In the past few years, Chinese restaurant chain brands such as Green Tea Restaurant, Village Base, Lao Xiang Chicken, and Yang Guofu have submitted their applications to the Hong Kong Stock Exchange, but they have all failed so far. In this regard, Shen Meng, director of Xiangsong Capital, said that the fierce competition in the catering industry and the unstable yield make it difficult to attract the widespread attention and interest of investors, so the IPO valuation is low, the liquidity is poor, and it cannot even meet the basic requirements for listing.
However, this does not hinder the enthusiasm of Chinese catering companies to go public. Not long ago, the Chinese restaurant chain brand "Xiao Cai Yuan" officially submitted an application for listing on the Hong Kong Stock Exchange. It can be seen from the prospectus that the company, which has been established for less than 11 years, is mainly in the Yangtze River Delta region around its core, and as of January 11, 2024, its 548 stores are all directly operated stores.
And these more than 500 stores have attracted two good joint sponsors. It is understood that the joint sponsors of the IPO of Xiaocaiyuan are Huatai International and UBS Group, the former is at the top of the list of Chinese securities companies going overseas, and the latter is a veteran professional investment company in Europe. Generally speaking, there will be one sponsor for a company to go public, but there will be two sponsors if the offering is large or if the two sponsors have the advantages that the company needs.
But what exactly is the reason why these two brokerages are willing to become sponsors of small vegetable gardens together? At a time when consumer requirements are becoming more and more stringent, what are the chances of winning the Hui vegetables in the small vegetable garden?
In the past three years, the gross profit margin has exceeded 60%.
The valuation of a single store is about 100 million?
It is understood that Xiaocaiyuan is a Chinese restaurant chain brand, the first store opened in June 2013 in Tongling, Anhui Province, positioned in the public convenience of Chinese catering, specializing in Anhui cuisine, the unit price of customers between 50 yuan to 70 yuan. In addition to "Xiaocaiyuan", the company has also created other brands such as "Guandi", "Fuxinglou" and "Caishou", but the revenue of "Xiaocaiyuan" stores is more than 98%.
In fact, the expansion of small vegetable gardens was not very fast in the early days. Until 2018, the number of stores in Xiaocaiyuan exceeded 100. But in the following five years, the brand opened more than 400 stores. In the last year and the nine months ended 30 September 2023, 107, 48 and 79 new stores were opened respectively.
At the same time, Xiaocaiyuan also mentioned in the prospectus that the company will accelerate its expansion in the next three years. The company plans to open approximately 160, 190 and 230 new "small vegetable garden" stores in 2024, 2025 and 2026, respectively.
If calculated according to the above data, the number of new stores opened in the next three years will be comparable to the total number of stores in the past ten years. Behind this is the rapid growth of the performance of small vegetable gardens in the past few years.
In the first nine months of 2021, 2022 and 2023, the income of the small vegetable garden was 264.6 billion yuan, 321.3 billion yuan, 24RMB2.2 billion, respectively, recorded store-level operating margins. 2% and 209%, gross profit margin respectively. 6%。
In 2021 and 2022, the net profit of Xiaocai Garden was 22.7 billion yuan, 23.8 billion yuan, in the first nine months of 2023, its net profit figure is about 4300 million yuan, a year-on-year growth rate of 1076%。Its net profit margin in 2021 and 2022 were respectively. 4%, and in the first nine months of 2023, it increased to 125%。
Although the small vegetable garden has performed well in recent years, its debt problem should not be underestimated. According to the prospectus, in 2021, 2022 and the first nine months of 2023, the total current liabilities of Xiaocaiyuan will be 69.8 billion yuan, 58.3 billion yuan, 60.8 billion yuan, but the total current assets were 23 billion yuan, 35.1 billion yuan, 74.4 billion yuan. Among them, the net current liability assets in 2021 and 2022 were 46.8 billion and 23.1 billion yuan.
However, the small vegetable garden is still favored by capital. In March 2023, Jiahua Capital announced the completion of tens of millions of dollars in financing for Xiaocai Garden. At that time, Song Xiangqian, founding partner of Jiahua Capital, pointed out: "The future is no longer the era of businessmen, but will enter an era of entrepreneurial ability. The ceiling of the brand is the hearts of the people, and if we provide consumers with good products and services for the market, the people will pay for a long time. We highly recognize Chairman Wang Shugao and his team, and believe that under their leadership, Xiaocaiyuan will be able to lead the modernization of Chinese catering, continue to empower people's lives, create more consumer welfare, and lead more Xiaocaiyuan people to common prosperity. ”
In December 2023, Jiahua Capital once again pursued the small vegetable garden. According to China Net Finance and other reports, the cumulative investment amount of the two rounds reached 500 million yuan, and the shareholding ratio was about 701%。It is worth mentioning that this is the largest financing in the mass convenience catering market in recent years. After the completion of the financing, the market's valuation of Xiaocaiyuan once reached 50 billion yuan, and if calculated according to the number of its existing stores, its single store valuation is close to 100 million yuan.
