The restaurant opts to go public despite profit loss during the epidemic, but an IPO might do little to help it recover
Green Tea Group (Chinese: 绿茶集团), a Chinese restaurant operator, passed the pre-listing review with the Hong Kong Stock Exchange’s Listing Committee on March 8. The company is scheduled to go public around the end of this month, planning to raise USD 150 million.
According to the updated prospectus, Green Tea posted a revenue of CNY 1.694 billion (USD 268.246 million) in the first nine months of 2021, up 58.25% over the same period of the previous year.
But the company’s road to a public offering was bumpy. As early as March 2021, the Hangzhou-based brand submitted its prospectus but failed to attract positive attention and didn’t update its prospectus as scheduled.
The company which specializes in Hangzhou-style cuisine, among other culinary delights, has been hit hard by the epidemic. It sustained a loss of CNY 55.262 million in 2020 and the revenue dropped 9.6% to CNY 1.57 billion.
Except for stores in Guangdong province, whose income jumped 8.7% year on year, those in other regions saw dwindling revenue in 2020.
The epidemic also damaged the company’s core competency of low meal cost. According to the prospectus, average dining costs per person were CNY 54.8, CNY 58.4, CNY 61.3, CNY 60.2 in 2018, 2019, 2020, and the first nine months of 2021.
“We give up profits for foot traffic, so restaurants like ours must pay attention to table turnover rate,” co-founder Wang Qinsong said.
But in the first nine months of 2021, the table turnover rate was 3.32 times per day, still below pre-pandemic levels. The figures were 3.48, 3.34, and 2.62 times per day from 2018 to 2020.
Besides the epidemic, the drop in turnover rate might also have resulted from growing competition in the catering industry.
Popular restaurant chains such as Xibei (Chinese: 西贝), which offers northwestern-style dishes rich in noodles, and Taier (Chinese: 太二), which sells fish fillets cooked with pickled vegetables, had more stores and higher revenue.
Other competitors that highlight Hangzhou cuisines include The Grandma’s (Chinese: 外婆家), Xinbailu (Chinese: 新白鹿), and Longtangli (Chinese: 弄堂里).
“It is unrealistic for Green Tea to break the bottleneck by going public and expanding,” said Zhu Danpeng, a food industry analyst. “Many Hong Kong-listed restaurants didn’t recover as expected, causing substantial fluctuations of stock prices. This will affect the market judgment of Green Tea.”
Established in 2004 as a mom-and-pop by the couple Wang Qinsong and Lu Changmei, Green Tea started as a homestay operator and opened the first eponymous restaurant in 2008. According to its latest prospectus, the restaurant chain had 236 restaurants covering 25 provinces and regions across China as of the latest practicable date.
The company also aims to open 75 to 100 stores each year between 2022 and 2024, after adding 59 in 2021. Store number rose from 107 in 2018 to 180 in 2020, at a compound annual growth rate of 28.3%.