By Harvest Capital

On January 16, 2024, Xiaocaiyuan (full name: Xiaocaiyuan International Holdings Limited), a portfolio company of Harvest Capital, officially submitted its prospectus to the Hong Kong Stock Exchange, seeking a Main Board listing.

Currently, Xiaocaiyuan operates 548 directly-managed restaurants. In the first three quarters of 2023, Xiaocaiyuan's revenue increased 41.6% from RMB 2.422 billion in the same period of 2022 to RMB 3.429 billion, while net profit surged 107.6% from RMB 207 million in the same period of 2022 to RMB 430 million. The net profit margin for the first three quarters of 2023 reached 12.5%.

According to Frost & Sullivan, based on restaurant revenue for the first three quarters of 2023, Xiaocaiyuan ranks first among all brands in China's mass-market affordable Chinese dining market with average spending between RMB 50-100.

Harvest Capital is Xiaocaiyuan's sole external institutional investor, having invested a total of RMB 500 million in the company. The net proceeds from this Xiaocaiyuan IPO will primarily be used to continuously expand the restaurant network to broaden geographic coverage and enhance market penetration; strengthen supply chain capabilities; upgrade intelligent equipment and digital systems to improve digitalization capabilities; and serve as working capital and general corporate purposes.

01：Directly-Operated Restaurants Nearly Double Over Three-Year Period

Xiaocaiyuan is a rapidly growing leader in mass-market affordable Chinese dining, ranking among the industry's top tier by both business scale and growth rate. With keen insight into and deep understanding of development trends in China's restaurant industry, the modernization and industrialization path of Chinese cuisine, and actual consumer needs, the company has strategically entered the high-potential mass-market affordable Chinese dining sector with forward-looking vision, fully serving the rapidly growing long-term demand among Chinese people for mass-market affordable dining.

Xiaocaiyuan adheres to a consumer-centric approach, with standardization as its foundation, digitalization as its driving force, and intelligence as its means, establishing itself as a widely recognized "family kitchen" for Chinese households.

As of January 11, 2024, Xiaocaiyuan operates 548 directly-managed restaurants across 119 cities in 12 provincial-level administrative regions in China. Through dish standardization (covering dish streamlining, ingredient standardization, and preparation process standardization), service standardization, training standardization, food safety and quality control standardization, and expansion standardization, the company has built a solid foundation for chain restaurant operations.

Over the past three years, when offline businesses frequently faced challenges, Xiaocaiyuan's directly-operated restaurants increased from 278 in 2021 to 548 currently, nearly doubling over three years. In 2021, 2022, and the first three quarters of 2023, Xiaocaiyuan operated a total of 512 restaurants, closing only 15.

In daily operations, Xiaocaiyuan places great emphasis on digitalization and intelligence, fully developing an IT system centered on data assets, creating an integrated online-offline business intelligence operating platform and smart restaurants. In recent years, the company has successively launched member systems, BI systems, business middleware systems, SAP systems, intelligent camera systems, POS systems, digital supply chain systems, and travel management systems, gradually achieving information system deployment for online business operations, user digitalization, operational digitalization, and supply chain digitalization.

China's economic and social development is undergoing complex and profound historic changes. The steady increase in urban residents' per capita disposable income with gradually moderating growth rates, rising urbanization rates, and demographic shifts favor the growth of the mass-market dining market. Against this backdrop, the rapidly developing mass-market affordable Chinese dining market caters to the rigid, growing demand among the public for "delicious yet affordable" dining, representing a massive market with enormous growth potential.

According to Frost & Sullivan, China's mass-market affordable Chinese dining market increased from RMB 2,807.1 billion in 2017 to RMB 3,024.4 billion in 2022 at a compound annual growth rate of 1.5%, and is projected to reach RMB 5,191.4 billion in 2027 at a compound annual growth rate of approximately 11.4%.

In 2021, 2022, and the first three quarters of 2023, Xiaocaiyuan's average dine-in spending per customer was RMB 66.1, RMB 65.8, and RMB 65.2 respectively, positioning the company squarely within this rapidly growing market. In the future, Xiaocaiyuan will deepen penetration in existing markets and expand operations into new markets.

