stall in a bustling night market, where he quickly observed the increasing fondness for hotpots among Chinese consumers.

Sensing a business opportunity, Yang opened his own hot pot restaurant. But he soon realized that many others had the same idea, resulting in intense competition, and made a strategic shift to the upstream market for hotpot ingredients instead. He founded Guoquan in 2015, and opened his first hotpot ingredient supermarket two years later.  

A new home-dining experience 

Guoquan uses a franchise model, with a philosophy of “more, faster, better” to address consumer demand for convenient home dining products. Over 90% of its stores are operated by franchisees, though franchising fees aren’t the company’s main nourishment. Instead, it generates a significant portion of its revenue from sales of its own Guoquan Shihui line of products, which are featured prominently in all of its self-operated and franchised stores. 

Guoquan Shihui offers a wide range of items such as hotpot soup bases, seasonal vegetables, and specialty seafood, and has also taken measures to minimize the impact of seasonal fluctuations on its business. In currently offers eight major categories of products, including barbecue items and ready-to-cook meals, as well as drinks and snacks. 

While Guoquan’s early development was slower, it was given a golden opportunity during the pandemic, which resulted in higher levels of dining at home. Catering to surging demand, Guoquan’s stable of franchised stores surged from just 1,441 in January 2020 to 9,216 by the end of 2022. The figure stood at 9,844 stores in April of this year. 

Big institutional investors have also developed a taste for Guoquan’s business model. The company completed seven financing rounds in the three years from 2019 to 2022, raising an impressive 3 billion yuan ($413 million) over that time. Its notable investors include IDG Capital, Tiantu Investment, Moutai Fund, and CMB International, while its main supplier, Sanquan Food, also holds a stake. 

Before applying for its listing, Guoquan’s value reached as high as 13 billion yuan, according to data from corporate credit reporting agency Qichacha. 

Simmering growth 

According to its latest IPO prospectus filed last week, Guoquan achieved a remarkable turnaround on its bottom line in 2022, earning a 241 million yuan profit after previously experiencing losses. Despite a slight year-on-year revenue decline in the first four months of this year, the company recorded a profit of 120 million yuan for the period, again reversing a 25 million yuan loss last year. The company’s gross profit margin also increased by 7 percentage points to 21.1% over that period. 

While Guoquan’s bottom line has improved, we should also note some challenges it may face in a post-Covid China. Most notably, the company’s rapid revenue growth may have already peaked following strong gains in 2022 at the tail end of the pandemic. 

The company’s products are carefully prepared and packaged to ensure food safety and ease of use, and can be stored for a long time, making them suitable for long-term home storage. The variety of options available caters to diverse preferences, further enhancing their popularity.  

But eating habits have shifted notably with the fading of Covid and return to more normal conditions. As memories of the pandemic and fear of infection fade, people have started eating out once again. And in fact, many may even be eating out more than they once did after extended periods of stay-at-home dining. 

Low barriers to entry 

At the same time, competition in the prepared foods market is intensifying as more big industry players enter a sector with relatively low barriers to entry. After all, many of Guoquan’s specialties like hotpot soup base, meatballs, and sliced meats don’t require rocket science or extensive expertise to produce. 

As such, economies of scale are vital for anyone to succeed in the food ingredient industry, as that’s the main way such companies can gain significant competitive advantage. Apart from competing with products sold from brick-and-mortar supermarkets and traditional wet markets, Guoquan also vies with e-commerce platforms such as Alibaba’s Freshippo and online grocer Dingdong, which also offer a wide range of similar prepared hotpot ingredients. 

Guoquan’s franchise model has undoubtedly helped it to grow rapidly in a relatively short timeframe. But it’s important to realize that such a model also comes with certain risks due to a relative lack of control compared with directly operated stores. One such risk is ensuring food safety and maintaining consistent quality across all franchise locations. Additionally, effective inventory management becomes crucial to preventing issues such as overstocking or shortages.

Recent grievances on the Black Cat complaint page operated by news web portal Sina highlight issues Guoquan faces, including food quality and safety, store service attitude, and false advertising. Guoquan faces a daunting task in ensuring that each franchised store complies with the company’s requirements, even as such stores make up over 99% of its total. 

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