China’s Craving for Spicy Fish Creates an Improbable Fortune
China’s Craving for Spicy Fish Creates an Improbable Fortune
(Bloomberg) --
The timing of Jiumaojiu International Holdings Ltd.’s Hong Kong listing was hardly ideal.
The chain that operates Tai Er, known for its signature spicy fish dish, went public in mid-January, just before China imposed strict lockdowns and restaurants closed to halt the spread of Covid-19.
That didn’t hurt the stock. It has more than doubled since the initial public offering, with gains accelerating after the company reopened some eateries in mid-March. Chairman Guan Yihong’s 44% stake is now worth $1.1 billion, according to the Bloomberg Billionaires Index.
“They are certainly outperforming the industry and recovered quickly after store re-openings,” said Walter Woo, a CMB International analyst who credits the company’s affordable prices and reputation for hygiene.
Like many other restaurants in China, Jiumaojiu temporarily shut its eateries in January and only took delivery orders until it started gradually reopening its outlets. But the expansion plans for Tai Er, the company’s growth engine, remain on track, according to Woo. Jiumaojiu was targeting 80 new Tai Er restaurants this year and 100 next, Guan said in December.
Even during these remarkable times, with lockdowns across the globe and economic dislocation, fortunes are being created from Asia to the U.S. That’s thanks to surging IPOs and companies meeting the need for solutions to the pandemic, including Zoom Video Communications Inc., glove makers in Malaysia and pharmaceutical firms.
Guan, 50, started his first noodle restaurant in 1995 with only six tables and six employees in China’s southern Hainan province. He expanded the business to Guangzhou in 2003, later setting up the company’s headquarters there. Jiumaojiu now has more than 300 outlets, some franchised, with five brands catering to different palates -- from spicy Sichuan cuisine to Shaanxi delicacies and street food.
Tai Er, launched in 2015, was an instant hit, with hungry diners lining up for hours to get a taste of its Chinese sauerkraut fish, a traditional soup dish of Sichuan chili pepper and sauerkraut. In its IPO prospectus, Jiumaojiu said the chain has become the largest by revenue to offer the delicacy in China.
Jiumaojiu’s revenue grew 42% to 2.7 billion yuan ($381 million) last year, with 98% of it coming from Tai Er and its namesake chain, Jiu Mao Jiu, according to its annual report. Tai Er’s sales jumped 136%, and the company expects the market for sauerkraut fish restaurants in China to surge at a compound annual growth rate of 34% from 2018 through 2024.
Adapting the business model to market trends is what made Jiumaojiu successful, Guan said at a news conference in late December.
“We were just a street shop at the beginning,” he said, “and then we caught the opportunity of rapid growth of shopping malls in China: We expanded our outlet network quickly and standardized our operations.”
Then Covid-19 struck. Malls closed, and people stopped eating out. Now Jiumaojiu faces sluggish consumer demand and a resurgence of coronavirus cases. The company is unable to estimate the “full financial effect” of the pandemic on its results, a spokesperson said this week.
But Jiumaojiu has adapted. It said last month it would shut all outlets with relatively low customer traffic and cease to operate its Jiu Mao Jiu restaurants in Beijing, Tianjin and Wuhan. The move will cut costs and bolster profits, said CMB’s Woo, who recommends buying the stock.
So far, investors seem to agree -- Jiumaojiu shares rose to a record this week. They closed up 2.5% on Friday.
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