To The Moon

Overview of Markets: Haidilao$HAIDILAO(06862)$  $Haidilao International Hldg Ltd(HDALF)$  , a leading Chinese hotpot chain, is focusing on expanding into mature overseas markets, particularly the U.S., as domestic spending declines. The broader Chinese restaurant market has faced challenges in recent years, with slower growth and shifting consumer behavior. Haidilao is attempting to counter these trends by targeting international growth, especially in regions with high potential like the U.S., Europe, and Southeast Asia.

International Growth Strategy: 

Haidilao's global expansion plans are ambitious, with the company set to open new stores in major U.S. cities such as New York and Los Angeles as early as next year. According to Terhai International Holdings CEO Yang Lijuan, the U.S. market holds the most potential globally. With restaurants in prime locations like London's Piccadilly, Dubai Mall, and Singapore's Marina Bay Sands, Haidilao has established itself as one of China's most internationally-minded food chains. The company is now eyeing further expansion into Europe, with potential new markets including Switzerland, Germany, Spain, and France.

Challenges in Domestic Markets: 

While Haidilao’s international business is growing, its domestic operations have faced difficulties. The company has slowed down its expansion in China after taking heavy losses during the pandemic. By mid-2024, Haidilao had closed 39 restaurants in Greater China, representing 3% of its total stores, as spending per customer continues to decline. This reflects a broader trend of Chinese consumers cutting back on discretionary spending, including dining out.

Targeting New Customer Demographics: 

Haidilao's international growth has so far been largely supported by overseas Chinese communities. However, in order to continue expanding abroad, the company will need to attract non-Chinese customers, especially those unfamiliar with hotpot cuisine. To achieve this, Haidilao is experimenting with new menu options tailored to local tastes, such as offering halal food in Southeast Asia to cater to Muslim populations.

Outlook and Insights: 

Haidilao's expansion into overseas markets presents both opportunities and risks. The company’s success will depend on its ability to attract a diverse customer base, adapt its menu offerings to local tastes, and establish a strong presence in competitive markets like the U.S. and Europe. The potential for growth in these markets is significant, but Haidilao will face challenges in balancing its domestic business performance with its international ambitions.

Conclusion: 

Investing in Haidilao stock hinges on its ability to navigate the slowing domestic market while capitalizing on international expansion. With plans to enter new territories and adapt its menu to local preferences, Haidilao could see substantial growth in mature overseas markets. However, the stock's performance will remain sensitive to challenges in the Chinese economy and the company’s ability to diversify its customer base abroad. Investors should monitor Haidilao’s international growth and its impact on overall profitability closely before making long-term commitments.