For the use of funds, Xiaocaiyuan said that part of the funds will be used for store expansion, and the rest will be used to build the back-end of the enterprise, that is, the first chain and digital construction.
Although it has been blessed by capital, a "sword of Damocles" hangs over the head of the small vegetable garden. According to the prospectus, if Xiaocaiyuan fails to complete the filing with the China Securities Regulatory Commission or pass the hearing within the specified time, it needs to repurchase the shares held by Jiahua Capital. In addition, if the post-listing market value is less than 130% of the investor's post-investment valuation, Jiahua Capital has the right to require Xiaocaiyuan to issue new shares at a low price, the controlling shareholder to transfer shares free of charge or at nominal consideration, and cash compensation.
However, it is worth noting that as of the end of the third quarter of 2023, the cash and cash flow equivalents of Xiaocai Garden were only about 38.3 billion yuan, and as of November 30, 2023, this figure has dropped to about 35.3 billion yuan. 
In Shen Meng's view, the failure of listing will cause more pressure on the operating liquidity of enterprises, especially in areas such as the catering industry, which have higher requirements for operating liquidity, which will have a greater impact on business stability.
In addition, the small vegetable garden itself is also facing a lot of development difficulties.
The cost is high and the food safety problem is difficult to solve.
How does a small vegetable garden go to the "big world"?
Wang Shugao, the founder of Xiaocaiyuan, once publicly said, "We will never be open to joining, not advertising, no marketing, and winning by word of mouth." "In the prospectus, it can be seen that the more than 500 stores owned by Xiaocaiyuan are all directly operated stores, although revenue and profits are growing, but in 2021, 2022, and the first 9 months of 2023, the company's employee costs and financial costs are also growing.
Taking employee costs as an example, during the reporting period, the expenditure of small vegetable gardens was 83.2 billion yuan, 9700 million yuan, 100.8 billion yuan, accounting for the same period of revenue. 39%。
At the same time, according to the expansion plan, the brand plans to open another 580 stores in the next three years, focusing on the surrounding cities centered on first-tier and new first-tier cities, which also means that Xiaocaiyuan's new stores may usher in relatively high store leasing expenses.
In addition, Xiao Cai Yuan also mentioned in the prospectus that "since most of the store managers and chefs are promoted from the store level, there may not be enough experienced existing store employees to assist in opening new stores." Even if we are able to open new stores as planned, such new stores may not be profitable or achieve similar performance to our existing stores. Our current expansion plans include increasing our penetration in the markets where our existing stores are located. When we open new stores in existing geographic markets, the sales performance and footfall of our existing stores in close proximity to such new stores may decline due to potential cannibalization. ”
When the new problem has not been solved, the "hidden worries" of the small vegetable garden seem to be gradually emerging. For F&B brands, consumers as diners are particularly crucial. Although the performance of the small vegetable garden is growing, its turnover rate data has stagnated.
According to the prospectus, in 2021 and 2022, the turnover rate of the same store in the small vegetable garden will be 34 times a day, 29 times a day. In the first three quarters of 2023, the figure is still 34 days, the same as the overall level in 2021.
At a time when consumer enthusiasm seems to be "cooling down", food safety problems have also been exposed in small vegetable gardens. It is understood that on November 20, 2023, the Kunshan Municipal Administration for Market Regulation imposed an administrative penalty on the Kunshan Jingkai Wanda Store of Xiaocaiyuan (Suzhou) Catering Management Co., Ltd. The reason is that on June 27, 2023, the Kunshan Municipal Market Supervision and Administration Bureau commissioned Jiangsu Guoce Testing Technology to conduct a random inspection of the ginger of the unit.
According to the ginger inspection report No: CTST C202303021435F issued by Jiangsu National Testing Technology on July 21, 2023, after sampling inspection, the clothianidin project does not meet the requirements of GB2763-2021 "National Food Safety Standard Maximum Residue Limit of Pesticides in Food", and the inspection conclusion is unqualified, clothianidin residue, mg kg, standard index 02. The measured value is 034。
According to a report by China Quality News Network, from March to June 2023, investigators from China Quality News Network found in the back kitchens of many stores in Xiaocaiyuan that there were behaviors such as staff using the same waste grease bucket to hold stewed meat and garbage successively, placing egg liquid utensils on the garbage heap, grabbing rice to adjust the weight with bare hands when dividing packaging, and climbing on the workbench to cross the stir-fry area. The main stores involved in the incident are Xiaocaiyuan Nanjing Yuhua Hongyue City Store, Hangzhou Gongshu Wanda Store, Huaibei Aihai Store, and Sanhe Yanjiao Aeon Store.
Although Xiaocaiyuan won a valuation of 10 billion yuan and 500 million financing in only 11 years, for catering brands, consumer service and food safety are the top priorities, but at present, Xiaocaiyuan still has a long way to go.