02：Strong Operational and Financial Performance, Excellent Industry Standing

Xiaocaiyuan's performance during the track record period achieved rapid growth while maintaining profitability, exceeding industry levels.

Revenue: Despite the impact of COVID-19, Xiaocaiyuan's revenue grew from RMB 2.646 billion in 2021 to RMB 3.213 billion in 2022, and from RMB 2.422 billion in the first nine months of 2022 to RMB 3.429 billion in the first nine months of 2023. Revenue growth in the first nine months of 2023 reached 41.6% year-over-year.

Same-Store Sales Growth: Xiaocaiyuan's same-store sales increased 1.2% from 2021 to 2022, and 22.3% from the first nine months of 2022 to the first nine months of 2023.

Restaurant-Level Operating Profit Margin: In 2021, 2022, and the nine months ended September 30, 2023, Xiaocaiyuan recorded restaurant-level operating profit margins of 15.9%, 14.2%, and 20.9% respectively.

Strong Per-Square-Meter and Per-Employee Efficiency: Xiaocaiyuan's restaurant operational efficiency rebounded significantly post-pandemic. Daily sales per square meter increased from RMB 68.4 in the nine months ended September 30, 2022 to RMB 81 in the same period of 2023, an increase of 18.5%. Same-store daily sales per square meter increased from RMB 67 in the nine months ended September 30, 2022 to RMB 79.3 in the same period of 2023, an increase of 18.3%.

Monthly sales per employee increased from RMB 22,696 in the nine months ended September 30, 2022 to RMB 26,528 in the same period of 2023, an increase of 16.9%. Same-store monthly sales per employee increased from RMB 22,857 in the nine months ended September 30, 2022 to RMB 27,073 in the same period of 2023, an increase of 18.4%.

Profitability: Despite the impact of COVID-19, Xiaocaiyuan's net profit grew from RMB 227 million in 2021 to RMB 238 million in 2022, and surged from RMB 207 million in the first nine months of 2022 to RMB 430 million in the first nine months of 2023. Net profit growth in the first nine months of 2023 reached 107.6% year-over-year. According to the Frost & Sullivan report, this growth rate leads the industry.

03:Exploring Chinese Community Dining Market and Omnichannel Business Layout

Xiaocaiyuan exemplifies Harvest Capital's philosophy of "embracing everyday life and empowering people's livelihoods." Positioned as mass-market dining and community canteen, closely connected to people's daily lives, Xiaocaiyuan takes creating consumer value as its mission, insisting with craftsmanship on on-site preparation at restaurants, providing customers with fresh, delicious, healthy, hygienic, and affordable home-style dishes.

Building on Xiaocaiyuan's established position in the RMB 50-100 average spending mass-market affordable Chinese dining market, the company also plans to steadily expand into the RMB 0-50 average spending market.

According to Frost & Sullivan data, China's Chinese community dining market is projected to grow at a compound annual growth rate of 11.5% from 2022 to reach RMB 1,981.1 billion by 2027. Xiaocaiyuan plans to expand its community dining restaurant network in suitable residential communities and office buildings, serving nearby residents and office workers.

Furthermore, leveraging its restaurant network, standardized management system, supply chain management capabilities, and digitalization, Xiaocaiyuan has officially launched new retail operations, selling healthy food products, thereby creating an omnichannel business layout of "primarily offline dine-in + supplementary online delivery + offline new retail" in synchronized development.

In the future, Xiaocaiyuan's goal is to further develop into a world-class chain restaurant group with a modern scientific management system, deeply cultivating mass-market affordable Chinese dining, achieving "Xiaocaiyuan wherever there are Chinese people."

Mr. Alan Song, Founding Partner and Chairman of Harvest Capital, stated: "The future is no longer an era for businesspeople alone, but will enter an era that tests entrepreneurial capabilities. A brand's ceiling is the hearts of people. By steadfastly providing good products and services to consumers and the market, ordinary people will continue to support it long-term. We highly recognize Chairman Wang Shugao and his team. We believe that under their leadership, Xiaocaiyuan will lead the modernization transformation of Chinese dining, continuously empower people's livelihoods, create greater consumer value, and lead more Xiaocaiyuan team members toward common prosperity."